Balkan Yearbook of European and International Law 2020 [1st ed. 2021] 3030652947, 9783030652944

Table of contents :
Foreword by the Editors
Contents
Contributors
Part I: Special Topic: 40 Years of CISG
For an Independent Development of the CISG Beyond Article 7 (2): A Stocktake and a Proposal
1 Introduction
2 Dynamic Elements in Article 7 CISG and Their Limits
2.1 The Dynamic Interpretation of the Convention Pursuant to Article 7 (1) CISG
2.1.1 The Goals of Interpretation: Article 7 (1) CISG and Beyond
2.1.2 Dynamic Tools in the Methods of Interpretation of the CISG
2.1.2.1 The Application of the CISG in Its Systematic and Historic Context
2.1.2.2 The Importance of Underlying Comparative Analysis
2.2 Supplementation of the Convention Pursuant to Article 7 (2) CISG
2.2.1 The Mechanism of Gap Filling Under Article 7 (2) CISG
2.2.1.1 The Identification of Gaps Within the Scope of the Convention
2.2.1.2 Gap Filling by Analogy or General Principles
2.2.2 The Limits of Supplementation Pursuant to Article 7 (2) CISG
3 The Independent Development of the CISG Beyond Article 7 (2) CISG
3.1 The Independent Development of the CISG as a Distinct and Necessary Category Beyond Article 7 (2) CISG
3.1.1 Terminology of an Independent Development of the CISG
3.1.2 A Justification for the Recognition of the Independent Development of the CISG as a Distinct Methodological Category
3.1.2.1 The Case for a Distinct Category of Independent Development of the CISG
3.1.2.2 Potential Criticisms of the Independent Development of the Convention
3.2 A Proposal for Prerequisites and Criteria for an Independent Development of the CISG
3.2.1 Criteria for the Admissibility of an Independent Development
3.2.2 Substantive Criteria for an Independent Development
3.2.2.1 Potential Starting Points for the Development of Substantive Criteria
3.2.2.2 A Proposal of Substantive Criteria
4 Concluding Remarks
References
Forever Young: The Gap-Filling Mechanism of the CISG As a Factor of Its Modernization
1 Introduction
2 Method of Interpretation of Article 7(2) CISG
2.1 Use of Methodology Rooted in Domestic Law
2.2 Use of Methodology Rooted in International Law
2.3 Use of ``CISG-Specific´´ Methodology
3 The Elements Defining the Scope of Application of Article 7(2) CISG
3.1 Matters Governed by the Convention
3.2 Matters Not Expressly Settled in the Convention
4 The Gap-Filling Role of General Principles upon Which the CISG Is Based
5 The Use of the Rules of Private International Law
6 Conclusion
References
Anticipatory Breach of Contract in Uniform Contract Law: Overview of the Solution of the UN Convention on the International Sa...
1 Introduction
2 General Rules of the CISG on Anticipatory Breach
3 Future Fundamental Breach of Contract
4 The Debtor´s Refusal to Perform
5 Contract Avoidance: Declaration and Legal Effects
6 The UNIDROIT Principles and the PECL: Anticipatory Non-performance
7 Conclusion
References
CISG and Proactive Contracting: Suspending Performance Under Article 71 CISG in the Time of a Global Pandemic
1 Introduction
2 Suspending Performance Under Article 71 (1) and (3) CISG
2.1 Scope of the Right to Suspend Performance Under Article 71(1) CISG
2.2 Conditions for Exercising the Right to Suspend Performance Under Article 71(1) CISG
2.2.1 The Risk of Nonperformance Has to Occur After the Conclusion of the Contract
2.2.2 The Performance at Risk Must Concern a Substantial Part of a Party´s Obligation
2.2.3 Cause of the Uncertainty in Performance
2.3 Duty to Notify and Resuming Performance Under Article 71(3) CISG
3 Suspending Performance Under Article 71 (1) and (3) CISG as a Tool for Proactive Contracting
3.1 Proactive Contracting: Transforming Contracts to Tools of Competitive Advantage
3.2 Proactive Use of Article 71 (1) and (3) CISG
3.2.1 Proactive Use of Article 71 CISG in Addressing the Risk of Nonperformance
3.2.2 Proactive Use of Article 71 CISG in Addressing the Risk of Lack of Adaptability
4 Conclusion
References
COVID-19 in the Context of the CISG: Reconsidering the Concept of Hardship and Force Majeure
1 Introduction
2 Force Majeure and Hardship in the Context of Article 79 of the CISG
3 Applying Article 79 of the CISG in the COVID-19 Situations
4 Conclusion: Force Majeure and Other Contractual Clauses in the Context of COVID-19
References
Part II: European Law
The Western Balkans on the Way to the EU: Revisiting EU Conditionality
1 Introduction
2 Development of the EU and Western Balkan Relations After the Dissolution of the Former Yugoslavia
2.1 A Candy for Peace at Home: Trading Economic Incentives for the Consolidation of Peace, Democracy and Human Rights
2.2 The EU Pulls Its Joker Card: The Promise of Full Membership
2.2.1 The Stability Pact for South-Eastern Europe
2.2.2 The EU Stabilisation and Association Process
2.2.3 European Partnerships
2.2.4 Moving Towards the EU Accession
3 The Evolution of EU Accession Conditionality: Climbing Up the Pyramid
3.1 Article 49 of the Treaty on European Union (TEU)
3.2 Copenhagen Criteria
3.3 Specific Conditions Imposed on the WB Countries
3.3.1 Regional Cooperation Condition
3.3.2 Protection of Minorities
3.3.3 War Crimes Conditionality
3.3.4 Country-Specific Conditions
4 Perfect on Paper But Less so in Reality: Why EU Accession Conditionality Does Not Produce Expected Results of Genuine Transf...
4.1 State Capture?
4.2 Volatile Support for EU Integration
4.3 Credibility of Future Accession
4.4 Prioritisation in EU Conditionality Policy and the Resulting Centre-Periphery Dilemma
4.5 Political Will and Compliance Costs
4.6 Economic Considerations
5 Concluding Remarks
References
The Story of the Civil Supervisor: A Missed Opportunity to Strengthen Civil Control of Public Procurement in the Republic of S...
1 Introduction
2 Civil Society as the Integrity Watchdog in Public Procurement
2.1 The Challenges of Civil Control of Public Procurement
2.2 Best Practices in Comparative Law
3 The Civil Supervisor: (In)efficiency of Civil Control in Serbian Public Procurement Law
3.1 A Critical Overview of the Legal Framework
3.1.1 Who May Be Appointed as a Civil Supervisor?
3.1.2 Public Procurement Procedures Monitored by the Civil Supervisor
3.1.3 The Appointment of Civil Supervisors
3.1.4 The Monitoring Process: Work Methods and the Right to Remuneration
3.1.5 Report of the Civil Supervisor
3.2 Practical Experiences
4 The Way Forward: Prospects for Future Civil Society Participation in the Serbian Public Procurement System
5 Concluding Remarks
References
Employment Contracts and the Law Applicable to the Right to a Patent: Czech Considerations
1 Introduction
2 Employment Contracts and the Law Applicable to the Right to a Patent
2.1 International Conventions
2.2 Rome I Regulation
2.3 Regulation of the Employment Contracts Under the Rome I Regulation
2.4 Employee Inventions and the Law of the Protecting Country (Lex Loci Protectionis)
3 Conclusions
References
Part III: International Law
Recognition and Enforcement of Foreign Judgments in the Field of Bilateral Conventions of Greece with Balkan States
1 Introduction
2 The Treatment of Bilateral Conventions in the Greek Legal Order
3 The Bilateral Conventions of Greece with Balkan States
3.1 Albania
3.1.1 General Remarks
3.1.2 The Relevant Provisions
3.1.3 Case Law
3.2 Bulgaria
3.2.1 General Remarks
3.2.2 The Relevant Provisions
3.2.3 Case Law
3.3 Romania
3.3.1 General Remarks
3.3.2 The Relevant Provisions
3.3.3 Case Law
3.4 Ex-Yugoslavia and Successor States
3.4.1 General Remarks
3.4.2 The Relevant Provisions
3.4.3 Case Law
4 Conditions for Recognition and Enforcement
4.1 Finality
4.2 Jurisdiction
4.3 Due Process
4.4 Irreconcilable Judgments
4.5 Public Policy
5 Conclusion
References
Holding All the Aces? Hate Speech: Features and Suppression in Croatia
1 Rocking the Boat of Freedom of Expression
2 Freedom of Expression and Hate Speech Suppression in Croatia: Standards, Provisions and Effects
3 Discovering (New) Hate Speech Features and Insights?
4 Tilting at Hate Speech Windmills or What Lies Ahead?
References
Journals and Articles
Books and Chapters
Online Publications
Acts
Case Law
The Challenges of the World Health Organization: Lessons from the Outbreak of COVID-19
1 Introduction
2 WHO´s Limited Legal Arsenal to Fight Against COVID-19
3 WHO´s Financial Deficit and Its Impacts on the Response to COVID-19
4 The Systematic Violation of WHO´s Rules and Recommendations During the COVID-19 Pandemic
5 Conclusion
References
Sacrificing Privacy in the Fight Against Pandemics: How Far Is Too Far? Examples from Bosnia and Herzegovina and Montenegro
1 Introduction
2 Measures Undertaken by BandH and MN
3 Character or the Measures
4 Requirement of ``Accordance with Law´´ and ``Legitimate Aim´´
5 Necessary in a Democratic Society
5.1 Measures Are Ineffective
5.2 The Measures Create Opportunity for Abuse
5.3 Less Intrusive Measures Had Been Available
6 Publishing Lists as a Right to Receive Information
7 Conclusion
References

Citation preview

Zlatan Meškić Ivana Kunda Dušan V. Popović Enis Omerović Editors

Balkan Yearbook of European and International Law 2020

Balkan Yearbook of European and International Law Volume 2020

Series Editors Zlatan Meškić, College of Law, Prince Sultan University, Riyadh, Saudi Arabia Ivana Kunda, Faculty of Law, University of Rijeka, Rijeka, Croatia Dušan V. Popović, Faculty of Law, University of Belgrade, Belgrade, Serbia Enis Omerović, Faculty of Law, University of Zenica, Zenica, Bosnia and Herzegovina Advisory Editors Maria Caterina Baruffi, Faculty of Law, University of Verona, Verona, Italy Enes Bikić, Faculty of Law, University of Zenica, Zenica, Bosnia and Herzegovina Andra Cotiga-Raccah, Faculty of Law, Université Catholique de Lille, Lille, France Vesna Crnić-Grotić, Faculty of Law, University of Rijeka, Rijeka, Croatia Bojana Čučković, Faculty of Law, University of Belgrade, Belgrade, Serbia Toni Deskoski, Faculty of Law, Saints Cyril and Methodius University, Skopje, North Macedonia Slavko Đorđević, Faculty of Law, University of Kragujevac, Kragujevac, Serbia Sandra Fabijanić Gagro, Faculty of Law, University of Rijeka, Rijeka, Croatia Mareike Fröhlich, Europa-Institut, Saarland University, Saarbrücken, Germany Ivana Jelić, Faculty of Law, University of Montenegro, Podgorica, Montenegro Marija Karanikić Mirić, Faculty of Law, University of Belgrade, Belgrade, Serbia Marko Kmezić, Centre for Southeast European Studies, University of Graz, Graz, Austria Krystyna Kowalik-Bańczyk, Institute of Law Studies, Polish Academy of Sciences, Warsaw, Poland Vesna Rijavec, Faculty of Law, University of Maribor, Maribor, Slovenia

Balkans Yearbook of European and International Law publishes peer-reviewed scholarly articles, notes, comments and book reviews on private and public European and International Law. The yearbook contains summaries and analyses of recent decisions by national and international courts and arbitral or other tribunals. The yearbook has one section with a special hot topic or focus as well as sections about European and international law in each volume. Moreover, it presents book reviews to recent publications from the region or with a major impact for the region. The yearbook focuses on recent developments of European and International Law and presents a forum for scholarly discourse on European and International Law from the perspective of the region of South-East Europe. However, the publication is not exclusive in that regard: contributions from the perspective of the wider world are also strongly encouraged and welcomed.

More information about this series at http://www.springer.com/series/16247

Zlatan Meškić • Ivana Kunda • Dušan V. Popović • Enis Omerović Editors

Balkan Yearbook of European and International Law 2020

Editors Zlatan Meškić College of Law Prince Sultan University Riyadh, Saudi Arabia

Ivana Kunda Faculty of Law University of Rijeka Rijeka, Croatia

Dušan V. Popović Faculty of Law University of Belgrade Belgrad, Serbia

Enis Omerović Faculty of Law University of Zenica Zenica, Bosnia and Herzegovina

ISSN 2524-8715 ISSN 2524-8723 (electronic) Balkan Yearbook of European and International Law ISBN 978-3-030-65294-4 ISBN 978-3-030-65295-1 (eBook) https://doi.org/10.1007/978-3-030-65295-1 © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Switzerland AG. The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

Foreword by the Editors

The legal systems of Southeast Europe are in transition for over three decades. Following the profound political and economic changes in the early 1990s, they took their own ways of development, sharing not only their legal history but also the continuous influences deriving from the European and international law. The intensity by which EU law affects the regional developments is very strong in all national legal systems of Southeast Europe, while the variances depend largely on the progress each country has made towards the EU membership. In addition, legal obligations under international law are continuous challenges for the countries in transition. The Balkan Yearbook of European and International Law (BYEIL) aims at providing insights into recent developments in European and international law and presents a forum for scholarly discourse on these areas of law from the perspective of Southeast Europe. While the BYEIL’s focus is on the Southeast European region, its scope is not limited to that region and contributions concerning the issues in European or international law in general are welcomed as well. This policy is reflected in the contents of the first issue of the BYEIL. Besides these two sections, each issue of the BYEIL is devoted to a particular topic. The second issue of the BYEIL is devoted in particular to the celebration of 40 years of CISG, the most important convention on sales law, not just in Southeast Europe. The papers published in the permanent sections on European law and international law explore contemporary challenges in public and private law disciplines putting some old concepts in the new perspectives. Zlatan Meškić Ivana Kunda Dušan V. Popović Enis Omerović

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Contents

Part I

Special Topic: 40 Years of CISG

For an Independent Development of the CISG Beyond Article 7 (2): A Stocktake and a Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ben Köhler

3

Forever Young: The Gap-Filling Mechanism of the CISG As a Factor of Its Modernization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Marko Jovanović

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Anticipatory Breach of Contract in Uniform Contract Law: Overview of the Solution of the UN Convention on the International Sale of Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Jelena S. Perović Vujačić CISG and Proactive Contracting: Suspending Performance Under Article 71 CISG in the Time of a Global Pandemic . . . . . . . . . . . . . . . . . Nevena Jevremović

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COVID-19 in the Context of the CISG: Reconsidering the Concept of Hardship and Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 Lok Kan So, Poomintr Sooksripaisarnkit, and Sai Ramani Garimella Part II

European Law

The Western Balkans on the Way to the EU: Revisiting EU Conditionality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 Agne Limante The Story of the Civil Supervisor: A Missed Opportunity to Strengthen Civil Control of Public Procurement in the Republic of Serbia . . . . . . . . 147 Bojana Todorović

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Contents

Employment Contracts and the Law Applicable to the Right to a Patent: Czech Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177 Pavel Koukal, Tereza Kyselovská, and Zuzana Vlachová Part III

International Law

Recognition and Enforcement of Foreign Judgments in the Field of Bilateral Conventions of Greece with Balkan States . . . . . . . . . . . . . . 201 Apostolos Anthimos Holding All the Aces? Hate Speech: Features and Suppression in Croatia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225 Barbara Herceg Pakšić The Challenges of the World Health Organization: Lessons from the Outbreak of COVID-19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249 Virdzhiniya Petrova Georgieva Sacrificing Privacy in the Fight Against Pandemics: How Far Is Too Far? Examples from Bosnia and Herzegovina and Montenegro . . . 277 Nasir Muftić and Tahir Herenda

Contributors

Apostolos Anthimos European University Cyprus, Department of Greek Law, Nicosia, Cyprus Sai Ramani Garimella Faculty of Legal Studies, South Asian University, New Delhi, India Virdzhiniya Petrova Georgieva National Autonomous University of Mexico, Mexico City, Mexico Barbara Herceg Pakšić Faculty of Law, University of Josip Juraj Strossmayer, Osijek, Croatia Tahir Herenda University of Sarajevo, Faculty of Law, Sarajevo, Bosnia and Herzegovina Nevena Jevremović University of Zenica, Faculty of Law, Zenica, Bosnia and Herzegovina Marko Jovanović University of Belgrade, Faculty of Law, Belgrade, Serbia Ben Köhler Max Planck Institute for Comparative and International Private Law, Hamburg, Germany Pavel Koukal Faculty of Law, Masaryk University, Brno, Czech Republic Tereza Kyselovská Faculty of Law, Masaryk University, Brno, Czech Republic Agne Limante Law Institute of Lithuania, Vilnius, Lithuania Nasir Muftić University of Sarajevo, Faculty of Law, Sarajevo, Bosnia and Herzegovina Jelena S. Perović Vujačić University of Belgrade, Faculty of Economics, Belgrade, Serbia Lok Kan So School of Business, Singapore University of Social Sciences, Singapore, Singapore ix

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Contributors

Poomintr Sooksripaisarnkit Australian Maritime College, University of Tasmania, Launceston, TAS, Australia Bojana Todorović University of Belgrade, Faculty of Law, Belgrade, Serbia Zuzana Vlachová Faculty of Law, Masaryk University, Brno, Czech Republic

Part I

Special Topic: 40 Years of CISG

For an Independent Development of the CISG Beyond Article 7 (2): A Stocktake and a Proposal Ben Köhler

Contents 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Dynamic Elements in Article 7 CISG and Their Limits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 The Dynamic Interpretation of the Convention Pursuant to Article 7 (1) CISG . . . . . 2.2 Supplementation of the Convention Pursuant to Article 7 (2) CISG . . . . . . . . . . . . . . . . . 3 The Independent Development of the CISG Beyond Article 7 (2) CISG . . . . . . . . . . . . . . . . . . . 3.1 The Independent Development of the CISG as a Distinct and Necessary Category Beyond Article 7 (2) CISG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 A Proposal for Prerequisites and Criteria for an Independent Development of the CISG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Concluding Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3 6 6 12 18 18 26 35 35

1 Introduction The 40th anniversary of the CISG’s adoption in 1980 is an occasion for celebration and also for reflection. Forty years may not seem much compared to some of the European codifications such as the French Code civil with its 216 years or the German Bürgerliches Gesetzbuch (BGB) with its 120 years. It is, however, a lot considering, on the one hand, the significant changes in the reality of international commerce and, on the other hand, that the text of the CISG has remained unchanged over these years. Despite some calls for reform or even a new convention,1 the CISG

1

Tripodi (2016), p. 158.

B. Köhler (*) Max Planck Institute for Comparative and International Private Law, Hamburg, Germany e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 Z. Meškić et al. (eds.), Balkan Yearbook of European and International Law 2020, Balkan Yearbook of European and International Law (2021) 2020: 3–40, https://doi.org/10.1007/16247_2020_11, Published online: 14 January 2021

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B. Köhler

has stood the test of time well. It still attracts new Contracting States2 and still inspires national legislators in their private law reforms.3 While there is thus little reason for a fundamental critique, the Convention nevertheless shows some signs of its age:4 it contains no rules on electronic communication, intangible assets, the inclusion of standard terms or the consequences of hardship. Its concepts generally reflect a focus on one-off sales contracts rather than modern integrated supply chains or complex cooperation. There is thus some need for an update of the CISG’s provisions.5 Unlike more recent private law conventions,6 the CISG does not provide rules for its own review or amendment by a (qualified) majority vote. A reform of the CISG would thus require all of the 94 Contracting States to negotiate and agree upon the amendments.7 While theoretically possible, it is practically inconceivable that States would find it worthwhile to commit the substantial political and economic resources to start such a costly procedure, the success of which would be uncertain at best.8 Individual action by Contracting States through their national legislatures, though perhaps legally possible under national constitutional law, would not only constitute a violation of the Contracting State’s public international law obligations under the CISG but also frustrate uniformity and trust and, thereby, erode the very basis of the Convention. Therefore, it is for courts and scholars to further develop the Convention and to save it from ossification.9 The main tool for this enterprise is Article 7 of the CISG. Article 7 CISG provides the goals for the interpretation of the CISG in its paragraph 1 and offers a gap-filling mechanism for questions within the scope of the CISG that are not expressly settled by its provisions in its paragraph 2. Much has been written on the role and application of Article 7 CISG.10 Courts also regularly cite Article 7 (1) CISG and the need for international uniformity when referring to foreign case law or scholarship.11 The overall impression is thus that the system is working surprisingly well, given that there is no international tribunal or interpretative body vested with the last word on the interpretation of the Convention. Nevertheless, in the last years, some difficult issues have given rise to international controversy. One of the most notable problems 2 See, for the current status of the Convention, UNCITRAL, CISG, Status, https://uncitral.un.org/en/ texts/salegoods/conventions/sale_of_goods/cisg/status (31.12.2020). 3 See, for an overview, Schroeter (2017a), p. 68. 4 See Janssen and Ahuja (2020), p. 2; Tripodi (2016), pp. 33 ff. 5 For a comprehensive discussion, see Tripodi (2016), pp. 33 ff. 6 See, for example, Convention on International Interests in Mobile Equipment (Cape Town Convention, 2001), Article 61 (3), providing for an amendment by qualified majority; see also UN Convention on International Settlement Agreements Resulting from Mediation (Singapore, 2018), Article 15 (2), providing for an amendment by a qualified majority as a means of last resort. 7 Gruber (2003), p. 107; Schroeter (2017a), pp. 32 and 69 f. 8 Schroeter (2017a), pp. 69 f. 9 Schroeter (2017a), p. 70. 10 See Janssen and Meyer (2009); see, for a comprehensive discussion of international uniformity, Andersen (2007). 11 See, for a recent example, Bundesgericht, 28.5.2019, IHR 2019, 236 ff.

For an Independent Development of the CISG Beyond Article 7 (2): A Stocktake. . .

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concerns the consequences of hardship, on which the Convention is silent. Very different solutions have been presented, but no consensus seems to emerge.12 Another difficult question relates to the conflicts between competing sets of standard terms. Some courts and authors gravitate towards the so-called knock-out rule,13 while others prefer the theory of the last word that seems to follow from Article 19 CISG.14 The common element to these questions appears to be that the CISG not only lacks specific rules on these issues but also does not seem to provide general principles that exhaustively settle the matter in one way or the other. Rather than simply extending a provision of the Convention by analogy or citing a general principle, solving these questions requires a complex solution that balances different interests and principles. In so far as the CISG does not offer sufficient guidance in its general principles as to the balancing of the competing interests, it may be tempting to resort to the applicable domestic law pursuant to Article 7 (2) CISG. Such resort to national law in core questions of sales law will, however, over time deprive the CISG of its value as a text of uniform law and undo the benefits of unification.15 It is therefore of paramount importance that the CISG is further developed from within and that, at the same time, the developed solutions are acceptable in most Contracting States. This exercise of testing the boundaries of the Convention while preserving uniformity has been fittingly described as ‘walking the tightrope’.16 It is the purpose of this contribution to propose a methodological framework for these difficult questions that fall in the twilight zone between the CISG and the applicable domestic law under Article 7 (2) CISG. This paper argues that, while Article 7 CISG is an effective instrument to settle most new questions within the CISG’s scope, one has to go beyond the mechanisms expressly set out in Article 7 CISG to tackle the most difficult questions that the drafters of the CISG could not anticipate more than 40 years ago. This contribution thus aims to outline the tools for a dynamic interpretation of the CISG that are provided by Article 7 CISG and will, at the same time, attempt to demonstrate that one must go beyond the instruments of Article 7 CISG to ensure that the CISG remains apt to deal with contemporaneous legal problems yet without compromising the international uniformity of its application pursuant to Article 7 (1) CISG. In the first part, the paper will start with the mechanisms for a dynamic interpretation and development in Article 7 CISG (Sect. 2), where it will first address the interpretation under Article 7 (1) CISG (Sect. 2.1) before turning to the supplementation pursuant to Article 7 (2) CISG (Sect. 2.2). It will then, in the second part, argue that an additional category of an independent development of the CISG should be

12

See, for an overview of the different positions, Atamer in Kröll et al. (2018), Article 79, para. 83 ff. 13 See, for a detailed explanation and with further references, Schroeter in Schlechtriem et al. (2019), Article 19, para. 80. 14 See, with further references, Ferrari in Kröll et al. (2018), Article 19, para. 15. 15 Schwenzer in Schlechtriem et al. (2019), Einleitung, sub III.2. 16 Lookofsky (2005–2006), pp. 87 and 105.

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recognised (Sect. 3), starting with a justification for a distinct methodological category beyond Article 7 (2) CISG (Sect. 3.1), followed by a proposal for its prerequisites and substantive criteria (Sect. 3.2).

2 Dynamic Elements in Article 7 CISG and Their Limits New problems in the application of the Convention can be addressed by a dynamic interpretation of the CISG’s provisions (Sect. 2.1) as well as by a supplementation via its general principles pursuant to Article 7 (2) CISG (Sect. 2.2).

2.1

The Dynamic Interpretation of the Convention Pursuant to Article 7 (1) CISG

The Convention stipulates certain goals for the interpretation of the Convention (Sect. 2.1.1) without specifying how these goals should be achieved, i.e. the methods of interpretation (Sect. 2.1.2).17

2.1.1

The Goals of Interpretation: Article 7 (1) CISG and Beyond

The Convention stipulates certain goals that, while not specifically addressing the need to keep the Convention up to date, may facilitate or legitimise dynamic interpretations. Pursuant to Article 7 (1) CISG, in the interpretation of the Convention, regard is to be had to its international character, the need to promote uniformity and the observance of good faith in international trade. The provision thus calls for an autonomous interpretation without recourse to domestic law18 that is informed by foreign decisions from other Contracting States.19 While foreign decisions do not have binding authority,20 courts should consider them carefully in order to avoid

17

Schroeter (2017a), p. 48. Bundesgerichtshof, 2.3.2005, IHR 2005, 158; Oberster Gerichtshof, 23.5.2005, IHR 2005, 165; Ferrari (2013), p. 140. 19 See, for a comprehensive discussion, Andersen (2007). 20 Bundesgericht, 2.4.2015 (2015) IHR 250, 257; Andersen (2007), p. 50; Bridge (2017a), para. 10.40; Ferrari in Schlechtriem et al. (2019), Article 7, para. 22; Gruber in Säcker et al. (2019), Article 7, para. 46; Köhler (2003), p. 22; Magnus (2009), p. 40; Perales Viscasillas in Kröll et al. (2018), Article 7, para. 45; Schlechtriem and Schroeter (2016), p. 51; see for a different view: Bonell in Bianca and Bonell (1987), no. 3.1.3: “If there is already a body of international case law, it may well be accepted as a sort of binding precedent”; DiMatteo (1997), p. 93: “informal system of stare decisis”; Mazzacano (2005–2006), p. 89: “ipso facto stare decisis”. 18

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conflicting interpretations.21 If confronted with a question of first impression, adjudicators should adopt solutions that are likely to be followed in other Contracting States.22 Although uniformity will in many cases be served by references to the travaux préparatoires, Article 7 (1) CISG allows for updated or dynamic interpretations if the autonomy and uniformity can be preserved by other means. The need for uniformity may even require a detachment from the original understanding of the text of the Convention. The judicial dialogue envisaged by Article 7 (1) CISG may, in such cases, help to integrate innovative solutions. A novel interpretation adopted by one court or tribunal will, in the best-case scenario, spark an international conversation that will ultimately result in an internationally settled solution that provides legal certainty to the parties. The international dialogue of the courts (and arbitral tribunals) under Article 7 (1) CISG may therefore open the door for dynamic interpretations of the CISG. A substantive principle that could allow for a dynamic understanding of the Convention is the need to promote the observance of good faith in international trade pursuant to Article 7 (1) CISG. Good faith is a notoriously vague and internationally controversial concept.23 Not only its function in the system of the Convention remains highly disputed24 but also its meaning.25 Despite, or because of, its vagueness, it is sometimes relied upon in an attempt to introduce contemporary moral or ethical considerations into the Convention.26 Other authors restrict the role of good faith to the different manifestations of principle in the Convention, e.g. the prohibition of contradictory behaviour or abuse of rights,27 while some doubt that the term can be internationally defined at all.28 Although this ambiguity has not prevented courts from invoking good faith in order to justify novel solutions within the Convention,29 the above discussion demonstrates how difficult it can be to rely

21 Andersen (2007), pp. 52 ff.; Köhler (2003), p. 22; Magnus (2009), p. 42; Schroeter (2017a), pp. 32 and 49; Spagnolo (2009), p. 165. 22 Ferrari in Schlechtriem et al. (2019), Article 7, para. 16; Gruber (2003), p. 106; Magnus (2018), Article 7, para. 20. 23 Bridge (2017a), para. 10.42. 24 Bridge (2017b), p. 115; Farnsworth (1995), p. 57; Schroeter (2017b), pp. 25 ff.; see, for a comprehensive overview of the different positions, Ferrari (2013), pp. 152 ff. 25 See, for controversial discussions concerning hardship, Bridge (2017b), p. 110; Flechtner (2014), pp. 200 f. 26 Perales Viscasillas in Kröll et al. (2018), Article 7, para. 23. 27 Magnus (2018), Article 7, para. 25, 43. 28 Andersen (2014), pp. 310 and 311; Zeller and Andersen (2016), pp. 1 and 3. 29 Bundesgerichtshof, 31.10.2001, BGHZ 149, 113, 118 f.; Thüringer Oberlandesgericht, 29.5.2015, IHR 2016, 194, 198; OLG Celle, 24.7.2009, CISG-online n 1906; Renard Constructions v. Minister for Public Works, Court of Appeal of New South Wales, 12.3.1992, CISG-online n 44; see also UNCITRAL, Digest, Ed. 2016, Article 7, para. 13.

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on good faith in order to develop internationally acceptable solutions.30 The reference to good faith can only carry weight if the specific emanation of the principle is internationally accepted, which will rarely be the case. Otherwise, the reference to good faith is an unproven claim rather than an argument. An all too emphatic reliance of good faith may even stifle a debate as the argument may be (mis-) perceived as a cover for a subjective preference or a position influenced by a certain national or regional tradition.31 In addition to those specifically stated in Article 7 (1) CISG, some other interpretative goals are also recognised.32 The first hint outside of Article 7 (1) CISG is to be found in the preamble, stipulating that the CISG should contribute to ‘the removal of legal barriers in international trade and promote the development of international trade’. The significance of the preamble for the interpretation of the Convention is controversial. While some consider it a mere statement between Contracting States without bearing on the interpretation of the CISG’s substantive provisions,33 others find it helpful to supplement the interpretative guidelines in Article 7 (1) CISG.34 Admittedly, the preamble was included into the CISG at a very late stage without substantial discussion, which may cast doubt on its relevance for the interpretation of the Convention.35 It is, however, a textual manifestation of the Contracting States’ reasons for the elaboration and adoption of the CISG as a text of uniform law and, therefore, can be very useful in order to complement and contextualise the goals listed in Article 7 (1) CISG.36 This is particularly relevant since the ‘legal barriers’ mentioned in the preamble may change over the course of the lifespan of the Convention, offering a first indication of a need for a dynamic understanding of the Convention.37 The significance of the preamble is also supported by Article 31 (2) of the Vienna Convention on the Law of Treaties that expressly considers the preamble to be part of the text of a treaty.38 The preamble can therefore be used to supplement the interpretative goals of Article 7 (1) CISG. More generally, it reminds the reader that the Convention and its application are not ends to themselves but

30 Bridge (2017b), p. 115: “(T)he standard of discussion of good faith in the case law is profoundly disappointing”; but see, with a different assessment, Janssen and Ahuja (2020), p. 7: “fairly clear shape”. 31 Bridge (2017b), p. 115. 32 Gruber (2003), pp. 104 f.; see also Kropholler (1975), pp. 259 f. 33 Honnold and Flechtner (2009), para. 475; Schlechtriem (1986), p. 38, Fn. 111. 34 Ferrari in Schlechtriem et al. (2019), Preamble, para. 3; Gruber (2003), p. 179; Perales Viscasillas in Kröll et al. (2018), Article 7, para. 43; Schwenzer and Hachem in Schlechtriem and Schwenzer (2016), Preamble, para. 3. 35 Honnold and Flechtner (2009), para. 475; Schroeter (2017b), p. 18. 36 Ferrari in Schlechtriem et al. (2019), Preamble, para. 3; Gruber (2003), p. 179; Perales Viscasillas in Kröll et al. (2018), Article 7, para. 43; Schwenzer and Hachem in Schlechtriem and Schwenzer (2016), Preamble, para. 3. 37 Perales Viscasillas in Kröll et al. (2018), Article 7, para. 43. 38 Magnus (2018), Preamble, para. 7; Schwenzer and Hachem in Schlechtriem and Schwenzer (2016), Preamble, para. 3; Dörr in Dörr and Schmalenbach (2018), Art. 31, para. 49.

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rather serve a purpose, that is providing international trade with a viable body of rules for the effective governance of international sales contracts.

2.1.2

Dynamic Tools in the Methods of Interpretation of the CISG

Contrary to the goals of interpretation, the CISG does not prescribe any methods of interpretation.39 While some argue that the matter is thus left to national law,40 the majority view seems to be that an autonomous interpretation pursuant to Article 7 (1) CISG can only be achieved by the recognition of autonomous methods of interpretation.41 Despite certain tendencies of convergence of national methods,42 there still appear to be important differences in principle as well as in the details of the methods of interpretation43 that could frustrate an internationally uniform interpretation both regarding the results and the reasoning. A consensus now seems to have emerged regarding the most common methods of interpretation, i.e. the interpretation of the wording of the CISG’s provisions in their systematic and historic context (Sect. 2.1.2.1). The role of comparative analysis remains controversial (Sect. 2.1.2.2).

2.1.2.1

The Application of the CISG in Its Systematic and Historic Context

As in probably all legal systems, the starting point for the interpretation of a statutory provision is its wording.44 Since there are six authentic versions of the CISG, as many of them as possible are to be considered in the literal interpretation of the Convention.45 However, it is universally acknowledged that the textual interpretation is to be supplemented by other methods,46 the most important of which are the systematic and the historic interpretation. Both of these criteria are relevant for a potential dynamic understanding and development of the Convention.

39

Eiselen (2009), p. 74; Magnus (2009), p. 40; Melis in Honsell (2010), Article 7, para. 3; Schroeter (2017a), p. 48; Witz (2001), p. 255. 40 Schroeter (2017a), pp. 32 and 48. 41 Ferrari (2013), p. 181; Gruber in Säcker et al. (2019), Article 7, para 12 f.; Magnus (2009), p. 52; see, for a similar view, Schwenzer and Hachem in Schlechtriem and Schwenzer (2016), Article 7, para. 20. 42 Schwenzer and Hachem in Schlechtriem and Schwenzer (2016), Article 7, para. 20; see also the comparison of the continental and the English methods, Vogenauer (2001), pp. 1295 ff. 43 See, e.g., on the unclear status of preparatory materials in the interpretation of US law, Fleischer (2013), p. 33. 44 Bridge (2017a), para. 10.41; Gruber in Säcker et al. (2019), Article 7, para. 14; Lookofsky (2017), p. 29; Magnus (2009), p. 53; Schwenzer (2014), p. 113. 45 Magnus (2009), p. 53. 46 Eiselen (2009), pp. 88 f.

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The systematic interpretation47 invites adjudicators to look beyond the term or provision in question and to consider other relevant provisions and also the general principles on which the CISG is based. The general principles are thus not only useful to fill gaps under Article 7 (2) CISG but can also be described as normative anchors in the interpretation of the Convention.48 A difficult question is whether systematic interpretation should also include arguments drawn from other private law conventions or even soft law instruments such as the UNIDROIT Principles of International Commercial Contracts (hereinafter UPICC).49 Proponents of such an inter-conventional interpretation argue that private law conventions are often based on similar legislative intentions and use identical or similar concepts.50 Only a coordinated interpretation of the different conventions would thus lead to a truly harmonised private law.51 This inter-conventional approach would also open the door for a dynamic understanding of the CISG because texts like the UPICC are regularly revised and supplemented. There are, however, some problems with the interpretation of the CISG in light of other texts of uniform law or soft law. Firstly, the assumption that private law conventions use similar concepts and are, by and large, based on the same legislative intentions seems misleading. Different private law conventions address very distinct legal and economic problems and balance very different interests. What may be appropriate between a buyer and a seller in an international sales contract is not necessarily appropriate between a debtor and a creditor in relation to security interests in mobile equipment. While it therefore seems important to consider other conventions or soft law, the interpretation needs to be specifically tailored to the role of the provision in its context. Secondly, it is not the objective of the CISG and its application to create a harmonised body of private law. Contracting States may have ratified or acceded to the CISG but may not have ratified other conventions, many of them much less successful than the CISG. To interpret the CISG with such an impetus would therefore overburden the CISG and potentially jeopardize international uniformity. While inter-conventional comparison can hence be a source of inspiration, inter-conventional interpretation strictu sensu may do more harm than good. The second form of contextual interpretation inquires into the genesis of the provision and the intentions of the drafters of the Convention. Although the role of legislative intent in the interpretation of statutory law varies considerably from jurisdiction to jurisdiction, there seems to be a consensus that historical arguments are important for the interpretation of the CISG.52 The object of the historical

47

Gruber in Säcker et al. (2019), Article 7, para. 17. See, for a contrary view, Andersen (2007), p. 129: “important distinction (. . .) which we must be wary not to blur”. 49 Ferrari (2013), p. 186; Magnus (2009), p. 55; Torsello (2004), pp. 165 f. and 275 ff. 50 Ferrari (2013), p. 187: “based upon the same legislative intentions”. 51 Ferrari (2013), p. 187. 52 Ferrari (2013), pp. 183 ff.; Gruber in Säcker et al. (2019), Article 7, para. 18; Kramer (1996), p. 144; Magnus (2009), p. 56; Perales Viscasillas in Kröll et al. (2018), Article 7, para. 39; 48

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interpretation is the entire process of unification starting with the comparative work of Ernst Rabel in the 1920s.53 Given the very different steps in the process of unification, statements in the drafting history of the Convention always need to be critically examined as to their relevance for the text of the CISG that was adopted in 1980. The importance of the genesis of the text of the CISG does, however, not generally exclude a dynamic interpretation of the CISG. The contextual interpretation should also question whether the considerations of the drafters still correspond to the reality of international trade or whether the decisions need to be adapted to subsequent developments.54 The contextual interpretation may thus already overcome some of the challenges in the contemporaneous application of an aging text.55 A complementary comparative analysis, however, remains important.

2.1.2.2

The Importance of Underlying Comparative Analysis

The role of comparative arguments in the interpretation of the CISG is controversial. While some authors highlight the great importance of comparative analysis,56 others consider a comparative interpretation to be the antonym of an autonomous interpretation, as required by Article 7 (1) CISG.57 The latter view is justified as far as it is directed against the introduction of purely domestic concepts into the CISG by way of comparative arguments. The goal of comparative arguments in this context is, however, not to transplant domestic solutions into the application of the CISG but to establish the comparative backdrop against which any construction of the Convention will be viewed in the Contracting States.58 It follows from the comparative nature of the analysis that it is not destined to provide definitive solutions but merely offers additional arguments regarding the practicability or likelihood of acceptance of a certain answer to a question of interpretation.59 In case of several potential interpretations, the comparative analysis may thus help to choose the option that is most likely to be accepted internationally. It may also help to sensitise the discourse in the CISG to recent developments in domestic systems that may be relevant for the

Schlechtriem and Schroeter (2016), p. 56; Schwenzer and Hachem in Schlechtriem and Schwenzer (2016), Article 7, para. 22. 53 Magnus (2018), Einleitung, para. 20; Schwenzer in Schlechtriem et al. (2019), Einleitung, sub. I. 54 Perales Viscasillas in Kröll et al. (2018), Article 7, para. 40; Schwenzer and Hachem in Schlechtriem and Schwenzer (2016), Article 7, para. 22. 55 Meyer (2009), p. 342. 56 Gruber (2003), p. 198; Kadner Graziano (2017), p. 38; Köhler (2003), pp. 43 f.; Schwenzer and Hachem in Schlechtriem and Schwenzer (2016), Article 7, para. 24. 57 Ferrari (2013), p. 187; Schlechtriem and Schroeter (2016), p. 58. 58 Magnus (2009), p. 56; Schwenzer and Hachem in Schlechtriem and Schwenzer (2016), Article 7, para. 24; see also, for a supplementary function of comparative analysis, Gruber (2003), p. 224. 59 Schwenzer (2014), p. 114.

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application of the CISG without, of course, directly imposing a certain concept of national law.60 The discussion has shown that both the goals as well as the methods of interpretation provide different entry points for an updated or dynamic interpretation of the Convention. Some of the problems of the aging text thus may be resolved by a contemporaneous understanding of the Convention that is informed by a critical assessment of the historical context and a comparative analysis of different jurisdictions.61 The interpretation of the Convention, however, reaches its limits if the CISG does not deal with a question. This raises the issue of gap filling under Article 7 (2) CISG.

2.2

Supplementation of the Convention Pursuant to Article 7 (2) CISG

In Article 7 (2) CISG, the Convention provides a mechanism to develop solutions for questions concerning matters governed by the Convention that are not expressly settled by it (Sect. 2.2.1). This mechanism is, however, not unlimited (Sect. 2.2.2).

2.2.1

The Mechanism of Gap Filling Under Article 7 (2) CISG

The first step under Article 7 (2) CISG is to identify a not expressly settled question within the scope of the Convention (Sect. 2.2.1.1). If possible, the questions are, in a second step, to be settled by analogy or in conformity with the general principles on which the Convention is based (Sect. 2.2.1.2).

2.2.1.1

The Identification of Gaps Within the Scope of the Convention

The identification of a gap in terms of Article 7 (2) CISG requires the question to fall within the CISG’s regulatory scope (‘matters governed by this Convention’). The first step is thus to determine whether the issue at hand concerns such a matter. It is generally acknowledged that the regulatory scope of the CISG is to be defined autonomously according to the CISG’s provisions and concepts and without reference to qualifications and distinctions of domestic law.62 Article 4 CISG offers some guidance by expressly excluding the transfer of title and the validity of contract. It further states that the CISG ‘governs only the formation of the contract of sale and the rights and obligations of the seller and the buyer arising from such a contract’, 60

Gruber (2003), pp. 199 and 224; Schwenzer (2014), p. 114. Meyer (2009), p. 342; see, for a nuanced view, Janssen and Ahuja (2020), p. 4. 62 Himmen (2007), pp. 61 ff.; Schwenzer (2014), p. 115. 61

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which is, as is universally acknowledged, not be to be understood literally as the Convention itself contains rules on other matters as well.63 While the result of the analysis may seem obvious for some matters that touch upon the core questions of sales contracts, it is more difficult to further describe the operation that determines the matters governed by the CISG in less evident cases. A very common approach is to inquire whether the provisions and the general principles offer a solution for a particular question.64 If so, the matter is governed by the CISG. Otherwise, it falls outside the CISG’s scope and is left to national law.65 The appeal of this approach is that it does not require the development of criteria for the determination of the regulatory scope and directly moves to the inquiry of whether the CISG and its general principles contain a solution for the question at hand. Admittedly, the identification of gaps and the exercise of gap filling are necessarily intertwined to a certain extent.66 There are, however, several problems with the equation of the determination of the regulatory scope with the exercise of gap filling.67 The first problem is that the approach is very difficult to reconcile with the wording of Article 7 (2) CISG, which clearly presupposes that the CISG and its general principles do not offer solutions for all questions that pertain to the matters that are covered by it as it contemplates the ‘absence of such principles’.68 The second problem is that some of the general principles are rather broad in nature and may seem to contain solutions to all kinds of legal questions if applied to them. The principles of party autonomy, good faith and reasonableness all span beyond sales law and, in practice, may lack the limiting function that the reference to the ‘matters governed by this Convention’ should have. One example of the risks associated with the equation of regulatory scope and the solutions offered by the Convention can arguably be observed in a recent decision of the German Federal Supreme Court, where the court held that set-off is governed by the Convention if the claims stem from the same contract that is governed by the CISG.69 In order to justify the inclusion of set-off, which was traditionally considered to be outside the scope of the Convention,70 the court cites a general principle of the interdependency of reciprocal claims under the Convention,71 without first considering, however, whether the CISG actually aims to regulate the matter at all. The test may thus be under-inclusive and over-inclusive at the same time: under-inclusive as it may fail to include matters that fall within the scope of the Convention although the general

63 Djordjevic in Kröll et al. (2018), Article 4, para. 6; Ferrari in Schlechtriem et al. (2019), Article 4 para. 8; Schlechtriem and Schroeter (2016), p. 60. 64 Frigge (1994), p. 71; Köhler (2003), p. 46; see, also for a similar position, Magnus (1995), p. 475. 65 Frigge (1994), p. 71; Köhler (2003), p. 47. 66 See, generally, Canaris (1983), pp. 56 f. and 72 ff. 67 See, for comprehensive discussion of the problem, Himmen (2007), p. 63; Schmid (1996), p. 54. 68 Himmen (2007), p. 63; Schmid (1996), p. 54. 69 Bundesgerichtshof, 24.9.2014, BGHZ 202, 258, 278 ff. 70 Ferrari in Schlechtriem et al. (2019), Article 4, para. 39, with further references. 71 Bundesgerichtshof, 24.9.2014, BGHZ 202, 258, 279.

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principles do not contain a direct answer to them72 and over-inclusive as it may include matters that should not fall within the regulatory scope of the CISG although they can partly be settled by reference to general principles. An alternative test was proposed by Ulrich Schroeter.73 Schroeter suggests a two-step test in order to determine whether a matter is governed by the CISG in terms of Article 7 (2) CISG. The first step is to determine whether the Convention addresses a certain set of facts.74 This assessment consists in the interpretation of the CISG and its general principles.75 If the Convention does address the set of facts, the second step is to inquire whether the CISG balances the competing interests of the parties or allocates the risks between them.76 If the CISG attempts to balance the interests or risks in relation to a specific set of facts, it governs the matter, in principle to the exclusion of domestic law. If it does not contain such a balance or risk allocation, the matter falls outside the scope of the Convention. Particularly, the second step seems to provide a legal criterion that allows the distinction between matters that are governed by the Convention and other matters without unduly conflating the identification of gaps with the exercise of gap filling. If the question concerns a matter that is governed by the Convention, the second question is whether it is expressly settled or not. The question is not expressly settled if it is not answered by a contextual interpretation as explained above.77 Difficulties may arise if there are reasons to believe that the drafters of the Convention consciously omitted certain rules, either to refer to domestic law or to exclude certain rights or remedies.78 While the matter may in such cases be governed by the CISG, the silence of the Convention is by design rather than by accident. Such a ‘qualified silence’79 should, in principle, not be overridden.80 The decision of the drafters not to include certain provisions or not to grant certain rights should, however, always be critically assessed. If the reasons for the drafters’ decision are nowadays, in light of legal, commercial or technological developments, obsolete or have lost much of their persuasiveness, the question should be reopened for debate.81 A strict adherence to the decisions of the drafters without due regard for the reasons for the decision in their historical context could lead to the ossification of the CISG and, over time, to its

72

Schmid (1996), p. 54. Schroeter (2013), p. 564; Schlechtriem and Schroeter (2016), pp. 64 ff. 74 Schlechtriem and Schroeter (2016), pp. 65 ff. 75 Schlechtriem and Schroeter (2016), pp. 64 ff. 76 Schroeter (2013), p. 564; Schlechtriem and Schroeter (2016), pp. 67 f. 77 Himmen (2007), p. 80; see, for the primacy of interpretation over supplementation, Gruber (2003), p. 134; Schwenzer and Hachem in Schlechtriem and Schwenzer (2016), Article 7, para. 29. 78 Schwenzer and Hachem in Schlechtriem and Schwenzer (2016), Article 7, para. 30; Van Alstine (1998), p. 768. 79 Hartmann (2009), pp. 189 and 190; Paal (2011), p. 71. 80 Schlechtriem and Schroeter (2016), pp. 70 f. 81 Schlechtriem and Schroeter (2016), pp. 70 f.; see also Gruber (2003), p. 280. 73

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obsolescence.82 The detachment from such decisions of the drafters will, however, require a particularly careful analysis of the rules and general principles in the CISG and their aptitude to settle the question. The identification of gaps within the regulatory scope pursuant to Article 7 (2) CISG thus offers little room for manoeuvre if the drafters’ decision not to include certain regulations now seems outdated.

2.2.1.2

Gap Filling by Analogy or General Principles

Article 7 (2) CISG mandates that not expressly settled questions be decided in accordance with the general principles on which the Convention is based. The reference to general principles is, however, generally understood to also encompass comparable methods of gap filling, most notably analogies to other provisions of the Convention.83 The most common argument for admitting analogies to fill gaps under Article 7 (2) CISG is that a solution via an analogy remains closer to the text of the Convention and gives less discretion to the judge.84 While it may seem overly general to assume that the analogy is always closer to the text and spirit of the Convention,85 there are no reasons not to allow an analogy, given that the reasoning by analogy is accepted in most legal systems86 and is justified by the general principle of treating like cases alike.87 The likeness of the cases depends upon the legislative intent underlying the provision in question and is, however, to be assessed through the lens of the Convention and its concepts.88 An analogy under Article 7 (2) CISG thus requires that, by the standards of the CISG and the underlying legislative intentions, the settled case is similar to the not expressly settled case. Article 7 (2) CISG expressly stipulates that open questions should be settled in conformity with the general principles on which the Convention is based. This mechanism, which is also found in subsequent private law conventions,89 can be split into two separate steps. The first step consists in identifying a general principle on which the Convention is based. The Convention itself does not list its general principles so that it is for courts and scholars to identify them.90 Numerous general 82 Van Alstine (1998), pp. 694 and 777; see also Schwenzer and Hachem in Schlechtriem and Schwenzer (2016), Article 7, para. 28, 30. 83 Bonell (1986), p. 234; Gruber (2003), pp. 286 ff.; Schmid (1996), pp. 66 f.; Schwenzer and Hachem in Schlechtriem and Schwenzer (2016), Article 7, para. 31; see, for a more reluctant position, Himmen (2007), p. 215. 84 Gruber (2003), p. 287; Paal (2011), p. 86. 85 Himmen (2007), p. 163. 86 Gruber (2003), pp. 290 ff.; see, for a discussion of English law, Langenbucher (1998), pp. 491 ff. 87 Larenz (1991), p. 381; Koch and Rüßmann (1982), p. 260; Kropholler (1975), pp. 293 f. 88 Gruber (2003), p. 292. 89 See, for example, Convention on International Interests in Mobile Equipment (Cape Town Convention, 2001), Article 5 (2), which is a verbatim transposition of Article 7 (2) CISG. 90 Andersen (2007), p. 127; Bridge (2017a), para. 10.47; Perales Viscasillas in Kröll et al. (2018), Article 7, para. 62.

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principles have indeed been identified that either follow from one or several provisions of the Convention or, although not explicitly mentioned, underly the Convention.91 Although general principles in terms of Article 7 (2) CISG cannot be imported from other texts of uniform law or soft law, such as the UPICC,92 such instruments can be used to contextualise the understanding of the general principles embodied in the CISG.93 A reference to the UPICC can be particularly helpful to assess whether a certain understanding of a general principle is likely to be accepted in other Contracting States. The second step consists in connecting the general principle to the question at hand. In this operation, the adjudicator must demonstrate that the invoked principle contains normative guidelines for the open question.94 This is of particular importance for the very abstract principles, such as good faith or reasonableness, that require further contouring in order to decide specific questions. There seems to be a general consensus that the mechanism in Article 7 (2) CISG is a very successful tool to fill gaps within the Convention. Both courts and scholars regularly use the general principles on which the Convention is based in order to fill gaps and supplement the Convention.95 However, the mechanism also has its limits that are less frequently discussed.

2.2.2

The Limits of Supplementation Pursuant to Article 7 (2) CISG

Despite the extensive literature on Article 7 (2) CISG, the limits of the operation under Article 7 (2) CISG are rarely spelled out. This may be due to the broad nature of some of the principles and the difficulty to develop general guidelines as to when these principles do not contain a solution for a problem. It seems nevertheless very important to find some general criteria for establishing the limits of Article 7 (2) CISG in order to distinguish between questions that can be settled within the Convention in conformity with the general principles and other questions that are prima facie left to the applicable national law pursuant to Article 7 (2) CISG. An attempt to draw the line between gap filling pursuant Article 7 (2) CISG and more audacious developments of the CISG is presented here. The justification for the mechanism of gap filling via general principles pursuant to Article 7 (2) CISG consists in the extension or application of normative decisions of the drafters to novel questions that are not expressly settled. The adjudicator can only rely on this justification as long as she is indeed still meaningfully working with

91

Magnus (1995), pp. 477 f. Flechtner (2014), p. 205; Gruber (2003), pp. 304 ff.; Michaels (1998), p. 606; Schroeter (2017a), pp. 32 and 65; Schwenzer (2014), pp. 117 f.; Witz (2001), p. 272; but see, for a different view, Magnus (2009), pp. 45 f. 93 Schwenzer (2014), p. 118; Veneziano (2010), p. 142; Witz (2001), p. 272. 94 Karollus (1991), p. 17. 95 Schroeter (2017a), p. 65; see, for an overview of recognised principles, Magnus (2018), Article 7, para. 41 ff. 92

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the norms and values of the Convention. The limits of Article 7 (2) CISG are, however, reached if the adjudicator can no longer meaningfully invoke normative judgments of the Convention but is introducing her own normative considerations under the cover of a general principle pursuant to Article 7 (2) CISG. In such a scenario, the adjudicator is not simply extending the principles of the Convention but is independently balancing competing interests and delineating the parties’ sphere of risk. This independent balance of interests and introduction of independent purposive considerations cannot claim to partake in the legitimacy conveyed by the decisions of the drafters of the Convention, as adopted by the Contracting States and transposed by national legislators. It needs an independent justification. It follows from the normative elements in this delineation that there is no bright line between gap filling in terms of Article 7 (2) CISG on the one hand and independent forms of development of the uniform law on the other. The distinction is of a gradual nature and will very much depend upon how generous one is with the understanding of certain particularly broad general principles such as good faith or reasonableness. However, the line seems to be crossed if questions are settled by reference to general principles of the Convention that were not initially intended to be encompassed by it and require a complicated set of rules that independently balance the competing interests of the parties and needs to be carefully fit into the system of the Convention. An example for such a matter can be seen in the German Federal Supreme Court’s decision to include set-off of certain claims into the regulatory scope of the Convention.96 Rules for set-off require a balance of interests beyond the principle of reciprocity and must also encompass rules on interest and on set-off within court proceedings.97 Given the important differences in the set-off regimes in different jurisdictions, it is indeed surprising that the German Federal Supreme Court decided to settle the issue by reference to a general principle of the interdependency of reciprocal CISG claims found in the Convention’s provisions on suspension of performance and avoidance of contract.98 The extension of these principles in order to subject set-offs of certain claims to the rules of the Convention would have required a more in-depth analysis of the necessity of uniform rules on set-off and the potential frictions in the application of the Convention.99 While one may approve or disapprove of its result, the decision shows that certain developments of the Convention, although formally occurring within the framework of Article 7 (2) CISG, are quite far removed from the normative decisions in the Convention that could lend legitimacy to the newly developed rules. These limits of Article 7 (2) CISG should be recognised, and the general principles of the Convention should not be overstretched. Firstly, pushing the limits of Article 7 (2) CISG may do disservice to the credibility of the mechanism as an

96

BGHZ 202, 258, 278 ff. Förster (2015), p. 833; Huber (2017), p. 272. 98 Bundesgerichtshof, 24.9.2014, BGHZ 202, 258, 278 ff. 99 See, however, for a detailed discussion of different set-off regimes, CISG AC, Opinion no. 18, Set-off under the CISG, Rapporteur: Fountoulakis, 0.1 ff. 97

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effective tool to fill the ‘smaller’ gaps within the Convention. Secondly, and more importantly, reference to general principles in order to complement the Convention in matters for which it contains no specific rules hides the important normative decisions that the adjudicator herself takes in developing a uniform regime for these matters. These hidden considerations as to the necessity of uniform rules, the international viability of a solution and the competing interests of the parties go well beyond the question of whether a general principle of the Convention could be used to settle a matter. A transparent discussion of these issues, however, is only possible if these arguments are not hidden behind the postulation of a general principle but form part of the methodological framework that allows the adjudicator to develop new uniform rules. In the second part of this contribution, I will try to develop such a methodological framework for an independent development of the Convention beyond Article 7 (2) CISG.

3 The Independent Development of the CISG Beyond Article 7 (2) CISG The first sub-part will provide a justification for the recognition of a distinct category of independent developments of the CISG beyond Article 7 (2) CISG (Sect. 3.1), before the second sub-part will offer a proposal of criteria for such a methodological framework (Sect. 3.2).

3.1

The Independent Development of the CISG as a Distinct and Necessary Category Beyond Article 7 (2) CISG

Some terminological remarks (Sect. 3.1.1) will be followed by an attempt to justify the independent development of the CISG as distinct category beyond Article 7 (2) CISG (Sect. 3.1.2).

3.1.1

Terminology of an Independent Development of the CISG

A development of the CISG beyond gap filling pursuant to Article 7 (2) CISG is only rarely expressly acknowledged.100 Urs Peter Gruber mentions the possibility of judicial development of the CISG beyond Article 7 (2) CISG with reference to the

100 Gruber in Säcker et al. (2019), Article 7, para. 41; see also Bock (2011), p. 185: “uniform evolution”; Karollus (1991), p. 15: “rechtsfortbildende Umdeutung”.

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German term of gesetzesübersteigende Rechtsfortbildung,101 which can be loosely translated by judicial lawmaking beyond statutory law.102 This concept, which is very influential in the German discussion on legal methodology,103 will not be used here since it is firmly embedded in the German discourse and already implies certain premises that do not fit squarely with the legal and institutional framework of Article 7 (2) CISG.104 The use of the concept may also be a source of confusion as it does not necessarily have corresponding terminological counterparts in other legal traditions.105 While the German discussion on methodology is characterised by various categories of judicial lawmaking that are, at least in theory, sharply distinguished from the (mere) interpretation of statutes, other jurisdictions adopt a broader understanding of interpretation that can also encompass the judicial development of new rules.106 This discussion should, however, not create the impression that the recognition of a category beyond Article 7 (2) CISG merely imports a methodological discussion from Germany into the CISG. Irrespective of the terminology, the question is rather whether, and if so under which prerequisites, adjudicators may go beyond the legislator’s plan and purposes and introduce their own purposive considerations. This line of delineation between the respective spheres of competence of the legislator on the one hand and the adjudicator on the other needs to be drawn in every jurisdiction, irrespective of certain methodological idiosyncrasies and terminological differences.107 For a fruitful international discussion of the admissibility and the limits of a development of the CISG beyond Article 7 (2) CISG, neutral terminology needs to be adopted that does not transport national law preconceptions. The necessity of such neutral terminology not only follows from the requirement of autonomous interpretation under Article 7 (1) CISG. The choice of neutral language also reflects the factual and legal peculiarities of the judicial development of uniform law. Firstly, as Article 7 (2) CISG allows for a recourse to the subsidiarily applicable domestic law, adjudicators are not forced to develop new rules by the prohibition of denial of justice.108 This important difference implies that a development of the uniform law must follow different criteria than the judicial development of national law. Secondly, the institutional conflict between the legislator and the judiciary in the 101

Gruber in Säcker et al. (2019), Article 7, para. 41 ff.; see, for a comprehensive discussion, Gruber (2003), pp. 276 ff., 313 ff., 326 ff. 102 See, for an explanation of this term in the context of the common law, Lord Hodge (2020), pp. 211 f. 103 Larenz and Canaris (1995), pp. 232 ff.; see for the use of the term in the Swiss discussion Kramer (2013), pp. 239 ff. 104 Schmid (1996), p. 27. 105 Unger in: Jansen and Zimmermann (2018), Article 1:106 (2), para. 1; Zimmermann (2019), p. 268. 106 Unger in: Jansen and Zimmermann (2018), Article 1:106 (2), para. 1; Vogenauer (2001), pp. 289 ff.; Zimmermann (2019), p. 268. 107 Zimmermann (2019), p. 268. 108 Kropholler (1975), p. 301; Schmid (1996), p. 27.

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application of the Convention significantly differs from national law. By modifying the CISG via national legislation, although legally possible in some jurisdictions, Contracting States would contravene their public international law obligations and frustrate international uniformity. A new diplomatic conference with all 94 Contracting States could theoretically modify the CISG, which seems, however, practically impossible.109 Courts, assisted by legal scholarship, are thus the only institution that can develop new rules within the framework of the Convention. The methodological framework needs to account for this difference.

3.1.2

A Justification for the Recognition of the Independent Development of the CISG as a Distinct Methodological Category

The case for the recognition of the independent development of the CISG as distinct methodological category in the application will be first laid out (Sect. 3.1.2.1), before certain potential criticisms are addressed (Sect. 3.1.2.2).

3.1.2.1

The Case for a Distinct Category of Independent Development of the CISG

As already mentioned, the mechanism provided for in Article 7 (2) CISG is not without limits and can only lend legitimacy to developments of the Convention as far as they can still be traced back to normative decisions embodied in the general principles of the Convention, as adopted in 1980. Modifications via a new diplomatic conference seem practically impossible. A fundamental reform of the Convention or even the development of a new CISG110 also does not seem desirable since such fundamental amendments could compromise the international harmonisation already achieved by the Convention.111 It still attracts ratifications and accessions and has directly or indirectly influenced recent private law reforms in many jurisdictions.112 Furthermore, a reform of the CISG would not solve the problem of the need for further development of the Convention but merely postpone it.113 In light of these difficulties to modify the text of the Convention, many authors argue for a dynamic understanding of the Convention, with respect to both its interpretation under Article 7 (1) CISG and gap filling pursuant to

109

Gruber (2003), p. 107; Schroeter (2017a), pp. 69 f. Tripodi (2016), p. 158, arguing for the adoption of a new CISG that includes service contracts. 111 Schroeter (2017a), p. 70. 112 Schlechtriem (2001), p. 18; see for the German reform of the law of obligations, Magnus (2008), p. 158. 113 See also Janssen and Ahuja (2020), p. 7. 110

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Article 7 (2) CISG.114 The majority of new challenges in the application of the uniform law can be settled either by a dynamic approach to the interpretation of the Convention’s provisions or by a dynamic understanding of gaps and gap filling under Article 7 (2) CISG.115 Exceptionally, however, the factual and legal developments in international trade may require adjudicators to go beyond Article 7 (2) CISG and invent new rules within the regulatory scope of the Convention or, indeed, stretch the scope of the Convention beyond what was originally intended by the drafters.116 In some of these instances, for example regarding the inclusion of conflicting standard terms or the consequences of hardship, new solutions have been developed by courts and scholars that have, however, been quite controversial internationally. While a controversial international debate is certainly helpful to identify internationally viable solutions, the disagreements may at least to a certain extent originate from different conceptions of the limits of interpretation and gap filling under Article 7 (2) CISG. The recognition of a distinct category for the independent development of the CISG may thus be helpful in order to separate the most intricate and complex questions in the further development of the CISG from the more ordinary forms of gap filling under the CISG and subject these intricate questions to higher standards. The need for innovative solutions may increase over time as the considerations of the drafters of the CISG are further and further removed from the realities of international commerce and the development of commercial law. A separate category of an independent development may also help to find criteria in order to solve conflicts between competing general principles of the Convention. If several general principles of the Convention are in conflict and none of them should clearly prevail to settle the question, a distinct methodological category can help to balance the competing principles and, if necessary, adopt a solution that maximizes the competing principles. Such optimization of the principles may often require independent normative and purposive considerations on the part of the adjudicator that go beyond Article 7 (2) CISG.117 While providing a framework for the development of solutions for the most difficult questions within the CISG’s regulatory scope, the recognition of a separate category of independent development of the Convention may, at the same time, curtail the most audacious developments that are currently discussed as gap filling under Article 7 (2) CISG. The distinction between ordinary gap filling under Article 7 (2) CISG, on the one hand, and an independent development of the CISG, on the other, allows for heightened standards of argument and increased scrutiny for the latter form of developments. In this framework, for instance, the 114

Meyer (2009), p. 342; Perales Viscasillas in Kröll et al. (2018), Article 7, para. 40; Schroeter (2017a), pp. 32 and 69 f.; Schwenzer and Hachem in Schlechtriem and Schwenzer (2016), Article 7, para. 28, 30; see, with a detailed explanation of the dynamic interpretation, Van Alstine (1998), p. 687. 115 Meyer (2009), p. 342. 116 See, tentatively, Gruber in Säcker et al. (2019), Article 7, para. 41 ff. 117 See, generally for the optimization of principles in German law, Rüßmann (1990), pp. 55 f.; see generally Koch and Rüßmann (1982), pp. 244 and 262.

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inclusion of set-off in the regulatory scope of the Convention118 would have required a thorough discussion of the international acceptability and of the necessity to adopt a uniform solution rather than the mere reference to a general principle.119 The recognition of the independent development as a distinct category should therefore lead to more restraint in the development of the more audacious solutions to unsettled questions and should increase the burden of argument. The recognition of an independent development of the Convention should thus have two functions that may appear contradictory at first sight. Firstly, the independent development of the Convention should provide a methodological framework to allow for innovative solutions that surpass gap-filling pursuant to Article 7 (2) CISG. Secondly, it should help to curtail some of the more audacious creations by raising the burden of argument in respect of the necessity and international acceptability of newly developed rules.

3.1.2.2

Potential Criticisms of the Independent Development of the Convention

The introduction of a new methodological category may give rise to certain criticism. Three potential points of criticism will be already addressed here, relating to the structure and the limits of Article 7 CISG, the risks for international uniformity and the implications for the separation of powers and the rule of law in the application of the Convention. The first obvious problem is that Article 7 CISG only provides for interpretation pursuant to paragraph 1 or supplementation under its paragraph 2 but does not mention an additional tool for further developing the Convention. The drafters of the Convention decided, rather than to allow for the development of new principles by comparative analysis as was foreseen in Article 17 ULIS,120 to resort to the otherwise applicable national law if the Convention and its general principles did not contain guidance on an unsettled question within the scope of the Convention. In principle, this decision is to be respected. In most cases, the adjudicator can apply the applicable national law that will most likely contain a solution for the problem. The adjudicator will thus not be forced to create a new solution by the prohibition of denial of justice.121 There are certain cases, however, in which the adjudicator may find herself between a rock and a hard place when recourse to national law may frustrate the uniform balance of interests as instituted by the Convention, while an overly

118

BGHZ 202, 258, 278 ff. See, for a comprehensive justification of the inclusion of set-off, CISG Advisory Council, Opinion no. 18, Set-off under the CISG, Rapporteur: Fountoulakis. 120 See, for a history of Article 17 ULIS and Article 7 (2) CISG, Bergsten (2009), pp. 5 and 27 ff.; Magnus (1995), pp. 469 and 474 f. 121 Kropholler (1975), p. 301; Schmid (1996), p. 27. 119

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audacious reliance on certain general principles may overstretch the boundaries of Article 7 (2) CISG and jeopardize international uniformity. The difficulty of this exercise, which has been fittingly described as walking the tightrope,122 is particularly apparent with respect to the consequences of hardship in CISG contracts. Different solutions have been proposed that include a recourse to Article 6.2.3 UPICC123 or to the subsidiarily applicable domestic law124 as well as the recognition of an obligation to renegotiate the contract under Article 7 (2) CISG125 or a solution based on the incentives and interdependencies of the CISG’s remedies and the duty to mitigate in Article 77 CISG.126 None of these solutions have prevailed in the very controversial international debate. The great variety of the proposals shows that finding a solution without further methodological guidelines under Article 7 (2) CISG can be quite challenging. Despite these disagreements, most authors prefer a solution within the four corners of the Convention in order to prevent a circumvention of the balance of interests in the Convention via domestic law.127 The recognition of an independent development of the Convention can offer a methodological framework for these few exceptional cases in which a uniform solution seems indispensable, but the CISG does not seem to offer sufficient guidance in its general principles. The independent development of the Convention can thus help to unburden the gap filling pursuant to Article 7 (2) CISG and lead to a transparent debate in the few difficult cases that fall between gap filling by general principles, on the one hand, and recourse to domestic law under Article 7 (2) CISG, on the other. The second source of criticism may be related to a risk for international uniformity.128 Article 7 (1) CISG mandates the application of the Convention in an internationally uniform manner. The introduction of a new methodological category beyond the gap filling in conformity with general principles under Article 7 (2) CISG may pose risks for international uniformity since this category lacks textual support in the Convention. Audacious developments by national courts may not be followed in other Contracting States.129 As there is no court or interpretative body charged with the ‘last word’ on the interpretation of the CISG, diverging opinions may be developed and persist.130 A distinct category of independent development of the

122

Lookofsky (2005–2006), pp. 87 and 105. Hof van Cassatie, 19.6.2009, CISG-online 1963; see also for the application of Article 6.2.2 UPICC in the Convention, Cass. com., 17.2.2015, n 13-20.230, CISG-France n 238; see for a critical discussion, Witz and Köhler (2017), p. 623. 124 Lookofsky (2011), pp. 141 and 165. 125 Veneziano (2010), pp. 137 and 144 ff.; Witz and Köhler (2017), p. 623. 126 Schwenzer (2009), pp. 721 ff.; Schwenzer and Muñoz (2019), pp. 164 f. 127 See, for example, Schwenzer (2009), pp. 721 ff.; Schwenzer and Muñoz (2019), p. 153; Witz and Köhler (2017), p. 623. 128 Gruber in Säcker et al. (2019), Article 7, para. 43. 129 Behrens (1986), p. 27; Meyer (2009), pp. 321 f. 130 Gruber (2003), pp. 326 ff. 123

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CISG should therefore only be recognised if it is likely to contribute to international uniformity rather than cause further international disagreement. As explained above, there is already significant disagreement as to difficult problems within the CISG’s scope of application, such as the consequences of hardship or the inclusion of conflicting standard terms. A separate methodological category for these difficult questions would go hand in hand with increasing the burden of argument for independent developments as compared to gap filling under Article 7 (2) CISG. The category of independent development, if not used lightly, could thus lead to a further restraint in the development of the CISG beyond its general principles and make transparent the important considerations that should control whether such a development is indeed exceptionally necessary and possible. Whether this will lead to international uniformity in a particular case is not guaranteed. Nor is there such a guarantee in traditional gap filling in conformity with the general principles under Article 7 (2) CISG. The likelihood of international acceptance of a particular solution will, however, depend less on the methodological category and more on the persuasive force of the reasoning. Ideally, methodological categories such as the independent development suggested here provide an effective framework for persuasive justifications of judicial solutions to difficult questions. The increased effort in the reasoning, as compared to the traditional gap filling under Article 7 (2) CISG, should thus spark a transparent and profound debate that is not stifled by certain emotive terms such as good faith. It is obvious that such a debate cannot be conducted by courts or tribunals alone but that scholarship will have to do much of the preparatory work to lay out the comparative backdrop and to develop international solutions with persuasive reasoning that courts may draw on or, at least, consider. In this context, international bodies, albeit private, such as the CISG Advisory Council may help to ensure a profound and internationally visible and accessible debate and, thereby, foster international uniformity.131 The third potential criticism of the independent development of the CISG, as for every form of judicial lawmaking,132 is the relationship between the judicial creation of novel rules, the separation of powers and the rule of law. This criticism has already been voiced with respect to some audacious applications of the CISG.133 As a matter of principle, it is for the legislator to legislate, and only the initially adopted versions of the CISG were available to national legislatures that were ratifying or acceding to the CISG. An independent judicial development departs from the democratic legitimacy conveyed by the ratification. There are, however, three important features of the CISG that may justify independent developments in its institutional setting. Firstly, the dynamic character of the CISG is already foreseen in

131

See, for example for the case of set-off, CISG AC, Opinion no. 18, Set-off under the CISG, Rapporteur: Fountoulakis, Comments 0.4, 1.2. ff. 132 See, for German law, Bruns (2014), pp. 162 and 163; Koch and Rüßmann (1982), pp. 253 ff. 133 Zeller (2002), pp. 251 and 253: “trap of ‘manufacturing’ laws”; see also Bridge (2017b), p. 111: “A legal instrument that blows in the discretionary winds cannot provide the uniformity and certainty that prompted the quest for legal uniformity”.

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Article 7 (2) CISG. An independent development of the CISG is simply an extension of this dynamic understanding, not something fundamentally different. Secondly, and more importantly, one of the key considerations in delineating the respective spheres of the legislature and the judiciary is that the legislature can normally always decide to intervene in order to remedy perceived shortcomings of the law. Inaction can thus be construed as legislative acquiescence that justifies a prima facie incompetence of the judiciary to develop a remedy. These arguments are, however, less persuasive in the context of the CISG.134 As already explained above, national legislators cannot modify the CISG or otherwise interfere within its scope of application without infringing upon their public international law obligations.135 The ossification of the Convention can thus only be prevented by judicial intervention. On the flip side, this peculiarity of uniform law also excludes legislative interventions in order to correct certain judicial interpretations or creations. National legislators have tied their hands by ratifying or acceding to the CISG. A corrective element for judicial developments can, however, be seen in the need to convince courts in other Contracting States by a persuasive reasoning. In the absence of a convincing justification, courts in other Contracting States are not likely to follow a judicial development. No national court will thus gain (international) power by virtue of its place in the national judicial hierarchy. Soft power can only be derived from the persuasive force of the reasoning adopted by the court. Finally, the problem of the development of international texts in light of the rule of law and separation of powers exists not only for the CISG but generally in public international law.136 In this context, it is generally recognised that an evolutive understanding of a text may help to prevent the ossification of public international law.137 While, as a general matter, the rules for the interpretation of international treaties cannot be blindly transposed to instruments of uniform private law, in this context, the problem of ossification exists independently of the peculiarities of uniform private law. Considerations of rule of law and separation of powers should therefore not block independent developments of the CISG altogether. However, given the peculiar institutional setting, it is important that courts do not resort to such creations lightly and, particularly, do not compromise a level of legal certainty that parties can legitimately expect. The principle of legal certainty should therefore raise the threshold for independent developments. Particularly, no new rules should be developed if a pragmatic solution has already been developed and is accepted by an international majority.138 As a result, the criticism discussed above should not exclude independent developments of the CISG. An independent development of the Convention beyond Article 7 (2) CISG must, however, by its nature, remain the exception, and the

134

Van Alstine (1998), pp. 721 ff. and 746. Van Alstine (1998), p. 722. 136 Dörr in Dörr and Schmalenbach (2018), Article 31, para. 24 ff. 137 Dörr in Dörr and Schmalenbach (2018), Article 31, para. 24 ff. 138 Schlechtriem and Schroeter (2016), p. 52. 135

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large majority of problems in the application of the CISG should be settled by interpretation under Article 7 (1) CISG or gap-filling under Article 7 (2) CISG.139 The potential criticism should thus shape the criteria for admissibility and the substantive requirements of an independent development beyond Article 7 (2) CISG that must reflect its character as a means of last resort. A proposal for such criteria is presented in the following sub-part.

3.2

A Proposal for Prerequisites and Criteria for an Independent Development of the CISG

An attempt to develop criteria for both the admissibility of an independent development (Sect. 3.2.1) as well as for the substantive development of new rules (Sect. 3.2.2) is presented in the following sub-part.

3.2.1

Criteria for the Admissibility of an Independent Development

The argument for an independent development of the CISG as a methodological category beyond Article 7 (2) CISG for exceptional cases begs the question of how to identify these exceptional cases. Two different forms of independent development beyond Article 7 (2) CISG can be distinguished. The first form describes developments that lead to the inclusion of matters into the regulatory scope of the Convention that were not initially covered by it. For these matters, an independent development of the Convention may prove necessary if some ancillary matters are so deeply intertwined with core matters of the CISG that recourse to national law would undo the benefits of unification.140 There needs to be such a close connection between the core matter and the ancillary matter that a uniform law solution seems necessary in order to preserve the CISG as an effective instrument of international sales law. This requirement entails a detailed analysis as to the difficulties of non-uniform solutions and the benefits of an extension of the CISG to the issue. This elevated threshold will not be met if a uniform solution is merely desirable to avoid the uncertainties of private international law. Drawing this line of demarcation can be very difficult, as can, again, be observed with respect to the question of set-off. After the German Federal Supreme Court’s decision in 2014, a very contentious debate has ensued about the advantages and disadvantages of including the set-off of CISG claims from the same contract into the scope of the CISG.141 While some authors point to the benefits of the uniform rules on set-off,142 139

Meyer (2009), p. 342. Schwenzer in Schlechtriem et al. (2019), Einleitung, sub. III.2. 141 Bundesgerichtshof, 24.9.2014, BGHZ 202, 258, 278 ff. 142 Djordjevic in Kröll et al. (2018), Article 4, para. 41; Magnus (2018), para. 47. 140

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others highlight the many open questions of procedure and substance that are raised in the context of set-off and that the Convention does not seem to address.143 The second form of independent development describes the creation of new rules that fall within the regulatory scope of the CISG pursuant to Article 7 (2) CISG as initially intended but for which the Convention does not contain sufficient guidelines in its provisions and general principles. This pertains particularly to questions that require a complex balancing of competing interests that is not predetermined by the principles of the Convention. This form thus consists in the creation of complex new rules. Such a creation of rules beyond the general principles pursuant to Article 7 (2) CISG should remain the exception. An independent development of such rules can hence only be admissible if it seems necessary to preserve the CISG as an effective instrument of international sales law and to attain the goals of Article 7 (1) CISG. Again, this presupposes a close connection to rules of the CISG in its core matters that should not be thwarted by recourse to national law. Both the inclusion of conflicting standard terms and the consequences of hardship are examples of such questions that, albeit closely connected to core matters of the Convention, i.e. respectively the rules on contract formation and on exemption pursuant to Article 79 CISG, require a complex balancing of the competing interests of the parties and several potentially relevant general principles of the Convention. The inclusion of standard terms, for example, is so inseparably linked to the rules on formation of contract that a dépeçage seems hardly operational and would undo most of the benefits of unification. Given the prevalence of standard terms in international contractual practice, an international instrument that fails to provide rules for the inclusion of standard terms cannot claim to be an effective instrument for the regulation of international sales contracts. The development of the so-called knock-out rule is an example of how to meet these needs of international contractual practice within the framework of the Convention.144 Similarly, the rules on exemption under Article 79 CISG, which according to the majoritarian view also includes certain cases of hardship,145 would leave considerable uncertainty if the legal consequences of hardship, i.e. the question of renegotiation or adaptation of the contract, were determined according to the subsidiarily applicable domestic law.146 In these core areas of the uniform sales law, the normative decisions of the CISG risk to be circumvented through the backdoor of national law.147 There are of course also less urgent cases, in which a uniform solution, albeit desirable to avoid recourse to conflict of laws rules, is not necessary in order to preserve the CISG as an effective instrument for international sales contracts. For instance, the recourse to national law

143

Förster (2015), p. 833; Huber (2017), p. 272; Mankowski in Schmidt (2018), Article 4, para. 21 ff. 144 Gruber in Säcker et al. (2019), Article 7, para. 42. 145 Schwenzer in Schlechtriem et al. (2019), Article 79, para. 30; see also Atamer in Kröll et al. (2018), Article 79, para. 81: “by way of analogy”. 146 Schwenzer and Muñoz (2019), pp. 149 and 153. 147 Schwenzer and Muñoz (2019), pp. 149 and 153.

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to determine the applicable interest rate under Article 78 CISG does not seem to unduly jeopardize the effectiveness of the Convention.148 While most of the challenges in the application of the aging Convention should either be resolved by interpretation or supplementation under Article 7 (1)–(2) CISG or left to national law under Article 7 (2) CISG, an independent development of the CISG is exceptionally justified if it seems necessary in order to uphold the central normative judgments of the Convention in its core areas and, generally, to preserve the CISG as an effective and state-of-the-art instrument for the regulation of international sales contracts. The recognition of the admissibility of an independent development of the Convention in these exceptional cases, of course, raises the issue of substantive criteria for such developments beyond Article 7 (2) CISG.

3.2.2

Substantive Criteria for an Independent Development

Developing substantive criteria for the independent development of the CISG beyond Article 7 (2) CISG is in itself an audacious enterprise. A proposal for certain criteria is presented below that are, however, by their nature, not exhaustive or conclusive. Rather, the proposal should be understood as an attempt to spark a discussion about the markers for successful judicial developments of the Convention beyond Article 7 (2) CISG. If the criteria cannot directly follow from Article 7 (2) CISG, they have to otherwise follow from or be connected to the Convention. The first step will therefore be to inquire about potential starting points in order to identify the substantive criteria (Sect. 3.2.2.1). In a second step, a proposal for five substantive criteria for the independent development of the CISG is made (Sect. 3.2.2.2).

3.2.2.1

Potential Starting Points for the Development of Substantive Criteria

As for the interpretation and supplementation of the Convention according to Article 7 CISG, substantive criteria for the independent development of the Convention are to be developed autonomously. Domestic criteria for judicial lawmaking cannot be imported into the CISG, particularly given the very different national traditions.149 The starting point for a development of the Convention are the goals for its interpretation as stated in Article 7 (1) CISG. New solutions thus need to foster international uniformity and reflect the international character of the Convention. Additionally, the general principles, even if they do not allow to conclusively settle the question at hand, also need to be respected and maximized in the independent

148

But see, for a nuanced position on the applicable law, CISG Advisory Council, Opinion no. 14, Interest Under Article 78 CISG, Rapporteur: Atamer, Rule 9. 149 Gruber (2003), pp. 315 ff.

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development of the Convention. The provisions in Article 7 CISG thus already offer some guidance for the development of substantive criteria. Additionally, the reasons for the creation of the CISG as mentioned in its preamble, i.e. the removal of legal barriers and the promotion of international trade, give a broader sense of direction on how to develop the CISG as an instrument in the ever-changing context of international commerce. While the CISG thus mandates the goals of its development, the question of how to develop rules that are suited to achieve these goals is less evident. Instead of fixed criteria, one could also simply require an increased standard of justification for an independent development, as compared to supplementation under Article 7 (2) CISG. An independent development would then merely require a particularly thorough and persuasive justification without necessarily satisfying specific criteria. However, such a general requirement of a thorough justification, while certainly commendable, does not seem to provide a sufficient methodological framework for the discussion of independent developments of the Convention. In order to facilitate international acceptance or, at least, a transparent and fruitful discussion of new developments of the Convention, it seems necessary to identify specific criteria that mark suitable rules in the context of the Convention in general. This will facilitate a discussion about the most important features and characteristics of the CISG. If there is international agreement on these core features, it will be much easier to agree on rules that fit in the system of the Convention. The criteria for an independent development should thus share the characteristics of the Convention and its rules. In this context, a helpful source of inspiration can be found in Article 1 (2) of the Swiss Civil Code.150 Pursuant to Article 1 (2) of the Swiss Civil Code, the court shall, in the absence of a provision and customary law, decide in accordance with the rule that it would make as a legislator. Contrary to what a superficial reading may suggest, the provision neither allows the court to postulate rules by fiat nor vests it with unlimited discretion but rather puts on the court the burden of presenting a rule that can be justified not only as between the parties but generally for prospective cases and that blends in with the system.151 It is thus made explicit that the judge not only applies and refines the rules in light of the intentions of the legislator but herself must provide a justification for the rule and its purpose. The reference to Article 1 (2) of the Swiss Civil Code here is not meant to import another methodological provision into the CISG to supplement Article 7 (2) CISG but rather serves as a reminder that if a judge devises a new rule, she needs to put herself in the shoes of the legislator, which, in the case of the CISG, is a hypothetical diplomatic conference involving all Contracting States. This thought experiment shows that new rules need to be of such a character that it seems at least possible that they could have been adopted by a diplomatic

See Article 1 (2) Swiss Civil Code: ‘In the absence of a provision, the court shall decide in accordance with customary law and, in the absence of customary law, in accordance with the rule that it would make as legislator.’ 151 Honsell in Geiser and Fountoulakis (2018), Article 1, para. 36. 150

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conference. In developing the Convention beyond Article 7 (2) CISG, courts and scholars thus have to account for the peculiarities of uniform private law in order to find solutions that are likely to be accepted internationally. The considerations that were important to the drafters in the preparation of the CISG should hence also shape current developments of the Convention beyond Article 7 (2) CISG. In the following sub-part, a proposal for five of these considerations is made.

3.2.2.2

A Proposal of Substantive Criteria

The focus in this part will be on five criteria that are proposed as potential yardsticks for successful developments of the CISG: the optimization of general principles, the adequate balancing of buyers’ and sellers’ interests, the political and religious neutrality of the Convention, the potential to gain international acceptance and the practicability in international commercial practice. The Optimization of General Principles While the provisions and general principles of the CISG may not suffice to settle some of the controversial issues, it goes without saying that they nevertheless need to guide adjudicators and scholars in the independent development of the Convention. As far as possible, all relevant provisions and principles should be examined for their potential relevance. In this context, it will be crucial to not only invoke the principles but also show how their normative content relates to the question at hand. Such analysis of the provisions and general principles will provide the normative corridor for potential solutions, even if the general principles do not mandate the adoption of one specific solution. If there are several possible solutions for a particular question, one decisive factor may be the optimization of the general principles, i.e. choosing the solutions that upholds or promotes most or the most relevant principles in the case. Admittedly, this weighting and balancing exercise rarely follows from the principles themselves, unless one admits a hierarchy among the different general principles of the Convention.152 More supplementary criteria are thus required. The Balance Between the Respective Interests of Buyers and Sellers Any solution within the regulatory scope of the Convention needs to reflect a reasonable and justifiable balance of the respective interests of buyers and sellers.153 Already the drafters of the CISG made a point of carefully balancing the respective advantages and disadvantages for buyers and sellers in order to devise a well-rounded system that favours neither of them.154 The result has been fittingly described as ‘level

152 See, for such a hierarchy, Ferrari (2013), p. 190, arguing for party autonomy as supreme principle; see also Himmen (2007), pp. 152 ff. 153 Magnus (2018), Einleitung, para. 8; Schroeter (2017b), p. 21: “equal balance”; Schwenzer (2016), p. 91. 154 Magnus (2018), Einleitung, para. 8; Schwenzer and Hachem (2009), pp. 476 f., pointing to the genesis of Article 44 CISG.

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playing field’.155 In the context of international sales contracts, this is particularly important since parties from export-oriented States such as Germany or China are more likely to be sellers in international sales contracts, whereas parties from other States such as the USA are more likely to be buyers. In contrast to the calibration of domestic sales law, favouring the seller or the buyer in the context of the CISG can also mean favouring a certain group of Contracting States to the detriment of others. An independent development of the Convention must not tip the balance in favour of either of the parties. This excludes all solutions that unilaterally favour one of the parties or that are not justifiable with respect to both parties.156 The Preservation of the CISG’s Political and Religious Neutrality The neutrality of the CISG not only concerns the competing interests of buyers and sellers but also extends to political and religious considerations. The Convention is designed as a neutral instrument of commercial law that is not attached to a particular political or religious ideology.157 Such neutrality is made possible by two important features of the Convention. Firstly, the CISG refrains from regulating the most contentious and politically or religiously fraught matters,158 such as business-to-consumer (B2C) transactions,159 the validity of contract160 or the interest rate under Article 78 CISG.161 These matters were deliberately left to the applicable national law by the drafters who were conscious of the variety of opinions among different States.162 Secondly, the Convention is flexible enough to accommodate certain regional or sectorial peculiarities.163 It not only allows parties to deviate from the Convention in Article 6 CISG but also incorporates certain usages or practices pursuant to Article 9 CISG.164 It has been correctly observed that the neutrality of the CISG is itself a political choice that relies on a formal notion of justice and assumes that the parties meet on an equal footing,165 which may not be appropriate if large companies from industrialised countries deal with smaller entities in developing countries. While this is as true for the Convention as for traditional commercial law more generally, the CISG provides flexible provisions that allow for adjustments if a particular case 155

Schroeter (2017b), p. 21. See, generally for a bilateral justification of private law rules, Bydlinski (2004), p. 395. 157 Schroeter (2017b), pp. 24 and 27; but also see the criticism of Micklitz and Diez Sanchez (2016), p. 277. 158 Menon (2015), p. 16; Micklitz and Diez Sanchez (2016), p. 286. 159 Article 2 lit. a CISG. 160 Article 4 S. 2 lit. a CISG. 161 Schroeter (2017b), p. 38. 162 See, for the validity of contract, UNCITRAL Yearbook VIII (1977), p. 93, nr. 25: “(T)he validity of contracts is (. . .) an important vehicle by which the political, social and economic philosophy of the particular society is made effective in respect of contracts.” 163 Schroeter (2017b), pp. 24 and 39. 164 Schroeter (2017b), pp. 24 and 39. 165 Micklitz and Diez Sanchez (2016), pp. 277 ff. 156

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so requires.166 In principle, however, the precept of the CISG as a neutral and level playing field has proven to be an attractive proposition both for developed and for developing countries.167 Despite the neutrality of the CISG, some authors argue for a greater consideration of human rights principles and ethical standards in the interpretation, supplementation and development of the Convention.168 The legal basis for the introduction of these principles varies. Sometimes, it is suggested that ethical considerations are generally relevant for the interpretation of the Convention pursuant to Article 7 (1) CISG as per its international character169 or the reference to good faith in international trade.170 Others refer to ethical or human rights standards in the context of specific provisions that allow for normative assessments of party expectations or conduct, such as Article 35 (1) (2) (a)–(b) CISG171 or Article 74 CISG.172 Such a selective reference to ethical or human rights standards in the application of certain provisions seems justified, particularly if the introduction of the standard is supported via the interpretation of the parties’ statements and conduct pursuant to Article 8 CISG.173 For instance, certain internationally accepted human rights standards can inform the conformity analysis under Article 35 (2) (a)–(b) CISG that inquires as to the purpose and the context of the transaction.174 The recognition of a broader, general role for ethical and human rights standards seems problematic as it may jeopardize international uniformity in the application of the CISG as required by Article 7 (1) CISG.175 The drafters purposefully refrained from including socially, politically or ethically charged matters into the Convention.176 This reluctance should guide adjudicators in the development of the Convention.177 Particularly, the invocation of ethical standards as an emanation of the good faith principle may further complicate the conversation about the notion and role of good faith within the system of the Convention. Ethical considerations that cannot be taken into account in the application of the rules on conformity or damages 166

See, with respect to Articles 35 (2) (b), 44 CISG, Schroeter (2017b), pp. 43 ff.; Schwenzer (2016), pp. 83 ff. 167 Schroeter (2017b), p. 21. 168 See, for the consideration of human rights and customary international law, Butler (2016), pp. 299 ff.; see also Perales Viscasillas in Kröll et al. (2018), Article 7, para. 23. 169 Butler (2016), pp. 299 ff., pointing to Article 31 (3) (c) of the Vienna Convention on the Law of Treaties. 170 Perales Viscasillas in Kröll et al. (2018), Article 7, para. 23. 171 Schwenzer (2017a), pp. 124 and 126 ff. 172 Schwenzer (2017a), p. 130; Schwenzer and Leisinger (2007), pp. 270 f. 173 Schwenzer and Leisinger (2007), pp. 264 ff. 174 Schwenzer (2016), p. 82; Schwenzer and Leisinger (2007), p. 267. 175 Schlechtriem (2007), pp. 97 ff. 176 UNCITRAL Yearbook VIII (1977), S. 93, Nr. 25: “(T)he validity of contracts is (. . .) an important vehicle by which the political, social and economic philosophy of the particular society is made effective in respect of contracts.” 177 Schlechtriem (2007), p. 99.

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and that seem particularly urgent may be addressed (or not) by the validity rules of the applicable domestic law pursuant to Article 4 (a) CISG.178 The independent development of the CISG beyond Article 7 (2) CISG should thus remain as politically and religiously neutral as are the provisions of the Convention themselves. The Potential for International Consensus The requirement of international uniformity pursuant to Article 7 (1) CISG mandates that independent developments of the Convention should be likely to be accepted internationally, i.e. in different Contracting States with diverging legal traditions.179 Adjudicators thus need to conduct a comparative analysis in order to make a prognosis of the potential for international consensus.180 Admittedly, the comparative analysis may be cumbersome and can, of course, not include a detailed review of the legal systems of all 94 Contracting States.181 Nevertheless, a profound comparative analysis that includes as many different jurisdictions as possible is necessary in order establish the comparative backdrop against which any development of the Convention will be assessed. This methodology is in line with the preparation of the Convention that built on decades of comparative work, initiated by Ernst Rabel.182 Then and today, the comparative work serves as the foundation for potential uniform solutions. The purpose of the comparative exercise is not to find the lowest common denominator of the different jurisdictions183 but rather to inquire whether a solution would manifestly contradict the values or principles of a legal system or tradition or whether there are functionally equivalent rules or concepts in the relevant jurisdictions. The starting point of the comparative inquiry may be to look into soft law instruments that themselves are based on comparative analysis and compromise, such as the UPICC or the Principles of European Contract Law. Again, the goal is not necessarily to transpose a solution that was adopted in the UPICC but rather to inform the development of the CISG as to which solutions may be internationally acceptable. The comparative analysis is further facilitated by the existence of several comprehensive books184 such as Ingeborg Schwenzer, Pascal Hachem and Christopher Kee’s Global Sales and Contract Law185 or the Commentaries on European Contract Laws edited by Nils Jansen and Reinhard Zimmermann.186 Additionally,

178 See, for a contrary view, Butler (2016), p. 301; Perales Viscasillas in Kröll et al. (2018), Article 7, para. 23. 179 See, for the interpretation of the Convention, Ferrari in Schlechtriem et al. (2019), Article 7, para. 16; Magnus (2018), Article 7, para. 20. 180 Gruber (2003), p. 300. 181 See, on the interpretation of the Convention, Ferrari in Schlechtriem et al. (2019), Article 7, para. 40; Magnus (2018), Article 7, para. 37. 182 Magnus (2018), Article 7, para. 37. 183 Gruber (2003), p. 301. 184 See, for instance, Reimann and Zimmermann (2019) and Smits (2012). 185 Schwenzer et al. (2012). 186 Jansen and Zimmermann (2018).

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courts can resort to the comprehensive opinions of the CISG Advisory Council that are in many cases accompanied by a thorough comparative analysis. The opinions are of course not binding or official. Their authority is based on the argumentative force of the reasoning and the diverse composition of the Council that should prevent the transposition of national solutions in difficult questions.187 In the context of the independent development of the Convention, it is striking that the Council has in many cases adopted a very progressive position that relied on comprehensive comparative analysis.188 Even if one does not agree with all the positions adopted by the Council, its work seems especially valuable in that it provides a detailed comparative background and can incorporate views from very different legal traditions. The Fitness for International Commercial Practice As per its preamble, the purpose of the CISG is to provide effective and efficient rules for international contracts for the sale of goods and, thereby, to remove legal barriers and foster international trade.189 An independent development must therefore also account for the practice of international commerce and the efficiency of the developed rules. The Convention is a set of default rules that can be excluded or modified by party agreement pursuant to Article 6 CISG. The newly developed rules should be designed to incentivize parties to stick to the Convention rather than to exclude it. In developing the Convention, adjudicators should particularly focus on reducing transport and other transactional costs, which was also one of the main concerns of the drafters of the Convention.190 Economic analysis may be helpful to identify those solutions that serve these goals best.191 This has been merely a proposal of certain important features of the Convention that should also guide adjudicators and scholars in the further development of the Convention. The list is not exhaustive, and there are surely other important factors that have not been mentioned or emphasised here. The key point is, however, to make transparent the guiding considerations in the development of the Convention beyond Article 7 (2) CISG rather than to overstretch certain general principles such as good faith or reasonableness.

187

Bridge (2017a), para. 10.40. Schwenzer (2017b), p. 12. 189 CISG, Preamble, paragraph 3. 190 Meyer (2009), p. 324; Müller-Chen in: Schlechtriem et al. (2019), Article 46, para. 23. 191 Schroeter (2017a), p. 48; see, generally on economic analysis in the CISG, Cenini and Parisi (2009), p. 151. 188

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4 Concluding Remarks The development of an aging text of uniform law is not the task of one court or interpretative body but a challenge for the international legal community that is to be mastered in a common effort. An important step in the effort to keep the CISG up to date without sacrificing uniformity is to create a transparent methodological framework that mirrors the main features and peculiarities of the Convention and allows for the development of new rules via international judicial and scholarly dialogue. The experience of the last 40 years has shown a lot of promise in that courts and scholars are willing and able to engage in an international dialogue and to jointly develop new solutions. The goals of Article 7 (1) CISG are taken seriously. There are, however, certain cracks in the overall picture. The very controversial debates on hardship, standard terms or set-off are not settled, and different understandings of broad general principles may have stifled debates. Solutions were lost in translations between different legal systems and preconceptions. The idea of an independent development as proposed here is an attempt to offer a framework for these difficult discussions while acknowledging that not all questions that should be solved within the Convention are predetermined by its general principles. Agreement on such a framework and transparency as to the criteria for further development will arguably lead to a more fruitful and solution-oriented approach that is less concerned with the conundrum of good faith and more interested in which rules fit the system and the goals of the Convention. A methodological framework can of course not solve all the problems of an aging text of uniform law. Disagreement on certain issues will persist, and adjudicators will still have to apply domestic law pursuant to Article 7 (2) CISG in many cases where a uniform solution is not necessary or not possible. This should, however, not discourage adjudicators from adopting the framework that should in the long run benefit uniformity through international dialogue. If this international conversation is fruitful, an ossification of the CISG need not be feared—at least not for the next 40 years.

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Schlechtriem P (2007) Non-material damages – recovery under the CISG? Pace Int Law Rev 19:89–102 Schlechtriem P, Schroeter UG (2016) Internationales UN-Kaufrecht, 6th edn. MohrSiebeck, Tübingen Schlechtriem P, Schwenzer I (eds) (2016) Commentary on the UN Convention on the International Sale of Goods (CISG), 4th edn. OUP, Oxford Schlechtriem P, Schwenzer I, Schroeter UG (eds) (2019) Kommentar zum Einheitlichen UN-Kaufrecht – CISG, 7th edn. C.H. Beck, Munich Schmid C (1996) Das Zusammenspiel von Einheitlichem UN-Kaufrecht und nationalem Recht: Lückenfüllung und Normenkonkurrenz. Duncker & Humblot, Berlin Schmidt K (ed) (2018) Münchener Kommentar zum Handelsgesetzbuch, Band 5, 4th edn. C. H. Beck, Munich Schroeter UG (2013) Defining the borders of uniform international contract law: the CISG and remedies for innocent, negligent, or fraudulent misrepresentation. Villanova Law Rev 58:553–587 Schroeter UG (2017a) Gegenwart und Zukunft des Einheitskaufrechts. RabelsZ 81:32–76 Schroeter UG (2017b) Does the 1980 Vienna sales convention reflect universal values? The use of the CISG as a model for law reform and regional specificities. Loyola of Los Angeles Int Comp Law Rev 41:1–50 Schwenzer I (2009) Force majeure and hardship in international sales contracts. Victoria Univ Wellington Law Rev 39:709–725 Schwenzer I (2014) Interpretation and gap-filling under the CISG. In: Schwenzer I, Atamer Y, Butler P (eds) Current issues in the CISG and arbitration, pp 109–118 Schwenzer I (2016) The CISG – a fair balance of the interests of the seller and the buyer. In: Schwenzer I, Pereira C, Tripodi L (eds) CISG and Latin America, regional and global perspectives. Eleven, The Hague, pp 79–91 Schwenzer I (2017a) Ethical standards in CISG contracts. Uniform Law Rev 22:122–131 Schwenzer I (2017b) The CISG Advisory Council. In: Schwenzer I (ed) The CISG Advisory Council opinions. Eleven, The Hague, pp 1–12 Schwenzer I, Hachem P (2009) CISG – successes and pitfalls. Am J Comp Law 57:457–478 Schwenzer I, Leisinger B (2007) Ethical values and international sales contract. In: Cranston R, Ramberg J, Ziegel J (eds) Commercial law challenges in the 21st century, Jan Hellner in Memoriam. Iustus, Stockholm, pp 249–275 Schwenzer I, Muñoz E (2019) Duty to renegotiate and contract adaptation in case of hardship. Uniform Law Rev 24:149–174 Schwenzer I, Hachem P, Kee C (2012) Global sales and contract law Smits J (ed) (2012) Elgar encyclopedia of comparative law, 2nd edn. Elgar, Cheltenham Spagnolo L (2009) The last outpost: automatic CISG outs, misapplications and the costs of ignoring the Vienna Sales Convention for Australian Lawyers. Melb J Int Law 10:141–216 Torsello M (2004) Common features of uniform commercial law conventions: a comparative study beyond the 1980 uniform sales law. Sellier, Munich Tripodi L (2016) Towards a new CISG, the prospective Convention on the International Sale of Goods and Services. Brill Nijhoff, Leiden Van Alstine MP (1998) Dynamic Treaty Interpretation. Univ Pa Law Rev 146:687–793 Veneziano A (2010) UNIDROIT principles and CISG: change of circumstances and duty to renegotiate according to the Belgian Supreme Court. Uniform Law Rev 15:137–149 Vogenauer S (2001) Die Auslegung von Gesetzen in England und auf dem Kontinent, Band II. MohrSiebeck, Tübingen Witz C (2001) CVIM: Interpretation et Questions Non Couvertes. Int Bus Law J, pp 253–272 Witz C, Köhler B (2017) Panorama Droit de la vente internationale de marchandises. Recueil Dalloz, pp 613–625

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Zeller B (2002) The Black Hole: where are the four corners of the CISG? Int Trade Bus Law Ann 7:251–264. Zeller B, Andersen CB (2016) Good faith – the Gordian know of international commerce. Pace Int Law Rev 28:1–28 Zimmermann R (2019) Juristische Methodenlehre in Deutschland. RabelsZ 83:241–287

Forever Young: The Gap-Filling Mechanism of the CISG As a Factor of Its Modernization Marko Jovanović

Contents 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Method of Interpretation of Article 7(2) CISG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 Use of Methodology Rooted in Domestic Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 Use of Methodology Rooted in International Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 Use of “CISG-Specific” Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 The Elements Defining the Scope of Application of Article 7(2) CISG . . . . . . . . . . . . . . . . . . . . 3.1 Matters Governed by the Convention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 Matters Not Expressly Settled in the Convention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 The Gap-Filling Role of General Principles upon Which the CISG Is Based . . . . . . . . . . . . . . 5 The Use of the Rules of Private International Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

41 43 44 44 47 48 49 50 51 55 57 58

1 Introduction In April 2020, the United Nations Convention on Contracts for the International Sale of Goods (hereinafter “the CISG” or the “Convention”) marked its 40th anniversary.1 For more than three decades of its application, the Convention has grown into “(. . .) the most significant piece of contract legislation in effect at the international level”2 and became “(. . .) a tremendous success story, unexpected even by its

1 The Convention was signed on 11 April 1980 and entered into force on 1 January 1988. Unfortunately, the various anniversary events organized or endorsed by the United Nations Commission on International Trade Law had to be cancelled or postponed due to the coronavirus pandemic. 2 Lookofsky (2000), p. 18.

M. Jovanović (*) University of Belgrade, Faculty of Law, Belgrade, Serbia e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 Z. Meškić et al. (eds.), Balkan Yearbook of European and International Law 2020, Balkan Yearbook of European and International Law (2021) 2020: 41–60, https://doi.org/10.1007/16247_2020_12, Published online: 11 February 2021

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staunchest supporters”.3 The CISG gained this flattering reputation due to the fact that it governs arguably more than 80% of international sales contracts and that it is currently accepted by more than 90 States,4 among which nine of the ten largest importing and exporting economies according to the World Trade Organization statistics.5 The reasons for such a wide acceptance of the Convention lay not only in its political acceptability6 but also in its ability to efficiently adapt to the challenges of modern times and to be applied to situations that have not existed or could have not been foreseen at the time of its drafting, such as the conclusion of the contract for sale of goods through the means of electronic communication.7 One of the provisions that enable the flexibility and adaptability of the CISG is its Article 7(2). Praised by some authors as potentially the most important provision of the Convention (along with Article 7(1)),8 it provides for the gap-filling mechanism under the CISG in the following terms: Questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law.

On the surface, this provision seems rather straightforward, simple and easy to apply: once a court or arbitration is faced with a gap in the CISG, it will first try to fill it in accordance with a general principle of the Convention, and if that approach appears to be impossible, it will resort to the rules of private international law. However, on closer inspection, Article 7(2) CISG reveals its manifold complexities and difficulties for application. These refer mainly to the identification of the “matters governed by the Convention and not expressly settled in it” (Sect. 3) and “the general principles on which [the Convention] is based” (Sect. 4). Although this has not been often discussed in scholarly writings, we see some merit in analyzing the reference to the rules of private international law as well (Sect. 5). The inadequate application of these elements may jeopardize the role of Article 7(2) CISG as a factor of its modernization. Therefore, in order to understand how the CISG remains up-to-date with novel trends in international trade law, it is necessary to explain how each of the aforementioned elements function. But before we attempt to bring our contribution to the debate surrounding the mechanism of application of Article 7 (2) CISG, we will first try to establish the pertinent method of interpretation of that provision (Sect. 2) from the standpoint of general rules governing that issue. This

3

Schlechtriem (2005a, b), p. 27. The current status of the Convention is available at: https://uncitral.un.org/en/texts/salegoods/ conventions/sale_of_goods/cisg/status. 5 Schwenzer and Marti Whitebread (2014), pp. 7–8. The only major world economy that is (still) not bound by the CISG is the United Kingdom. 6 Ferrari (2008), p. 414. 7 See in that sense CISG Advisory Council Opinion No. 1, available at: http://www.cisgac.com/file/ repository/CISG_Advisory_Council_Opinion_No1.pdf. 8 Bridge (1999), p. 56; Perales Viscasillas (2018), p. 113. 4

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step is of crucial importance for the analysis of Article 7(2) CISG because prior to interpreting this provision, one must adopt the adequate yardstick for interpretation.

2 Method of Interpretation of Article 7(2) CISG The legal nature of the CISG is dual: on the one hand, it is a multilateral treaty of public international law, and on the other it is an act that sets out the unified substantive rules on the formation of contracts for the international sale of goods and the obligations of buyers and sellers under such contracts.9 Recognizing that this dual nature may pose problems to the interpretation and, consequently, the application of the CISG, its drafters have decided to equip the Convention with some specific rules on its interpretation. These rules are mainly to be found in Article 7 (1) CISG, while some other provisions define or attach more specific meaning to certain terms used by the Convention, such as Article 10 CISG (which contains instructions on how to interpret the term “place of business” in case a party to the contract for the international sale of goods has several places of business or no such place at all) or Article 13 (which specifies the meaning of the term “writing”). Since it is of a general nature, our attention will be focused on Article 7(1) CISG. This provision reads: “In the interpretation of this Convention, regard is to be had to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade.” It seeks to fulfil two main aims: to ensure the autonomous interpretation of the Convention, free from preconceptions of domestic laws, and to promote the observance of good faith in international trade.10 However, Article 7(1) CISG only defines the goals of interpretation, but it remains silent on the actual and specific methods that one is to apply when interpreting the provisions of the Convention.11 Therefore, Article 7(1) CISG alone is not sufficient to provide all necessary tools for the interpretation of the Convention, so one needs to seek additional guidance. The question arises as to where this additional guidance should be sought. There seem to be three conceivable answers: to resort to national (i.e. domestic) methodology of interpretation (Sect. 2.1), to rely on the interpretative methodology of international law (Sect. 2.2) or to develop a specific CISG-targeted interpretative methodology (Sect. 2.3). It should be noted, though, that not all of these methods are theoretically and practically admissible. Therefore, they all deserve to be explained and discussed in more detail.

9

Volken (1986), p. 20. Schwenzer (2014a, b), pp. 102–103. 11 Volken (1986), p. 39. 10

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Use of Methodology Rooted in Domestic Law

Most of the CISG provisions set uniform rules on the conclusion, performance and consequences of non-performance of contracts for the international sale of goods. It is therefore unsurprising that the way in which the largest part of the provisions of the Convention are worded is closely resemblant of domestic law statutes governing contractual matters. This stylistic resemblance may mislead the interpreters into thinking that they may read the CISG with the same lenses that they use for reading the domestic statues. The use of domestic standards for the interpretation of the CISG represents the so-called homeward trend that has often been criticized as inconsistent and irreconcilable with one of the main goals of the Convention – the unification of international sales law.12 Indeed, the use of interpretative methodology proper to domestic law would contravene the two explicit principles of interpretation set by Article 7 (1) CISG: the observance of the Convention’s international character and the need to promote uniformity in its application. Accordingly, dispute resolution forums and other interpreters should abstain from resorting to domestic interpretative methodology when searching for the meaning of the terms used in the CISG, no matter how similar or even identical those terms may appear to be to the ones used by domestic law.

2.2

Use of Methodology Rooted in International Law

Seeing that the CISG is (among others) a multilateral treaty governed by public international law, it would seem natural to resort to Articles 31–33 of the 1969 Vienna Convention of the Law of Treaties (hereinafter “the VCLT”) when additional guidance for interpreting its provisions is needed.13 Nevertheless, it has been often argued that the CISG should not be interpreted in light of the rules of public international law and, specifically, the VCLT.14 Many justifications for this argument have been put forward. Professor Schlechtriem contends that the rules of interpretation contained in the VCLT are geared primarily to bilateral treaties and that they place too much emphasis on the intentions of the Contracting States, so they are not appropriate for the interpretation of conventions dealing with private law

12 See e.g. Secretariat Commentary (1979), p. 17; Gruber (2009), p. 110; Mazzotta (2010), pp. 86–87; DiMatteo and Jansen (2014), p. 81; Schwenzer (2014a, b), p. 119. 13 The rules of interpretation of international treaties contained in the VCLT are seen, at least nowadays, as a reflection of international customary law in that matter, so they should be presumed to be binding upon all the subjects of public international law. See in that sense: Sorel and Boré Eveno (2011), p. 812. 14 Schlechtriem (2005a, b), p. 96–97; Schwenzer and Hachem (2016), p. 130; Perales Viscasillas (2018), p. 115.

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matters where, in his view, a greater degree of legal certainty is necessary than in international law.15 Unfortunately, he does not provide any explanation for such position that would allow for a better insight into his train of thought and set the ground for discussion. Professor Perales Viscasillas relies on the UNCITRAL Secretariat Explanatory Note to Article 5 of the 2005 UN Convention on the Use of Electronic Communication in International Contracts (the wording of which is identical to the wording of Article 7 CISG), where the Secretariat noted that this provision “(. . .) follows a practice in private law treaties to provide self-contained rules of interpretation, without which the reader would be referred to general rules of public international law on the interpretation of the treaties that might not be entirely suitable for the interpretation of private law provisions” and notes that the interpretative rules in Article 7 CISG represent a lex specialis in relation to the VCLT.16 Finally, in a somewhat milder fashion, Professors Volken and Honnold generally refuse the idea that the VCLT could apply to the “operative” part of the CISG, but they concede that the VCLT might nevertheless govern “State-to-State” obligations contained in the CISG, which are to be found in its Part IV.17 It follows from the arguments cited above that the main reason for reluctance towards the possibility of applying the VCLT to the interpretation of the CISG lies in the aforementioned dual nature of the CISG and the fact that its preponderant part deals with private law matters. Even though the VCLT does not distinguish between different types of international treaties, a large part of its Preamble evokes the role of the treaties in the promotion and development of international relations and peaceful cooperation between States. Accordingly, since the CISG is not a “pure” public international law treaty in the sense that the greatest part of its provisions does not contain public law obligations aimed at the obligations of Contracting States, one might be tempted to believe that the interpretation of the CISG should not be governed by the VCLT. Though it may look logically consistent, the abovementioned approach to the interpretation of the CISG seems to fail to appreciate that the Convention does not consist only of the provisions governing private law matters and that the very foundations of the Convention belong to the realm of public international law. Namely, the public law essence of the CISG is the reciprocal commitment of the Contracting States to adopt and maintain a unified set of rules that would govern a large array of issues related to the international sale of goods. Thus, when interpreting the CISG in order to establish the content or the meaning of a particular substantive provision, one is actually seeking to find out what the Contracting States have agreed to become bound to. That must be regarded as a public law aspect of the CISG, so Articles 31–33 VCLT may and should come into play, along with other interpretative rules contained in the CISG itself.18 This is especially true in relation

15

Schlechtriem (2005a, b), p. 97. Perales Viscasillas (2018), p. 115. 17 Volken (1986), p. 38; Honnold (1999), pp. 103–104. 18 Magnus (2009), p. 47. 16

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to Article 7(2) CISG. For example, when attempting to identify “a matter governed by but not expressly settled in the Convention”, one may find useful guidance in the preparatory work of the Convention and the circumstances of its conclusion, which are in fact supplementary means of interpretation of international treaties embodied in Article 32 VCLT. With this in mind, and in order to dissipate the fear that the use of the interpretative methods prescribed by the VCLT might disavow the principles of interpretation laid down by the CISG, it appears that the question of the proper methodology for the interpretation of the Convention should be further refined. The question should not be whether the interpretative rules contained in the VCLT should replace the ones contained in the CISG but rather whether they should complement them in case Article 7(1) CISG proves to be insufficient to address a certain problem of interpretation. It is well observed that Article 7(1) CISG is a lex specialis in relation to Articles 31–33 VCLT.19 Accordingly, they should take precedence in application. However, it may well be the case that Article 7(1) CISG on itself may sometimes be insufficient to fully resolve a particular problem of interpretation. In such circumstances, additional tools, such as the ones laid down in the VCLT, will have to be used.20 But one of the specificities of Article 7(2) CISG is that it is a dynamic element of the Convention, which allows it to adjust to the new needs and circumstances of international trade.21 As a consequence of this specificity, it may happen that not even the rules of interpretation contained in the VCLT can resolve a particular problem.22 This has led some authors to suggest that the interpretation of the CISG, including Article 7(2), requires a specific and unique methodology.

19

See Perales Viscasillas (2018), p. 115. For example, the contextual interpretation, which is recognized by Article 31 VCLT as one of the general methods of treaty interpretation, is not mentioned in Article 7(1) CISG. Nevertheless, it is precisely the contextual interpretation that led to the understanding that the exemption provision (Article 79) is not applicable to the issue of interest (Article 78), since the two provisions are placed under separate sections. See Sect. 2.3 infra. 21 Schwenzer and Hachem (2016), p. 133. 22 For example, the rules contained in Articles 31–33 VCLT do not seem to be useful in providing guidance for the interpretation of the conformity provision (Article 35) in regard to the public law requirements of the place of destination. The criteria for assessing conformity had to be developed by case law. See e.g. German Supreme Court, 8 March 1995 (New Zealand mussels case); District Court Ellwangen (Germany), 21 August 1995 (Spanish paprika case); Supreme Court of Austria, 25 January 2006 (Frozen pork liver case). 20

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Use of “CISG-Specific” Methodology

The existence of a “CISG-specific” methodology of interpretation has been extensively discussed in scholarly writings.23 This approach can be summarily described as a blend of the interpretative rules contained in Articles 31–33 VCLT and the instructions and goals of interpretation set forth in Article 7(1) CISG.24 In other words, the “CISG-specific” methodology of interpretation represents the result of filtration of the VCLT interpretative tools through the requirements defined in Article 7(1) CISG. The result of that filtration is a somewhat modified conception of the interpretative tools prescribed by the VCLT and the emergence of some new, more targeted means of interpretation. The elements of the “CISG-specific” methodology that may be considered to be rooted in the VCLT are the literal, contextual and historical interpretation. The literal interpretation in the sense of the “CISG-specific” toolbox means that the “ordinary meaning” of a term should be the one that is “generally used and understood in the CISG community”.25 Therefore, the general rule of treaty interpretation contained in Article 31 VCLT gets a more refined meaning when read against the autonomous characterization requirement introduced by Article 7(1) CISG. This modification may have a significant practical value since the CISG-based “ordinary meaning” of certain notions used in the Convention might be different from the meaning of those notions in national laws. For example, the term “good faith” used in Article 7 (1) CISG has a different meaning than its “counterparts” in national legal systems – bonne foi (France) or Treu und Glauben (Germany).26 The contextual interpretation, in the same way as defined by the VCLT, would take into consideration the preamble of the CISG and the place of the provision subjected to interpretation in the general structure of the Convention.27 This is why it was understood, for example, that the exemption provision from Article 79 CISG does not apply to the interest provision (Article 78 CISG), as the two provisions are placed in different sections of the Convention.28 Finally, the historical interpretation would lead to the use of travaux préparatoires, susceptible of shedding more light on the “legislative intentions” of the CISG drafters.29 In practical terms, this method of interpretation can be applied with relative ease since the proceedings and the documents from the Vienna Diplomatic conference are made available in the Official Records and supported by the legislative records contained in UNCITRAL Yearbooks, as well by the Secretariat 23

See e.g. Schlechtriem (2005a, b), pp. 101–102; Magnus (2009), pp. 52–58; Schwenzer (2014a, b), pp. 112–114; DiMatteo and Jansen (2014), pp. 88–95; Schwenzer and Hachem (2016), pp. 129–132; Perales Viscasillas (2018), pp. 127–134. 24 Magnus (2009), p. 52. 25 Magnus (2009), p. 53. 26 For more details on this difference see Zeller (2009), pp. 133–149. 27 Schwenzer and Hachem (2016), p. 129; Perales Viscasillas (2018), pp. 129–130. 28 Magnus (2009), p. 54. 29 Schwenzer and Hachem (2016), pp. 129–130; Perales Viscasillas (2018), pp. 128–129.

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Commentary. However, some authors caution against excessive reliance on the historical interpretation as it may sometimes be of limited assistance, especially in case of need for developing a dynamic and progressive approach to interpretation.30 Apart from these elements, which are identical or similar to the interpretative tools prescribed by the VCLT, the “CISG-specific” methodology also recognizes some more “tailor-made” means of interpretation. These include the use of the comparative method (though in a very cautious and limited way), the analysis of case law and scholarly writings and, more recently, inquiry into the opinions of the CISG Advisory Council – a private initiative that gathers renowned international experts in the field of international sales law and seeks to promote uniform application of the CISG by preparing authoritative opinions on various disputed issues arising out of the Convention.31 To sum up, the “CISG-specific” methodology does not appear to be drastically different from the “classical” approach to the interpretation of international treaties, conceptualized by Articles 31–33 VCLT. Rather than overturning the default interpretative legal framework of public international law, the “original” elements of this methodology only modify it to fit the specifics of the CISG and help in keeping the whole system of interpretation flexible so that it can adapt to the ever-growing new practical needs.32 Therefore, the “CISG-specific” methodology actually exemplifies the necessary synergy between Articles 31–33 VCLT and Article 7(1) CISG.

3 The Elements Defining the Scope of Application of Article 7(2) CISG The gap-filling mechanism defined in Article 7(2) CISG applies to “matters governed by the Convention and not expressly settled in it”. Thus, in order to launch the application of this mechanism and to “open the door” of Article 7(2) CISG, a “double keyhole test”33 must be performed. First, it is necessary to establish the scope of application of the Convention, i.e. to circumscribe the matters governed by the Convention (Sect. 3.1). Once this is done, the identification of the scope of application of Article 7(2) CISG must be further refined through detection of the matters not expressly settled in the Convention (Sect. 3.2).

30

Perales Viscasillas (2018), pp. 128–129. Cf. Schlechtriem (2005a, b), p. 102; Magnus (2009), pp. 57–58; DiMatteo and Jansen (2014), pp. 95–99; Schwenzer and Hachem (2016), pp. 130–132; Perales Viscasillas (2018), pp. 130–134. 32 Magnus (2009), p. 59. 33 We decided to borrow the expression used for explaining the jurisdiction of ICSID arbitration in investment disputes as we believe that the same metaphor can also depict very well the way of application of Article 7(2) CISG. 31

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Matters Governed by the Convention

The scope of application of the CISG is defined in its Articles 1 through 5 by way of successive indications that could graphically be represented by some form of a funnel – the domain of the Convention is gradually narrowing down from one provision to the other. At the outset, Article 1 CISG announces that the Convention applies to international sales contracts. This broadly determined field of contracts is then somewhat reduced by Article 2 CISG, which excludes certain types of sales (sale by auction or on execution or otherwise by authority of law) or certain types of goods (stocks, shares, investment securities, negotiable instruments, money, ships, vessels, hovercraft, aircraft and electricity) from the scope of application of the Convention. Article 3 CISG goes on to specify the sales transactions to which the Convention does not apply (contracts for the supply of goods to be manufactured or produced where the party who orders the goods undertakes to supply a substantial part of the materials necessary for such manufacture or production and contracts in which the preponderant part of the obligations of the party who furnishes the goods consists in the supply of labor or other services), and Article 4 CISG carves out certain issues otherwise inherent to sales contracts (the validity of the contract or of any of its provisions and the effect that the contract may have on the property in the goods sold), leaving within the ambit of the CISG only the formation of the contract for sale and the rights and obligations of the seller and the buyer arising from such a contract.34 Finally, Article 5 CISG excludes the liability of the seller for death or personal injury caused by the goods from the scope of application of the Convention. Thus, even though the CISG was sometimes praised as the exhaustive piece of legislation governing “the entirety of the contractual relation”,35 the provisions defining the scope of application of the Convention do not warrant such an enthusiastic conclusion. Rather, the Convention (only) applies to the formation of contracts for the international sale of goods and the obligations of buyers and sellers arising therefrom, with the exclusion of certain types of goods, certain types of sales, certain transactions and certain issues, as laid down in Articles 2–5 CISG. Accordingly, when determining whether a certain matter is governed by the Convention and whether it falls under the ambit of Article 7(2) CISG, a particular attention must be given to the classification or characterization of such matter, i.e. the determination of its legal nature and, consequently, its subsumption under the appropriate norm of the CISG – whether the one that leads to the application of the Convention or the one that leaves such a matter out of the scope of the CISG. In light of the interpretative goal set forth in Article 7(1) CISG – respect for the international character of the Convention – the characterization should be performed in an autonomous way. This means that it should not be dictated or influenced by the way in which the domestic law would characterize a matter at hand, but it should be performed “against the 34 For the distinction between transactions and issues not governed by the CISG see Honnold (1999), p. 63. 35 Tribunal fédéral suisse, arrêt du 19 février 2004, para. 3.2.2.

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background of the Convention”36 and with regard to the uniform tendencies of its application.

3.2

Matters Not Expressly Settled in the Convention

The second part of the entry gate into the realm of Article 7(2) CISG requires that a matter governed by a Convention be not expressly settled in it. This requirement aims at two possible situations. The first situation would be the one where a matter falling under the scope of the CISG is not addressed by the Convention at all, whereas the second situation would be the one where such a matter is only partly regulated by the provisions contained in the CISG.37 At least two reasons can be envisaged to explain why a certain matter falling under the scope of the CISG is not addressed by its provisions, either entirely or partially. The first one is the longevity of the CISG. Namely, the Convention was drafted four decades ago, and its rules reflect the state of the art of international trade at the time. In the meantime, international trade has significantly evolved and thus put new challenges before the law that governs it.38 One of such examples is the question of whether and how the CISG applies to the contracts for the sale of software. On the assumption that such transactions are governed by the CISG,39 its Article 7(2) provides for a mechanism of ascertaining the relevant rules that should be applied. Thus, by enabling the endorsement of technical and economic developments, the gap-filling mechanism of the CISG represents the progressive element of the Convention, which allows it to grow and adjust to the new needs.40 In addition to this situation, the CISG may fail to set specific rules for a certain matter because its drafters omitted to address it, either willingly or by oversight. In the final outcome, it is irrelevant whether the omission was purposeful or not because the matter falls under the scope of the CISG in any event. One of the often-cited examples of a matter where the drafters of the CISG deliberately abstained from setting the specific rules for a matter governed by the Convention is the issue of the rate of interest under Article 78.41 Namely, during the negotiations of Article 78, stark differences appeared between the delegates coming from different cultural, social and religious backgrounds, and since no compromise

36

Huber (2006), p. 231. Bridge (1999), p. 60. 38 For more details on socio-economic changes and technological developments that might influence the application of the CISG see Meyer (2009), pp. 322–324. 39 Though initially this was not unanimously accepted in doctrine, the current prevalent opinion supports the applicability of the CISG to sales transactions involving software technology. For a recent study of this issue see Muñoz (2019), pp. 281–301. 40 Schlechtriem (2005a, b), p. 103. 41 Schlechtriem (2005a, b), p. 103; Schwenzer and Hachem (2016), p. 133. 37

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could have been reached, the issue was left to case law for further crystallization of pertinent rules.42 Despite some initial resistance to the idea that this matter should be governed by the CISG,43 the doctrine44 and case law45 have started to extrapolate the criteria on determining the rate of interest on the basis of the Convention’s general principles.

4 The Gap-Filling Role of General Principles upon Which the CISG Is Based Once a gap within the CISG is detected, Article 7(2) prescribes that the primary way in which it should be filled is through the application of the Convention’s general principles. In order to comply with this instruction, one must first identify the general principles upon which the Convention is based. This task is by no means easy since general principles of the CISG appear under several forms. It is possible to distinguish at least four different ways in which general principles present themselves. These are: 1. Principles that are expressly said to be applicable to the whole of the Convention. 2. Principles contained in a number of provisions and that can be considered to be of a general nature. 3. Principles contained in only one provision but which can nevertheless be deemed to be of a general nature. 4. Principles that are not explicitly contained in the Convention but which permeate it to the extent that they can nevertheless be deemed to be its general principles.46 Although they are the easiest to recognize, the principles appearing in the first form are very scarce. Arguably, the only principle of this kind is the principle of good faith.47 However, when relying on the principle of good faith as a gap-filling tool on the basis of Article 7(2) CISG, one must be very mindful not to mix it with the duty to observe good faith in international trade as a guideline for the

42

Schlechtriem (1986), pp. 99–100; Enderlein and Maskow (1992), pp. 310–311. See e.g. Schlechtriem (1986), p. 100; Nicholas (1987), p. 570; Janssen and Kiene (2009), pp. 267–268. For case law stating that the issue of interest rate is not governed by the CISG see e.g. Higher Cantonal Court of Valais (Switzerland), 28 January 2009 (Fiberglass composite materials case); Federal District Court of New Jersey (USA), San Lucio v. Import & Storage Services, 15 April 2009. 44 Schwenzer and Hachem (2016), p. 137; Perales Viscasillas (2018), p. 137. 45 See Serbian Chamber of Commerce, 6 May 2010. 46 Cf. Magnus (1997), p. 40; Eiselen (2008), p. 115. 47 Magnus (1997), p. 42. 43

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interpretation of the Convention on the one hand and with the domestic law conceptions of the principle of good faith on the other.48 The general principles contained in a number of provisions (but not necessarily in all where one would expect to find them) are fairly numerous. This is the way in which appear some fundamental principles of the Convention, such as the principle in favorem contractus (most significantly in Arts. 49 and 64 but also in Arts. 19, 21, 34, 37, 46, 51, 73, etc.),49 the principle of reasonableness (e.g. Arts. 8, 33, 34, 39, 43, 46, etc.), the principle of informality (e.g. Arts. 11 and 29) or the principle of estoppel (e.g. Arts. 16 and 29). As far as the general principles appearing at only one place in the Convention are concerned, it may seem conceptually strange, at least at the outset, to grant them the general character despite the fact that they concentrated in just one provision. However, on a closer inspection, it is possible to recognize that these principles indeed have a fundamental value for the legal order established by the CISG and that the reason for their scarce textual presence is the internal organization and the architecture of the Convention. Some of the principles that belong to this group include the principle of full compensation (Art. 74),50 the duty to mitigate (Art. 77)51 or perhaps even the principle of party autonomy (Art. 6).52 Finally, the principles that are not explicitly contained in the Convention but which permeate it to the extent that they can nevertheless be deemed to be its general principles are very difficult to recognize because they can be detected only upon reading the entire Convention and analyzing it as a whole. Some obvious examples of this type of general principles are the principle of pacta sunt servanda53 or in dubio pro Conventione, which implies that in case of doubt whether a certain matter falls under the scope of the Convention, preference should be given to the CISG over domestic law.54 Due to the multitude of ways in which they can appear, the general principles of the CISG are not always easily detectable. That is why many attempts were made to

48 Schlechtriem (2005a, b), p. 95; Lando (2005), pp. 391–393; Schwenzer (2014a, b), p. 116. For an example of blurring the boundaries between the principle of good faith as an interpretative principle of the Convention and as an underlying principle of the CISG see Appellate Court of Naumburg (Germany), 13 February 2013 (Cereals case). For an example of a more meticulous distinction between the two principles see Supreme Court of Germany, 26 September 2012 (Clay case), paras. 33–34. 49 More on this principle see Keller (2008), pp. 247–266; Janssen and Kiene (2009), pp. 273–274. 50 See Supreme Court of Austria, 9 March 2000 (Roofing material case). 51 See District Court of Rimini (Italy), Al Palazzo v. Bernardaud di Limoges, 26 November 2002. 52 See District Court of Padua (Italy), 25 February 2004 (Agricultural products case). 53 Magnus (1997), p. 40, stating that the sentence is not expressed anywhere, but apparently constitutes the basis for the exemption provision contained in Article 79. Pacta sunt servanda is qualified as a general principle also by Perales Viscasillas (2018), p. 140. 54 For argumentation in favor of recognizing this principle as a general principle of the CISG see Lookofsky (2003), pp. 263–289. For confirmation that this principle is a general principle of the Convention see CISG Advisory Council (2014), para. 3.5.

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distill them from the text of the Convention and to elucidate their content. The results of these endeavors are quite varied. Some authors single out just a few very broadly defined principles since they believe that the general principles, precisely because they are general, should be overarching and vague. This approach was taken by, inter alia, Professor Kritzer, who recognizes four general principles of the CISG: (1) the duty to cooperate, (2) the duty to disclose material information, (3) the principle of reasonableness and (4) equal treatment and respect for the different cultural, social and legal backgrounds of individual traders.55 On the other hand, some authors try to develop a very detailed list of principles based on the findings expressed in scholarly writings and case law. For example, Professor Magnus distinguishes as many as 26 general principles: (1) party autonomy, (2) pacta sunt servanda, (3) good faith, (4) reliance protection, (5) standard of reasonableness, (6) forfeiture, (7) prevalence of usage, (8) lack of form requirements, (9) favor contractus, (10) duty to avoid damages, (11) general duty to cooperate, (12) duty to pay damages, (13) concurrent performance, (14) set-off of claims arising under the Convention, (15) retention right, (16) passing of risk only in case of identification of the goods to the contract, (17) passing of encumbrances and fruits with passing of risk, (18) calculation of time limits, (19) theory of dispatch, (20) theory of receipt, (21) maturity without request, (22) imputation of third party conduct and knowledge, (23) currency, (24) place of performance for payment claims, (25) interest (but only in the sense that a sum due under the CISG bears interest from the date it is due), and (26) burden of proof.56 Both authors, however, emphasize that the lists they drew up are not exhaustive.57 These attempts reflect well some of the main difficulties connected with the identification of general principles. First, different legal traditions use different methods of detecting general principles – while the approach of civil law would be to analyze the relevant legislation, the lawyers trained in common law tradition would seek to derive the general principles from case law.58 Second, the general principles of the CISG must be anchored in the Convention and not be derived from other sources of law.59 Third, as much as it would be useful to establish some kind of a compendium of general principles of the CISG, such a list can never be exhaustive. This is because the problem of identifying a general principle of the CISG in practice is never an abstract exercise. It is always triggered by a specific and concrete situation that calls for a specific and concrete normative solution derived from the most relevant general principle for the case at hand.60 This observation is consistent with the idea that Article 7(2) CISG should be a flexible provision capable of providing adequate rule even for the novel questions that could not have been

55

Kritzer (1989), pp. 79–84, cited according to Andersen (2008), p. 27. Magnus (1997), pp. 42–52. 57 Magnus (1997), p. 42; Andersen (2008), p. 27. 58 Bridge (1999), p. 57; Mazzotta (2010), p. 80. 59 In that sense: Bonell (1987), p. 80; Enderlein and Maskow (1992), p. 58; Bridge (1999), p. 61. 60 Huber and Mullis (2007), p. 35. 56

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foreseen at the time of the drafting of the Convention but that should nevertheless be under its umbrella. How should then a general principle of the CISG be identified? It was rightly observed that the general principles in fact represent “the spirit of the CISG”.61 They represent not a leeway for “mere extension of analogous provisions dealing with analogous cases”62 but rather a blueprint or a mold for the crystallization of a rule in the same way as the drafters of the CISG would have done it had they contemplated the issue at hand or had they decided to create a specific norm for it. Thus, in order to discover a general principle, it is necessary to analyze the content, context and history of the specific provisions contained in the CISG, as well as their practical application in case law, in order to establish whether they are permeated by a precept capable of being applied also to cases different from those specifically regulated.63 At the same time, this approach helps to distinguish the general principles from the ones that do not aspire to be applied beyond the provision(s) in which they are contained.64 Even though it seems possible to define the instructions for identifying the general principles of the CISG, the application of Article 7(2) CISG, at least in that part, admittedly remains a difficult task. That has led some authors to note that, despite being nobly envisioned, the reference to general principles creates more troubles than solutions because it may be used to disguise a practitioner’s leap into his/her own domestic legislation.65 As much as this observation could find support and justification in some infamous court decisions and awards,66 the assessment of the role of general principles should nevertheless be somewhat more balanced. Namely, it should be noted that the said critique of the general principles refers to their application and not to their conceptual and desired role. The risk of misapplication may potentially hit any legal norm and not just Article 7(2) CISG. Of course, it might be possible to argue that, due to its vagueness, Article 7(2) CISG might be more prone to such risk, but the instruments for its mitigation are continuously developing. At present, the commentaries and case law on the CISG, which might clear the dilemmas of judges and arbitrators as to the proper application of the Convention, are much more easily accessible than in the days when the Convention was marking its first steps. In any event, it should not be underestimated that the reference to general principles is an important source of vitality of the CISG. In that sense, and despite any controversy surrounding their application, the general principles are seen as an important factor of the much-needed flexibility of the CISG, so

61

Andersen (2008), p. 26. Bonell (1987), p. 80. 63 Cf. Bonell (1987), p. 80; Gruber (2009), p. 109; Ferrari and Torsello (2018), pp. 18–21. 64 Bonell (1987), p. 78; Magnus (1997), pp. 52–53. 65 Andersen (2008), pp. 32–33. 66 For a very detailed list and commentary of judgments and awards exemplifying the homeward trend, including the ones related to Article 7 CISG, see Ferrari (2009), pp. 171–206; Schwenzer (2014a, b), pp. 102–119. 62

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their overall contribution to the uniform application of the Convention should be deemed satisfactory.67

5 The Use of the Rules of Private International Law In case there are no general principles on the basis of which an issue governed by the Convention may be settled, Article 7(2) CISG provides for a back-up solution. That solution consists in the recourse to the law applicable by virtue of the rules of private international law. The language of Article 7(2) makes it clear that the application of domestic law through the rules of private international law is a last resort.68 This is understandable because the passage to domestic law jeopardizes one of the main goals of the Convention – the promotion of uniform application of the CISG. The easiest case for the application of Article 7(2) CISG is the situation where the parties have chosen the applicable law themselves. In the absence of such choice, the situation becomes more complicated. Depending on the competent forum – court or arbitration – the operationalization of the solution contained in Article 7(2) CISG may show some peculiarities and different features. When determining the applicable law, the court will normally start from the relevant conflict-of-law rule contained in the hierarchically highest act in its legal system (lex fori). That could be a supranational source of law (e.g. the Rome I Regulation for the EU Member States), an international treaty (e.g. the 1955 Hague Convention on the Law Applicable to the International Sale of Goods)69 or a national source of law.70 Conversely, as an alternative dispute resolution mechanism, arbitration is much more flexible when determining the applicable law, and it uses a much wider range of methods, including the recourse to “appropriate” conflict-of-law rules (the ones that do not necessarily belong to the law of the seat of arbitration) or even the direct choice of applicable substantive rules, without resorting to conflict-of-law rules at all.71 This difference in approaches among various domestic legal orders and between courts and arbitration raises at least two important concerns. First, when seeking the applicable law for the same issue, a court and an arbitration seated in the same country may use different conflict-of-law rules and techniques and, arguably, come to the application of different substantive provisions. Such an outcome may also occur when same issues are brought before courts of different States. In the context 67

For the same view see Meyer (2009), p. 342. Bonell (1987), p. 83; Schlechtriem (2005a, b), p. 109; Schwenzer and Hachem (2016), p. 141. This was also confirmed in case law. See Appellate Court for the Moscow Region (Russia), 25 June 2001; American Arbitration Association, Macromex v. Globex, Interim Award, 23 October 2007. 69 For an example of the use of this Convention on the basis of Article 7(2) CISG see Cour d’appel de Colmar, 6 novembre 2013, p. 16. 70 Schlechtriem (2005a, b), p. 109. 71 For an overview of different methods of determining the applicable substantive law by arbitrators see Lew et al. (2003), pp. 425–437; Born (2014), pp. 2629–2635. 68

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of the CISG gap-filling mechanism, this turn of events might be seen as inconsistent with the need to promote uniformity in the application of the Convention, as requested by Article 7(1) CISG. Second, if the applicable law for the purposes of Article 7(2) CISG is to be sought in the same way as the applicable law in any other case (in particular, for the matters not governed by the CISG), this would lead to a somewhat “internally paradoxical” result. Namely, the rule for a matter governed but not expressly settled by the CISG and for which there is no general principle in the Convention that could be of use in the case at hand shall be found in the same law that governs the matters falling outside the scope of the Convention. Therefore, in terms of regulatory treatment, there would be no difference between the matters falling outside the scope of the CISG and the matters governed but not expressly settled by the Convention for which there is no adequate principle of regulation in the Convention. Admittedly, this solution may be justified as a “necessary imperfection” caused by the practical impossibility of a global agreement on an all-encompassing instrument of unification of international sales law.72 Additionally, it could be commended for bringing certain stability (in the sense that there would be no unnecessary multiplication of applicable laws for the matters that cannot be settled by a general principle under Article 7(2) CISG and the matters falling outside the scope of the Convention) and legal certainty (in the sense that the judges are (presumably) well versed in applying the domestic conflict-of-law rules and that it is possible to predict the applicable law once the competent court is known). Nevertheless, it is difficult to resist the conclusion that this approach blurs what must be one of the fundamental differences between the matters that should be governed by the Convention and the matters that are left out of its scope. This can be deemed as inconsistent with the duties to promote the international character and the uniform application of the CISG to (all) the matters governed by it. It should also be noted that, strictly speaking, the expression “rules of private international law” does not refer only to conflict-of-law rules. It may also encompass the rules defining the way in which the conflict-of-law rules should be applied, such as the rules on classification (characterization) and renvoi. Their application too differs from one jurisdiction to another and from one dispute settlement system (litigation) to another (arbitration). This obviously increases the likeliness of reaching the divergent result in the same or sufficiently similar situations. In order to affirm the application of the interpretative requirements mandated by Article 7(1) CISG to the conflict-of-law element of the gap-filling mechanism, there might be room for a somewhat different understanding of the instruction to determine the law applicable to a gap “by virtue of the rules of private international law”. It seems to us that, if interpreted in light of the observance of the international character of the Convention and the need to promote uniformity in its application, the instruction to use the rules of private international law under Article 7(2) CISG should be read so as to point to the internationally accepted conflict-of-law rules and the methods of their application (namely the use of autonomous characterization and

72

In that sense: Bonell (1987), p. 82.

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the exclusion of renvoi) to the greatest extent possible under the circumstances. This would help in further reducing the potential for use of the much-criticized “homeward trend” in the application of the CISG and lead to a logically consistent way of interpreting the Convention as a whole, whereby the elements of its provisions that might have different meanings in domestic legal orders should be given an autonomous interpretation. The internationally accepted conflict-of-law rules and the methods of their interpretation should be sought in widely recognized treaties and other sources of international law susceptible of governing the contracts for the international sale of goods. For example, apart from being generally considered by the doctrine to be inapplicable to the matter of contracts for sale of goods,73 renvoi is expressly excluded by the 1955 Hague Convention on the Law Applicable to the International Sale of Goods74 and the Rome I Regulation.75 The support for such interpretation of the reference to the rules of private international law in Article 7(2) CISG could be found in the contextual method which, pursuant to Article 31(2) and (3) VCLT, is not limited to the treaty that is the object of interpretation, but it also extends to other relevant agreements and rules of international law.76

6 Conclusion The gap-filling mechanism contained in Article 7(2) CISG plays a remarkably important role for keeping the Convention sufficiently flexible to accommodate the new needs and circumstances of international trade by providing adequate normative solutions. As it has been demonstrated, this provision helped in crystallizing the rules for some matters in relation to which the drafters of the Convention could not have reached a compromise at the Diplomatic Conference in Vienna (such as the question of interest rate under Article 78 CISG), as well as for the new practices in international sales (such as the sale of software). Accordingly, it seems appropriate to conclude that the CISG owes much of its longevity and youthfulness precisely to its gap-filling mechanism. It would therefore be justified to expect that Article 7 (2) CISG would remain an invaluable factor of the Convention’s modernization and adaptability to the future developments in international trade. However, in order to be able to meet those expectations, the gap-filling mechanism must function properly. One of the key preconditions for its proper functioning is a good understanding of the way in which it is meant to operate. The fact that Article 7(2) CISG is somewhat vaguely worded makes this requirement even more critical. In particular, difficulties may arise with respect to the determination of the

73

Mayer and Heuzé (2014), p. 168. Article 3 of the 1995 Convention. 75 Article 20 of the Rome I Regulation. 76 See in that sense Magnus (2009), p. 54. 74

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scope of application of the gap-filling mechanism and the identification of the general principle(s) that will serve as a mold for producing the solution to the regulatory problem posed. These difficulties may be efficiently resolved by resorting to some of the means that facilitate the uniform application of the Convention, such as the analysis of case law and scholarly writings, as well as the opinions issued by the CISG Advisory Council. Finally, it is possible to identify the elements of the gap-filling mechanism that could further develop so as to enhance its capability to contribute to the uniform application of the CISG. One of those elements is the application of the rules of private international law. The text of the Convention explicitly restricts their ambit of application and makes it clear that their use represents the measure of last resort, which is to be taken when there is no possibility to settle an issue under the general principles of the CISG. Nevertheless, it seems that further harmonization in this field could be achieved through the autonomous interpretation of the notion of rules of private international law. This would hopefully lead to a more harmonized way of determining the law applicable to the matters that cannot be settled by the general principles of the Convention. It remains to be seen whether the CISG will celebrate its future anniversaries with the same youthful spirit and the adaptability as it possesses today. The results of application of Article 7(2) over the previous decades give reasonable hope that no matter how complex and serious the prospective challenges will be, the gap-filling mechanism will provide the Convention with very powerful tools to overcome those challenges with success.

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Schwenzer I (2014a) Divergent interpretations: reasons and solutions. In: DiMatteo L (ed) International sales: a global challenge. Cambridge University Press, Cambridge, pp 102–119 Schwenzer I (2014b) Interpretation and gap-filling under the CISG. In: Schwenzer I, Atamer Y, Butler P (eds) Current issues in the CISG and arbitration. Eleven Publishing, The Hague, pp 109–118 Schwenzer I, Hachem P (2016) Article 7. In: Schwenzer I (ed) Schlechtriem & Schwenzer: commentary on the UN convention on contracts for the international Sale of goods, 4th edn. Oxford University Press, Oxford, pp 119–142 Schwenzer I, Marti Whitebread C (2014) Legal answers to globalization. In: Schwenzer I, Atamer Y, Butler P (eds) Current issues in the CISG and arbitration. Eleven Publishing, The Hague, pp 1–14 Sorel M, Boré Eveno V (2011) Article 31 – convention of 1969. In: Koretn O, Klein P (eds) The Vienna conventions on the law of treaties: a commentary. Oxford University Press, Oxford, pp 804–837 UNCITRAL Secretariat (1979) Commentary on the draft convention on contracts for the international sale of goods, Document A/CONF.97/5, pp. 14–66 Volken P (1986) The Vienna convention: scope, interpretation and gap-filling. In: Šarčević P, Volken P (eds) International Sale of goods: Dubrovnik lectures. Oceana, Washington, D.C, pp 19–53 Zeller B (2009) The observance of good faith in international trade. In: Jansen A, Meyer O (eds) CISG methodology. Sellier, Munich, pp 133–149

Anticipatory Breach of Contract in Uniform Contract Law: Overview of the Solution of the UN Convention on the International Sale of Goods Jelena S. Perović Vujačić

Contents 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 General Rules of the CISG on Anticipatory Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Future Fundamental Breach of Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 The Debtor’s Refusal to Perform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Contract Avoidance: Declaration and Legal Effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 The UNIDROIT Principles and the PECL: Anticipatory Non-performance . . . . . . . . . . . . . . . . 7 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

61 63 64 68 72 73 74 75

1 Introduction It is a general rule that a contract may be avoided only following a breach of contract, where requirements for avoidance have been met. There are, however, exemptions to this rule, allowing, in certain cases, for avoidance prior to the date on which performance is due. As compared to the usual manner of contract avoidance due to a breach of contract, which occurs following such breach, contract avoidance prior to the date of performance is a specific legal remedy that may, under certain conditions, apply to any contract of successive performance.1 In this way, the creditor is allowed to react timely and protect his interests from impending breach, as well as to obtain release from his own obligations. Furthermore, this type of avoidance allows for the conclusion of a new contract with a third party and the removal of uncertainties as to financial issues and helps reduce the damage caused through breach. 1

On contracts of successive performance in general, Perović (1990), pp. 211–213.

J. S. Perović Vujačić (*) University of Belgrade, Faculty of Economics, Belgrade, Serbia e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 Z. Meškić et al. (eds.), Balkan Yearbook of European and International Law 2020, Balkan Yearbook of European and International Law (2021) 2020: 61–76, https://doi.org/10.1007/16247_2020_13, Published online: 26 January 2021

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In the systems of the continental legal tradition, there are considerable differences in the legal treatment and allowability of contract avoidance before the due date, and the doctrine is not devoting much attention to this issue.2 However, in common law, where the foundations for this institute were laid, the application of anticipatory breach has a long tradition and holds an important place in the doctrine and case law.3 With regard to the sources of uniform contract law, avoidance of contract in international sale of goods prior to the date of performance is provided for by the UN Convention on Contracts for the International Sale of Goods from (1980) (hereinafter CISG or “Convention”) within the rules on anticipatory breach of contract.4 A forerunner to these rules were the Uniform Law on International Sales (ULIS) provisions on anticipatory breach of contract,5 which were taken over by the CISG with some modifications and additional wording. Termination prior to due date as a general rule is also known to other sources of uniform contract law: UNIDROIT Principles of International Commercial Contracts6 (hereinafter “UNIDROIT Principles”), Principles of European Contract Law7 (PECL), Draft Common Frame of Reference (DCFR)8 and Common European Sales Law (CESL)9 This paper examines the CISG rules on anticipatory breach of contract. Following an introduction (Sect. 1), an overview of the CISG general rules on anticipatory breach is given, with special reference to fundamental breach of contract as a general ground for contract avoidance under the Convention (Sect. 2). The central theme of the paper is focused on future fundamental breach of contract and the duty to notify the debtor of the intention to avoid the contract (Sect. 3), as well as the debtor’s refusal to perform (Sect. 4). A consideration of declaration and legal effects of contract avoidance wraps up the examination of the CISG rules (Sect. 5). Since a comprehensive examination of the CISG rules on anticipatory breach requires a comparative analysis of the solutions from other sources of uniform contract law, the solutions offered by the UNIDROIT Principles and the PECL concerning anticipatory non-performance are given special consideration (Sect. 6). In conclusion, the

2

For a comparative review of this issue in the countries of continental legal tradition, Perović (2004), pp. 267–271 and the cited authors. 3 The landmark decision in English law establishing that a party may rescind the contract and claim damages if the other party declares, whether explicitly or implicitly, in writing or through concludent actions, that he will not perform his obligations, was rendered in Hochester v. De La Tour in 1853. See Treitel (1988), p. 379 et seq; Richards (1999), p. 273; Anson’s Law of Contract by Guest (1979), p. 529. See also Honnold (1999), p. 439, describing it as “the leading English decision authorizing immediate legal action”. 4 In details on this issue in Serbian, Perović (2004), pp. 247–273; Perović (2002), pp. 413–433. 5 Article 76 Uniform Law on the International Sale of Goods. 6 Article 7.3.3 UNIDROIT Principles of International Commercial Contracts. 7 Article 9:304 Principles of European Contract Law. 8 Article III.-3:504 Draft Common Frame of Reference. 9 Arts. 116, 136 Common European Sales Law.

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paper sums up the issues raised by the CISG rules on anticipatory breach and suggests optimum solution for their application and interpretation (Sect. 7).

2 General Rules of the CISG on Anticipatory Breach The rules of the Convention on anticipatory breach are provided in Article 72 and pertain to the period of time after the contract is concluded and before the date of performance is due. Within this time frame, the Convention differentiates between two types of anticipatory breach. One deals with future fundamental breach of contract (Article 72.1), while the other focuses on the debtor’s refusal to perform (Article 72.3). Under the Convention, “If prior to the date for performance of the contract it is clear that one of the parties will commit a fundamental breach of contract, the other party may declare the contract avoided (Article 72.1). If time allows, the party intending to declare the contract avoided must give reasonable notice to the other party in order to permit him to provide adequate assurance of his performance (Article 72.2). The requirements of the preceding paragraph do not apply if the other party has declared that he will not perform his obligations (Article 72.3).”10 Before going into an examination of the above rules, it should be noted that the Convention adopts the concept of fundamental breach of contract (contravention essentielle, incumplimiento esencial, wesentliche Vertragsverletzung, wezentlijke tekortkoming, infrazione essenziale) as key grounds for avoidance. The Convention provides that “A breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result” (Article 25). Fundamental breach of contract is invoked in terms of a) the buyer’s right to declare the contract avoided if the failure by the seller to perform any of his obligations under the contract or Vienna Convention amounts to a fundamental breach of contract (Article 49.1.a), b) the buyer’s right to declare the contract avoided in its entirety if the failure to make delivery completely or in conformity with the contract amounts to a fundamental breach of contract (Article 51.2), c) the seller’s right to declare the contract avoided if the failure by the buyer to perform any of his obligations under the contract or the Convention amounts to a fundamental breach of contract (Article 64.1.a), d) the right to declare the contract avoided if prior to the date for the performance of the contract it is clear that one of the parties will commit a fundamental breach of contract (Article 72.1) and e) the

10 On history of Art. 72 CISG, see Official Records of the United Nations Conference on Contracts for the International Sale of Goods, Vienna 10 March–11 April, Documents of the Conference and Summary Records of the Plenary Meetings and of the Meetings of the Main Committees, United Nations, New York II, (1991), p. 422; Bennett (1987), p. 525.

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right to declare the instalment contract avoided (Articles 73.1 and 73.2). Furthermore, if the goods do not conform with the contract, the buyer may require delivery of substitute goods only if the lack of conformity constitutes a fundamental breach of contract (Article 46.2). Finally, fundamental breach of contract is important for the passing of risk; if committed by the seller, the buyer will still be able to use the remedies available (require performance or declare the contract avoided), even though the risk has passed to him (Article 70). The definition of fundamental breach of contract adopted in the Convention lays down two main criteria for establishing a breach of contract to be fundamental. One criterion is that it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract and the other is foreseeability of the detriment by the breaching party, or foreseeability of the damage by a reasonable person of the same kind in the same circumstances.11 Since an analysis of the CISG rules on fundamental breach of contract is beyond the scope of this paper, we shall only point out that the general rule on fundamental breach of contract provided in the Convention is important for a proper understanding and interpretation of the rules on anticipatory breach.

3 Future Fundamental Breach of Contract The application of the CISG provisions regarding contract avoidance prior to due date under Articles 72.1 and 72.2 require an exercise of special care and caution. In case of an erroneous assessment by the creditor, when no fundamental breach of contract has occurred, the declaration of contract avoidance is without grounds and the creditor is not entitled to invoke it. Furthermore, a declaration of contract avoidance without grounds may lead to a result where the creditor’s own non-performance amounts to a fundamental breach of contract, which entitles the debtor to declare the contract avoided and claim compensation.12 The key issues raised in the context of Articles 72.1 and 72.2 of the Convention concern the required degree of probability that fundamental breach will occur, terms of giving notice to the debtor of the intention to declare the contract avoided, and the legal effects of failing to give such notice. In the first place, contract avoidance before the date of performance under Article 72.1 requires circumstances under which it is “clear” that fundamental breach will occur. In interpreting the term “clear” in the context of this rule, the doctrine takes a firm position that it is not sufficient for the creditor to be convinced or aware of a 11

On fundamental breach of contract under the Article 25 CISG, see for example: Schroeter (2016), pp. 416–460; Will (1987), pp. 205–221; Björklund (2011a), pp. 333–351; Neumayer and Ming (1993), pp. 206–221; Honnold (1999), pp. 181–212; Ferrari (2006), pp. 489–508; Heuzé (2000), p. 348 et seq. In Serbian, Perović (2004), pp. 122–165. 12 In this sense, Neumayer and Ming (1993), p. 471; Bennett (1987), p. 530. See, Fountoulakis (2016a), pp. 1039–1040, stating that this is a case of “a breach of contract that entitles the debtor to all remedies provided by the Convention (in particular to damages)”.

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probability of fundamental breach of contract; for this legal remedy to be applied, there must be a very high degree of probability that the breach will occur, i.e. the occurrence of breach must be obvious.13 The degree of probability in this regard is assessed according to the objective standard of a reasonable person in terms of Article 8.2 of the Convention.14 On the other hand, for assessing whether the breach is fundamental in a given case, the standard of Article 25 of the Convention applies.15 It is a breach that is yet to occur, causing the creditor such damage as to substantially deprive him of what he was entitled to expect under the contract. The seriousness of the future breach must be foreseeable by the debtor, and there must be a threat of such breach of contract, which, once occurred, would entitle the buyer and the seller respectively to the avoidance of the contract pursuant to CISG Articles 4916 and 64.17 What circumstances may permit contract avoidance on these grounds is a factual issue to be assessed by the court based on the circumstances of each given case. Burden of proof required for contract avoidance on account of future breach of contract lies with the creditor, who must prove that there are grounds that would make it clear to a reasonable person that a fundamental breach will occur.18 In case law, future fundamental breach of contract as grounds for declaring a contract avoided has been admitted in different cases, including the buyer’s failure to pay for prior deliveries of goods to the seller, from which it was clear that future deliveries will not be paid either;19 the buyer’s refusal to make the agreed progress

13 In comparison to the rule on suspension of performance under Art.71 CISG, requiring that it becomes “apparent” that the other party will not perform a substantial part of his obligations, contract avoidance under Art.72.1 requires a higher degree of probability. However, for avoidance to be admitted under Art.72.1, there need not be absolute certainty that fundamental breach of contract will occur; what is required is very high and obvious probability. On required degree of probability in the context of Article 72.1 see Fountoulakis (2016a), pp. 1029–1030; Saidov (2011), p. 954; Bennett (1987), p. 528; Neumayer and Ming (1993), p. 469; Audit (1990), p. 158; Heuzé (2000), p. 383 et seq; Perović (2004), p. 251 et seq. See LG Berlin, 30.09.1992, CISG-Online 70 (Pace) where the Court held that in terms of Article 72 CISG, “clear” requires that a fact be obvious to anyone. 14 In detail on Art 8.2 CISG, Schmidt-Kessel (2016), p. 153 et seq; Zuppi (2011), p. 149 et seq. 15 In detail, Fountoulakis (2016a), p. 1028. 16 On Art. 49 CISG, Müller-Chen (2016), pp. 775–798; Huber (2011), pp. 723–747. 17 On Art. 64 CISG, Mohs (2016), pp. 922–940; Bell (2011), pp. 868–872. 18 Saidov (2011), p. 958. Along the same lines, Fountoulakis (2016a), p. 1040. 19 Thus, for example in a case decided by a German court, a contract for the sale of shoes was concluded, with the seller undertaking to deliver the goods by a certain date, and the buyer undertaking to pay the price within 60 days after the date of the invoice. However, before the delivery date under this contract (second contract), the buyer refused to pay the price for the shoes he had received under a contract these parties had concluded earlier (first contract). The seller therefore requested from the buyer security for payment under the second contract. The buyer refused to honour the request, asserting that the shoes delivered under the first contract had been defective. Incidentally, those shoes had been delivered to the buyer four months earlier, and the buyer had not given notice of any deficiency to the seller. In view of such circumstances, the seller declared the second contract avoided and sold to a third party the goods he had agreed to deliver to

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payments while asserting unfounded complaints;20 the buyer’s failure to open a letter of credit in spite of repeated notices from the seller;21 where it becomes clear that the seller will not be able to deliver conforming goods in the future as a result of the seller’s previous delivery of non-conforming goods,22 particularly in the case where the goods come from the same source, or the circumstances indicate that the seller would need more time than the contract would allow to develop expertise or the ability to supply conforming goods;23 where the plans or the sample products sent by the seller to the buyer are not conforming to the contract, allowing for the conclusion that the seller would be unable to produce and deliver conforming goods;24 the seller’s inability to make the first delivery in an instalment contract, although the buyer had made the payment;25 etc. Furthermore, it is worth noting that the Convention does not allow for the contract to be avoided immediately, even where it is clear that a fundamental breach of contract will occur; in such cases, the creditor must give notice to the debtor of his intention to avoid the contract, as provided for in Article 72.2. This allows the debtor the opportunity to furnish adequate assurance of his performance and guards the creditor from premature avoidance. Moreover, the notice may prevent potential abuses of avoidance by the creditor, particularly when he has the opportunity to conclude a contract with another party.26 The doctrine therefore takes the stand that notifying the debtor of the intention to avoid the contract is in the interest of legal certainty and in accordance with the Convention's policy of preservation of contract.27

the buyer under that contract. In this case, the Court held that, prior to the date fixed for the delivery of the shoes, it was “clear” that the buyer would not pay the price and therefore found the seller to be entitled to avoid the contract pursuant to Art.72.1 and 2 CISG and to recover damages—LG Berlin, 30.09.1992, CISG-Online 70 (Pace). See also decision Schiedsgericht der Börse für landwirtschaftliche Produkte in Wien, 10 December 1997, CISG-Online 351 (Pace); Oberlandesgericht Düsseldorf, 14 January 1994, CISG-Online 119 (Pace). In this respect also decision LG Krefeld, 28 April 1993, unpublished, cited according to Witz (1995), p. 96. 20 U.S. District Court, W.D. of Michigen, Southern Division (USA), 17 December 2001, Shuttle Packaging Systems v Tsonakis et al., CISG-Online 773 (Pace), cited according to Saidov (2011), p. 954. 21 For examples of decisions see Fountoulakis (2016a), p. 1029. 22 Helsinki Court of Appeal 30 June 1998, CISG-Online 1304, where the Court asserted: “The District Court held that neither Seller’s fax of 28 October 1992 nor other circumstances gave any guarantees to the Buyer that the Seller would be able to deliver conforming goods within the agreed time or that the Seller would be able to guarantee the preservation of vitamin A within the agreed range. Due to these circumstances, the District Court held that in a manner required by Article 72 CISG, it was clear already before the delivery of Order #10/92 that the Seller would be liable for fundamental breach of contract”. 23 Saidov (2011), p. 955. 24 For examples of decisions, see Fountoulakis (2016a), p. 1028. 25 Handelsgericht Zürich, 5 February 1997, CISG-Online 327 See Fountoulakis (2016a), p. 1050. 26 Perović (2004), p. 254. 27 Saidov (2011), p. 959; Bennett (1987), p. 527.

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What constitutes an adequate assurance is a factual issue, to be assessed based on the circumstances of the case. The widely accepted position is that it does not boil down to usual bank securities but may include any assurance giving the creditor reasonable certainty that the debtor will honour his obligations, in accordance with the usual practice in the specific field of commercial activity.28 The adequacy of assurance is judged against the objective standard of a reasonable person in terms of Article 8.2 of the Convention,29 and the prevalent position in the doctrine is that the burden of proof of adequate assurance in a given case lies with the debtor.30 The failure by the debtor to give adequate assurance when notified of the creditor’s intention to declare the contract avoided gives the creditor the certainty that the fundamental breach of contract will occur and allows him to avoid the contract without fearing that the debtor may allege that he had not been given the opportunity to perform his obligations. On the other hand, if the debtor should furnish adequate assurance, the creditor must accept it and loses his right to avoid the contract.31 Furthermore, the notice must be reasonable under the circumstances, and the creditor is only required to give notice to the debtor if time allows. The wording reasonable notice raises several issues in interpreting this rule.32 Without attempting an analysis of the dilemmas raised by Article 72.2,33 it may be argued, in general terms, that one needs to look at the purpose this requirement intends to achieve in this context, which is to enable the debtor to show his willingness to perform by issuing adequate assurance and thus to keep the contract intact. On the other hand, in some cases this notice is useless, or the available time too short, and the debtor cannot objectively be expected to provide adequate assurance in due time. This is the case when time limits fixed for delivery are so short that the debtor may not furnish assurances on time, or it can be a case of rapid fluctuation of prices. Thus, if there is not enough time, or if the circumstances would make the notice useless, the creditor should be allowed to declare the contract avoided without the need to give notice to

28

Perović (2004), pp. 257–258. For case law examples, see Fountoulakis (2016a), pp. 1035–1036. Fountoulakis (2016a), p. 1035. 30 Fountoulakis (2016a), p. 1040 and the cited authors. Expressing reservations, Saidov (2011), p. 963. 31 Fountoulakis, Ibid. In this sense, Bennett T Ibid; Neumayer and Ming (1993), p. 471. 32 From an examination of the initial text of the Convention providing that the notice must be given reasonably in advance, it may be inferred that the timing of notice is the key criterion. On the other hand, the French version of the applicable text of the Convention links notice to the “reasonable conditions” (“conditions raisonnables”), which underlines the importance of circumstances of each case at hand. 33 For interpretation of the CISG wording “if time allows” and of “reasonability” in the context of notice, see Fountoulakis (2016a), pp. 1033–1034; Saidov (2011), pp. 960–961; Schlechtriem (1986), p. 95; Neumayer and Ming (1993), pp. 472–473; Honnold (1999), p. 440; Perović (2004), pp. 254–257. 29

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the debtor, particularly as efficient exercise of the right of avoidance may help reduce damage.34 Finally, there are different opinions, both in the doctrine and case law, concerning legal consequences of failure to give notice of the intention to declare avoidance. One view holds that declaring the contract avoided under Article 72.1 without giving notice remains without effect. In such cases, the contract continues to exist, unless the debtor accepts the avoidance or declares the contract avoided himself.35 According to a contrary view, a notice is not a requirement for avoidance; however its absence may trigger damages should it be established that the debtor, had he been given notice of the intention of declare avoidance, could have furnished adequate assurance of his performance.36 Without going into an analysis of different views on this issue, it may be concluded that notifying the debtor of the intention to declare avoidance is without a doubt in the interest of legal certainty of the parties. In the first place, without appropriate communication with the debtor, the creditor is often unable to assess with certainty if fundamental breach of contract may occur. When the creditor is wrong in assuming that fundamental breach of contract will occur, this remedy may backfire against him if the debtor claims that the creditor has committed a fundamental breach of contract by declaration avoidance without grounds. On the other hand, contract avoidance based on unilateral assessment of the creditor, without allowing the debtor to first provide adequate assurance, leaves the door open for abuses of this legal remedy by the creditor, as well as for various disputes.37 We therefore believe that the creditor should give notice in the sense of Article 72.2 whenever objectively possible, even when circumstances leave no room for doubt that a fundamental breach of contract will occur. There is no notice requirement, however, when the debtor has declared that he will not perform his obligations in terms of Article 72.3 as in such case, it is obvious that the debtor is unwilling to perform the contract, which will be addressed further below.

4 The Debtor’s Refusal to Perform According to the Convention, a contract may be avoided before the due date for performance when the debtor declares that he will not perform his obligations (Article 72.3). When the debtor has declared refusal to perform, the avoidance 34

In this context, Perović, Ibid. This position is accepted for example in Fountoulakis (2016a), p. 1031; Neumayer and Ming (1993), p. 473; with some reservations in Heuzé (2000), p. 386. See ICC Arbitration Case No. 8574 of September 1996, available at: http://cisgw3.law.pace.edu/cases/968574i1.html. 36 This view is widely held particularly in German doctrine. For authors supporting this view, see Fountoulakis Ch, Ibid. See in that respect District Court Düsseldorf, 9 July 1992, available at: http:// cisgw3.law.pace.edu/cases/920709g1.html. 37 See, Perović (2004), pp. 256–257. 35

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procedure is quite simplified as the creditor is not required to give notice of his intention to declare the contract avoided to the debtor in order to permit him to provide adequate assurance in terms of Article 72.2. In this context, it should be noted that there are underlying differences between contract avoidance based on future fundamental breach of contract (Article 72.1) and that based on the debtor’s refusal to perform (Article 72.3). In case of future fundamental breach of contract, avoidance is permitted on the assumption that fundamental breach of contract will occur based on the circumstances of the case, as discusses above. In the latter case, however, avoidance is based solely on the debtor’s declaration that he will not perform his obligations. The debtor’s serious, explicit and unambiguous refusal to perform constitutes fundamental breach of contract as grounds for contract avoidance,38 which the creditor may invoke without the need to give the debtor a “second chance” to fulfil his obligations.39 However, since debtors’ explicit and unambiguous declarations of refusal to perform are rare in practice, this begs the question of whether “implied refusals” may fall within Article 72.3 or are to be governed by the rules on future fundamental breach of contract under Article 72.1. Thus, attempts have been made in the doctrine to define more precisely the relationship between Article 72 paras 1 and 3 of the Convention. One approach is to exclude implied refusals from the scope of Article 72.3. Another allows a presumption of breach based on implied refusal, while the creditor wishing to declare the contract avoided under Article 72.3 needs to prove that the debtor’s conduct in the particular case constitutes clear refusal to perform. Finally, the third approach is to leave it to the court to decide, based on the relevant circumstances, while applying the “reasonable person” standard, whether the debtor’s conduct in the given case constitutes future fundamental breach of contract in terms of Article 72.1 or permits contract avoidance under Article 72.3 of the Convention. The authors supporting this approach suggest that when in doubt, the case should be considered in the context of Article 72.1.40 In endeavouring to answer this question, first consideration ought to be given to the fact that the Convention’s rule on contract avoidance based on the debtor’s refusal to perform is limited to the cases where it is certain that the debtor has refused to perform. It is of no relevance if the refusal is made expressly or may be implied from the debtor’s actions or his general conduct, which allows the creditor to conclude with certainty that the debtor has refused to perform his obligations. What cases fall within this group is a factual issue, to be assessed based on the circumstances of the case.

38

According to one view, an unambiguous and definite refusal of the debtor to perform his contractual obligations should be regarded as an actual breach of contract per se (in itself). Another view allows presumption that where such a declaration is made a fundamental breach will occur; the debtor’s statement provides the creditor with the highest level of certainty regarding the occurrence of an anticipatory breach. More on this issue, Saidov (2011), p. 963. 39 Fountoulakis (2016a), p. 1036. 40 In detail on these views of the doctrine, Saidov (2011), pp. 952–953.

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It seems therefore, in regard to the above theoretical approaches, that the third view offers the most appropriate response; it excludes a priori solutions and allows certain degree of flexibility by taking into account the circumstances of each given case, which is necessary for an adequate interpretation and implementation of the Convention’s rules on contract avoidance prior to performance due date. For contract avoidance under Article 72.3 to be allowed, the debtor’s refusal of performance must be linked to an obligation that is of fundamental importance to the creditor, i.e. whose breach constitutes fundamental breach of contract in terms of Article 25. In such cases, for assessing whether the debtor’s declaration constitutes a refusal of performance which permits contract avoidance, the standard of a “reasonable person” in terms of Article 8.2 of the Convention applies, while the burden of proof lies with the creditor.41 As already pointed out, it does not often occur in practice that the debtor explicitly declares that he will not perform his obligations. Instead, he usually makes groundless claims (e.g. that the contract was not concluded or is invalid), demands new terms or alleges breaches by the creditor as a pretext for not performing his own obligations.42 Thus, for an assessment of whether or not avoidance is allowed, the interpretation of such statements made by the debtor and of his conduct in relation to the contract in general is of particular importance. To that effect, it is necessary, among other things, to establish the grounds for the debtor’s allegations (some may have grounds), the seriousness of the debtor’s declaration and that the breach in the case at hand constitutes fundamental breach of contract. In assessing these circumstances, the objective criterion of a reasonable person applies, and all relevant circumstances of the case must be considered.43 In case law, the Conventions’ rules on contract avoidance due to the debtor’s refusal to perform have been applied, for example, in case of the seller informing the buyer that he will not make delivery,44 that delivery will not be possible,45 that he

41

Saidov (2011), p. 965; Fountoulakis (2016a), p. 1040. See Honnold (1999), p. 438; Perović (2004), p. 261. 43 Perović, Ibid. 44 See for example Handelskammer Zürich, 31 May 1996, CISG-Online 1291 (Pace). In this case, in a dispute between the seller (a Russian firm producing raw aluminium) and the buyer (a group of companies, operating aluminium casting works in Argentine and Hungary), the seller was privatized and the seller’s new owners stopped all deliveries of raw aluminium to the buyer to which the seller was bound under the contract concluded with the buyer, pending an internal investigation. Deciding this case upon the buyer’s claim, the arbitral tribunal found: “For the Arbitral Tribunal it is clear that [seller’s] deliberate stop of supplies to [buyers] was a fundamental breach by the seller under Art. 30 Vienna Convention, namely an anticipatory repudiation of an instalment contract under Arts. 49, 72 and 73 of the Vienna Convention. . .”. 45 See Arbitral Award CIETAC, 30 January 1996, http://cisgw3.law.pace.edu/cases/960130c1.html. In this case, the seller from Australia and the buyer from China entered into contract on 24 March 1994 for delivery of 20,000 tons of compound fertilizer by the seller to the buyer. After signing the contract, the buyer issued a letter of credit and on 16 and 28 May 1994, the buyer urged the seller twice by mail to deliver the goods on time. However, after the time of delivery stipulated in the contract, the seller still did not deliver the goods. On 3 June, the seller requested release of its liability for breach due to force majeure but according to the related materials, there were no matters 42

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can neither deliver the goods on time nor state a date when delivery would be possible,46 or that he will “no longer feel obliged” to deliver the goods if the buyer does not agree to modify the terms of the contract;47 in case where the debtor claims that he is entitled to avoid the contract although there are no grounds for contract avoidance; etc.48 Finally, the Convention remains silent on whether the debtor may revoke his statement of refusal to perform. Without a doubt, the revocation of such statement is not possible once the creditor has declared the contract avoided. However, as long as the contract is not avoided, revocation should be considered allowed in principle, proceeding first and foremost from the Convention’s policy of the preservation of contract.49 It is argued, however, that a mere revocation of a declaration of the refusal to perform is not sufficient for the revocation to be effective and that the debtor must furnish adequate assurance of performance50 in terms of Article 72.2. On the other hand, the creditor may have, relying on the debtor’s declaration of refusal to perform, undertaken certain actions before contract avoidance, affecting the scope of the contract. Thus, for example, before contract is avoided, the seller may have begun to alter or modify goods to suit the requirements of another buyer, the buyer may have concluded a contract with another seller, etc.51 The question

which constitute force majeure during the period of delivery stipulated in the contract. In addition, the buyer did not receive any evidence from the seller to prove force majeure. The buyer had resold the goods under the contract to two companies from China (10,000 tons each). In that regard, the buyer asserted that, when it knew that the seller could not deliver the goods on time, it took measures to avoid enlarging the damage, but was unable to make any agreement due to the problems of season and price. Therefore, the buyer asserted, he suffered severe damages due to the seller’s breach of contract and submitted arbitration application to CIETAC. Deciding in this case, to which the CISG applied, the Arbitral tribunal found: “Under the circumstances of [Seller]’s breach, according to Articles 49(1), 51(2) and 72(1), [Buyer] had the right to declare the contract avoided. In fact, on 2 June 1994, [Seller] wrote to [Buyer] stating: “. . . It is impossible to deliver the goods. We will try to find other sources, but because it is hard to find such goods, the possibility is low . . . Due to the above reasons, [Buyer] needs to make arrangements for non-delivery (including bank guarantee, etc.)” This fax shows that [Seller] expressed clearly that it would not perform its delivery obligation. According to Article 72(3), under such circumstances, the party intending to declare the contract avoided need not notify the other party”. 46 See Arbitral Award CIETAC, 29 March 1996, http://cisgw3.law.pace.edu/cases/960329c1.html. 47 See U.S. District Court for the Northern District of Illinois (USA) 7 December 1999, CISGOnline 439 (Pace). 48 For examples in case law to this effect, see Fountoulakis (2016a), pp. 1037–1038; Saidov (2011), pp. 963–964. 49 In this sense, Fountoulakis (2016a), p. 1038; Neumayer and Ming (1993), p. 475; Saidov (2011), p. 964. 50 In details on this issue, Saidov, Ibid. 51 Saidov, Ibid.

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raised by these cases is whether no revocation should be allowed where such reliance of the creditor was reasonable52 or the creditor must accept the offered performance but will be entitled to a claim for compensation of the loss occurred.53 It would seem that the answer to this question should be sought through interpretation of the relevant circumstances of each given case, always in the light of the general rules and principles of the Convention.

5 Contract Avoidance: Declaration and Legal Effects Once requirements of Article 72 of the Convention have been met, the creditor may declare the contract avoided. Declaration of avoidance is a constitutive act binding on the parties and may not be revoked. This declaration must meet the requirements of the Conventions’ general rule on notice of declaration of avoidance under Article 2654 and must be distinguished from the notice of the creditor's intention to avoid the contract in terms of Article 72.255 discussed above. Avoidance of the contract releases the parties from their obligations under it, and the creditor who has performed a part of the contract may claim restitution.56 The creditor is also entitled to damages under the Convention’s general rules governing this matter (Articles 74–80). With regard to the legal effects of contract avoidance based on anticipatory breach, duty to mitigate damages under Article 7757 deserves special attention. This rule provides that a party who relies on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss, including loss of profit, resulting from the breach. If he fails to take such measures, the party in breach may claim a reduction in the damages in the amount by which the loss should have been mitigated.58 In that sense, if the creditor did not comply with the duty to mitigate loss, his damages will be reduced in accordance with the relevant circumstances of the case at hand.59

52

See Saidov, Ibid. See Fountoulakis, Ibid. 54 In detail on Art. 26 of the Convention, Fountoulakis (2016b) Article 26, pp. 461–470; Björklund (2011b) Article 26, pp. 352–359; Neumayer and Ming (1993), pp. 222–224. 55 Fountoulakis (2016a), p. 1038. 56 See Article 81 CISG on effects of avoidance. 57 See Bennett (1987), p. 528, with special reference to the relationship between Articles 72 and 77. 58 In detail on this CISG rule, Schwenzer (2016), pp. 1104–1110; Gotanda (2011), pp. 1033–1041. 59 In detail on this issue, Saidov (2011), pp. 965–968. 53

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6 The UNIDROIT Principles and the PECL: Anticipatory Non-performance The UNIDROIT Principles and the PECL provide for an identical general rule on anticipatory non-performance, stating that “Where prior to the date for performance by one of the parties it is clear that there will be a fundamental non-performance by that party, the other party may terminate the contract”.60 A quick glance would show that the UNIDROIT Principles and the PECL requirements for anticipatory non-performance bear similarities to those provided by the CISG in terms of anticipatory breach of contract. These rules allow the creditor to terminate the contract for anticipatory non-performance, which means an obvious unwillingness or inability to perform the obligation. It must be clear, though, that there will be a fundamental non-performance; a suspicion, even a wellfounded one, is not sufficient.61 Furthermore, the failure in performance would need to constitute “fundamental non-performance”, accepted by both documents as a ground for contract termination.62 However, unlike the CISG, the UNIDROIT Principles and the PECL do not distinguish between future fundamental breach (Article 72.1 CISG) and refusal of the debtor to perform his obligations (Article 72.3 CISG). In terms of adequate assurance of due performance, the UNIDROIT Principles provide the following rule: “A party who reasonably believes that there will be a fundamental non-performance by the other party may demand adequate assurance of the performance and may meanwhile withhold its own performance. Where this assurance is not provided within a reasonable time the party demanding it may terminate the contract.”63 The PECL is similarly structured but also requires, with regard to the right of contract termination where adequate assurance is not provided, that the party demanding it may terminate the contract “if it still reasonably believes that there will be a fundamental non-performance by the other party and gives notice of termination without delay”.64 It may be inferred from the above rules that neither the UNIDROIT Principles nor the PECL provide for a duty of the creditor to give notice to the debtor of the intention to avoid contract in terms of Article 72.2 CISG. These rules allow the

60 Article 7.3.3 UNIDROIT Principles, Article 9:304 PECL. Article 76 ULIS provides for almost the same rule. 61 For commentary to these rules, Principles of European Contract Law, Parts I and II (2000), pp. 417–418; UNIDROIT Principles of International Commercial Contracts 2016 (2016), pp. 258–259. 62 See Article 7.3.1 UNIDROIT Principles and Article 8:103 PECL. On fundamental non-performance in terms of the UNIDROIT Principles and the PECL, Perović (2004), pp. 166–170. 63 Article 7.3.4. 64 Article 8:105.

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creditor who reasonably believes that there will be a fundamental non-performance by the debtor to demand assurance, but the creditor is not obliged to do so.65 Finally, in contrast to the PECL rule requiring the creditor who has not received adequate assurance and still reasonably believes that there will be a fundamental non-performance to declare the contract avoided “without delay”, neither the CISG nor the UNIDROIT Principles provide for an express time limit for contract avoidance in the context of anticipatory breach (CISG), i.e. anticipatory non-performance (UNIDROIT Principles). A summary survey reveals that the UNIDROIT Principles and the PECL rules adopt a simple and clear approach, while meeting the requirement of legal certainty. As already argued above, the wordings of Article 72.2 CISG “if time allows” and “reasonable notice” raise a number of questions in interpreting this rule, and there is no unified position in the doctrine or case law on the legal consequences of failing to give such notice. This solution in the CISG may therefore lead to confusion in implementation and in some cases give rise to various disputes. Bearing this in mind, the unified terminology adopted in the UNIDROIT Principles and the PECL seems to be a more appropriate solution.

7 Conclusion The analysis of the CISG rule on anticipatory breach shows that the distinction drawn by the Convention between future fundamental breach of contract and refusal of performance raises some controversial issues. The need to qualify whether the case at hand falls under future fundamental breach of contract (72.1) or refusal of performance (72.3) creates dilemmas regarding the duty to give notice to the debtor of the intention to declare the contract avoided, the interpretation of the terms “if time allows” and “reasonable notice” as well as the legal consequences of the failure to give such notice. It should be noted in this context that other sources of uniform contract law do not provide for this distinction in their solutions concerning contract termination prior to the date of performance. On the other hand, the notice to the debtor of the intention to avoid the contract and allowing the debtor to provide adequate assurance are without a doubt in the interest of the legal certainty of both parties, as argued in the analysis. In an attempt to find an optimum solution for the application of the CISG rules on anticipatory breach, it seems necessary to proceed from the purpose that this mechanism intends to achieve. Specifically, where it is established with certainty, based on objective criteria, that a party will not perform his contractual obligations, a 65

For commentary to these rules, Principles of European Contract Law (2000), pp. 370–372; UNIDROIT Principles of International Commercial Contracts 2016 (2016), pp. 259–260. For a comparison with the Article 72 CISG, see Eiselen (2007), Remarks on the manner in which the Principles of European Contract Law may be used to interpret or supplement Articles 71 and 72 of the CISG. https://DOI:10.1017/CBO9780511511417.029.

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strict compliance of the pacta sunt servanda principle and endeavours to keep the contract intact lose justification. In such circumstances, the party faithful to the contract should be allowed to withdraw from the contract as soon as practicable and with as few losses as possible, in a way that achieves the required level of legal certainty for both parties. The CISG rules on anticipatory breach should be considered in the light of this general approach, always taking into account the relevant circumstances of each case. Furthermore, a uniform and autonomous interpretation of these rules by the courts is of special importance. Finally, the parties wishing to forestall contentious issues and different interpretations have the option of defining this issue in the contract, providing for all necessary requirements for this type of contract avoidance.

References Anson’s Law of Contract by A.G. Guest (1979) Clarendon Press, Oxford, p 529 Audit B (1990) La vente internationale de marchandises Convention des Nations-Unies du 11 avril 1980. L.G.D.J, Paris, p 158 Bell GF (2011) Article 64. In: Kröll, Mistelis, Perales Viscasillas (eds) UN Convention on Contracts for the International Sale of Goods (CISG) Commentary. C.H. Beck Hart Nomos, pp 868–872 Bennett T (1987) Article 72. In: Bianca CM, Bonell MJ (eds) Commentary on the International Sales Law, The 1980 Vienna Sales Convention. Giuffrè, Milan, p 525, 527, 528, 530 Björklund A (2011a) Article 25. In: Kröll, Mistelis, Perales Viscasillas (eds) UN Convention on Contracts for the International Sale of Goods (CISG) Commentary. C.H. Beck Hart Nomos, pp 333–351 Björklund A (2011b) Article 26. In: Kröll, Mistelis, Perales Viscasillas (eds) UN Convention on Contracts for the International Sale of Goods (CISG) Commentary. C.H. Beck Hart Nomos, pp 352–359 Eiselen S (2007) Remarks on the manner in which the Principles of European Contract Law may be used to interpret or supplement Articles 71 and 72 of the CISG. https://doi.org/10.1017/ CBO9780511511417.029 Ferrari F (2006) Fundamental breach of contract under the UN Sales Convention: 25 years of Article 25 CISG. J Law Commerce 25:489–508 Fountoulakis C (2016a) Article 72. In: Schwenzer I (ed) Schlechtriem & Schwenzer Commentary on the UN Convention on the International Sale of Goods (CISG), 4th edn. Oxford University Press, pp 1024–1040 Fountoulakis C (2016b) Article 26. In: Schwenzer I (ed) Schlechtriem & Schwenzer Commentary on the UN Convention on the International Sale of Goods (CISG), 4th edn. Oxford University Press, pp 461–470 Gotanda J (2011) Article 77. In: Kröll, Mistelis, Perales Viscasillas (eds) UN Convention on Contracts for the International Sale of Goods (CISG) Commentary. C.H. Beck Hart Nomos, pp 1033–1041 Heuzé V (2000) La vente internationale de marchandises Droit uniforme, Traité des contrats sous la direction de Jacques Ghestin. L.G.D.J, Paris, p 348, 383, 386 Honnold JO (1999) Uniform law on international sales. Kluwer Law International, pp 181–212, 438–440 Huber P (2011) Article 49. In: Kröll, Mistelis, Perales Viscasillas (eds) UN Convention on Contracts for the International Sale of Goods (CISG) Commentary. C.H. Beck Hart Nomos, pp 723–747

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Mohs F (2016) Article 64. In: Schwenzer I (ed) Schlechtriem & Schwenzer Commentary on the UN Convention on the International Sale of Goods (CISG), 4th edn. Oxford University Press, pp 922–940 Müller-Chen M (2016) Article 49. In: Schwenzer I (ed) Schlechtriem & Schwenzer Commentary on the UN Convention on the International Sale of Goods (CISG), 4th edn. Oxford University Press, pp 775–798 Neumayer KH, Ming C (1993) In: Dessemontet F (ed) Convention de Vienne sur les contrats de vente internationale de marchandises Commentaire. CEDIDAC, Lausanne, p 206–224, 469–475 Perović S (1990) Obligaciono pravo. Službeni list SFRJ Beograd, pp 211–213 Perović J (2002) Raskid ugovora pre isteka roka. Pravni život, Beograd 3(11):413–433 Perović J (2004) Bitna povreda ugovora Međunarodna prodaja robe. Službeni list SCG Beograd, pp 267–271 Principles of European Contract Law, Parts I and II (2000) In: Lando O, Beale H (eds) Prepared by the Commission of European Contract Law. Kluwer Law International, The Hague/London/ Boston, pp 417–418 Richards P (1999) Law of contract. Financial Times Pitman Publishing, p 273 Saidov DJ (2011) Article 72. In: Kröll, Mistelis, Perales Viscasillas (eds) UN Convention on Contracts for the International Sale of Goods (CISG) Commentary. C.H. Beck Hart Nomos, pp 950–968 Schlechtriem P (1986) Uniform Sales Law; The UN Convention on Contracts for the international Sale of Goods. Vienna, p 95 Schmidt-Kessel M (2016) Article 8. In: Schwenzer I (ed) Schlechtriem & Schwenzer Commentary on the UN Convention on the International Sale of Goods (CISG), 4th edn. Oxford University Press, p 153 Schroeter UG (2016) Article 25. In: Schwenzer I (ed) Schlechtriem & Schwenzer Commentary on the UN Convention on the International Sale of Goods (CISG), 4th edn. Oxford University Press, pp 416–460 Schwenzer I (2016) Article 77. In: Schwenzer I (ed) Schlechtriem & Schwenzer Commentary on the UN Convention on the International Sale of Goods (CISG), 4th edn. Oxford University Press, pp 1104–1110 Treitel GH (1988) Remedies for breach of contract. Oxford, p 379 UNIDROIT Principles of International Commercial Contracts 2016 (2016). UNIDROIT, Rome, pp 258–259 Will M (1987) Article 25. In: Bianca CM, Bonell MJ (eds) Commentary on the International Sales Law, The 1980 Vienna Sales Convention. Giuffrè, Milan, pp 205–221 Witz C (1995) Les premières applications jurisprudentielles du droit uniforme de la vente internationale Convention des Nations- Unies du 11 avril n1980. L.G.D.J, Paris, p 96 Zuppi A (2011) Article 8. In: Kröll, Mistelis, Perales Viscasillas (eds) UN Convention on Contracts for the International Sale of Goods (CISG) Commentary. C.H. Beck Hart Nomos, p 149

CISG and Proactive Contracting: Suspending Performance Under Article 71 CISG in the Time of a Global Pandemic Nevena Jevremović

Contents 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 2 Suspending Performance Under Article 71 (1) and (3) CISG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 2.1 Scope of the Right to Suspend Performance Under Article 71(1) CISG . . . . . . . . . . . . 80 2.2 Conditions for Exercising the Right to Suspend Performance Under Article 71(1) CISG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 2.3 Duty to Notify and Resuming Performance Under Article 71(3) CISG . . . . . . . . . . . . . 87 3 Suspending Performance Under Article 71 (1) and (3) CISG as a Tool for Proactive Contracting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 3.1 Proactive Contracting: Transforming Contracts to Tools of Competitive Advantage . 90 3.2 Proactive Use of Article 71 (1) and (3) CISG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 4 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100

1 Introduction Parties in their commercial relationships face the risk of change impacting the performance and, in some instances, the life of the relationship. A change in circumstances can affect the contract’s performance due to different reasons and varying levels of impact. It is a critical risk that parties aim to address through the terms of their agreement, striving to make their relationship adaptable and to minimize the risk of nonperformance. Typical examples include force majeure and similar clauses, default clauses, or dispute resolution clauses. In a similar vein, contract law seeks to address the risk of such a change by remedying its N. Jevremović (*) University of Zenica, Faculty of Law, Zenica, Bosnia and Herzegovina e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 Z. Meškić et al. (eds.), Balkan Yearbook of European and International Law 2020, Balkan Yearbook of European and International Law (2021) 2020: 77–104, https://doi.org/10.1007/16247_2020_14, Published online: 26 February 2021

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consequences while at the same time aiming to balance the rights and interests of the parties affected by the change. Different legal traditions developed different remedies depending on the classification of the cause for change and their impact on the performance of a contract. The resilience of contracts and the role of contract law have been put to the test to respond to this current period of profound social change – the global COVID-19 pandemic.1 The imposition of various government measures across the globe had a profound impact on trading relationships. Supply chain disruptions and uncertainty continue to pose a threat as different countries approach the pandemic with differing priorities and interests.2 Companies seek to tackle the lack of predictability and certainty as to the scope, time, and location impact of these measures while at the same time trying to adjust their commercial relationships to the new normal.3 Contracts lie at the core of these complex relationships. Depending on the circumstances (e.g., the time of conclusion, due date for performance, location, severity of governmental measures, industry, company size), parties assess the risks to decide whether to adjust or terminate their relationships. Focus is to identify ways to keep existing commitments (either to perform or to seek performance), protect against future losses, compensate for the ones they have suffered, and decide whether it is profitable to keep the deal in the first place. Termination of contracts is the least favorable decision, simply because of the sheer scope of impact and the economic consequences such termination at a large scale will bring. Companies face pressure to keep their operations alive. The role of the law is crucial in this process. The discussion so far, however, focused almost exclusively on the exemption from liability remedies: force majeure and hardship, and their corresponding institutes in the different systems and legal traditions.4 These remedies, developed in different systems over a different period, all show some level of a setback in the current global pandemic. Contractual rights and obligations depend on the application of the legal principles and institutes; inevitably, there is a level of uncertainty in the outcome of these provisions to the international commercial contracts.5 The context of the consequences of the pandemic calls for preserving the contractual relationships, fostering relationships, and adaptability to change. The global pandemic showed the need for flexible, agile relationships. The goal is to make viable contracts that will adjust to the new normal with the least amount of negative consequences to the involved parties. Therefore, the law needs to support negotiated solutions to make contracts affected by the pandemic work or to end equitably.6 In this paper, I hope to contribute to the ongoing discussion in two ways. first, by illustrating the potential of a particular remedy that did not receive much attention so

BIICL (2020), p. 5, ¶ 5, comparing the pandemic with the two world wars, global financial crisis. See, e.g., Anner (2020). 3 IACCM (2020), p. 3: 56% of companies re-evaluate the terms of current and future contracts. 4 See, e.g., Schwarz et al. (2020). 5 BIICL (2020), p. 21, ¶¶ 4–5. 6 BIICL (2020), p. 21, ¶¶ 1–2. 1 2

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far – right to suspend performance as set out in Art. 71(1) of the United Nations Convention on Contracts for the International Sale of Goods (CISG or the Convention) (see Sect. 2). While it did not attract much academic or practical attention in the context of the global pandemic, at its core, it embodies a change in circumstances situation aiming to preserve the contract and is, therefore, a remedy worthwhile discussing. Its underlying purpose and the principles it stands on make it a suitable tool for keeping the contract in place until the terms are favorable for its enforcement. Second is by discussing the proactive use of the right to suspend performance (see Sect. 3). Proactive contracting stems from an interdisciplinary understanding of contracts, not just as legal tools but as connectors both internally and externally. It also includes a different approach to measuring a successful contractual relationship, especially in the time of trade development where contracts focus on long-term relationships and complex supply chains rather than on one-time deals. I will spend some time discussing further the concepts of proactive contracting before moving on to illustrate two possible ways in which parties can proactively use the remedy under Art. 71 (1) CISG.

2 Suspending Performance Under Article 71 (1) and (3) CISG Article 71 (1) A party may suspend the performance of his obligations if, after the conclusion of the contract, it becomes apparent that the other party will not perform a substantial part of his obligations as a result of: (a) a serious deficiency in his ability to perform or in his creditworthiness; or (b) his conduct in preparing to perform or in performing the contract. [. . .] (3) A party suspending performance, whether before or after dispatch of the goods, must immediately give notice of the suspension to the other party and must continue with performance if the other party provides adequate assurance of his performance. CISG in its Art. 71(1) embodies the institute of anticipatory breach allowing a party to bring the contract to a halt until the risk of nonperformance has been alleviated.7 The current text is a result of significant debate at the Vienna Diplomatic

7 See e.g., Karton (2009), pp. 882–884, “Despite diversity of doctrine, different legal systems all seek to balance the interests of an aggrieved party to suspend performance against the right of a breaching party not to be forced to overcompensate the creditor.” See also Flechtner, pp. 91–96 on comparison between Art. 71 CISG and Art. 2 U.C.C. For a comparison between English law and

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Conference.8 Initial versions of the provision reflected a subjective test assessing the probability of the breach occurring in the future.9 Certain countries, mostly with developing economies of the non-Western world, saw such a standard as a potential ground for misuse and were generally reluctant to accept it.10 To address their concerns, drafters revised the text and finally settled on a version that provides for a sufficient level of objectivity.11 As it currently stands, Art. 71(1) and (3) allows the parties to preserve the balance of the relationship, incentivize the performance, and keep the contract alive in a time of uncertainty.12 To fully understand the potential of the provision, one must first deal with the scope of the right to suspend performance and the provision’s underlying principles before examining the conditions (see Sect. 2.1 below). Looking at the text of Art. 71(1), three (3) general cumulative requirements need to be met for a party to exercise its right to suspend performance (see Sect. 2.2 below). The purpose of the provision fully comes to life through the duty of notice set out in Art. 71(3), which aims to open the communication between the parties, allowing them to either continue the performance as per the initially agreed schedule or to reasonably adjust it (see Sect. 2.3).

2.1

Scope of the Right to Suspend Performance Under Article 71(1) CISG

Faced with a potential future nonperformance on the side of its counterparty, a seller or a buyer can suspend the performance of its obligations. Thus, Art. 71(1) CISG embodies an optional self-help remedy; a party may decide to suspend its

CISG, see Peacock (2003), pp. 116–118; Liu (2007), p. 118. See also, Liu (2003), p. 662, elaborating that Art. 71 encompasses a broader scope than anticipatory breach: “Art 72 is aimed at the phenomenon of anticipatory breach of contract, i.e. a breach of contract that takes place before the performance is due by the party in breach, Article 71 has a wider scope in that it deals with anticipatory breach as well as incomplete performance.” 8 On the history of the provision, see Bennett (1987), pp. 512–518; Garro (1989); Strub (1989); Honnold (1999); pp. 427–429; von Ziegler (2005), pp. 353–355; Honnold and Flechtner (2009), pp. 550–552; Fountoulakis (2016), p. 1002; Dornis (2019), p. 321. 9 See generally, Strub (1989); Garro (1989), pp. 473–474. 10 Garro (1989), p. 468. “[t]he so-called “North-South” debate was characterized by “(a) the economic fact that developing countries mainly export raw materials and agricultural products and import technology and finished goods, (b) the underdeveloped technological condition of their markets; and (c) their frequently justified mistrust of developed industrial states.” 11 von Ziegler (2005), pp. 353–355. 12 Dornis (2019), p. 321; Fountoulakis (2016), p. 1003; Nyer (2006), p. 35: “promoting self-help is not only desirable but necessary in international transactions where prospects of judicial enforcement are often remote if not hypothetical. It is contended that, in such a setting, a party’s refusal to perform should primarily be conceived as a means of coercing the breaching party into fully performing.”

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performance, or it may continue to perform and, in case the breach materializes, seek protection of its interest via the Convention’s other remedies. Whether it will exercise that option is a matter of commercial choice stemming from the assessment of all the relevant facts. If exercised, the suspension must be made based on facts, not just on mere fears or great caution. Suspension of performance does not mean that the party exercising the right is free from its obligations under the contract. Quite the contrary, the exercise of this right means a “retention of one’s own performance” with the consequence of putting the contract on hold.13 While it requires that the suspended performance corresponds to the performance at risk, the provision does not further specify how much of its obligation can a party suspend. The complexity of international sales transactions led scholars to accept a broader interpretation, shedding some of the previous doctrinal considerations of reciprocity.14 The suspension should correspond to the obligation that is at risk; however, it does not mean that they need to be of the same economic value. Instead, the current understanding is that the suspension must be necessary to urge the performance of the obligation in question.15 Thus, as long as the obligation at risk stems from the same contract, doctrinal structures of reciprocity or nonreciprocity are irrelevant. One of the critical questions surrounding Art. 71(1) is whether it establishes a general right of suspending performance. Some authors and relatively recent case law support the approach that Art. 71(1) does not create a general right to suspend performance.16 It may be invoked before the performance is due and thus before any breach could occur. The drafters were clear in designing Art. 71(1) to address situations of future risk of nonperformance, e.g., when goods are purchased on credit but the buyer becomes insolvent before delivery.17 The legislative history of Art. 71(1) underlined the difference between the general suspension of performance and the remedy in Art. 71(1). Nonetheless, a recent development in the interpretation of Art. 71(1) leans toward establishing a general right of suspending performance.18 13

Schlechtriem and Butler (2009), p. 186; Fountoulakis (2016), p. 1007: Metaphorically speaking, Article 71 can only be used as a sword, not as a shield: the creditor will be able to prevent the performance of the contract before the due date, but has no possibility of withholding its one performance if it has received poor performance. 14 Dornis (2019), pp. 321–322. 15 Fountoulakis (2016), p. 1007. 16 See Karton (2009), pp. 882–884; Jurewicz (2009), pp. 71–74: “The Polish Supreme Court held that article 71 ‘regulates the right to suspend the performance of obligations in the case of an anticipatory breach of contract whereby it becomes apparent that the other party will not perform a substantial part of his obligations.’ 17 Bennet (1989), pp. 513–515. See further legislative history of the provision available at https:// iicl.law.pace.edu/cisg/page/annotated-text-cisg-article-71#leg. 18 See generally, Dornis (2019), pp. 321–323.; Fountoulakis (2016), pp. 1007–1012. See also, Oberster Gerichtshof, Austria, November 8, 2005, English translation available on the Internet at www.cisg.law.pace.edu (the principle of simultaneous performance justifies the suspension by a party of its performance in the case of breach); CLOUT case No. 1080 [Supreme Court, Poland,

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A divergence in approach could lead to an increase in uncertainty in the interpretation and application of the provision. The outcome would depend on a particular court’s (or tribunal’s) view of the provision, their familiarity with the interpretation methods embodied in Art. 7 CISG, and the facts of a particular case.

2.2

Conditions for Exercising the Right to Suspend Performance Under Article 71(1) CISG

In dealing with the anticipatory breach, CISG reflects the notion that the performance of obligations in sales agreements is concurrent and codependent (payment vs. delivery principle in Art. 58).19 Without the performance of one, there cannot be a performance of the other. Through the remedy of Art. 71(1), parties address risks of nonsimultaneous performance and move toward a situation closer to the concurrent performance.20 Instead of avoiding the contract or claiming damages for the loss that could occur as a result of a breach, if it materializes, a party can simply suspend its performance until the other becomes ready or provides assurance that it will perform. In any event, the right to suspend is aimed at enforcing the contract; where a party demonstrates that it has lost interest in enforcing the contract, it does not have the right to suspend performance.21 To preserve the principle of concurrent performance and to prevent a misuse of the right to the suspension of performance, the Convention puts three cumulative requirements: the time of the uncertainty (the uncertainty on the side of the other party has to occur after the contract has been concluded), the scope of the uncertainty (such uncertainty in performance has to concern with a substantial part of the obligation), and a causal link defined alternatively in lits. a and b.

May 11, 2007] (Shoe leather case), English translation available on the Internet at www.cisg.law. pace.edu, (purchaser who is entitled to and is insisting on delivery of substitute goods, is entitled to suspend performance). 19 Schlechtriem and Butler (2009), p. 186: “If one takes the view [. . .] that the obligation and the possibility to perform of the other party is the basis for one’s own obligation then it becomes clear that Article 71(1) CISG does not only let lapse the performance obligation and reinstates the stepby-step performance but that the endangerment of the other party’s performance has generally lead to an adjustment of the performance deadlines.” 20 von Ziegler (2005), p. 355; Kröll et al. (2018), ¶ 28–34. 21 See, e.g., CLOUT case No. 1231 [Oberlandesgericht; Köln, Germany, May 19, 2008], English translation available on the Internet at www.cisg.law.pace.edu (cover purchases destroy the synallagmatic relationship between performance and counter-performance).

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The Risk of Nonperformance Has to Occur After the Conclusion of the Contract

A party may exercise its right under Art. 71(1) only if nonperformance becomes apparent after the conclusion of the contract. The first condition reflects an objective standard of predictability regarding future nonperformance and the timeliness of facts that form the basis for such prediction. The party wishing to suspend its performance performs a balancing act: the failure to perform obligation lies in the future, but the remedy of suspension must be asserted immediately.22 It needs to assess all relevant existing facts, compare them to the ones at the time of contract conclusion, to predict whether it is likely that there will be a breach. It may well be that the party wishing to suspend its performance was aware at the time of contract conclusion of certain facts due to which the other party may face an impediment in performing its obligations.23 Absent a deterioration or worsening of those facts, one can generally safely conclude that the party assumed the risk of nonperformance and therefore does not have the right to suspend its performance.24 The provision, therefore, encompasses a situation where the circumstances on the side of the party affected with the risk of nonperformance changed to such an extent from the time the contract was concluded to the time its performance was due that it is uncertain whether it will be able to perform at all.25 A degree of subjectivity is inevitable: it is easy for an overcautious or anxious party to assume that there will be a breach and thus unjustly suspend its performance, thereby breaching the contract.26 The standard of apparent was the drafters’ way of introducing more objectivity in the provision, thereby preventing a misuse of the right to suspend performance.27 The prevailing opinion is that the standard of

22 See Dornis (2019), p. 323.; Fountoulakis (2016), p. 1012; von Ziegler (2005), p. 360: “A non-breaching party must be able to make an informed, reasonable decision as to whether to suspend its contracted performance [. . .] This analysis is necessary since subjective fears and premonitions do not constitute a rational background for planning decisions, and therefore cannot by themselves be sufficient grounds for a legitimate suspension of performance.” 23 See Enderlein and Maskow (1992), pp. 284–285; Bennet (1989), pp. 523–524; Schlechtriem and Butler (2009), p. 183, ¶ 260. 24 Kröll et al. (2018), ¶ 16, 17: “This approach encourages prudent and responsible contracting, and it is evident that the Convention does not protect parties who thoughtlessly or carelessly enter into contracts.” 25 Kröll et al. (2018), ¶ 17–18: “A balanced and fair approach is not to require a party to make detailed inquiries but, at the same time, to assume that it is aware of the other party’s circumstances to the same extent as a reasonable person in its position would have been.” 26 See Dornis (2019), p. 323; Fountoulakis (2016), p. 1012. 27 See, e.g., Bennet (1989), pp. 513–515.

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becoming apparent requires a high degree of probability based on an objective view of a reasonable person familiar with the particular trade/industry.28 The party must make its assessment on definable and provable facts.29 The standard is ex ante: the creditor’s evaluation must not be falsified – and her suspension must not become illegitimate – if an ex post assessment explains the probability as too low.30 Anything other than that would open the door to a subjective standard undermining a provision’s purpose and go against the drafters’ intention.

2.2.2

The Performance at Risk Must Concern a Substantial Part of a Party’s Obligation

Article 71(1) CISG does not define what is considered as a substantial part.31 The prevailing opinion is that to understand what substantial part of an obligation means, one must look to the contract and the expression of parties’ intent in defining their main and ancillary obligations.32 Evident examples include the performance of core obligations: for the seller, delivery of conforming goods or documents,33 and for the

28 For legislative history of the condition, see Honnold and Flechtner (2009), pp. 550–552; See also Dornis (2019), p. 323; Fountoulakis (2016), p. 1012; von Ziegler (2005), p. 363: a party cannot be expected to consider every possible issue in detail. The distances involved in international trade and transport make detailed fact-finding between parties costly and difficult. While more complex transactions, such as joint ventures, are preceded by extensive investigations, parties to a sale rarely have the funds or time to conduct in-depth research. 29 Dornis (2019), p. 323; Fountoulakis (2016), p. 1012. Where a party relies on a serious deficiency in the creditworthiness of the other party, it must prove that fact as well as the fact that the serious deficiency did not exist at the time of contracting, i.e., that the other party’s creditworthiness deteriorated after the conclusion of the contract. See, e.g., CLOUT Case No. 936 [Bundesgericht, Switzerland, July 17, 2007], English translation available on the Internet at www.cisg.law.pace.edu (seller failed to substantiate its claims of the failing creditworthiness of the buyer). 30 Dornis (2019), p. 323; see also Fountoulakis (2016), p. 1012. 31 Bennet (1989), p. 520. Art. 3 CISG also uses the word substantial to define when a mixed agreement includes goods and services – falls under the Convention’s application. 32 von Ziegler (2005), pp. 357–358: “In contrast to some national legal systems, such as Switzerland's, the CISG does not differentiate between breaches of main and subsidiary obligations, nor does it require the breaching party to be at fault for the breach.” See also Kröll et al. (2018), ¶ 5. 33 See Honnold and Flechtner (2009), pp. 549–550; See also High People’s Court of Zhejiang Province, People’s Republic of China, April 18, 2011, (Balance Industry Co. Ltd v. Cixi Chenyang Package Co. Ltd), (2011) Zhe Shang Wai Zhong Zi No. 11 Civil Judgment (revocation of letter of credit on account of non-conforming goods delivered under two previous contracts between the same parties), available on the Internet at www.ccmt.org.cn. Similarly, Netherlands Arbitration Institute, the Netherlands, October 15, 2002 (Arbitral award No. 2319), Unilex (suspension of future deliveries under the contract due to non-conformity of first consignments).

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buyer, taking of delivery and payment of the price,34 on time and in a manner as defined in the agreement or provided in the CISG, whichever is applicable.35 One must seek to understand the meaning of the word substantial with caution. If the nonperformance concerns an obligation that is not substantial, then there is no need to suspend the performance since the core interests have either been satisfied or preserved.36 At the same time, the use of the word substantial does not mean that Art. 71(1) requires the nonperformance to amount to a fundamental breach.37 CISG deals with such a scenario in Art. 72, allowing the interested party to avoid the contract in case of an anticipatory fundamental breach.38 Given the nature of the avoidance for a future potential breach, the threshold is higher than that of Art. 71. Article 72 puts a more stringent requirements – breach must be clear not just apparent – avoidance is dependent on notice, whereas suspension is not.39 Scholars, such as Flechtner, have indicated that the distinction between two provisions creates an ambiguity in their operation, leading to a number of issues in practice.40 On the other hand, the difference in standards could signal a

34 See Honnold and Flechtner (2009), pp. 549–550; See also CLOUT case No. 164 [Arbitration Court attached to the Hungarian Chamber of Commerce and Industry, Hungary, December 5, 1995] (citing article 71 (1) (b), the court found seller justified in suspending its obligation to repair non-conforming goods) (see full text of the decision). See also Arbitration Court of the International Chamber of Commerce, January 23, 1997 (Arbitral award No. 8611), Unilex (noting that seller’s failure to perform occurred before it would have been entitled to suspend performance under article 71 (1) (b) because of buyer’s non-payment). 35 See Honnold and Flechtner (2009), pp. 549–550; See also, Dornis (2019), p. 322: “an obligation of confidentiality may already qualify; similarly, the date or place of performance can be so important that any deviation by the debtor may fulfill substantial non-performance.” 36 See Honnold and Flechtner (2009), p. 553: “Clearly this precludes suspension where the threatened breach would be a minor matter [. . .].”. See also von Ziegler (2005), p. 357: “At the same time, not every breach of contract is sufficient to trigger the right to suspend performance. The anticipated breach must affect a substantial part of the obligations under the contract.” 37 See von Ziegler (2005), p. 358: “It can turn into a fundamental breach over time, the nonbreaching party is entitled to suspend full performance. This is premised on the correspondence of a suspension of all obligations over a longer time period with a factual avoidance of the contract.” See also, Liu (2003), pp. 664–665. 38 See e.g., Liu (2005), Lookofsky (2000). Some authors have argued that, at least under its English text, the difference in the adjectives used means a different level of seriousness of a breach. See e.g., Flechtner (1998), pp. 189–192. As Flechtner himself indicates, the argument is textual in nature, and difficult to make under the French text of the Convention, where both Arts. 71 and 72 use the same adjective when referring to the breach: Art. 71 requires a threat of “une partie essentielle de ses obligations,” while Article 72 requires a threat of “une contravention essentielle au contrat”. 39 See Bennet (1989), pp. 520–521; Kröll et al. (2018), ¶ 14–15. 40 See Flechtner (1988), pp. 94–95, discussing the duration of the suspension in case of a lack of assurance (can a party be allowed to indefinitely suspend its performance?) or a scenario where a party simply declares that it may refuse to deliver the goods, putting the other party in the position to interpret whether such a vague statement meets a standard under Art. 71 or under Art. 72.

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preference to suspension of performance over avoidance of contract.41 Thus, it may be safer to suspend performance and notify, then to notify and avoid.42 Such an understanding is in line with the overall structure of remedies in the CISG and the underlying principles to preserve the contract as a means of securing the completion of transactions in international sale.43

2.2.3

Cause of the Uncertainty in Performance

Deficiency to perform, generally encompassing both lits. a and b of Art. 71(1), covers both factual and legal impediments (such as natural phenomena, war-related events, strikes, or import and export limitations),44 and it can be subjective (for example, expiration of a license or insolvency) or objective (fire in the factory, official public order having an impact on the contract or its performance).45 A deficiency can also result from one party’s conduct in preparing to perform or in performing the contract (e.g., the seller uses raw material for the production which is not suited, the other party does not apply in time for the necessary licenses).46 It is not relevant whether the change was the party’s fault or a result of an outside event.47 A party may be exempted from liability under Art. 79 in case its failure to perform or perform adequately in line with the agreement is a result of an impediment beyond its control. In such a case, the affected party may have a shield against a claim for damages; however, the right to suspend performance will not be affected. The language of Art. 79 (5) delineates between a right to claim damages and exercise of other remedies under the CISG, which includes suspension of performance.48 Such a distinction is essential, particularly in the context of COVID-19, as the exemption from liability has been a critical consideration. Apart from situations of nondelivery, nonconforming delivery, or refusal to pay, the courts found that a party was entitled to suspend its performance in case of the seller’s refusal to perform certain elements of his obligation,49 the seller’s inability to

41 See Liu (2003), p. 663, stating that Art. 71 is wider than Art. 72 and was intended to be more easily invocable, at least in concept. See also, Carter (1993), p. 105 in concurrence with such an approach. 42 See e.g., Eiselen (2007), pp. 207–211. Some authors, such as Flechtner, have indicated that the distinction between two provisions creates ambiguity in their operation, leading to a number of issue, such as the duration of the suspended performance. 43 Kröll et al. (2018), ¶¶ 1–4. 44 Dornis (2019), p. 322. 45 Azeredo da Silveira (2005), p. 6.; Huber and Mullis (2007), p. 341. 46 Huber and Mullis (2007), p. 342. 47 Azeredo da Silveira (2005), p. 6; Huber and Mullis (2007), p. 340; Enderlein and Maskow (1992). 48 Huber and Mullis (2007), p. 340; Fountoulakis (2016); See also Bridge (2005), pp. 413–419 for a discussion on Art. 72 and 79 CISG. 49 Landgericht Berlin, Germany, September 15, 1994, Unilex (citing article 71 (1) (b)).

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deliver goods free from restrictions imposed by the suppliers’,50 the buyer’s failure to pay or his delay in the payment of the price under earlier contracts,51 or his failure to open a bank guarantee.52

2.3

Duty to Notify and Resuming Performance Under Article 71(3) CISG

Two obligations arise out of Art. 71(3): an obligation of an immediate notice informing the other party of the exercised suspension of performance and an obligation to continue performance if the other party provides adequate assurance that it will perform. There is some debate as to whether the duty to notify under Art. 71(3) is a condition necessary for the exercise of the right to suspend performance or not.53 The duty to notify accompanied by an opportunity to provide assurance of performance is essential for the operation of the principle and purpose of Art. 71 (1). Thus, although the interested party satisfies its obligation once it dispatches the notice, it still has an interest to ensure that it reaches the affected party.54 Content wise, the notice should inform the party of the intended suspension and provide reasons behind such a decision.55 Only then can a notice serve its purpose and to open the communication between the parties. It allows the other party to react and provide clarity regarding the current status and its plans for performance. A crucial

50 CLOUT case No. 338 [Oberlandesgericht Hamm, Germany, June 23 1998] (citing article 71 (1) (a)); Oberlandesgericht Linz, Austria, May 23 1995, English translation available on the Internet at www.cisg.law.pace.edu, affirmed on other grounds, CLOUT case No. 176 [Oberster Gerichtshof, Austria, February 6 1996]. 51 CLOUT case No. 1255 [Rechtbank van Koophandel Hasselt, Belgium, March 1 1995] (J.P.S. BVBA v. Kabri Mode BV), (seven-month delay in payment); Tribunal Commercial de Bruxelles, Belgium, November 13 1992 (Maglificio Dalmine v. Coveres), Unilex (without citing article 71); Rechtbank Arnhem, the Netherlands, July 29 2009, English translation available on the Internet at www.cisg.law.pace.edu (party suspending delivery of bus where payment on contracts for previous buses still outstanding); U.S. District Court, Southern District of New York, United States, May 29 2009 (Doolim Corp. v. R Doll, LLC), available at 2009 WL 1514913 and available on the Internet at www.cisg.law.pace.edu (well-grounded fears that buyer would not pay for garments due to defaults on earlier consignments). 52 Arbitration Court attached to the Hungarian Chamber of Commerce and Industry, Hungary, November 17 1995 (Arbitral award No. VB/94124), Unilex (bank guarantee opened with a date that had already expired). 53 Compare e.g., DiMatteo (2005), pp. 128–131; Huber and Mullis (2007), p. 343. 54 Enderlein and Maskow (1992), pp. 287–289. 55 Schlechtriem and Butler (2009), p. 191; Eiselen (2007), p. 465: “In the literature there is a controversy on whether the requirement of “reasonableness” only refers to the notice or whether it also has a reference to the duty to give notice. The controversy, however, is mainly amongst German writers due to an inaccurate translation into the (unofficial) German text.”

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element in the operation of Art. 71 is providing adequate assurance. What is considered as an adequate assurance, and what happens if the party fails to provide it? The assurance should remove the threat that led to suspension.56 Instead of a mere statement confirming the intention to perform, in response to the received notice, the party should provide information on the current status of performance and clarify its plans for performance in light of the grounds that have led to suspension.57 Its adequacy will generally depend on the circumstances surrounding a particular transaction and the circumstances that have led to the suspension of performance.58 When a party provides assurance of its planned performance, then the right of suspension ends and her obligations are restored ex nunc.59 Assurance alleviates the uncertainty of a possible nonperformance and therefore resumes the originally planned contract performance. The suspending party should inform the other party that it has accepted the adequacy of the performance and will continue with performance.60 The prevailing opinion confirms the parties’ right to adjust the date of performance to the new circumstances.61 Article 71(3) does not specify consequences of the other party’s failure to provide adequate assurance.62 Some authors suggest that a failure to provide assurance of due performance has the effect of a declaration not to perform, thereby entitling the suspending party to avoid the contract.63 Others believe that the right to avoid the contract only exists when it is clear that the fundamental breach will occur, whereas failure to perform does not mean that desired level of clarity.64 Notwithstanding the debate on this issue, the notice merely triggers the true power of the provision: open communication and collaboration between the parties.

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Bennet (1989), p. 522; Dornis (2019), p. 324. Honnold and Flechtner (2009), p. 558: “Reassuring words alone cannot provide ‘adequate assurance’ of performance: under paragraph (3) a party notified of suspension must provide evidence of concrete facts or action that removes the threat that he ‘will not perform a substantial part of his obligation”. See also Enderlein and Maskow (1992), p. 289. 58 Enderlein and Maskow (1992), p. 289. Also consider Bennet (1989), p. 521: “Providing adequate assurance is a response to the suspending party’s judgment on whether the performance is at risk or not. As such, the judgment based on which it suspended its performance is not final in its effect, as with notice, the other party may be incentivized to provide assurance. Therefore, it is likely that disputes to the availability of the right to suspend will focus on whether assurance was adequate or not.” 59 Dornis (2019), p. 326. 60 Enderlein and Maskow (1992), p. 289; Bennet (1989), p. 523: “[t]he party cannot insist on assurance of performance that was not in the contract, nor can it insist on perfect performance.” 61 Dornis (2019), p. 326. See also, Kantonsgericht, Appenzell Ausserrhoden, Switzerland, March 10 2003, English translation available on the Internet at www.cisg.law.pace.edu (preparations for performance by the seller clearly showed that it would not be able to perform within the 14-day period after payment). 62 Garro (1989), p. 473. 63 Honnold and Flechtner (2009), p. 360, Dornis (2019), p. 324. See also, Honnold (1999), p. 394. 64 See e.g., Ziegel (1984), pp. 9–35. 57

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As such, the remedy of suspending performance from Art. 71 (1) has the potential to be a powerful tool for proactive contracting that parties may utilize for their advantage to address performance risk and adaptability risk.

3 Suspending Performance Under Article 71 (1) and (3) CISG as a Tool for Proactive Contracting In its core, Art. 71(1) and (3) CISG allows the parties to address a change affecting the performance with the goal of preserving the contract.65 A starting point is the promotion of dialogue and cooperation between the parties. Stemming from there, parties preserve the contract, work to find solutions, and encourage performance.66 Parties are free to go beyond the text of Art. 71 and adjust a right of suspending performance to a specific set of situations/scenarios and establish channels of communication monitoring the performance of the contract, thereby allowing them to have a framework to navigate change that may happen from the time of contract conclusion to its closure. They have the freedom to decide on the new terms, the allocation of costs, and other items related to continued performance or termination. The balance of the contract remains in place: instead of resorting to drastic measures, such as avoiding the contract or triggering dispute resolution mechanisms, the parties treat a change in their situation with caution, allowing for an exchange of information necessary to assess the status and plans of performance.67 Full exercise of the right to suspend performance reduces the waste of resources and contributes to economic efficiency.68 The principles underpinning Art. 71(1) and (3) CISG – communication and cooperation between the parties, economic efficiency, and mitigation of potential loss – make it a powerful tool, especially at a time of a global pandemic. But first, one must understand the pillars of proactive contracting before moving on to discover the potential of Art. 71 in that context.

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Schlechtriem and Butler (2009), p. 182. von Ziegler (2005), p. 359. Kröll et al. (2018), ¶¶ 1–2. 67 Kröll et al. (2018), ¶¶ 1–2. Both parties reasonably protect their interest. A party has an incentive to restate its commitment, thereby addressing the other party’s threat and concerns; the other party discourages the party from resorting to dispute resolution, thereby freeing judicial resources and avoiding unnecessary costs and risks associated with bringing a formal claim. 68 Kröll et al. (2018), ¶¶ 1–2; Saidov (2006), pp. 796–800. 66

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Proactive Contracting: Transforming Contracts to Tools of Competitive Advantage

Today, the exchange of goods and services via a global network of contracts regulating different types of relationships form most of the global economy.69 The role of contracts has been changing to reflect the social environment in which it operates.70 It is, therefore, not a surprise that in today’s multifaceted global economy, in the midst of rapid technological development, contracts are no longer static tools defining rights, obligations, and indemnities.71 Rather, to succeed in the market and achieve competitive advantage,72 organizations are focusing increasingly on contracting, with contracts as the end product.73 Contracting is the integrated process through which the parties align their commercial and legal interests and ensure that the contracts serve their enforcement, collaborative, and adaptable purpose.74 The

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Sorsa (2011), pp. 173–273. Siedel and Haapio (2010), p. 674 (“At one time the dominant model in business was the sale of finished products using “finished” contracts that provided clear specification of goods sold and clear delineation of rights and duties. In today’s world, the object of the contract – what is agreed upon – is becoming more indefinite and complex. For example, there has been a shift from ready-made products to full-package services and life-cycle products.”). 71 Sorsa (2011), pp. 175–176.; Siedel and Haapio (2010), p. 674: “This perspective changes the emphasis from contract law to a contracting process, where the contract becomes more of a management tool than a legal tool. This mindset is consistent with changes in business practice over the past several years. [. . .] In this world, business relationships are governed less by traditional contracts and more “by the interdependence between the partners and the need for securing one’s” own reputation.” 72 See generally Bird (2011) (explaining the use of law for competitive advantage); Haapio (2009), pp. 93–106. 73 See Sorsa (2011), pp. 175–176: “[C]ontracting is a way of seeing contractual relationship as a particular form of the organization of a firm and contracting as a governance form for optimizing business results in the same way as management theory sees the ways and means for optimizing companies’ goals and resources.”; See also Siedel and Haapio (2010), p. 26. 74 Sorsa (2011), pp. 203–207. 70

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process has a strategic or operational element – commercial management75 and a transactional element – contract management. 76 Traditionally, the approach to contracting has focused on the ways to mitigate or overcome past negative experiences.77 The traditional purpose of the contract is to safeguard or enforce the obligation in case of a dispute between the parties;78 in doing so, the terms of the contract often reflect the goal of safeguarding one’s position in court, ensuring that, in case of a dispute, the deciding body will render a favorable decision.79 The complexity of the global economy requires a shift from the traditional, reactive approach to contracts to a dynamic, proactive approach. Proactive contracting is the process of drafting contracts that focuses on people and the process and methods of contracting to ensure an alignment of the commercial and legal interests of both parties for a smooth business relationship.80 The core idea

75 Contract management supports commercial management through the implementation and oversight of legally enforceable performance commitments, both outbound (to the market) and inbound (from the market). It converts commercial policies, practices, and technical capabilities into specific terms and conditions that are offered to or required from its suppliers, customers, or business partners. Through active monitoring of performance needs and outcomes, contract management informs commercial management with regard to actual and required commitment capabilities, together with their financial and risk impact. This process includes several phases which reflect a contracting lifecycle from determining whether to contract with a potential partner, to negotiating and signing the contract, managing its implementation, and closing out once its purpose is achieved. 76 See Cummins (2017), pp. 2–9. Commercial management is the process through which a company addresses the commercial interests to be reflected in the contract. This includes gathering, assessing, and reconciling required performance commitments, while considering the needs and interests of all relevant stakeholders, ensuring their affordability and sustainability. As a starting point, it is necessary to identify roles and responsibilities, as well as equip individuals to perform the assigned roles and responsibilities. The latter can include investment in staff, professional development, and/or an investment in new systems for managing contracting processes. The next element is developing standard terms to reflect business policies and strategies. Closely connected is monitoring and reporting a goal to identify the effectiveness of the existing processes, and to identify market trends and development which can affect the previously identified terms, roles, and responsibilities. See also Sorsa (2011), p. 179. See further Sorsa (2011), pp. 175–176; Cummins (2017), pp. 2–9; Frydlinger (2019); Siedel and Haapio (2010). 77 See also Opinion of the European Economic and Social Committee on ‘The proactive law approach: a further step towards better regulation at EU level’, ¶ 1.3, [hereinafter EESC Opinion]: “For too long, the emphasis in the legal field has been on the past. Legislators and the judiciary have responded to deficits, disputes, missed deadlines and breaches, seeking to resolve and remedy. Disputes, proceedings, and remedies to force compliance cost too much.” 78 Eckhard and Mellewigt (2006). 79 See IACCM (2018, 2019). IACCM’s research indicated the typical practices, ranging from the lack of clear scope and goals, protracted negotiations focused mainly on risk allocation, to limited use of contract technology and weak post-award process governance. 80 See Sorsa (2011), p. 176; See also, Nuottila et al. (2016), pp. 151–165; Haapio (2009); Haapio (1999–2010); EESC Opinion, ¶ 5.3: “The word proactive implies acting in anticipation, taking control, and self-initiation. These elements are all part of the Proactive Law approach, which differentiates two further aspects of proactivity: one being the promotive dimension (promoting what is desirable; encouraging good behaviour) and the other being the preventive dimension (preventing what is not desirable, keeping legal risks from materialising).”

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of proactive contracting is thinking of contracts as interorganization connectors, as well as cross-organization connectors.81 To effectively serve their purpose, contracts are no longer seen in isolation, nor are they seen as static legal tools but as dynamic business assets.82 The latter means an approach to contracting with the purpose of not only aligning interests but also creating a flexible framework that is easily adaptable to the complex trade environment that the businesses are currently operating in. The shift to proactive contracting brings to light the role of contracts as interorganization connectors: the inherent link between the contract as a document and the business strategies, policies, and overall business values.83 A company’s business values, internal policies, and strategies will determine the framing of negotiation and the scope of contract terms that it is willing to accept. Take, for example, companies’ production or development processes: as these processes determine the particular features of the product, and the purpose for which these products can be used, they influence the contract terms concerning the use of the product, the negotiation around liability terms, development time frames, and other product-related items.84 Similarly, internal accounting processes and policies determine price negotiation and payment terms.85 Organizations whose core values are sustainable supply chains and green business expect their counterparts to produce documents confirming their fair-trade policies or employing storage and waste disposal mechanisms that are in line with best practices. The shift to proactive contracting also brings to light the role of contracts as communication tools and relationship frameworks.86 Framing a relationship through a set of terms and conditions in a contract is the end product of a discussion and negotiation between the involved parties about their business policies and strategies.87 It is also a roadmap for communication and collaboration in the long term. To act as a connector, and to enable the companies to achieve their profit-making goals, the contract needs to effectively manage three key risks.88

See Sorsa (2011), p. 181; Siedel and Haapio (2010), p. 20: “Contracts and contract law lie at the core of procurement and sales, and all business functions and activities—including research and development, finance, accounting, strategy, human resources, information technology, operations management, research and development, outsourcing, and networking—depend on the success of the contracting process.” 82 See Sorsa (2011), pp. 180–181. 83 See Sorsa (2011), pp. 180–181. 84 See Sorsa (2011), p. 181. 85 Id. Other examples include human resource management, which may affect the inclusion of terms preventing labour abuse in supply chains, or marketing, which determines the expectations of end users, and, therefore, becomes a concrete clause once the contract is drafted. 86 See Frydlinger (2019). 87 Weber and Meyer (2008); see also Weber and Meyer (2009), p. 7, 9. 88 Eckhard and Mellewigt (2006), pp. 14–15; see also Sorsa (2011), pp. 203–206. 81

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First is relational risk, i.e., the probability of a party seeking self-interest rather than adhering to the agreed terms in the contract.89 This risk stems from the economic theory of opportunistic behavior. The contract terms, therefore, provide for an incentive to prevent the behavior from occurring, and guidance in case that behavior, resulting in a breach, does occur.90 Notable examples include dispute resolution clauses, nondisclosure or confidentiality clauses, and clauses concerning protection of intellectual property rights. Second is performance risk, i.e., the probability of the parties not being able to perform the agreed terms due to their inexperience; lack of ability to manage uncertain, complex tasks; or inability handle the uncertainties arising out of market and technological shifts that affect the performance.91 The parties, through a set of contract terms, define their roles and responsibilities or provide other types of guidance in the performance of the contract.92 The examples include clauses on reporting lines or contract performance milestones.93 Third is the risk of lack of adaptability, i.e., the risk that the contractual relationship is not adaptable to the changes that may unexpectedly arise on the market or which might otherwise affect the contract performance (e.g., market shifts, technological advancements, or other events that mostly occur during contract performance).94 The parties, through their contract terms, aim to reduce ex ante costs by addressing the unforeseen (or unforeseeable) events that might prevent or impede them in the successful performance of the contract.95 The contract terms are, therefore, risk-preventive terms defining principles and guidelines about how to address the change in circumstances or how to address the effect of the changes to the contract performance.96 The examples include force majeure and hardship clauses, price adjustments, and change procedure mechanisms.

89

See also Sorsa (2011), pp. 203–204. Id. at 204–205. 91 Eckhard and Mellewigt (2006), pp. 16–18; Sorsa (2011), pp. 204–205. 92 Id. 93 Id. 94 Id. at 19–21; Sorsa, supra note 18, at 205–206. 95 Id. 96 Id. 90

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While in practice, the role of the managers and lawyers differs.97 The contracting process can only result in enforceable, collaborative, and adaptable contracts if it is interdisciplinary.98 Research advocating for the use of contracts for competitive advantage demonstrates the need for contractual literacy, focusing specifically on the understanding and the ability of contract managers to identify and manage the legal risks or effectively address their commercial needs via the legal framework.99 Moreover, the research concerning the intersection of psychology and contracts focuses on contracts as products of social interaction of different players.100 Where done successfully, the parties through proactive contracting ensure that their contract achieves the enforcement, collaborative, and adaptable purpose. CISG has the potential to be an instrument in achieving outputs that reflect legal and commercial considerations enabling cross-industry and cross-border parties to contract in a way that creates value and results in socioeconomic benefits.101 The right to suspend performance under Art. 71 CISG is a prime example of such potential, this even more so at a time of a global pandemic when the parties have an opportunity to decide how to manage performance risk and the risk of lack of adaptability through proactive use of the right to suspend performance under Art. 71(1) and (3) CISG

Nuottila et al. (2016), p. 161: “The results of the study suggest that managers and lawyers shared the same view – that contracts are made to achieve business objectives and benefits. They also mainly agreed on the purpose of contracts. However, managers and lawyers had different perspectives on the lawyer’s role in contributing to the contracting process and contracts. The lawyers saw their role as more essential in contracting than did the managers. The majority of the lawyers also felt that collaboration between business people and lawyers works well in contracting, but managers were somewhat reluctant to agree to this perspective. Most lawyers also felt they have an important role in the resolution of disputes: the managers did not agree with this.” 98 Haapio (1999–2000), p. 27: “Cross-professional collaboration and communication are required, as well as the ability to combine and co-ordinate business, technical, and legal skills, and knowledge.” 99 Haapio (1999–2000), p. 24: “The goal is to embed legal knowledge and skills in clients’ strategy and everyday actions to actively promote business success, ensure desired outcomes, and balance risk with reward.” 100 Weber and Meyer (2009), p. 37: “[T]he contract] is the result of a social process (negotiation) between people from different firms who will almost certainly have different expectations of the situation, how to negotiate the contract and what the contract should contain. By successfully managing these expectations through framing, a firm can develop a competitive advantage in contracting. As such, a contract is a blueprint for the relationship, but in a way that is richer than some prior studies have suggested. While the contract does contain the legal description of the exchange and the obligations of the parties, it is not just a process document that the firms will follow like manufacturing workers would follow a work instruction. If the contract is between firms that have not previously worked together, then each party will seek to gain information about the other during the process of designing it. If the parties have worked together, then the prior interaction already led to the development of some expectations and some type of relationship that will affect the design of the current contract. The parties will then adjust their expectations based on the outcome of the exchange.” 101 Jevremovic (2020), forthcoming. 97

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Proactive Use of Article 71 (1) and (3) CISG

When COVID-19 began to spread worldwide, countries imposed different measures and policies focused on containing the spread of the virus and mitigating its impact on their citizens’ health and the operation of their health systems. Thus, the first wave of measures was in large part restrictive in nature, limiting the flow of individuals and good via lockdowns, curfews, mandated social distance, travel restrictions and bans, restrictions on import and export of goods, and closure of businesses ranging from local small and medium-sized enterprises (SMEs) to production factories. Apart from being beneficial in controlling the virus, such a set of measures disrupted supply chains, impacted the demand-supply balance, and affected consumers’ behavior.102 It is no surprise that the governments then sought to remedy the negative consequences on the economy, through a set of mostly fiscal and monetary measures.103 As the economies now move to a rebound following the first wave of the pandemic, the business and legal communities focus on methods to improve the resilience of their supply chains.104 Potential for finding a joint path forward is to utilize the right to suspend performance under Art. 71 CISG in two general ways: first, to address performance risk in the contract by exercising party autonomy (Art. 6 CISG) to adjust the manner, time, and schedule of performance (see Sect. 3.2.1 below) and, second, to address performance and adaptability risk by designing a change management system as an element of making the relationship and, by extension, the supply chain more resilient (see Sect. 3.2.2 below).

3.2.1

Proactive Use of Article 71 CISG in Addressing the Risk of Nonperformance

At the outset, it is necessary to look more closely at the impact of various government measures on contract performance. Restricted flow of goods, services, and people generally affected contract performance in terms of delivery of goods at a time, place agreed, delivery of conforming goods, and payment of the agreed price. The former stems from health protection measures in the workplace to closure of certain businesses and factories. Reduced working hours and reduced workforce affect production capabilities, therefore making it more challenging to meet the agreed terms as to the quantity and quality of the goods. Even if the production capabilities are generally intact, the delivery via international transportation routes

102 See generally OECD (June 3, 2020b), pp. 4–5. For a discussion on the food industry, see, e.g., OECD (June 2, 2020d), Discussing the impact of the measures on the food processing industries, most notably rules on social distancing, labor shortages due to sickness, and lockdown measures. 103 The measures focused mostly on supporting SMEs. For further discussion, see OECD (July 15, 2020a), pp. 23–24. 104 See, e.g., OECD (June 3, 2020b), Knut Alicke et al. (2020), and EY (2020).

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was challenging due to various import and export restrictions, travel restrictions, and border/point of entry restrictions. Additionally, the measures affected the companies’ solvency and their ability to pay the agreed price via letters of credit and through other means. Of course, the impact of the measures differs based on the specific circumstances of each transaction: industry, company size and resilience of the supply chain, incentives based on a location of contract performance, and other factors impacting the scope of the risk of nonperformance. Such specific circumstances impact the outcome of the analysis under Art. 71 CISG; however, the goal of the present discussion is to generally examine whether the conditions for suspending performance were met and the potential for proactive use in light of challenges in the interpretation and application of the provision, this even more so as the analysis of the requirements set out in Art. 71 (1) CISG shows a mixed result. The risk of nonperformance concerns substantial obligations, i.e., payment of the price, delivery of conforming goods (e.g., in the quantity as specified in the contract), and ability to deliver on time or at a place of performance so crucial that a deviation from it might meet the requirement of substantial nonperformance. Additionally, the source of the risk of nonperformance is an objective, legal impediment, i.e., a set of legislative measures putting export and import restrictions, as well as restrictions concerning the operation of the production facilities – and objectives.105 Therefore, absent specific circumstances, fulfillment of the two conditions from Art. 71(1) will likely not lead to challenges in their interpretation and application. The outcome of the analysis will depend on the time when the risk of nonperformance began to appear compared to the time of the contract conclusion. The time difference between the signing of the contract and the COVID-19 outbreak would impact the analysis as to if and to what extent the parties assumed the risk of nonperformance. It should not be an issue for contracts entered into before December 2019. It is reasonable to conclude that in those cases, the facts deteriorated to such extent after the signing of the contract to bring into question the performance. The scenario for contracts signed between the first signs of the virus in December 2019 and the declaration of the pandemic in March 2020 would, however, depend on nuances. Given the speed at which the virus spread worldwide, short periods will play a role in assessing the discrepancy between the scenarios at the time of contract conclusion and contract performance. Facts about the parties’ awareness concerning the COVID-19 spread at the time of the contract conclusion, their reliability on the available data concerning the spread, associated government measures, and their impact on specific industries will likely play a role. What was the state of the spread when the parties negotiated the contract? Were there any reliable, provable facts that a reasonable person would understand to pose a threat to the contract performance? Were there any signals that the country where the performance originates from or needs to arrive will impose travel restrictions affecting the transportation of the

105

As discussed earlier, the exemption from liability under Art. 79, even if successfully invoked by a party, does not impact the right to suspending performance under Art. 71(1).

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goods? These are just some of the preliminary questions that could impact the outcome of the analysis. An additional challenge in this context concerns the objectivity in balancing the assessment of the potential future risk of nonperformance and the appropriate actions. A degree of subjectivity might be inevitable here: the pandemic shocked the entire world, and it would not be surprising for parties to have acted overcautiously or in panic. However, panic does not justify suspending performance that is not based on provable reliable facts. Decision to suspend performance needs to be an objective one, even in a case of a global pandemic. Relevant facts to measure whether suspension was objective could concern the use of data analytics, the time frame of the spread of the coronavirus compared to the location of the parties and the place of performance, and the timeliness of the governmental measures impacting such performance. In cases where the suspension is justified, the parties still face a second challenge concerning providing adequate assurance. Such a challenge does not necessarily depend on the parties themselves but stems from the uncertainty associated with the pandemic. A relevant factor concerning the parties’ support to continue their operations can come from the government’s fiscal and monetary measures in support of business operations. Being aware of the socioeconomic impact, some governments moved to introduce relief packages for the local industries, to support them in remaining operation and liquid during the period of the pandemic. While most measures focused on reducing the negative impacts of the pandemic on the workforce (e.g., unemployment reliefs), others focused on tax and social contribution measures, loan moratoriums, and similar measures. Thus, it is feasible that parties may have relied on these measures in providing assurances, in which case the question becomes the extent these measures had an impact on the business operation, and the form of assurance. The parties’ ability to assure their performance may depend on their location, and the assessment of the form of assurance provided should nonetheless be objective, including all the facts surrounding the business operations in a given country. As Organisation for Economic Co-operation and Development (OECD) reports, developing countries experienced a bigger hit, while the food supply chains in the developed world have been mainly resilient.106 Looking at the transport of food and agriculture products in Europe, for example, shows that the EU Member States demonstrated a level of agility in support of the uninterrupted transportation routes. Although the number of drivers in a vehicle was limited, new measures such as green lanes, allowing driving through night and weekends, streamlined the certification process and relaxed trade in food.107 Thus, a company from an EU Member State might have provided a different form of adequate assurance compared to a company seated in a country imposing different sets of measures. Here, as well, the time element may pose additional challenges. If performance was suspended, what should

106 107

OECD (June 2, 2020d), p. 2, 9–10. OECD (June 2, 2020d), pp. 9–10.

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be considered as a reasonable time frame for such suspension in the context of a global pandemic? Or would companies have declared their inability to perform, thereby possibly qualifying for avoidance under Art. 72 CISG? Precisely because of these challenges, the proactive use of Art. 71 CISG is a more favorable solution. The value of Art. 71 CISG lies in its underlying principles of communication, mitigation of economic loss, and preserving contract relationships. With the discussion on these conditions, the parties are generally encouraged to look at their contracts and decide to open a communication channel to address the current situation. Both the sell-side and the buy-side bear the consequences of the measures, albeit with different impacts. Thus, the shared experience and the shared goal of keeping the business open should form a common ground for the communication to move toward the renegotiation of the key contract terms. Therefore, the parties, having understood the operation of the provision, can utilize it to open the channel of communication to adjust the performance of their contract to the current state of affairs affected by the global pandemic. The proactive use of Art. 71 CISG goes hand in hand with the commercial decisions that parties undertake in response to COVID19, such as optimizing production and distribution capacity, which includes assessing the impact on operations and resource capacity, and optimizing limited production, according to human-health impact, margin, and opportunity cost/penalty.108 Such assessments and planning on the company level, informing their commercial decisions on supply chain level, and thus allowing the parties more effective communication and planning on adjusting the contract performance. Exercising their autonomy (Art. 6 CISG), parties can adjust the manner, time, and schedule of performance. They can further agree on a regular dialogue to exchange information and stay up to date on the content and impact of regulatory measures affecting production capabilities, the international shipment of goods, or overall business operation. This is generally encouraged even if there is no interest in suspending performance. Nonetheless, the parties may have an interest in proactively relying on Art. 71 as a tool in designing a change management system as an integral aspect of an adaptable and resilient supply chain.

3.2.2

Proactive Use of Article 71 CISG in Addressing the Risk of Lack of Adaptability

Most countries have reopened their economies, yet supply chain disruptions and uncertainty continue to pose a threat as different countries face and approach the pandemic differently. It is imperative for the international trade to continue based on cooperation and trust between the trading partners on the public and private levels.

108

Knut Alicke et al., p. 2.

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Amid the challenging political landscape and trade tensions, participants in supply chains are looking to increase their supply chains’ resilience.109 In this process, key pillars include end-to-end supply chain risk assessments and prioritizations, development of robust risk management systems, diversification of supplier networks, and investing in collaborative and agile planning and fulfillment.110 To effectively implement these measures requires an assessment and an overview of the current operations, an understanding of the vulnerabilities of the supply chain, and a realistic assessment concerning the deployment of new technologies to digitalize the process.111 Not all companies will be able to achieve this as the outcome would depend on their size, their place in the supply chain, and overall operational abilities. Nonetheless, irrespective of these considerations in different approaches, companies can utilize Art. 71 CISG proactively to increase adaptability, agility, and the transparency of their relationship. They have few options available for consideration, which could work well in a stand-alone scenario or in combination.112 First, the parties may add a right for suspending performance in their agreement, adjusting the conditions, and the operation to their specific needs. Article 71 CISG was drafted in a manner to ensure an objective application but, at the same time, relies on general, vague standards. Those parties that wish to have more precision are free to incorporate it in their agreement. In this context, the change management system would primarily entail defining a contractual right for the suspension of performance and addressing the consequences stemming from a delayed, onerous, or challenging performance. It is generally a prudent contract practice to define the conditions for exercising the right of suspension (e.g., for which obligations parties may suspend performance), under what circumstances (e.g., differentiating the type of risk of nonperformance such as governmental measures), and the associated time frames (e.g., the maximum duration of the suspension and the remedies following the expiration of such time). The parties can, however, go beyond this to develop a more robust system. The next step could potentially be a design of the communication plan, especially for long-term installment contracts. The parties may use Art. 71 as a tool to design a regular reporting schedule on the changes in the market affecting the production and delivery of goods; understanding those risks in advance and with regular monitoring, parties may adjust to the uncertainty by mutually managing the risk. It would also be beneficial to define the consequences in the absence of timely communication between the parties and the routes to achieve such consequences. A reporting schedule is compatible with the goals of a digitized supply chain where it is possible

109

See, e.g., OECD (June 12, 2020c), pp. 2, 3–6, 10; OECD (June 3, 2020b), pp. 5–8. See OECD (June 3, 2020b), pp. 5–8. 111 See Knut Alicke et al., pp. 112 In exercise of their party autonomy and the use of CISG, the parties should be mindful of making their intent as to the application of the CISG clear. On the issues that may arise when the parties do not pay attention to carefully draft their choice of law clauses, see, e.g., Flechtner and Brand (2015). 110

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to incorporate the Internet of things (IoT) or blockchain-based technologies to enhance transparency and communication within the supply chain. Lastly, having a system in place does not mean an absence of a possibility to terminate the agreement. On the contrary, the change management system should also entail an exit plan. The parties have the freedom to define when, and due to which circumstances, they will terminate the agreement and how they will manage their rights and obligations posttermination. These are just some examples of the potential proactive use of Art. 71; given the complexity of modern trade, parties are free to develop their change management systems in various ways, as is necessary for the nature of their relationship. In any event, the shared experience of a global pandemic affecting businesses crossindustries and cross-geographies, impacting all spheres of their business operations, should incentivize the parties to cooperate to find a way to take away some of the frictions and give them some breathing space in adjusting their operations.

4 Conclusion Although it did not attract much scholarly and practical attention in the context of the global pandemic, Art. 71 (1) and (3) CISG is a powerful tool for preserving commercial relationships at a time of uncertainty. Its numerous functions make it a suitable remedy for preserving the commercial relationship at a time of a pandemic while also providing the parties with a roadmap of adjusting risks of nonperformance and lack of adaptability in their future relationships. Through a proactive use of the right to suspend performance, parties benefit from the several functions Art. 71 CISG performs. Such use of the law is precisely what proactive contracting is about and demonstrates the potential that CISG has in supporting the parties to build resilient and productive relationships in an environment of complexity and constant change.

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COVID-19 in the Context of the CISG: Reconsidering the Concept of Hardship and Force Majeure Lok Kan So, Poomintr Sooksripaisarnkit, and Sai Ramani Garimella

Contents 1 2 3 4

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Force Majeure and Hardship in the Context of Article 79 of the CISG . . . . . . . . . . . . . . . . . . . Applying Article 79 of the CISG in the COVID-19 Situations . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conclusion: Force Majeure and Other Contractual Clauses in the Context of COVID-19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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1 Introduction In the year 2020, no matter deserved more discussion than COVID-19, a name given to a newly discovered strain of coronavirus. On 11 March 2020, the World Health Organization declared COVID-19 as a ‘pandemic’.1 As of 18 January 2021, there have been 93,805,612 cases worldwide with recorded 2,026,093 deaths.2 Different countries adopt different measures in an attempt to contain and combat the spread of

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World Health Organisation (2020a). World Health Organisation (2020b).

L. K. So School of Business, Singapore University of Social Sciences, Singapore, Singapore e-mail: [email protected] P. Sooksripaisarnkit (*) Australian Maritime College, University of Tasmania, Launceston, TAS, Australia S. R. Garimella Faculty of Legal Studies, South Asian University, New Delhi, India e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 Z. Meškić et al. (eds.), Balkan Yearbook of European and International Law 2020, Balkan Yearbook of European and International Law (2021) 2020: 105–120, https://doi.org/10.1007/16247_2020_15, Published online: 26 January 2021

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this deadly virus, including imposing city lockdown, banning international travel, demanding quarantine, etc. These measures either directly or indirectly hinder and negatively impact on the international trade of goods. For example, on 26 May 2020, six crew members on board a livestock carrier Al Kuwait was found to have contracted the coronavirus. They were sent to the hotel quarantine, while the remaining 42 crew members had to stay on board and had to undergo health checks.3 This caused significant delay to the carriage of 56,000 sheep valued at US$12 million.4 Al Kuwait was only allowed to leave Western Australia in mid-June 2020.5 This is just one of the examples of the nature of the hindrance caused by COVID-19. As the year 2020 marks the 40th anniversary of the United Nations Convention on Contracts for the International Sale of Goods (Vienna, 1980) (CISG), it is hence a good opportunity to examine the concept of hardship and force majeure and how such concept is applicable in the context of the current pandemic situation. In this article, the authors argue that in reality, it is hard for one of the parties to an international sale transaction governed by the CISG to attempt to invoke the concept of hardship and force majeure to its advantage in light of the current pandemic situation. In doing so, in Sect. 2 of this article, the authors will outline the concept of hardship and force majeure, as in Article 79 of the CISG. Then Sect. 3 of this work will involve the authors’ attempt at applying such understanding of the concept to different scenarios involving hindrances or difficulties caused by the COVID-19 situation. Afterwards, in Sect. 4, the inadequacy of the CISG to protect the contracting parties adversely affected by COVID-19 will be highlighted with suggestions on how the parties may protect themselves by the use of the force majeure clause in their contract.

2 Force Majeure and Hardship in the Context of Article 79 of the CISG From the outset, it must be noted that the terms ‘force majeure’ and ‘hardship’ are used here only as convenient references since Article 79 of the CISG does not contain these terms. Article 79 lays down exemptions. However, as per Article 79 (5), a breaching party is only exempted from liability for damages. Other remedies remain available to the innocent party.6 To invoke this exemption, of course, the

3

Laschon et al. (2020). Feld (2020). 5 AAP (2020). 6 These remedies include the right for performance suspension as per Article 71, the right for price reduction as per Article 50, the right to avoid the contract as per Article 48, 64, or 73, the right to claim interest as per Article 78, and the right to claim for expenses used in goods preservation as per Articles 85 and 86. CISG-AC Opinion No. 20 (2020), para 9.1. 4

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breaching party needs to prove that its situation falls within the ambit of Article 79 (1), which provides: A party is not liable for a failure to perform any of his obligations if he proves that the failure was due to an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it, or its consequences.

The problem is no definition of the term ‘impediment’ is provided in the CISG. An academic commentator suggested that any interpretation of this word must be done within the context of the CISG itself without any resort to similar notions such as force majeure or frustration used in the context of domestic laws.7 All he could do was to proffer a wide definition of the term that it ‘describes an objective outside force that interferes with the performance of the contract. . .’8 In other words, this term refers to ‘circumstances of the external sphere which also encompasses the object of the obligation’.9 While there might have been some doubts whether the term ‘impediment’ encompasses ‘hardship’, since 2007, the CISG Advisory Council has opined that it does.10 It came to reiterate this again in early 2020.11 While any opinion rendered by the CISG Advisory Council has no binding legal effect, it is authoritative and deserves to be respected.12 From the opinion, it appears that any mounted difficulty in performance from what was perceived at the time of the contract conclusion alone will not suffice to constitute hardship. Instead, this notion connotes the situation when ‘the performance of the contract has become excessively onerous or if the utility of performance has considerably decreased, or if the equilibrium of the contract has been fundamentally altered’.13 To determine whether the increasing difficulty in performance amounts to such hardship or not, the CISG Advisory Council further laid down some broad criteria, which include: (a) (b) (c) (d) (e) (f)

whether the risk of a change of circumstances was assumed by either party; whether the contract is of a speculative nature; whether and to what extent there have been previous market fluctuations; the duration of the contract; whether the seller has obtained the goods from its own supplier; whether either party has hedged against market changes.14

As shall be analysed below, any attempt to apply one or more of these criteria to prove that the COVID-19 situation or any measure to prevent the spread or flatten the curve leads to hardship is likely to be an uphill one. Indeed, COVID-19 and any

7

Zeller (2018) paras 12.23–12.28. Ibid., para 12.30. 9 Schwenzer (2016), p. 1133. 10 CISG-AC Advisory Opinion No. 7 (2007), paras 26–40. 11 See in general CISG-AC Advisory Opinion No.20 (2020). 12 Sooksripaisarnkit and Garimella (2019), para 1.07. 13 CISG-AC Advisory Opinion No.20 (2020), para 4.2. 14 Ibid., Black letter text 7. 8

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preventive measure strike at the heart of the notion ‘impediment’ in the CISG, especially on the point of foreseeability. Situations in many countries around the globe have reflected the fluctuating nature of this pandemic. While initial restrictions may have proved to be successful in flattening the curve, there is always a possibility of a second wave or even (in some countries) a third wave, which necessitates re-introduction of restrictive measures. This brings in further question. In the unlikely situation that the breaching party can successfully prove the impediment, as per Article 79(3), the exemption is only effective so long as the impediment exists. How should one draw the line as to when such impediment is taken to disappear? With global supply chains and manufacturing operations in different countries, but with different degrees of success in controlling the spread of COVID-19 in different countries, any evaluation whether the situation falls within the ambit of hardship or impediment is even more complicated. Within the system of global supply chains, the language of Article 79(2) of the CISG must also be borne in mind: If the party’s failure is due to the failure by a third person whom he has engaged to perform the whole or a part of the contract, that party is exempt from liability only if: (a) he is exempt under the preceding paragraph; and (b) the person whom he has so engaged would be so exempt if the provisions of that paragraph were applied to him.

This provision makes it difficult for both the party itself and the third party whom he engaged to invoke as they need to pass the criteria set out in Article 79(1) to avail of the exemption. Yet it is difficult to identify the third person falling within the ambit of this Article 79(2). The CISG Advisory Council suggested that a distinction has to be made between, on the one hand, suppliers or subcontractors that do not fall within the ambit of this provision and, on the other hand, the third person whom the seller engaged independently ‘to perform all or part of the contract directly to the buyer’.15 Whether the seller can bring himself within the scope of Article 79(1) for the act of the suppliers or subcontractors is a separate question.16 Arguably, Article 79(2) creates a fine distinction that is difficult to draw in practice. Indeed, Article 79 as a whole is poorly drafted. As Zeller cited, one of the commentators described this provision as ‘the convention’s least successful part of the half-century of work towards international uniformity’.17 An analysis of the substantive flaws of this provision can be the subject of a separate article on its own, and it is beyond the scope of this work. What this article seeks to demonstrate in the next part is that Article 79 has also proved to be the least successful provision in protecting parties to international sales transactions against liabilities for damages amidst financial difficulties they are facing in the climate of COVID-19.

15

CISG-AC Advisory Opinion No. 7 (2007), paras 18 and 19. Ibid., 18. 17 Zeller (2018), para 12.23. 16

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3 Applying Article 79 of the CISG in the COVID-19 Situations Perhaps how hard it is to prove hardship in the context of Article 79 can be observed from the experience of the CISG Advisory Council itself. In producing an opinion and suggesting criteria to determine hardship, which the authors outlined above, the CISG Advisory Council analysed ten cases rendered by courts across seven States Parties.18 Among these ten cases, only in one case that the court held that the hardship was established in accordance with Article 79. That case was Scafom International BV v Lorraine Tubes S.A.S.19 This case concerned a buyer from the Netherlands and a seller from France. The contract was about the sale of steel tubes. The contract contained no price adaptation clauses. Before the delivery, there was an increase by 70% in the price of the steel. The seller sought to negotiate the contract. The buyer refused and instead insisted on contract performance as per the originally agreed price. It was held by the court in Belgium that the unforeseen increase of price was sufficient to amount to hardship within the context of Article 79, and in this instance the buyer was ordered to re-negotiate the contract with the seller. While this case appeared to suggest that an increase in price of 70% is sufficient to establish hardship, the court in Germany took a different approach in case number 1 U 167/95.20 The case involved a buyer from the United Kingdom and a seller from Germany. The buyer agreed to purchase 18,000 kg of iron molybdenum from the seller at the price of US$9.70 per kilogram. The contract contained a force majeure clause, which could exempt the seller’s liability due to defined force majeure events. Later, the seller informed the buyer that the suppliers charged a higher price for the iron molybdenum and they could only supply the lower quality consignment. After negotiations, the buyer accepted the change. The delivery was delayed for over three months, and the buyer had to find replacement for the supply of iron molybdenum at the price of US$30 per kilogram. The buyer sought damages against the seller. The court held that the buyer was entitled to damages. The seller was not allowed to invoke and rely on Article 79. In other words, hardship was not established in this case even with the increase of the price by 300%. This case was in stark contradiction to the hardship that was so successfully established in the Scafom case mentioned above. These conflicting judgments indicated the fact that there is no objective standard for the application of Article 79. Even if those criteria laid down in the CISG Advisory Council may be taken as an attempt to establish an objective standard, as shall be discussed below, in fact these criteria are hard to apply in practice. Neither is there any detailed guidance on how each of these factors is to be evaluated. This is not to mention that the criteria laid down by the CISG Advisory Council is by no

18

See Annex I CISG-AC Opinion No 20 (2020). Scafom International BV v Lorraine Tubes S.A.S (Hof van Cassatie, 19 June 2009). 20 Case number 1 U 167/95 (Oberlandesgericht Hamburg, 28 February 1997). 19

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means exhaustive. Judges in different countries may introduce other criteria. Judges from different jurisdictions may develop their own interpretation or place different weight on each criterion, which will make it hard to glean any rationale in each case for the decision reached. Difficulties of applying Article 79 become more obvious when one considers the context of the COVID-19 situation. During this time of the global pandemic, different countries have adopted different measures in an attempt to control the spread of the virus. While some countries may downplay the pandemic, most of the developed countries have chosen to impose a stringent lockdown to prevent new waves of cases. Taking Australia as an example, the government of Western Australia declared the state of emergency on 15 March 2020 and laid down measures such as prohibiting non-essential indoor and outdoor gatherings, imposing a two-week self-isolation for those arriving at Western Australia and preventing international cruise ships from docking.21 The Federal Government of Australia also imposed export restrictions on essential equipment, namely ‘disposable face masks, disposable gloves, disposable gowns, goggles, glasses or eye visors, alcohol wipes, hand sanitizers’.22 In contrast, Sweden chose not to impose a full-scale lockdown during this pandemic. Its strategy is different from that of Australia and indeed other Nordic nations. As put in the media: Sweden has largely relied on voluntary social distancing guidelines since the start of the pandemic, including working from home where possible and avoiding public transport. There’s also been a ban on gatherings of more than 50 people, restrictions on visiting care homes, and a shift to table-only service in bars and restaurants. The government has repeatedly described the pandemic as ‘a marathon not a sprint’, arguing that its measures are designed to last in the long term.23

While it is not within the scope of this work to assess the efficiency of the various approaches to contain the virus, an observation that can be made is that these different approaches may exert varying degrees of impacts on international sales transactions. Indeed, one fundamental question is: Is the pandemic itself a sufficient ground for the parties to establish hardship under Article 79? To answer this question, it is submitted that at least there are two points that need to be considered. First, in reality, it is fact sensitive depending on whether the parties to the international sale contract are adversely affected by the measures imposed by the relevant countries involved. For example, in a contract for the sale of disposable face masks between a buyer in Thailand and a manufacturer in Australia, restrictions imposed by the Federal Government in Australia would mean that the seller will not be able to perform the contract. In this kind of straightforward situation, it is reasonable to suggest that the seller most likely can establish hardship pursuant to Article 79. Likewise, if the manufacturer of disposable face masks needs at least 100 workers to operate, it may find itself in difficulties due to the restrictions on the 21

The Western Australian Government (2020). Department of Home Affairs (2020). 23 Savage (2020). 22

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number of workers that could gather at the same location.24 Alternatively, if such manufacturer is not located in a country where such restrictions are imposed, then it cannot rely on the Article 79 exemption. This seems to be simple enough. However, experiences have suggested that different countries resorted to different levels of restrictions at different times, depending on how serious the spread of the virus was in a particular moment. Such caused unpredictable or arguable consequences in terms of establishing hardship under Article 79. Another equally important point also is the timing of the contract formation. If the contract was concluded by the parties before the pandemic, the party that became adversely affected could argue that the pandemic was not reasonably expected. The more problematic part lies in the situation where the contract was concluded after the onset of the pandemic. For such contract concluded, it is likely that the parties will be taken to foresee or reasonably expect that the pandemic can affect the performance of their contract. In such case, neither party will be able to rely on Article 79 to discharge its liability in damages. This proposition is supported by an arbitration case decided by the China International Economic and Trade Commission (CIETAC) on 5 March 2005.25 The case involved a contract concluded on 20 June 2003. During this period, there was an outbreak of the Severe Acute Respiratory Syndrome (SARS), which is described as ‘a viral respiratory illness caused by a coronavirus’.26 During this outbreak, 8,098 people were infected and 774 died.27 While the infection rate of the SARS outbreak was much lower than what we have seen now in respect of COVID-19, the overall mortality rate from the SARS was around 15%.28 Back to the fact of the case before the CIETAC, the contract in this case involved a buyer from the Netherlands and a seller from China for the sale of 445 tons of L-lysine. The seller only delivered 289 tons, so the buyer cancelled the undelivered L-lysine and claimed for the difference between the contract price and the market price, along with interest. The seller relied on Article 79 and pleaded that non-delivery was due to the SARS outbreak. Hence, it should not be liable for the price difference. The tribunal held that the seller was liable to pay damages. It refused to apply Article 79 in this case since the contract was concluded two months after the start of the SARS outbreak, and the seller should have been reasonably expected to take this outbreak into consideration at the time the contract was concluded. Therefore, the tribunal held that the situation did not fall within the ambit of Article 79(1).

24

Assuming the manufacturer’s business does not fall within the exemption of essential business that is allowed to operate during the lockdown. 25 L-Lysine case (2005). 26 Centers for Disease Control and Prevention (2004). 27 Ibid. 28 World Health Organisation (2003).

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Indeed, the reasonable expectation test under Article 79(1) may cause further complications for the parties in the time of this present pandemic. At the moment, it is inevitable to see new waves of infections globally. Using Singapore as an example, the first confirmed case there was on 23 January 2020.29 The outbreak appeared to be under control until the second wave of cases happened in March, and the Singaporean government imposed a lockdown, which was referred to as ‘circuit breaker’, from 7 April 2020 to 1 June 2020. Starting from 2 June 2020, the lockdown was gradually relaxed, and the outbreak appeared to be under control again. The question is whether the same reasonable expectation test applies at different stages of the pandemic. Suppose an international sale contract was concluded with a Singaporean supplier prior to 7 April 2020, would it be reasonable to expect that the supplier could foresee the subsequent lockdown, which would adversely affect the supplier’s ability to perform? As no one will be able to predict whether or not there will be a second ‘circuit breaker’ in Singapore, likewise it would not be reasonable to say that the Singaporean supplier could foresee the first ‘circuit breaker’. If the rule laid down in the CIETAC arbitration case mentioned above is strictly applied, then the Singaporean supplier would not be able to rely on Article 79 at all as the contract was concluded after the pandemic. In this regard, the reasonable expectation test laid down in Article 79(1) may prevent the party that has been adversely affected by the COVID-19 situation to seek exemption. This raises doubt whether this Article 79 can successfully serve the purpose of protecting the parties from impacts of impediment. To fully comprehend the difficulties from the application of Article 79, the authors will attempt to apply the criteria to determine hardship laid down by the CISG Advisory Council using the scenario taken from the Al Kuwait incident mentioned earlier. Indeed, ever since the pandemic, there have been reported incidents of cargo ships trapped at sea. While in most situations goods were allowed to load or unload, it was estimated as of 2 August 2020 that around 300,000 cargo ship workers have not been able to leave cargo ships.30 In the Al Kuwait scenario, the ship arrived at the Port of Fremantle on 22 May 2020 to load 56,000 sheep and 420 cattle. Upon arrival, several crew members were reported to be unwell. Later on, 21 crew members were tested positive for COVID19. As a result, crew members were put in quarantine and the loading was delayed.31 In March 2020, a ban was imposed by the Australian government for the export of sheep between 1 June 2020 to 14 September 2020 to prevent sheep dying on vessels due to high temperature and hot weather.32 In this situation, assuming there was a contract for the sale of sheep between a buyer from Kuwait and a seller from Australia with the choice of law clause stipulating the CISG and assuming further that the delivery of the sheep was significantly delayed due to the quarantine and the

29

Goh (2020). Jankowicz (2020). 31 Laschon and Menagh (2020). 32 Ibid. 30

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export ban and the buyer decided to claim damages, can the seller rely on Article 79 to discharge it from liability for damages?33 To begin with, as mentioned earlier, Article 79(1) only allows the party that can satisfy the reasonable expectation test to invoke the exemption here. The timing of the contract becomes crucial. If the contract was concluded pre-pandemic, it is highly likely that the seller would not be taken as having the pandemic and the export ban in mind at the relevant time. However, any contract concluded after the outbreak raises more complicated question. If the contract was concluded in February 2020, the seller may have been taken as having the pandemic in consideration even though during that time the number of infected cases in Australia was relatively low. Since the export ban was only introduced in March 2020, the seller was unlikely to be taken to foresee this. Any reasonable expectation of export ban could only be applied to any contract concluded after March 2020. Coming to each criterion laid down by the CISG Advisory Council, taking the first one, whether either party assumed the risk of a change of circumstances, this criterion was explained in the following manner: . . .the parties may allocate in their contract the risk for a fundamental change of circumstances. Contract interpretation through Article 8 CISG is paramount in determining whether a party may rely on hardship or not. The choice of a given Incoterms rule places the risk as regards transport, export or import control, tariffs, etc on one of the parties and thus shows that such party has accepted certain risks under the contract. Prior practices between the parties or international usages under Article 9 CISG, may integrate the contract in this matter.34

This is unlikely to be applicable to the scenario under consideration. If the disputed contract was formed before the start of the pandemic, it is highly unlikely that the parties could successfully allocate the risks either by contract or conduct since the current pandemic was not in the parties’ contemplation at the relevant time. If the disputed contract was formed after the pandemic, it is then highly likely that the parties would be found to take the pandemic into consideration, and thus it is hard for either party to rely on Article 79. The second criterion is whether the contract is of a speculative nature. The CISG Advisory Council explained that ‘[i]f the contract is highly speculative, a party may be presumed to have assumed the risk involved in the transaction’.35 The CISG Advisory Council relied on the case involving the iron molybdenum mentioned above in explaining that the seller there could not depend on Article 79 to exempt its liability for damages due to the fact that the contract was highly speculative. Hence, the threshold to establish hardship was high in that case.36 This criterion is hard to 33 In the Al Kuwait incident itself, the Australian government granted an exemption to the Al Kuwait and the vessel departed from Fremantle with the sheep on 18 June 2020. The first half of the incident is taken here as an example to assess the application of Article 79. See Department of Agriculture, Water, and the Environment (2020). 34 CISG-AC Advisory Opinion No. 20 (2020), para 7.6. 35 Ibid., para 7.7. 36 Ibid.

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apply in the context of the scenario under discussion here for at least two reasons. First, there is no objective standard to determine whether a transaction is speculative in nature. Applying this to the scenario in the Al Kuwait case, there is no definite answer whether a contract for the sale of sheep can be regarded as speculative. Superficially, it does not seem to be. Second, and more importantly, there can be no objective standard that can be used to judge whether the threshold (to establish hardship in Article 79) is proportionate to the level of speculation. In the abovementioned case on the iron-molybdenum, an increase in price by 300% was not sufficient to establish hardship. There is no definite answer of how high the threshold would be set for the contract of sale of sheep. Turning to the third criterion, namely previous market fluctuations, the CISG Advisory Council explained that ‘[c]ourts and arbitral tribunals interpreting Article 79(1) CISG have been very reluctant to exempt a party affected by fluctuations of prices. As such, typical fluctuations of price in the commodity trade generally will not give rise to an acknowledgement of hardship’.37 The CISG Advisory Council also criticised the Scafom case for setting a bad example in allowing the seller to be discharged from liability with a low threshold of value alteration, namely an increase in price by 70%.38 Applying this reasoning, it is suggested that the seller would have a good chance to establish hardship if the increase in price is at least more than 70%. Even if the seller faces a higher than 70% price alteration, it remains uncertain that the seller can rely on this criterion to establish hardship, considering there is no definite answer as to how the threshold would be set in any particular situation. The fourth criterion to be considered is the duration of the contract. The CISG Advisory Council explained this point: The time factor causes that hardship events are more likely to occur in some term contracts. However, in principle, the same standard should apply irrespective of the duration of contracts. A lower threshold of alteration in the parties’ performance may only apply in contracts of extended duration if the disadvantaged party’s financial ruin is imminent. In this regard, the point in time when the hardship even takes place is relevant to calculate the value of the outstanding performances with respect to the total contract value. . .39

An example was provided by the CISG Advisory Council. Assuming in the case of a ten-year contract the parties forecasted the value at 100% and in the fifth year of the contract, there came a hardship event. As a result, the value of the contract came to be reduced by 30%. In this kind of situation, the CISG Advisory Council suggested that ‘the adjudicator should consider the remaining 70% forecasted value for the next five years while assessing whether the parties’ performances have suffered a fundamental disequilibrium’.40 While this criterion may provide

37

Ibid., 7.9. Ibid. 39 Ibid., paras 7.12–7.13. 40 Ibid., para 7.13. 38

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good reference in the case of long-term contracts, it is not applicable to common sales and purchase agreements, which are usually agreed on a short-term basis. The fifth criterion is whether the seller has obtained the goods from its own supplier. The CISG Advisory Council explained this point: All circumstances affecting performance should be considered in determining whether a party might be exempted due to hardship. In some instances, the seller may have bought the goods or otherwise secured them from its supplier before the hardship event takes place. The price might have considerably and unforeseeably increased after that time, yet the contract might not be speculative in nature, however, if the seller receives the goods before the occurrence of the hardship event, the seller may not withhold delivery and resale the goods for a larger profit to a second buyer.41

In other words, in addition to the timing of contract formation, the timing of delivery is also important for the consideration of the seller’s hardship. While this factor is clear and self-explanatory, it is likely to be inapplicable to most of the detrimental consequences of the COVID-19 pandemic since the situation mostly causes either a delay in delivery or a non-delivery. Thus, the timing of delivery is not a factor that needs to be considered. The last non-exhaustive criterion is whether either party has hedged against market changes. On this point, the CISG Advisory Opinion held: Whether any of the parties has hedged or secured against changes in the market should be considered in assessing the existence of hardship. For example, if a seller has bought insurance against hardship, the amount of such insurance may be considered in determining whether the seller can overcome the impediment or not.42

While at first glance this criterion is logical, it may not be a feasible assessment in practice. Depending on the amount of the claim, the insurer may take a considerably long time to determine whether a claim shall be determined or not. To take the case in the United Kingdom, one of the largest international insurance hubs, as an example, in Sprung v Royal Insurance (UK) Ltd,43 an insurance claim payment was delayed for more than three and a half years, and eventually the assured could not resume its business. So the payment of claim may not happen before the litigation. Thus, it may be impractical to assess hardship based on whether insurance was purchased against hardship since there is always a possibility that the insurer may not entertain the claim. Lastly, for a situation similar to Al Kuwait, the seller may try to rely on Article 79 (2) to discharge its liability for damages. Article 79(2) requires both the seller and the third party, in this instance the carrier, to pass the criteria in Article 79(1). This becomes circular. What the authors discussed so far demonstrated difficulties for the seller to establish hardship under Article 79(1). So there is no need to consider any further on the question of whether the carrier would be able to establish hardship

41

Ibid., para 7.14. Ibid., para 7.15. 43 [1999] 1 Lloyd’s Rep. IR 116. 42

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again as the same difficulties apply to the carrier and it is highly unlikely the carrier will pass the criteria. To sum up, based on the above analysis, Article 79 is hardly applicable to the current COVID-19 situations. While the CISG Advisory Council has published an opinion as to how hardship can be established, its significance to the current pandemic situation is not much. Most of the criteria are not clearly and objectively defined. In this regard, the parties to international sales transactions should aim to protect their interests by including clear force majeure clauses and also other related clauses in their contract. The last part of this work will provide guidance on how the parties should take these clauses into consideration.

4 Conclusion: Force Majeure and Other Contractual Clauses in the Context of COVID-19 In the previous parts, the authors offered an analysis as to the reasons why Article 79 is likely to be of no avail to the parties to international sales transactions that have faced or are facing difficulties due to the impact of the COVID-19 pandemic. In this part, the authors will give brief guidance on how the parties can protect themselves by inserting essential clauses in their international sales contract. The first and foremost is, of course, the force majeure clause. Different organisations have updated new force majeure and hardship clauses in light of the current pandemic. Taking the International Chamber of Commerce (ICC) as an example, it has created both long and short versions for force majeure clauses. In both versions, the term ‘force majeure’ is defined as follows: Force majeure means the occurrence of an event or circumstance that prevents or impedes a party from performing one or more of its contractual obligations under the contract, if and to the extent that that party proves: [a]. that such impediment is beyond its reasonable control; and [b]. that it could not reasonably have foreseen at the time of the conclusion of the contract; and [c]. that the effects of the impediment could not reasonably have been avoided or overcome by the affected party.44

In the long version of the clause, the ICC also provides a list of presumed events: (a) war (whether declared or not), hostilities, invasion, act of foreign enemies, extensive military mobilisation; (b) civil war, riot, rebellion and revolution, military or usurped power, insurrection, act of terrorism, sabotage or piracy; (c) currency and trade restriction, embargo, sanction; (d) act of authority whether lawful or unlawful, compliance with any law or government

44

The International Chamber of Commerce (2020).

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order, expropriation, seizures of works, requisition, nationalisation; (e) plague, epidemic, natural disaster or extreme natural event; (f) explosion, fire, destruction of equipment, prolonged break-down of transport, telecommunication, information system or energy; (g) general labour disturbance such as boycott, strike and lock-out, go-slow, occupation of factories and premises.45

These listed presumed events may indicate the parties’ mutual agreement on the scope of impediment. In this sense, the ICC clauses may be better than Article 79 of the CISG in terms of certainty and clarity. Nevertheless, the ICC advised that even though the disputed event falls within one of the presumed events, in relying on the ICC’s force majeure clause, the party still needs to prove that the event could not reasonably be avoided or overcome.46 While the expression ‘plague, pandemic. . .’ may already be sufficient to cover the current COVID-19 situation, the parties may want to discuss and decide whether the pandemic-related events, such as the lockdown and the export ban, should be explicitly included in the list. Unless otherwise stipulated in the contract, the party that relies on the ICC force majeure clauses will still be required to prove that the effect of the impediment is not reasonably avoidable. The ICC has created another clause, namely the hardship clause, to provide a more flexible approach for hardship situations. Under the said clause, the term ‘hardship’ is defined as follows: Notwithstanding paragraph 1 of this Clause, where a party to a contract provides that: (a) the continued performance of its contractual duties has become excessively onerous due to an event beyond its reasonable control which it could not reasonably have been expected to have taken into account at the time of the conclusion of the contract; and (b) it could not reasonably have avoided or overcome the event or its consequences, the parties are bound, within a reasonable time of the invocation of this Clause, to negotiate alternative contractual terms which reasonably allow to overcome the consequences of the event.47

Similar to the force majeure clauses, the ICC hardship clause also requires the party that wants to rely on the clause to prove that the disputed event is beyond reasonable expectation and that it is not reasonably avoidable. Different from the ICC force majeure clause, however, the ICC hardship clause provides several options for the parties when hardship is proved. First, instead of a direct discharge from liabilities to perform the contract and pay damages, the party that seeks to rely on the hardship clause is required to re-negotiate contractual terms to overcome the proved hardship. If the parties fail to agree on the alternative contractual terms under the ICC hardship clause, there are further three options for the parties to choose. First, the

45

Ibid. Ibid. 47 Ibid. 46

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party that seeks to rely on the hardship clause can terminate the contract. Second, either party can invite a judge or an arbitrator to adapt or bring the agreement to an end. If the said party decides to adapt the contract, then the judge or arbitrator can ask the parties to propose alternative contractual terms for re-negotiation. For the third option, either party can directly seek a declaration from a judge or an arbitrator to terminate the contract.48 While the first and third options are similar in consequence, the second option provides an alternative for the party to seek assistance from legal professionals to re-negotiate the contract. In this regard, it may be reasonable to observe that the ICC hardship clause encourages the parties to settle their dispute by cooperation instead of litigation, which may be a more favourable approach as it may help to preserve the business relationship between the parties. To conclude, the parties to an international sales transaction should be aware of the fact that Article 79 of the CISG may not be sufficient to protect them from impediment and hardship. Standard contract terms, which are drafted by authoritative international organisations, can be used to protect their interests in this difficult time of the COVID-19 pandemic. The parties, however, should not treat these standard contractual clauses as providing complete solution to their difficulties. The parties are encouraged to seek assistance from legal professionals and formulate their own force majeure clauses (or any other related clauses) that can meet their specific needs in this unprecedented time.

References AAP (2020) Al Kuwait sheep ship cleared of coronavirus, ordered to leave West Australian port, Accessed 3 July 2020 Annex I CISG AC Opinion No.20: Case Law on the CISG and Hardship, Accessed 10 July 2020 Case no. 1 U 167/95 (Oberlandesgericht Hamburg, 28 February 1997) Accessed 1 August 2020 Centers for Disease Control and Prevention (2004) Fact sheet: Basic information about SARS, Accessed 20 August 2020. CISG-AC Opinion No.20, Hardship under the CISG, Rapporteur: Prof. Dr. Edgardo Muñoz, Universidad Panamericana, Guadalajara, Mexico. Adopted by the CISG Advisory Council following its 27th meeting, in Puerto Vallarta, Mexico on 2-5 February 2020, Accessed 10 July 2020 CISG-AC Opinion No.7, Exemption of liability for damages under Article 79 of the CISG, Rapporteur: Professor Alejandro M. Garro, Columbia University School of Law, New York, N.Y USA. Adopted by the CISG-AC at its 11th meeting in Wuhan, People’s Republic of China on 12 October 2007, Accessed 10 July 2020

48

Ibid.

COVID-19 in the Context of the CISG: Reconsidering the Concept of Hardship and. . .

119

Department of Agriculture, Water and the Environment (2020) Report No.219: MV Al Kuwait – Sheep exported to Kuwait in June 2020, Accessed 20 August 2020 Department of Home Affairs (2020) COVID-19 and the border: imports and exports, Accessed 20 August 2020 Feld E (2020) Sheep stranded in Western Australia by COVID-19 export ship outbreak will help local meatworks. Accessed 3 July 2020 Goh T (2020) Six months of COVID-19 in Singapore: A timeline. Accessed 20 August 2020 International Chamber of Commerce (2020.) ICC Force Majeure and Hardship Clauses March 2020, Accessed 29 August 2020 Jankowicz M (2020) ‘I think I will commit suicide’: cargo ship workers have been trapped at sea for months because of COVID-19, banned from ports, and predict ‘anarchy’ if things don’t change, Accessed 20 August 2020 Laschon E, Menagh J (2020) Live export sheep from coronavirus ship Al Kuwait to remain in Australia after ban exemption denied, Accessed 20 August 2020 Laschon E, Gubana B, Carmondy J (2020) Coronavirus outbreak on live export ship Al Kuwait docked in Fremantle as six test positive for COVID-19, Accessed 3 July 2020 L-Lysine case (2005) (China International Economic & Trade Arbitration Commission CIETAC (PRC) Arbitration Award), Accessed 20 August 2020 Savage M (2020) Did Sweden’s coronavirus strategy succeed or fail?, Accessed 20 August 2020 Scafom International BV v Lorraine Tubes S.A.S (Hof van Cassatie, 19 June 2009) Accessed 11 July 2020 Schwenzer I (ed) (2016) Commentary on the UN Convention on the International Sale of Goods (CISG). Oxford University Press, Oxford Sooksripaisarnkit P, Garimella SR (2019) CISG: then and now – what is next?. In: Sooksripaisarnkit P, Garimella SR (eds) Contracts for the international sale of goods: a multidisciplinary perspective. Thomson Reuters Hong Kong Limited, Hong Kong, pp 1–24 Sprung v Royal Insurance (UK) Ltd [1999] 1 Lloyd’s Rep. IR 116 The Western Australian Government (2020) COVID-19 coronavirus: State of Emergency information, Accessed 20 August 2020 World Health Organisation (2003) Update 49 – SARS case fatality ratio, incubation period, Accessed 20 August 2020 World Health Organisation (2020a) Q & A: Influenza and COVID-19-similarities and differences, Accessed 20 August 2020 World Health Organisation (2020b) Q & A on coronaviruses, Accessed 20 August 2020 Zeller B (2018) Damages under the Convention on contracts for the international sale of goods. Oxford University Press, Oxford

Part II

European Law

The Western Balkans on the Way to the EU: Revisiting EU Conditionality Agne Limante

Contents 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Development of the EU and Western Balkan Relations After the Dissolution of the Former Yugoslavia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 A Candy for Peace at Home: Trading Economic Incentives for the Consolidation of Peace, Democracy and Human Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 The EU Pulls Its Joker Card: The Promise of Full Membership . . . . . . . . . . . . . . . . . . . . 3 The Evolution of EU Accession Conditionality: Climbing Up the Pyramid . . . . . . . . . . . . . . 3.1 Article 49 of the Treaty on European Union (TEU) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 Copenhagen Criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3 Specific Conditions Imposed on the WB Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Perfect on Paper But Less so in Reality: Why EU Accession Conditionality Does Not Produce Expected Results of Genuine Transformation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1 State Capture? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 Volatile Support for EU Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3 Credibility of Future Accession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4 Prioritisation in EU Conditionality Policy and the Resulting Centre-Periphery Dilemma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5 Political Will and Compliance Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.6 Economic Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Concluding Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

124 125 125 128 132 132 134 135 138 139 140 140 141 142 143 143 144

This paper was written on the basis of the Master Thesis defended by the author in the King’s College London, Dickson Poon School of Law (United Kingdom). A. Limante (*) Law Institute of Lithuania, Vilnius, Lithuania © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 Z. Meškić et al. (eds.), Balkan Yearbook of European and International Law 2020, Balkan Yearbook of European and International Law (2021) 2020: 123–146, https://doi.org/10.1007/16247_2020_16, Published online: 29 January 2021

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1 Introduction It was expected that the former Yugoslavia would be among the first to be able to join the West after the fall of socialism. However, as Churchill noted, the Balkans is a region that tends to produce more history than it is able to consume. The disintegration of the former Yugoslavia brought war, genocide and ethnic cleansing, and once friendly nations became bloody enemies. It took almost three decades until the prospect of joining the European Union (EU) became clearer. In the recent decade and a half, the EU’s policy on the Western Balkans (WB) finally shifted from the “Foreign and Security Policy” to the “Enlargement” regime, bringing high hopes for the WB countries.1 At the same time, the EU’s transformative capacity based on its conditionality became stronger as more conditions were set and more was offered for complying with them. As the demandeurs of the EU membership are in a relatively weaker position, it was believed that this asymmetry would give the EU strong leverage over the reforms in the WB countries and the accession process would go smoothly. However, the WB countries’ integration into the EU appeared to be quite a challenge for the EU as a peace-building, stabilising and prosperity-generating force. On the one hand, all the WB countries expressed a strong will to join the EU, but on the other, remaining footprints of conflict, cultural differences and political complexities still exist on the way of a genuine implementation of the EU-driven reforms. Even if detailed and scrupulously monitored, the EU conditionality struggles to achieve its ultimate targets. This paper is dedicated to the analysis of EU conditionality policy in the WB as a transformative agenda by which the EU seeks to ensure peace, stability and development of the region with the final target of preparing “well-tailored” EU Member States. In the paper, the author firstly explores a variety of enlargement instruments, and the elements of conditionality set therein. The main attention is paid to the legal and institutional frameworks underpinning the EU accession conditionality in the WB, while the historical overview is meant to identify and discuss the specifics of the EU-WB relationship. The second part is concentrated on the evolution of EU accession conditionality, focusing on region-specific conditions imposed on WB countries, and conditions addressed to individual countries. On the basis of an analysis developed in the earlier sections, the third part, which is considered central to this research, will deal with the application of EU conditionality, its effectiveness and the difficulties encountered, seeking to answer the question as to why EU conditionality does not (yet) produce the expected results.

1 The WB countries in this paper include Albania, Bosnia and Herzegovina, Croatia, the Republic of North Macedonia, Montenegro and Serbia. However, Croatia enjoys a particular status on this list, as it became an EU Member State as of 1 July 2013. Accordingly, where appropriate, references to the WB states as aspirant countries exclude Croatia.

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2 Development of the EU and Western Balkan Relations After the Dissolution of the Former Yugoslavia At the time of the fall of the former Yugoslavia, the EU had a perfect chance to stand up as a powerful international actor and assist in solving the ensuing crisis and in bringing back peace and stability to the WB. However, the former Yugoslavia breakup crisis arrived too early for the EU to respond in such a way. At the beginning of the 1990s, the EU was a huge economic power, while its foreign and security policies were largely outside the ambit of its competences: a more comprehensive Common Foreign and Security Policy (CFSP) was still to come with the Maastricht Treaty and, later, the Amsterdam Treaty. The EU had no proper security instruments to adequately address the conflict, not to mention a (still nascent) military force. Yet due to its geographic proximity, the EU had a particular interest in maintaining and later resorting to peace and stability on the territory of the former Yugoslavia. Thus, a post-conflict settlement in the WB appeared to be an important test for the EU, as well as a challenge to its credibility in international arena. On the other hand, the internal EU reforms were on the way, and soon a variety of instruments were developed. As Bieber summarises, after its failed involvement in the early 1990s, with the establishment of the Stability Pact in the context of the Kosovo War in 1999 and the launch of the Stabilization and Association process, the EU moved from being a paymaster of the region to a more substantial player.2 This section identifies the most important EU instruments towards the WB and discusses their progressive approach, focusing in particular on the legal and institutional frameworks underpinning EU accession conditionality in the WB.

2.1

A Candy for Peace at Home: Trading Economic Incentives for the Consolidation of Peace, Democracy and Human Rights

Until the end of the war in Bosnia and Herzegovina (BiH), there was no comprehensive EU policy towards the WB region. The EU mainly provided humanitarian assistance and issued various declarations calling for peace or expressing “deep concern”.3 Following the General Framework Agreement for Peace in Bosnia and

2

Bieber (2012), p. 1. See, e.g., European Council (1993), Presidency Conclusions of the European Council in Brussels. 29 October 1993, DOC/93/7. Annex I: Declaration on the situation in former Yugoslavia and on humanitarian aid for Bosnia-Herzegovina, https://ec.europa.eu/commission/presscorner/detail/en/ DOC_93_7; European Council (1994), Declaration on Former Yugoslavia adopted by the European Council. Meeting on 9 and 10 December 1994 in Essen, https://www.europarl.europa.eu/summits/ ess3_en.htm; European Union (1995), Declaration by the European Union on the Situation in Bosnia-Herzegovina, 29 May 1995, PESF795/51, https://ec.europa.eu/commission/presscorner/ 3

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Herzegovina reaching Dayton in November 1995, the peace became more viable in the WB. Just a month later, the Declaration on the Process of Stability and Good Neighbourliness was adopted at the Royaumont Summit.4 It was the so-called Royaumont Process and was the EU’s first initiative seeking stabilisation in the WB.5 Step by step, the EU overtook the “positive peace” building process. Although the WB were already subject to some general and specific conditionality linked to the EU’s economic assistance (PHARE, reconstruction aid),6 it was 1995–1996 when the question of conditionality was raised more systematically. The EU made it clear that relationships between the EU and the WB countries would be based on the conditionality defined in the three Council Conclusions adopted on 30 October 1995, 26 February 1996 and 13 May 1996, respectively.7 The Council conclusions of 30 October 19958 stated that the agreements to be concluded with the WB countries “should have an element of clear political and economic conditionality”. It stressed respect for human rights, minority rights, the right to return of displaced persons and refugees, democratic institutions, political and economic reform, readiness to establish open and cooperative relations between these countries, full compliance with the terms of the peace agreement and, with regard to the Federal Republic of Yugoslavia (FRY) (Serbia and Montenegro), granting of a large degree autonomy within it to Kosovo. The Conclusions of 26 February 1996 and 13 May 1996 continued along the same lines. In 1996, supplementing the Royaumont Process, the EU defined the so-called Regional Approach in respect of the WB countries.9 Within this framework, the EU offered financial assistance, trade preferences and contractual relations,10 hoping, as Blockmans states, that the prospect of a comprehensive cooperation agreement, enabling them to get easier access to the EU internal market would serve as an initiative for economic reforms and the development of good neighbourly relations.11 Defining the Regional Approach, the Council stressed the importance of

detail/en/PESC_95_51. However, much different involvement was needed at that time – as a remainder of that the monument stands in Sarajevo named “ICAR Canned Beef Monument” depicting a tin-can, a sad allusion to the food aid provided by the EU during the Siege of Sarajevo though military actions were awaited. 4 Declaration on the Process of Stability and Good Neighbourliness, Royaumont, 13 December 1995. The meeting included representatives of EU Member States, Yugoslavia successor counties, four neighbouring counties, the United States of America, Russia, the Council of Europe and the OSCE. 5 See further Ehrhart (1999), pp. 327–346; Knezović (2009), pp. 93–113; Roumeliotis (1998). 6 No conditionality is applicable to humanitarian aid which may be granted solely on an evaluation of need and without prior reference to the authorities in the area. 7 Council conclusions and policy paper on former Yugoslavia. Bulletin EU 10-1996. 8 Council conclusions on guidelines for former Yugoslavia. Bulletin EU 10-1995. 9 Council conclusions and simultaneously adopted Declaration on former Yugoslavia. Bulletin EU 1/2-1996. 10 Pippan (2004), p. 222. 11 Blockmans (2007), p. 244.

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conditionality, underlining that the conclusion of agreements with the countries concerned would depend on their willingness “to work towards consolidating peace and to respect human rights, the rights of minorities and democratic principles”. It added that the application of the agreements would be subject to the readiness to cooperate with neighbouring countries. Later, the Presidency’s declaration of 9 April 1996 on relations with the Federal Republic of Yugoslavia underlined the importance of a mutual recognition among all the states of the former Yugoslavia, cooperation with the International Criminal Tribunal for the former Yugoslavia (ICTY) and a constructive approach towards the succession issues.12 The conditionality was soon formalised in Council Regulation (EC) No 1628/96 of 25 July 1996 relating to aid for Bosnia and Herzegovina, Croatia, the Federal Republic of Yugoslavia and the former Yugoslav Republic of Macedonia, the so-called OBNOVA Regulation.13 Conditionality was referred to as “essential requirements”, and their fulfilment was a precondition for granting aid. As noticed by Pippan, the OBNOVA Regulation reflected what by that time had already been developed into a common EU practice, namely the inclusion of a human rights and democracy clause (in the form of essential element clause) into all major EU instruments regulating external assistance.14 However, when implemented in practice, it became clear that EU conditions were listed in very general terms and further clarification was needed. This clarification was presented in the Council’s Conclusions on the application of conditionality adopted on 29 April 1997.15 In these Conclusions introducing a Gradual Approach, the EU made it clear that the closer relations the country intended to have with the EU, the more conditions it had to fulfil. The conditionality required for receiving autonomous trade preferences (the lowest degree of conditionality), for the implementation of PHARE programmes and for the establishment of contractual relations with the EU, was outlined. 16 Nevertheless, the policy of conditionality under the Regional Approach has fallen short of expectations – despite significant efforts that the EU invested in the WB countries, the post-war wounds and unresolved questions persisted and regional cooperation hardly progressed. The countries of the former Yugoslavia still lacked full respect for minorities and were not “too fond” of their former brother nations. In 1999, the war erupted in Kosovo, and the beginning of 2001 saw an armed ethnic conflict in the then former Yugoslav Republic of Macedonia, today under the name of North Macedonia.

12

Council of the European Union (1996), Declaration by the Presidency on behalf of the European Union on recognition by the EU Member States of the Federal Republic of Yugoslavia. 6399/96, P. 30/96, Bruxelles, 9 April 1996. 13 OJ L 204, 14.8.1996, pp. 1–5. This regulation is no longer in force. 14 Pippan (2004), p. 223. 15 7738/97 (Presse 129). 16 Pippan (2004), pp. 224–225.

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The EU Pulls Its Joker Card: The Promise of Full Membership The Stability Pact for South-Eastern Europe

With the commencement of the war in Kosovo, it became clear that from the EU side, a more comprehensive and long-term conflict prevention strategy was necessary. This time the EU was faster to react, and while North Atlantic Treaty Organization (NATO) strikes were still going on, at the initiative of the EU, the Stability Pact for South Easter Europe was launched in June 1999.17 Though initiated by the EU, the Stability Pact was not an EU instrument and was launched together with several other international organisations (UN, Organization for Security and Co-operation in Europe (OSCE), etc.) and countries. However, the position EU had taken when initiating this instrument turned out to be direction changing. Recital 7 of the preamble of Common Position 1999/345/CFSP18 declared that the EU intends to draw “the region closer to the perspective of full integration into its structures [. . .] with a perspective of European Union membership” (emphasis added). This was the first time the EU pulled its joker card and expressly gave a promise of EU membership to the WB countries.19 It was later endorsed by the European Council summit in Santa Maria da Feira (June 2000) and confirmed in Thessaloniki (June 2003).20 Apparently, remembering the notable stabilising effect of previous enlargement rounds, the prospect of EU membership was considered an indispensable trigger for the reforms necessary to achieve the “positive peace” in WB states.21 Thus, the promise of EU membership became conditional on the fulfilment of various requirements, and each step of the accession ladder was accompanied by another group of conditionality.22

17

Available at https://www.refworld.org/docid/3ddcc7e57.html. In 2008, the Stability Pact has been superseded by the Regional Co-operation Council. 18 1999/345/CFSP: Common Position of 17 May 1999 adopted by the Council on the basis of Article 15 of the Treaty on European Union, concerning a Stability Pact for South-Eastern Europe, OJ L 133, 28.5.1999, pp. 1–2. 19 Phinnemore identifies that, as witnessed in the CEE countries, the ‘carrot’ of membership has been a useful tool for encouraging governments and electorates to support reform. Phinnemore (2003), p. 98. 20 Conclusions available at https://www.europarl.europa.eu/summits/fei1_en.htm (Santa Maria da Feira European Council) and https://ec.europa.eu/commission/presscorner/detail/en/DOC_03_3 (Thessaloniki European Council). 21 Blockmans (2007), p. 244. 22 Some authors argue that the entire philosophy of the SAP reflected EU’s unwillingness to offer a clear membership perspective to the WB countries. Even the assignment of SAP portfolio to the DG External Affairs, not to DG Enlargement (such re-assignment happened only in 2005) evidenced such initial doubts. See Fakiolas and Tzifakis (2008).

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The EU Stabilisation and Association Process

In the described manner, the Regional Approach was transformed into the EU Stabilisation and Association Process (SAP)23 modifying the existing and presenting new offers and challenges for the WB countries. As stated by the Commission,24 SAP did not a priori change the conditions applying to the development of bilateral relations in the field of trade, financial assistance and economic cooperation or for the start of negotiations on contractual relations. Instead, the change affected the nature of the contractual relations on offer, replacing the prospect of a cooperation agreement with that of a Stabilisation and Association Agreement (SAA). As highlighted by Pippan, due to this change, while incorporating some of the features of its preceding frameworks, the SAP entails a distinctively more ambitious vision for the region’s rapprochement with the EU.25 The instruments covered by the SAP umbrella were conditional on each country’s compliance with the EU-set general and country-specific conditionality for each step of the EU-WB relations. It was also obvious that the EU as a conditio sine qua non has put an emphasis on regional cooperation, the return of refugees and cooperation with the ICTY. Having little space for negotiation, the WB countries have officially endorsed the SAP in November 2001. In line with the Graduated Approach set in the Council Conclusions of April 1997, a different intensity of conditions was set for different stages of cooperation: trade liberalisation,26 financial assistance27 and SAAs. The conclusion and execution of the latter,28 which represents the highest step on the SAP ladder, entails different degrees of conditionality. To start negotiations, the WB countries were required to fulfil the conditions set in the Council Conclusions of April 1997. After negotiations were opened, an additional list of conditionality for

23

Conclusions of the General Affairs Council of 21 June 1999, COM(99) 235 of 26.5.99. Communication from the Commission to the Council on operational conclusions – EU stabilisation and association process for countries of South-Eastern Europe Bosnia and Herzegovina, Croatia, Federal Republic of Yugoslavia, former Yugoslav Republic of Macedonia and Albania, COM/2000/0049 final, Bruxelles, 2.3.2000, p. 2. 25 Pippan (2004), p. 219. 26 See Council Regulation (EC) No 2007/2000 of 18 September 2000 introducing exceptional trade measures for countries and territories participating in or linked to the European Union’s Stabilisation and Association process, amending Regulation (EC) No 2820/98, and repealing Regulations (EC) No 1763/1999 and (EC) No 6/2000, OJ L 240, 23.9.2000, pp. 1–9. 27 See Council Regulation (EC) No 2666/2000 of 5 December 2000 on assistance for Albania, Bosnia and Herzegovina, Croatia, the Federal Republic of Yugoslavia and the Former Yugoslav Republic of Macedonia, repealing Regulation (EC) No 1628/96 and amending Regulations (EEC) No 3906/89 and (EEC) No 1360/90 and Decisions 97/256/EC and 1999/311/EC, OJ L 38, 8.2.2001, pp. 1–6. 28 For more detailed analysis see Phinnemore (2003), pp. 77–103; Pippan (2004), p. 233. 24

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the signing of the SAA was provided.29 The conditionality clause constitutes an essential element of SAA (Article 2 in each of them) stating: Respect for the democratic principles and human rights as proclaimed in the Universal Declaration of Human Rights and as defined in the Convention for the Protection of Human Rights and Fundamental Freedoms, in the Helsinki Final Act and the Charter of Paris for a New Europe, respect for international law principles, including full cooperation with the International Criminal Tribunal for the former Yugoslavia (ICTY), and the rule of law as well as the principles of market economy as reflected in the Document of the CSCE Bonn Conference on Economic Cooperation, shall form the basis of the domestic and external policies of the Parties and constitute essential elements of this Agreement.

Such definition sets a high standard of compliance as it embraces democratic principles and human rights, international law principles, the rule of law, market economy and the prosecution of war crimes, as elaborated in various international legal documents. From a legal point of view, it sought to be an all-inclusive clause, full compliance with which should ensure evolution into an “ideal” WB country. Conversely, from a practical point of view, considering the situation in the WB, a genuine compliance could be feasible only with a strong and persistent political will and a high support and commitment from the wider population. Despite these challenges, the WB continued to slowly roll into the EU direction.

2.2.3

European Partnerships

In 2004, within the SAP framework, the EU set up the so-called European Partnerships with the WB countries,30 which were intended to provide additional, tailored support to these countries in order to realise their European perspective. These partnerships were modelled on the Accession Partnerships concluded with Central and Eastern European (CEE) countries. However, contrary to the latter, the European Partnerships did not grant their addressees the candidate status and did not amount to pre-accession documents. The main aim of the European Partnerships was to identify priority areas where further efforts and reforms were required. All the European Partnerships established country-specific checklists, which allowed the measuring of further progress and which also served as a list of shortand mid-term priorities the WB countries should focus on. For example, in the case of North Macedonia, the EU considered that key priorities included, inter alia, the establishment of a constructive political dialogue, the implementation of police law and sustainable progress in implementing judicial reforms and anti-corruption

29 Croatia and the then Former Yugoslav Republic of Macedonia were the first WB countries to sign their SAAs in 2001, followed by Albania and Montenegro only in 2007, while Serbia and Bosnia were the last ones in 2008. 30 Council Regulation No 533/2004, OJ L 86; Council Decision 2004/519/EC, OJ L 223, 24.6.2004, pp. 20–29; etc.

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legislation.31 For Bosnia, on the other hand, key priorities included such tasks as full cooperation with the ICTY and settlement of bilateral issues.32

2.2.4

Moving Towards the EU Accession

In 2004, Croatia became the first one in the WB to receive a candidate status.33 And after a long and bumpy road, having fulfilled numerous general and country-specific conditions (see Sect. 2), it achieved its goal of EU accession on 1 July 2013.34 The other WB countries are still on their way after a two-decade-long journey. The EU has recently reconfirmed its position that a “firm, merit-based prospect of a full EU membership for the Western Balkans is in the Union’s very own political, security and economic interest.”35 The individual country’s situation is, however, quite different. Montenegro was confirmed as a candidate only in 2010, and in 2012 negotiations were opened. Serbia became a candidate country in 2012, and in 2014 it formally commenced its accession negotiations. In autumn 2020, both countries still have many chapters to open or close in the negotiation. North Macedonia got its candidate status in 2005; however, due to the bilateral dispute with Greece over the country’s name, no progress was seen for a long time. Albania was awarded candidate status by the EU in 2014. Yet only in March 2020 did the EU decide to open accession negotiations with Albania and North Macedonia. Bosnia and Herzegovina as well as Kosovo are still considered as potential candidates for EU accession. Why is the progress of accession so slow? The reasons seem to be numerous, and they are related both to the EU and its internal factors and to the factors attributable to the candidate countries. It is commonly claimed that after the “big bang” enlargement, which took place in 2004, the EU experienced an “enlargement fatigue”, while the support for further enlargements within a number of EU Member States dropped. The fact is that the enlargement dynamics have slowed down: while the EU institutions consistently reiterated the EU destiny for the WB countries and worked towards this goal, the European Commission documents revealed tightening the

31

2004/518/EC: Council Decision of 14 June 2004 on the principles, priorities, and conditions contained in the European Partnership with the former Yugoslav Republic of Macedonia. OJ L 222, 23.6.2004, pp. 20–28. This decision was later repealed. 32 2004/515/EC: Council Decision of 14 June 2004 on the principles, priorities and conditions contained in the European Partnership with Bosnia and Herzegovina. OJ L 221, 22.6.2004, pp. 10–16. This decision was later repealed. 33 EU Enlargement Factsheet. Close-Up on Enlargement Countries: Croatia, https://ec.europa.eu/ neighbourhood-enlargement/sites/near/files/pdf/publication/20130514_close_up_croatia_en.pdf. 34 Ibid. 35 European Commission (2020), Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions. Enhancing the accession process – A credible EU perspective for the Western Balkans. COM(2020) 57 final, Bruxelles, 5.2.2020, p. 1.

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conditionality and extending the time frame for WB enlargement. Indeed, the list of accession conditions that the WB countries are asked to fulfil is unprecedentedly long and specific. Certain country-specific conditions are imposed as well. While it is not submitted here that the nature and extent of EU conditionality have been influenced by the political (un)willingness of the EU Member States to admit new members (so-called enlargement resistance), certain effects of political and institutional frustrations associated with the protracted accession process over the content and implementation of the EU conditionality policy cannot be excluded either. However, this paper cannot address this complex, multifaceted issue.36

3 The Evolution of EU Accession Conditionality: Climbing Up the Pyramid Originally conceived as a procedure enabling third states to become Member States to the EU, the enlargement policy has evolved into a comprehensive system of rules and policies, whereby the aspirant states are to be reshaped into what the EU considers a “proper” Member State.37 Such reshaping is mainly done through the application of conditionality, which has expanded over time forming a pyramid, as represented in Fig. 1. Compared with earlier enlargements, the WB countries were presented with the longest list of conditions. In addition to the EU treaties and the European Council documents, they are set in the legal instruments adopted with regard to the WB countries.38 This section discusses the evolution of EU accession conditionality and elaborates on specific conditions applied specifically to the WB countries.

3.1

Article 49 of the Treaty on European Union (TEU)

At present, Article 49 of the TEU constitutes the legal basis for accession to the EU. It provides that any European state that respects the values referred to in Article 2 and is committed to promoting them may apply39 to become a member of the

36

For discussion see, e.g., Economides (2020). Hillion (2011a), p. 187. 38 See supra Sect. 2. 39 The Lisbon Treaty abandoned the former wording that the EU is “open” to any European state, and introduced the “may apply” phrase. As some academics claim, this omission implies certain political reticence to further enlargements. Inglis (2009), p. 145. 37

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+ Post-war related conditionality + Country-specific conditions

Western Balkans enlargements

(+Gradual approach) + Copenhagen criteria

2004 and 2007 enlargements

(strengtened by the Madrid criteria)

Article 49 of the TEU

First four enlargements

(+ some general political and economic conditionality)

Fig. 1 Pyramid structure of criteria in the three main enlargement stages

Union.40 The values of Article 2 include respect for human dignity, freedom, democracy, equality, the rule of law and respect for human rights, including the rights of persons belonging to minorities. It is often claimed that the first four enlargements were based on the general requirements set in Article 49 of the TEU. However, upon a closer look, one could notice that additional conditions were emerging – specific requirements were set for Greece, Spain, Portugal and the UK.41 Nevertheless, those additional conditions were more of an ad hoc type, directed at specific situations of the applicants, rather than an elaborated EU policy. Regular reporting on candidates’ progress, common to recent enlargement rounds, was not in place, and the Commission gave only two opinions on individual membership applications.42 For example, in the cases of Greece, Spain and Portugal, the Commission’s opinions only briefly noted that democracy was restored, without providing any further details.43

The Lisbon Treaty introduced a new sentence to Article 49 which states that “the conditions of eligibility agreed upon by the European Council shall be taken into account”. This undoubtedly refers to the Copenhagen criteria and allows setting additional eligibility conditions. 41 For extensive analysis see Pridham (1991), Payno and Sampedro (1983), Hillion (2004). 42 Hillion (2011b), p. 489. 43 Smith (2003), p. 110. 40

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Copenhagen Criteria

The 2004 enlargement round, besides the two Mediterranean island states historically linked with Western Europe, included eight countries that for a considerable time were within the orbit of the Soviet Union. Hence, it came with little surprise that the second generation of enlargement rules44 elevated the EU institutions’ role from a passive to an active mode as regards the candidates’ preparation for membership and was also marked by an elaborate normative basis and a comprehensive EU policy. This was not only because of profiles of the acceding countries but also due to the changed EU – with its advanced single market, economic and monetary union and the CFSP. Therefore, it was important that newcomers have in place the institutions capable of implementing EU law and economy that would survive an EU-wide competition. The basis for the 2004 and 2007 enlargements was the Copenhagen criteria,45 which set detailed requirements related to EU acquis compliance, reforms of public administration, judiciary, anti-corruption and market economy. The Copenhagen criteria require from any country wishing to join the EU to abide by the following accession conditions: • Stability of the institutions guaranteeing democracy, the rule of law, human rights and respect for and protection of minorities (political criteria) 46 • Existence of a functioning market economy as well as the capacity to cope with competitive pressure and market forces within the EU (economic criteria) and • Ability to take on the obligations of membership, including adherence to the aims of a political, economic and monetary union (acceptance of the acquis). In practice, each of the Copenhagen criteria was bullet pointed into many sub-criteria, elaborating the content of general conditions with detailed checklists.47 This served the interests of both – the candidate states seeking more certainty and the Commission assuming its increasing role in the enlargement process. As Hillion notes, in contrast to Article 49(2) of the TEU providing for the main aspects of the

44

For such classification see Hillion (2011a), p. 193. Copenhagen European Council, 21–22 June 1993, SN 180/1/93. 46 As stated by Zhelyazkova, Damjanovski, Nechev and Schimmelfennig, the current EU enlargement strategy has significantly enhanced the determinacy of the process by specifically framing the rule-of-law conditionality into a much stricter and more coherent system of compliance monitoring than it was the case for the CEE candidate countries. In contrast with the previous rounds of enlargement, in order to obtain EU membership, the WB candidate countries are required not only to adopt the EU regulations and conditions set out in the negotiating chapters, but also to have the most difficult acquis effectively and sustainably implemented before accession. Zhelyazkova et al. (2018), pp. 22–23. 47 Probably the first detailed explanation is European Commission (2000), Agenda 2000. Part. II – The challenge of enlargement, COM(97)2000, Bruxelles, 15.7.1999. Bulletin EU 5/79, pp. 39–60. 45

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enlargement procedure, the adoption of the Copenhagen criteria represents the launching of a genuine policy to prepare for candidates’ accession.48 The Copenhagen criteria are invoked directly after conferral of a candidacy status. Already for 2004 enlargement, they were translated into several indicators, and short, medium and long-term priorities were set out requiring candidates to engage in structural reforms. This approach continues to apply in respect to the WB countries.

3.3

Specific Conditions Imposed on the WB Countries

When the idea of the WB countries acceding to the EU came into focus, having in mind the recent wars and post-war challenges there, the EU significantly complemented the Copenhagen criteria by extending political conditionality and by adding region-specific conditions encapsulated in the Regional Approach, the Stability Pact and the SAP as well as the peace agreements and political deals.49 These region-specific conditions are addressed below in more detail.

3.3.1

Regional Cooperation Condition

The Yugoslav secessionist wars and regional hostilities in the 1990s predetermined a strong EU emphasis on regional cooperation, seeing it as a means of promoting reconciliation and rapprochement. First, being integrated in the Regional Approach and the Stability Pact,50 the engagement in regional cooperation was later included in each of the SAAs as a binding element of stabilisation process and an explicit condition for accession.51 A successful example of such cooperation is the Central European Free Trade Agreement (CEFTA).52 It is worth noting that in case of the WB, the CEFTA meets two important requirements of EU (pre-)accession conditionality: regional cooperation and readiness for the competitive impact of participating in the EU’s single market.53 On the other hand, in sensitive, past-related issues, regional cooperation progressed slower. For example, cooperation related to war crimes was barely

48

Hillion (2004), p. 13. See supra Sect. 1. 50 See Fakiolas and Tzifakis (2008), p. 382. See also Noutcheva (2006). 51 See European Commission (2002), Report from the Commission of 3 April 2002 – The Stabilisation and Association process for South East Europe – First Annual Report. COM(2002) 163– 2002/2121(COS). Bruxelles, 3.4.2002. 52 For a more extensive list of regional cooperation initiatives see Mameli (2011), pp. 10–12. 53 Blockmans (2009), p. 212. 49

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existent, and it is still rather weak in cases of minority protection, refugees and displaced persons.

3.3.2

Protection of Minorities

Due to its quite recent turbulent history of inter-ethnic violence, the minority issues in the WB are more than sensitive and definitely of high importance for the stability and progress of the region. Thus, it is nothing but natural that the EU puts the minority-related conditionality high on its agenda for the WB. The respect for and protection of minorities were formally included in accession conditionality by the Copenhagen criteria. Since minority rights only briefly exist in the acquis, to fill the normative content of this political criteria and to assess candidates’ progress, the EU relies on the documents and experience of other international organisations, such as the Council of Europe’s European Framework Convention on the Protection of National Minorities and the practice of the OSCE High Commissioner for National Minorities.54 Due to such approach, the content of the protection of minorities condition is rather extensive. It includes various aspects, including minorities’ living conditions, access to employment, education, representation in public sector and cultural autonomy. Developments in those areas are scrutinised when drafting progress reports and are evaluated on the basis of legislative acts as well as practical application. The majority of minority communities in the WB countries are ethnic nationals of neighbouring states and Roma. Roma minority, quite similar to other European countries, mainly face problems related to “poverty cycle”, including poor living conditions, long-term unemployment, poor access to health services and education.55 However, as Commission progress reports reveal, the main challenges for the WB states are related to ethnic groups of other Balkan countries as most of interethnic tension and conflicts arise in regard to them. For example, the 2019 Report on North Macedonia,56 whose largest minority are Albanians, highlights that institutions in charge of minority-related policies are politically and ethnically divided, with unclear roles, and left outside the mainstream policy and decision-making processes. The absence of bias disaggregated data collection does not allow the level of discrimination faced by members of minorities to be verified (https://eur-lex.europa.eu/legal-content/NL/TXT/?uri=CELEX:52019 SC0218). At the same time, it cannot be claimed that the Report reveals a complete picture. It does not cover important aspects of real life, such as a traditionally strong segregation of the society, including its political and business class; avoidance of co-habitation in the same neighbourhoods; lack of inter-ethnic contacts; and strong

54

See Sasse (2004), pp. 78–79. See, e.g. Kacarska (2019). 56 Commission Staff Working Document. North Macedonia 2019 Report. SWD(2019) 218 final, Brussels, 29.5.2019. 55

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prejudices among the ethnic groups. Moreover, it has to be remembered that representation of minorities in the public sector is to a large extent achieved due to a strict application of the Ohrid Framework Agreement,57 revealing, thus, a forced compliance. In general, the EU minority protection conditionality seems incoherent and unevenly applied, largely due to the lack of unified standards at the EU level, varying conditions across the WB region and this matter’s political sensitivity. Its implementation from the WB countries’ side and monitoring from the EU’s side are still far from perfect, as technical, formalistic compliance is often given preference over more nuanced but less measurable issues, such as genuine tolerance towards minorities, socio-political cohesion and mutual respect in society.58

3.3.3

War Crimes Conditionality

As Noutcheva notes, there is a considerable agreement in the EU and the international community at large that cooperation with the ICTY constitutes a key element of state building based on the rule of law, where crime, including war crime, is prosecuted and punished.59 Hence, ensuring that the WB states cooperate with the ICTY was part of the international community’s (including the US, NATO and the EU) strategy in the WB. However, even if the EU referred to full cooperation with the ICTY as a threshold conditionality, compliance appeared to be problematic. The Commission has repeatedly raised concerns about insufficient level of cooperation on the side of Croatia, BiH and Serbia, reiterating the need to intensify efforts to bring Karadžić, Mladić, Gotovina and other key military figures to the ICTY. Since the arrest of Goran Hadžić in 2011, there are no indictees remaining at large; thus, this conditionality is now more concerned with identifying war crimes and trying them at domestic level.

3.3.4

Country-Specific Conditions

As the EU accession process grants for the Member States a certain leverage to bring forward additional demands, and since some candidate countries do have specific characteristics, a number of country-specific conditions were introduced. Several examples could be given. Croatia’s membership prospect has been undermined as a result of a sea border dispute with Slovenia regarding its right of passage over Croatian waters. Later on, in 2016, Croatia itself on two occasions blocked the opening of negotiation chapters with Serbia, referring to the treatment of the Croatian minority in Serbia and its

57

Ohrid Framework Agreement of 13 August 2001, https://www.osce.org/skopje/100622. See Sasse (2004, 2005), Schwellnus (2008). 59 Noutcheva (2012), pp. 62–63. 58

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cooperation with the ICTY. Meanwhile, North Macedonia’s prospect to start accession negotiations was hampered by the name dispute with Greece refusing to recognise it under its earlier name, which was the “Republic of Macedonia”. This was resolved only in 2019 with the entry into force of the historic Prespa Agreement60 between Greece and North Macedonia, in which the latter country’s name was agreed upon. However, additional requests were then put on the table: Bulgaria is asking North Macedonia to drop claims that there is a Macedonian minority in Bulgaria and refuses to recognise the existence of the Macedonian language.61 Whereas such country-specific conditions seem to have accelerated the resolution of long-standing questions, they put additional pressure on the aspiring countries as they find themselves in a weaker position. At the same time, the conditions empower present Member States to pursue their national political objectives and allow transforming their unilateral demands into EU-wide conditionality, which does not always seem to be fair. Finding a proper balance is particularly necessary in this regard; otherwise, EU candidate countries might turn against the EU accession or undergo a fake (rather than genuine) transformation and embracement of EU values.

4 Perfect on Paper But Less so in Reality: Why EU Accession Conditionality Does Not Produce Expected Results of Genuine Transformation According to Giamouridis, historically EU enlargement has assisted in stabilising relatively unstable areas in the EU neighbourhood, such as Greece, Spain and Portugal. Later, with the EU’s help and the prospect of EU accession, the postcommunist CEE countries succeeded in consolidating their democratic and market reforms.62 The WB, however, appeared to be not the easiest environment for an EU integration process. Pre-accession reforms and the dynamics of compliance with EU conditionality in the region do not follow an ideal pattern. “Why?” is a question, the answer to which is probably more complicated to Brussels officials than answering Hamlet’s dilemma “To be or not to be?” Indeed, the EU has created an extensive list of conditions, made numerous explanations thereof, spent enormous amounts of energy and human and financial resources, created rigid monitoring structures – yet it still fails to reach the target of effecting a genuine transformation of WB countries into “proper” Member States. Up until now, there are serious political, cultural,

60 Final Agreement for the Settlement of the Differences as Described in the United Nations Security Council Resolutions 817 (1993) and 845 (1993), the Termination of the Interim Accord of 1995, and the Establishment of a Strategic Partnership between the Parties (Prespa, 17 June 2018) https:// www.mfa.gr/images/docs/eidikathemata/agreement.pdf. 61 Marušić (2019). 62 Giamouridis (2007), p. 184. See also Wallace (2003), p. 3.

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social, economic and other obstacles that stand in the way of smooth compliance. Admittedly, a further complicating factor is that, in many instances, the extent of “sufficient” compliance has not been defined.

4.1

State Capture?

Among the root causes may well be the phenomenon of state capture of various forms and degrees, which the EU avoids to clearly name and address, resulting in the failure of conditionality policy. In their recent paper, Richter and Wunsch argue that state capture is a key explanatory factor for the observed decoupling between formal compliance and democratic performance in the WB. They further claim that WB countries are stuck in a “state capture trap” that leads to stagnating democratisation and the inability to implement deep reforms.63 The reference to state capture does not seem to be unfounded. When analysing the EU reports, NGO reports and other studies, one could notice a certain pattern of problems that all WB countries have been suffering from to a greater or lesser degree, notably insufficient judicial and media independence, widespread (systemic) corruption, organised crime, omnipresence of political parties and politicisation of key institutions, lack of merit-based employment, and weak enforcement of competition and other economic laws.64 Without further analysis, a credible presumption can be made that an aggregate of the aforementioned problems point to the existence of (at least) a certain degree of state capture by powerful groups (power holders).65 While the extent and pattern of state capture would probably differ from country to country, and would require in-depth individual country analysis, there is ample proof that this phenomenon, whatever its form, deals a serious systemic blow to the functioning of the rule of law and core democratic principles. Institutions subject to capture may include the executive, legislative and judicial authorities, as well as various law enforcement, financial, supervisory and/or regulatory agencies. Taking the judiciary as an example, it may be argued that insufficient independence of the judiciary and interference of the executive or a political party with the work of courts, which is an often-used criticism in EU progress reports on WB countries, ipso facto implies serious deficiencies in the separation of powers and the functioning of democratic system, while failure by the WB countries themselves to address these interferences calls into question the independence of institutions altogether and thus points to the existence of systemic problems. In a similar vein, problems related to freedom of media and freedom of speech further strengthen the presumption of existence of a certain degree of state capture.

63

Richter and Wunsch (2020). See also Keil (2018); Fazekas and Tóth (2016). See country reports, available https://ec.europa.eu/neighbourhood-enlargement/countries/checkcurrent-status_en; Freedom House Reports, available http://www.freedomhouse.org/reports. 65 On the notion of state capture see in particular Hellman et al. (2000). 64

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Interference with the freedom of speech and media on the part of the ruling party or another influential group of power holders, as well as failure of the law enforcement agencies to effectively counter these interferences, may well suggest that the country is in a dangerous form of state capture where space for criticising “state captors” or their activities becomes limited or non-existent. Lessons from the authoritarian regimes teach that lack of freedom of media allows to prolong and to consolidate the grip on power.

4.2

Volatile Support for EU Integration

It is often claimed that the EU conditionality policy faces problems in the WB countries due to their perception that the EU assurances for accession are not credible. Slow progress in the accession process and the remaining conditionality burden, exacerbated by unilaterally imposed, identity-related conditions (e.g. by Greece and Bulgaria towards North Macedonia), cause a fall of “the transitional enthusiasm” in the region66 and the “EU integration fatigue”. For example, due to the political situation in Europe, the Kosovo problem and other factors, the Serbians’ interest in EU membership has been declining for a decade and in 2020 has been at an all-time low since the 1990s. Almost 40 % of the Serbian population considers that EU membership will never happen.67 Obviously, this generates prejudices against the EU and discourages full compliance with EU conditionality. When (if) such attitudes prevail, the policy of conditionality loses its credibility and becomes less genuine.

4.3

Credibility of Future Accession

Another related issue is the fact that the EU membership perspective for the WB countries has been less credible than similar perspectives during the previous rounds of enlargement. Public support to further enlargements in the EU is comparably low, and the political class in a number of Members States is also showing limited enthusiasm to enlarging the EU club.68 Eurobarometer surveys consistently show limited enthusiasm of the public in the EU in regard to accepting new Member 66

See, e.g., Knezović (2009), pp. 109–111. Bjelotomić (2020). As regarding North Macedonia, see Damjanovski (2014). This study detects a correlation between the dynamics of the support for EU membership and the development of the North Macedonian EU accession process that is manifested in two indicative periods: the period from 2004 to 2009 as a period of consistent and particularly high level of support; and the period from 2010 to 2014 as a period of an incremental decrease in the public support for the EU integration process. 68 See general and country specific positions analysed in Balfour and Stratulat (2015). 67

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States. For example, in the 2019 Spring Eurobarometer survey, only 46% of Europeans supported “further enlargement of the EU to include other countries in future years”.69 In addition, new candidate countries will also have to pass a more complicated approval procedure for their EU membership. For example, after the CEE enlargement, France adopted constitutional revisions that introduced a referendum requirement for all accessions following Croatia’s entry to the EU. There is a possibility to circumvent a referendum should both chambers of the parliament authorise the ratification of an accession treaty by a three-fifths majority. In practice, it is unlikely that this threshold would be reached.70 In view of Zhelyazkova, Damjanovski, Nechev and Schimmelfennig, in many instances the likelihood of accession has also been severely hit by the emergence of Member State veto players who have been able to impose the resolution of their bilateral disputes with the candidate countries as determinant conditions for advancement in the EU accession process.71 This is visible in respect of several WB countries, resulting in distortions of the overall dynamics of the enlargement process. Naturally, awareness of such situation puts the EU hopes of the WB countries down and, as a result, discourages full dedication to EU conditionality.

4.4

Prioritisation in EU Conditionality Policy and the Resulting Centre-Periphery Dilemma

Another closely linked issue is the prioritisation of certain accession conditions, which was the case for many years. There have been several cases where one or few EU accession conditions were perceived or treated as central, while others were shifted to the second place or even to the periphery of the accession process. In Serbia, such a central condition was the status of Kosovo and its relations with Serbia. In North Macedonia, it was undoubtedly the name dispute with Greece. In BiH, the core problem remains Republika Srpska’s calls for separation.72 While it appears natural to prioritise EU pre-accession conditions according to their political urgency and importance to the regional stability (or other imminent considerations), such prioritisation necessarily causes a structural dilemma to the EU’s conditionality policy. Overemphasising one or few, often “externally-induced” conditions, such as the dispute with Greece over the name of the country, speaking in economic terms, leads to devaluation of other important conditions. While the EU

69 Spring 2019 Standard Eurobarometer: Europeans upbeat about the state of the European Union – best results in 5 years, https://ec.europa.eu/commission/presscorner/detail/en/IP_19_4969. 70 Wunsch (2015), p. 45. 71 Zhelyazkova et al. (2018), pp. 23–24. 72 Kovačević (2020).

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institutions, the populations of candidate countries and their political elites are preoccupied with looking for solutions to these “central problems”, there is less time, energy and interest left for fulfilling a long list of “other” conditions that are often internal and country specific, such as the state of democratic separation of powers, independence of institutions (including the judiciary), market economy, corruption or minority rights. Ignoring such “internal” conditions may prove extremely problematic in the longer run, mainly because procrastination in resolving these challenges may erode the democratic governance and perpetuate systemic state weaknesses. A second consequence of prioritisation in the EU’s conditionality policy could well be a so-called effect of “elevated expectations”. The WB candidate countries, having successfully resolved their “central problem(s)”, may expect that the road towards EU accession has been definitely cleared and there are no more strict conditions to comply with. Such an effect is sometimes stimulated by WB politicians themselves, who portray their countries as meeting EU pre-accession conditions, with only one (or few) “externally induced” problems on the way. In order to avoid adverse consequences of prioritising the EU pre-accession conditions, there seems to be no other plausible cure than to maintain a wider list of pre-accession priorities, including the “internal” ones. However, one has to admit that retaining a long list of priorities may in practice lead to having no priorities at all. Finding Aristotle’s middle ground may indeed prove very difficult.

4.5

Political Will and Compliance Costs

Political elites in the aspiring countries may work hard hand in hand with the EU in moving their countries towards EU accession. However, the opposite can also happen – that political elites are not much interested in the EU accession perspective, even if not admitting it openly. Lack of a genuine political will may be associated with the length of the accession process that often gets protracted and is incompatible with the local political cycles (i.e. changes of political power). The politicians in power during the accession process are unlikely to be the beneficiaries of their efforts. Limited political enthusiasm might also be linked to high political, economic and/or social cost of accession, and even the cost for political elites of losing the grip on power and state resources. One often hears in the Balkans that being in power is about seizing the opportunity of exploiting the state “here and now” and not playing fair and paving the way for the country’s accession to the EU in some distant future.73 When domestic costs of compliance are too high for political elites, they refuse to cooperate or cooperate only half-heartedly, pro forma. It is rather natural that if a certain EU pre-accession condition is perceived negatively by the society at large

73

See similarly Blockmans (2012), p. 2.

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and if its political elite wants to retain grip on power, the fulfilment of such a condition would become difficult at best and impossible at worst. Political elites may take side with the popular position as a means to generate popularity and stay in power while protracting EU integration.

4.6

Economic Considerations

A short note should also be taken of economic considerations as a hurdle for the proper implementation of conditionality. Two aspects are to be mentioned. Firstly, as claimed by Giamouridis, the imposition of strong EU conditionality can in reality be incompatible with the development goals of countries in transition.74 These countries may find themselves in a position where they would economically do better if they disregarded the EU requirements. This is especially true about environmental, social, agricultural and labour policies. The EU standards are extremely high and expensive to implement. Moreover, application of strict regulations results in lower capacity to compete.75 Protection of EU market causes additional headache for WB economies. An example could be the Common Agricultural Policy, which is based on a system of production subsidies that is not necessarily compatible with the market liberalisation goals. Due to such subsidies, agricultural products from the WB find it harder to compete with, for example, Greek products, which are cheaper due to the EU subsidies. Secondly, as regards capacity, candidate countries need both financial and administrative resources to implement the EU accession requirements. The economic performance of WB countries is still rather modest, with low levels of economic growth.

5 Concluding Remarks The EU’s approach towards the WB countries changed with time, from inactiveness and humanitarian aid to a well-developed proactive policy marked by multidimensional conditionality and Gradual Approach. After the most recent conflicts in Kosovo and North Macedonia, the EU’s policy towards the WB countries reached its full cruising speed, unleashing the complete arsenal of its instruments, including the EU membership perspective. In 2013, the enlargement process in the WB was picking the first harvest with Croatia joining the EU. However, there is still a long queue at the EU’s door. And the price of the entrance ticket is denominated in fluctuating currencies of conditionality. 74 75

Giamouridis (2007), pp. 195–196. Ibid.

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The WB countries on their way to the EU face conditions that could be referred to as “Copenhagen criteria +”. Their typology is the most complicated when compared to the earlier enlargements. Next to traditional accession conditions set in the treaties and EU policy documents, regional and country-specific conditions have emerged. While some conditions are absolutely valid and necessary for the genuine transformations of the candidate countries into full-fledged EU Member States, some conditions (especially raised unilaterally by individual Member States) may rather be regarded as political irritants that undermine mutual trust and support to the credibility of the EU accession process. EU enlargement seems to be suffering from two-sided fatigue. In parallel with the EU Member States no longer supporting further enlargements, the candidate countries are becoming increasingly tired of the long process and continuous conditions, such procrastinating situations benefiting only the local elites. Moreover, a formalistic approach towards conditionality does not always help to reach its goals as some key root causes of instability in the WB remain largely unaddressed. In order to bring the EU accession process back on track, it is necessary to restore the EU’s internal consensus about the fundamental value of the EU accession for the WB region and to focus on the priority conditions by further elaborating their content and reinforcing their measurability. At the same time, conditions should be balanced and justified since unilateral and politically contentious conditions may alienate the candidate countries and trigger “fake” compliance.

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Economides S (2020) From fatigue to resistance: EU enlargement and the Western Balkans. Working Paper (17). The Dahrendorf Forum, Berlin, DE. https://www.dahrendorf-forum.eu/ wp-content/uploads/2020/03/From-Fatigue-to-Resistance.pdf Ehrhart GH (1999) Prevention and regional security: the Royaumont process and the stabilization of South-Eastern Europe. In: IFSH (ed) OSCE Yearbook 1998. Baden-Baden, pp 327–346 Fakiolas ET, Tzifakis N (2008) Transformation or accession? Reflecting on the EU’s strategy towards the Western Balkans. EFA Rev 13:377–398 Fazekas M, Tóth IL (2016) From corruption to State capture. Polit Res Q 69(2):320–334 Giamouridis A (2007) Only through enlargement. The New European Myth. EFA Rev 12 (2):183–202 Hellman JS, Jones G, Kaufmann D (2000) Seize the state, seize the day: state capture, corruption and influence in transition. World Bank Policy Research Paper 2444. https://documents. worldbank.org/en/publication/documents-reports/documentdetail/537461468766474836/seizethe-state-seize-the-day-state-capture-corruption-and-influence-in-transition Hillion C (2004) The Copenhagen criteria and their progeny. In: Hillion C (ed) EU enlargement: a legal approach. Hart, Oxford, pp 1–22 Hillion Ch (2011a) EU Enlargement. In: Craig P, de Búrca G (eds) The evolution of EU law. Oxford University Press, pp 187–216 Hillion C (2011b) Enlarging the constitutional order of states. In: Arnull A et al (eds) A constitutional order of states?: Essays in EU law in Honour of Alan Dashwood. Hart, Oxford, pp 485–500 Inglis K (2009) Accession treaties: differentiation versus conditionality? In: Ott A, Vos E (eds) Fifty years of European integration: foundations and perspectives. T.M.C. Asser Press, The Hague, pp 139–156 Kacarska S (2019) Conflicting objectives of EU conditionality uncovered: Roma policies in the Republic of North Macedonia. CEP Paper in Liberty and Security in Europe No. 2019-05 Keil S (2018) The business of state capture and the rise of authoritarianism in Kosovo, Macedonia, Montenegro and Serbia. Southeast Eur 38(1):87–111 Knezović S (2009) EU’s conditionality mechanism in South East Europe – lessons learned and challenges for the future. Eur Perspect 1(1):93–113 Kovačević D (2020) Bosnian Serb Leader Repeats Demand for Secession Referendum. Balkan Insight 15 February 2020. https://balkaninsight.com/2020/02/15/bosnian-serb-leader-repeatsdemand-for-secession-referendum/ Mameli S (2011) Regional Cooperation in Western Balkans in Times of Political and Economic Uncertainty. PECOB’s Papers Series No 8, file:///C:/Users/Ulaz/Downloads/ PPS_201108_MameliSimona.pdf Marušić SJ (2019) Bulgaria sets tough terms for North Macedonia’s EU progress. Balkan Insight, 10 October 2019. https://balkaninsight.com/2019/10/10/bulgaria-sets-tough-terms-for-northmacedonias-eu-progress/ Noutcheva G (2006) EU conditionality and Balkan compliance: does sovereignty matter?. Doctoral Dissertation, University of Pittsburgh Noutcheva G (2012) European foreign policy and the challenges of Balkan Accession: conditionality, legitimacy and compliance. Routledge, London Payno J, Sampedro J (eds) (1983) Enlargement of the European community: case studies of Greece, Portugal, and Spain. MacMillan, Basingstoke Phinnemore D (2003) Stabilisation and association agreements: Europe agreements for the Western Balkans? EFA Rev 8(1):77–103 Pippan C (2004) The rocky road to Europe: the EU’s stabilisation and association process for the Western Balkans and the principle of conditionality. EFA Rev 9(2):219–245 Pridham G (ed) (1991) Encouraging democracy: the international context of regime transition in Southern Europe. Leicester University Press, Leicester Richter S, Wunsch N (2020) Money, power, glory: the linkages between EU conditionality and state capture in the Western Balkans. J Eur Public Policy 27(1):41–62

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Roumeliotis P (1998) The Royaumont process. An initiative for stability and good neighbourliness in South-Eastern Europe. Thesis J Foreign Policy Issues 2(3). http://www.hri.org/MFA/thesis/ autumn98/royaumont.html Sasse G (2004) Minority rights and EU enlargement: normative overstretch or effective conditionality?. In: Toggenburg GN (ed) Minority protection and the Enlarged European Union: the way forward. Open Society Institute, Budapest, pp 59–83 Sasse G (2005) EU conditionality and minority rights: translating the Copenhagen criterion into policy. EUI-RSCAS Working Papers No 16. European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS). https://ideas.repec.org/p/erp/euirsc/p0154. html Schwellnus G (2008) Double standards? Minority protection as a condition for membership. In: Sjursen H (ed) Questioning EU enlargement: Europe in search of identity. Routledge, New York, pp 186–202 Smith K (2003) The evolution and application of EU membership conditionality. In: Cremona M (ed) The enlargement of the European Union. Oxford University Press, Oxford, pp 105–139 Wallace W (2003) Looking after the neighbourhood: responsibilities for the EU-25, Notre Europe Policy Paper, No 4. https://institutdelors.eu/wp-content/uploads/2018/01/policypaper4.pdf Wunsch N (2015) France. In: Balfour R, Stratulat C (eds) EU Member States and enlargement towards the Balkans. European Policy Centre Issue Paper 79, pp 43–53. http://aei.pitt.edu/ 66050/1/pub_5832_eu_member_states_and_enlargement_towards_the_balkans.pdf Zhelyazkova A et al (2018). European Union conditionality in the Western Balkans: external incentives and Europeanisation. In: Džankić J, Soeren K, Kmezić M (eds) The Europeanisation of the Western Balkans. A failure of EU conditionality?. Macmillian, Cham, pp 15–37

The Story of the Civil Supervisor: A Missed Opportunity to Strengthen Civil Control of Public Procurement in the Republic of Serbia Bojana Todorović

Contents 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Civil Society as the Integrity Watchdog in Public Procurement . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 The Challenges of Civil Control of Public Procurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 Best Practices in Comparative Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 The Civil Supervisor: (In)efficiency of Civil Control in Serbian Public Procurement Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 A Critical Overview of the Legal Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 Practical Experiences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 The Way Forward: Prospects for Future Civil Society Participation in the Serbian Public Procurement System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Concluding Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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1 Introduction While various civil society organizations (CSO) and investigative journalists have been actively involved in the oversight of public expenditure and the exposure of corrupt practices in the Serbian public procurement (PP) system for years, the institutionalized form of civil control of PP – embodied in the institute of Civil Supervisor (CS) – was introduced on the basis of the Law on Public Procurement This article is the outcome of the work on the project at the University of Belgrade Faculty of Law “Identity Transformation of Serbia – Transformation of Public Law of Serbia” in 2020. B. Todorović (*) University of Belgrade, Faculty of Law, Belgrade, Serbia e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 Z. Meškić et al. (eds.), Balkan Yearbook of European and International Law 2020, Balkan Yearbook of European and International Law (2021) 2020: 147–176, https://doi.org/10.1007/16247_2020_17, Published online: 2 March 2021

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adopted at the end of 2012 and in force since April 1, 2013 (2012 LPP).1 In this way, Serbia became one of the few countries worldwide to provide representatives of the civil society with an explicit legal mandate to conduct ex ante control of the most valuable PP projects. The CS is an independent expert, appointed to monitor procurements above a determined financial threshold and submit a report on the findings. Opening up the management and expenditure of taxpayers’ money to public scrutiny was greeted by the civil society sector with enthusiasm and appraised by academics and practitioners as having significant potential to improve the integrity of the domestic PP system, which has been pinpointed as the “epicenter of corruption” in Serbia.2 At the same time, it was pointed out that in order for this interesting and ambitious control mechanism to bring about anticipated benefits, efforts need to be put into modifying the pertinent legal framework and strengthening the capacity of the civil society sector.3 It was reasonable to assume that Serbian policy makers would have used the recently adopted PP reform package – comprising the new Law on Public Procurement (2019 LPP/new LPP)4 and the Program for PP development in the Republic of Serbia for the period 2019–2023 (Program)5 – as an opportunity to address the underlined weaknesses of the legal regime of CS and provide the civil sector with more impetus for taking on the responsibilities and challenges that come with the role of “integrity watchdog,” all the more so given that the Program highlights the importance of the civil sector for the exposure of corruption, conflict of interests, and other irregularities in the PP system that undermine its efficiency and the potential to generate the “best value for money,” as well as for ensuring wider citizens’ support for the ongoing reform – a prerequisite for its successful implementation and the full alignment of the domestic legal framework with the stringent European Union (EU) acquis in this field.6 Nevertheless, this was not the case, seeing how the institute of CS has not been included in the text of the 2019 LPP. Insight into the comments from public consultations on the proposal of the 2019 LPP reveals that this decision was based on analyses of the reports issued by the Public Procurement Office (PPO) and

1

Official Gazette of the Republic of Serbia, Nos. 124/2012, 14/2015 and 68/2015. Balkan Anti-Corruption Civic Initiative (2011), p. 95: “[P]ublic procurement is among the most important sources of corruption in Serbia and a segment of work of public authorities most exposed to corruption. This is the conclusion of both the general public and expert circles and one present in media almost every day. Even though it is impossible to talk about exact amount which end up as spoils of organizers of corruption arrangements, it is speculated that it equals roughly a billion Euros at the annual level in Serbia”. More on corruption in the Serbian PP system: Todorović and Ilić (2018). 3 Dobrašinović (2013), pp. 7–10. 4 Official Gazette of the Republic of Serbia, No. 91/19. 5 Public Procurement Office, Program of Public Procurement Development in the Republic of Serbia for the period 2019–2023 (accessed 4 April 2020). 6 Ibid., p. 19. 2

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practice, which indicated a significant decline in the number of submitted reports of CSs and led to the conclusion that this legal institute was unable to “give the expected results”.7 In addition to that, it was stated that the analysis of the national legislation of countries in the region, as well as in the EU Member States, has shown that this institute has not been “recognized and widespread as an institute that effectively ‘helps’ with supervising the implementation of PP procedures.”8 This paper explores the (in)efficiency of the institute of CS based on the following structure: first, the author reflects on the global trend of empowering CSOs to take a more active role in the oversight of PP, extrapolates challenges that arise therein, and presents a number of best practices in a comparative perspective (Sect. 2). Second, the Serbian mechanism of civil control of PP is analyzed in light of the regulatory framework, as well as the experiences and difficulties with its implementation in practice (Sect. 3). Third, lessons learned are used to provide suggestions on how to foster civil sector participation in the Serbian PP system in the future (Sect. 4), followed by concluding remarks (Sect. 5).

2 Civil Society as the Integrity Watchdog in Public Procurement The close cooperation of the private and the public sectors in areas of strategic importance, high-value contracts, the complexity of the procurement process, and the involvement of many different actors at its various stages all contribute to the vulnerability of the PP sector to political influence, corruption, conflict of interests, and other forms of illegal activities. In the recent years, academics and practitioners have been advocating a “holistic” approach in order to combat such malpractices and achieve long-term efficiency in public spending, which entails setting up adequate control mechanisms at all stages of the procurement cycle and their diversification so as to involve both competent State institutions and the civil society sector.9 In a similar vein, international organizations and economic institutions dedicated to helping countries foster the integrity of national PP systems have been advancing the importance of a vibrant civil sector in this process. This is well illustrated by the fact that one of the ten principles for integrity in PP, developed by the Organization for Economic Co-operation and Development (OECD), concerns the empowerment

7 Table with comments and answers from the public consultations, p. 46. Available via: NeoBilten

(accessed 4 April 2020). 8 Ibid. 9 Racca and Yukins (2014), p. 7; See, for instance: Controle et contentieux des contrats publics/ Oversight and Challenges of public contracts (Eds. Laurence Folliot-Lalliot, Simone Torricelli) Bruylant, Bruxelles, 2018; OECD Principles for Integrity in Public Procurement, OECD Publishing, Paris 2009.

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of civil society, media, and the wider public to take an active part in the prevention of corruption and other irregularities in PP.10 Seeing how the probity of the procurement process can have direct repercussions on the well-being of citizens and the quality of public services provided to them the involvement of CSOs, which are considered a “vehicle for the mass public to articulate their grievances,” enables citizens to keep a watchful eye on how public funds are spent and to partake in shaping procurement and anticorruption policies.11 However, despite the general consensus on the desirability of organized citizen involvement in PP and the logical rationale behind it, many questions still remain open, and differences regarding the concrete impact of these non-State actors on curbing corruption, the modalities of such involvement, and the approach toward tackling numerous challenges inherent to this specific control mechanism continue to persist.12 These questions are further explored in the following subsections.

2.1

The Challenges of Civil Control of Public Procurement

There is no universally accepted definition of civil society, and different authors construe the concept more or less broadly.13 According to the definition recommended by Transparency International (TI), which will be relied on for the purpose of this paper due to its broadness and flexibility, civil society is understood as “[t]he arena, outside of the family, state and market where people associate to advance a common set of interests. Voluntary and community groups, non-governmental organizations (NGOs), trade unions and faith-based organizations commonly are included in this sphere, making the term broader than an NGO.”14 The principal “weapon” in the fight against corruption and mismanagement of public funds at the disposal of civil society is transparency, i.e., the exposure of such illegal practices to the wider public, which has proven to be a strong disincentive for corrupt public officials.15 That is why the ability to access all the relevant procurement information (such as technical specifications, tender documentation, award notices, etc.) is considered to be one of the key factors for the successful control of PP.16 The access to such information is, on the other hand, to a great extent dependent on the “broader politico-legal institutional environment,” which encompasses the transparency culture in a particular society, free and independent media

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OECD (2009), pp. 46–47. Villanueva (2020), p. 553. 12 OECD (2007), p. 89. 13 For more on the concept of civil society see: Caranta (2013). 14 Transparency International, Glossary, (accessed 27 March 2020). 15 Toplica Center for Democracy and Human Rights (2012), p. 30. 16 De Simone and Shah (2012), p. 44. 11

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outlets, the existence of relevant legislation, sound public administration, functioning institutions, and other control mechanisms.17 Moreover, the impetus for playing the part of an “integrity watchdog” is also affected by factors inherent to the internal organization of a CSO (such as qualified staff, the management of resources, the manner of deliberation, etc.) and its ability to respond to challenges concerning the scarcity of technical and financial resources, as well as the need to maintain the integrity and accountability of their members.18 Moreover, efficient monitoring requires knowledge and understanding of the procurement cycle and the underlying legislation, and also sector-specific knowledge, which can be highly technical at times – especially in the case of large infrastructure projects.19 In addition to that, civil observers need to be able to recognize the red flags of corruption in PP, which implies familiarity with the anticorruption normative framework that is often dispersed across different pieces of legislation. Consequently, the complexity of procurement procedures and the variety of sectors in which they are conducted raise the question of how to “equip” the civil sector with the necessary knowledge and skills. There are different approaches in comparative law to tackling this problem – from hiring consultants and external experts to organizing systematic training and interactive workshops that enable the exchange of best practices and the specialization of CSOs for certain fields that have been targeted as particularly prone to corruption.20 The question of how to secure sufficient funding for civil societal actors involved in monitoring PP, without compromising their integrity and impartiality, remains an even bigger challenge. While remuneration represents a strong incentive for performing the function of an external observer timely and according to the highest professional standards, it is also linked to numerous risks, such as influence on their objectivity or the prioritization of tasks according to donor preferences.21 If a particular country does opt for enabling the representatives of the civil society to be remunerated for their work, the question how to determine the amount and manner of payment remains – should this payment be fixed or reliant on a particular parameter, such as the value of the PP contract in question? Moreover, monitoring may incur substantial expenses (such as for transportation, hiring external experts, etc.), and if this question is not addressed properly, it may lead to long-term unsustainability of this type of control mechanism.22 Finally, it is paramount to provide adequate mechanisms that will guarantee the full independence of civil controllers. This implies prescribing strict criteria concerning who and based on what grounds is to assess the qualifications of potential

17

Villanueva (2020), p. 555. De Simone and Shah (2012), p. 44. 19 Ibid., p. 46. 20 Ibid.: A good example of such specialization are the activities of TI in South Korea in the defense industry or the solid-waste collection sector in Argentina. 21 Ibid., p. 47. 22 Ibid., p. 47. 18

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candidates for this function, the absence of impediments for their involvement in a particular PP procedure due to conflict-of-interest situations, conditions under which their engagement in PP monitoring may be terminated, as well as setting up of reliable accountability mechanisms. 23

2.2

Best Practices in Comparative Law

An overview of comparative legislation and practice reveals a growing trend toward encouraging CSOs to be more actively involved in PP.24 Still, the modalities of such engagement vary significantly.25 While many countries enable the civil sector to be involved in monitoring PP ad hoc and on a voluntary basis, only relatively few countries worldwide have introduced and regulated an institutionalized form of civil control – examples thereof being Mexico, the Philippines, and Nigeria.26 As de Simone and Shah advance, an explicit legal mandate for monitoring PP is not an imperative, but it is “certainly a strong incentive” since it has the potential to secure the controller access to key information and the cooperation of the contracting authority and other relevant actors in the procurement process.27 In addition to improving the integrity of public expenditure, such mechanisms of “direct social control” have a strong potential to enhance the overall efficiency of PP procedures.28 That is certainly the case with the institution of a social witness (testigo social) in Mexico, one of the most elaborate and successful models of direct social control of PP on a global scale. Social witnesses are independent experts appointed to monitor a specific PP procedure in its entirety (from procurement planning to contract execution) and to draft and submit a report – “public testimony” (testimonio público) on the conducted procedure.29 This function may be performed by individuals, NGOs, or their members, and questions concerning their required qualifications, integrity, impartiality, registration, and appointment are subject to strict criteria prescribed by law and placed under the competence of the Federal Ministry of Public Administration (La Secretaría de la Función Pública (SFP)).30 In addition to that, their full independence and professionalism are ensured by prescribing sanctions for disrespecting the prescribed ethical standards and disclosure of sensitive information.31

23

OECD (2009), p. 49. OECD (2007), p. 114. 25 Ibid., p. 89. 26 De Simone and Shah (2012), p. 43; Williams-Elegbe (2018), p. 139. 27 De Simone and Shah (2012), p. 43. 28 OECD (2007), p. 117. 29 ONG Contraloría Ciudadana para la Rendición de Cuentas (2011), pp. 65–66. 30 Knežević Bojović (2013c), p. 44; OECD (2007), p. 118. 31 OECD (2007), p. 118. 24

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The appointment of social witnesses is mandatory for procurements whose value exceeds a certain financial threshold, but it is also possible to engage them on the basis of the decision of the SFP or upon the request of the contracting authority itself, depending on the importance of the public contract for the procuring entity.32 What makes this model particularly successful and interesting is the way the question of funding has been addressed. Namely, social witnesses are remunerated for their work by the contracting authority on the basis of a contract that specifies the expected minimum and maximum number of working hours in the PP for which the social witness had been appointed. The amount paid is determined in a nondiscretionary manner – it relies on the market price of similar consultancy services and is dependent on the number of working hours spent.33 In this way, the sustainability and motivation of social witnesses in monitoring PP procedures is ensured without compromising their integrity. Despite the fact that social witnesses are only equipped with “soft law” instruments (issuing opinions and recommendations on how to improve the overall transparency and efficiency of PP), this system of civil monitoring has managed to reduce the costs of public contracts and to improve competition, which is demonstrated by an increase in the number of bidders participating in PP procedures – by as much as 50%.34 The introduction of a mechanism of direct civil control in the Philippines is a result of a thorough PP reform, conducted in the early 2000s and spearheaded by a representative of the civil sector – the NGO Procurement Watch Inc. (PWI).35 The PP legislation requires committees in charge of conducting PPs within each contracting authority to invite two representatives of the civil society sector to observe PP procedures. Their role is to monitor procurements concerning infrastructure projects, consultancy services, or goods in order to be able to draft a report on whether the PP had been conducted in compliance with the legal requirements and to suggest possible improvements.36 However, the PP in question may still be conducted even if representatives of the civil society are not able or not willing to participate, as long as they have been formally invited.37 Unlike the Mexican model, the system of civil control in the Philippines covers all procurements – at both the national and local levels – regardless of their value.38 When it comes to their profile, it is stipulated that one civil observer should be a representative of an association of citizens (“duly recognized private group”) and the other a member of an NGO, provided they have the “knowledge, experience and expertise” relevant for a particular sector in which the procurement is conducted and

32

Knežević Bojović (2013c), p. 48. Ibid., p. 47. 34 De Simone and Shah (2012), p. 43; OECD (2007), p. 118. 35 Rabrenović (2013), p. 13. 36 Ibid., p. 20. 37 Ibid., pp. 14–15. 38 Ibid., p. 15. 33

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that they are not in a conflict-of-interests situation concerning the PP in question.39 PP committees are responsible for verifying whether these conditions have been met and may even introduce additional criteria that representatives of the civil society have to comply with in order to be appointed to monitor a particular procurement.40 Significant efforts have been directed toward educating and training CSOs to undertake this responsible role and overcome the scarcity of experts. An important part therein has been played by the civil sector itself – foremost the PWI – through organizing training programs, campaigns, mobilizing local communities, and media outlets and forging partnerships with other CSOs and State institutions – to name a few examples.41 A particularly interesting and creative solution is the involvement of university students from different, usually technical, fields to provide professional assistance during the monitoring of procurement procedures as part of their mandatory community service.42 In addition to being less costly than hiring consultants, it is mutually beneficial for students as it enables them to gain practical experience in their respective fields of expertise, thus preparing them for their future careers and, potentially, the role of civil observer. Such activities have been invaluable for raising awareness among citizens, CSOs, and public institutions about the fact that they are all working toward a common goal and that “the enemy is corruption and not the government.”43 Unlike their Mexican counterparts, civil observers in the Philippines are not granted the right to remuneration for their work. Even though this decision aims at ensuring their full independence, it has proven to be less motivating in situations in which civil monitoring is coupled with substantial costs that some CSOs do not have the financial capacity to cover. In order to overcome this problem, alternative solutions have been sought, such as the establishment of trust funds financed by international donors and run by independent parties.44 The Nigerian model entitles contracting authorities to invite “two credible persons” to monitor whether the procurement process had been conducted in accordance with the procurement plan and the pertinent legislation.45 The similarity with the model in the Philippines is evident in the profile of civil observers – one is a representative of a professional organization acclaimed in the sector for which the public contract is being awarded, while the other is recruited among representatives of an NGO that is active in the realm of transparency, accountability, and the fight against corruption.46 In comparison with the previously described mechanisms of direct social control in Mexico and the Philippines, however, the Nigerian equivalent

39

Ibid. Ibid., p. 19. 41 The World Bank Group (2009), pp. 52–54. 42 Rabrenović (2013), p. 22; Knežević Bojović (2013b), p. 94. De Simone and Shah (2012), p. 46. 43 The World Bank Group (2009), p. 53. 44 De Simone and Shah (2012), p. 47. 45 Williams-Elegbe (2018), p. 139; Matić (2013), p. 67. 46 Matić (2013), p. 67. 40

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lacks a more comprehensive legislative framework and widespread use in practice. Nevertheless, it is suggested in literature that “it gives an indication that citizen surveillance is acceptable in the Nigerian context,”47 which is certainly the first step to opening up PP to public scrutiny. It is interesting to note that all three of the afore-presented models have been instituted as a result of vigorous efforts of the civil society sector on the normative front, thereby clearly demonstrating the importance of giving a voice to CSOs at the policymaking level. 48 The use of Integrity Pacts (IP) is another successful and widespread model of engaging the civil sector in the prevention of corruption and protection of integrity in PP. IPs are anticorruption tools developed by TI – an international organization at the forefront of the global battle against corruption – in the early 1990s in order to help countries worldwide curb corruption and enhance transparency, efficiency, and accountability in PP. They are conceived in the form of a contract between the contracting authority and bidders, and they ideally cover all phases of the procurement cycle – preparation of the PP, tendering, contract award, and contract execution. All parties to the IP commit to refraining from anticompetitive and corrupt behavior, as well as to abidance by professional standards and best practices.49 An additional contract is concluded between the contracting authority and an independent monitor, which is frequently a representative of the civil society sector and whose role is to oversee compliance with the signed IP; prepare a report, which is made publicly available; and, in case of detecting irregularities, “constructively look for means for remedy.”50 Experiences with reliance on IPs in different countries have shown that these instruments have the potential to reduce the detrimental effects of corruption on PP and enhance transparency, reduce costs, increase competition, and foster mutual trust between the participants of the procurement process by providing assurances to bidders that their competitors, as well as public authorities, will likewise abstain from undesirable behavior.51 According to information on the TI’s website, IPs have been successfully implemented in over 15 countries and over 300 cases.52 In 2015, TI launched a pilot project in partnership with the European Commission’s Directorate General for Regional and Urban Policy titled Integrity Pacts – Civil Control Mechanism for Safeguarding EU Funds. The project’s goal is to

47

Williams-Elegbe (2018), p. 139. In Mexico, this was done thanks to the activities of Transparencia Mexicana – the Mexican branch of TI, De Simone and Shah (2012), p. 43 and in Nigeria – the CSO Public and Private Development Centre. Matić (2013), pp. 63–64. 49 Transparency International, (accessed 14 April 2020). 50 Ibid. 51 OECD (2007), p. 117. 52 Transparency International, (accessed 14 April 2020). 48

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“tackle corruption in public procurement in EU-funded investments.”53 It includes 17 PP projects conducted in vital sectors such as healthcare, education, road and railway infrastructure, etc. in 11 EU Member States.54 Partner CSOs tasked with monitoring the course of these projects include national chapters of TI, as well as other think-tanks and foundations dedicated to promoting transparency in the public sector, good governance, and strengthening civic participation.55 Although the results and effects of this initiative will be fully visible after the realization of the final phase of the project in 2021, it has already been recognized as “a success in bringing EU policies and administrations closer to citizens” since an important aspect of this project is the involvement of citizens and communities that are directly affected by a particular contract.56 Consequently, this initiative was granted the European Ombudsman’s Award for Good Administration for 2019 in the category “Excellence in open administration.”57 Moreover, it has been recognized as an example of “global good practice” in the G20 Compendium for promoting integrity and transparency in infrastructure development.58

3 The Civil Supervisor: (In)efficiency of Civil Control in Serbian Public Procurement Law As it was observed by representatives of the civil society, it remains unclear on the basis of what cost-effectiveness analysis and estimates the CS was introduced into the Serbian legal system.59 The only information in that regard provided in the explanatory notes of the proposal of the 2012 LPP is that the main idea was to enhance transparency in PP procedures and prompt all actors in the complex procurement cycle to “play by the rules” since “public pressure may be significant in preventing corruption.”60 Moreover, it was stated that the legislator drew

European Commission, Integrity Pacts, (accessed 10 June 2020). 54 Namely, Bulgaria, the Czech Republic, Greece, Hungary, Italy, Latvia, Lithuania, Poland, Portugal, Romania and Slovenia. 55 More details on the projects and partner CSOs available at: Transparency International EU, Integrity Pacts – State of Play, (accessed 10 June 2020). 56 Transparency International, The global coalition against corruption, (accessed 10 June 2020). 57 European Commission, Integrity Pacts, (accessed 10 June 2020). 58 Ibid. 59 Dobrašinović (2013), p. 8. 60 Proposal of the Law on Public Procurement (2012 LPP Proposal), Rationale, pp. 103–104,

(accessed 29 March 2020). 53

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inspiration from a similar instrument of ex ante control of high-value procurements in Poland, which is conducted by the Polish Public Procurement Office (Polish PPO).61 Albeit the fact that parallels could be drawn with respect to the mandatory character of such control in case of high-value procurements, the requirement to submit a report on the conducted PP procedure and the competence to issue nonlegally binding recommendations to the contracting authority – the composition of the Polish PPO and the manner in which its members are appointed, as well as the array of its other competences – lead to the conclusion that this body hardly resembles the institute of CS.62 In fact, the Serbian model is much closer to the institutionalized forms of direct civil control of PP presented in the previous subsection.63 In this section, we will address allegations of the failure of the institute of CS to serve its purpose by pinpointing the weaknesses of the regulatory framework, as well as other factors that affected the performance of CSs in practice.

3.1

A Critical Overview of the Legal Framework

The institute of CS is regulated on the basis of the provisions of Article 28 of the 2012 LPP, embedded in the section titled the Prevention of corruption and conflict of interests, as well as the Rulebook on Civil Supervisor (Rulebook).64 The said sources of law regulate questions related to the eligibility of candidates, the appointment of CSs, the types of PP that they are entrusted with monitoring, their main responsibilities in the monitoring process, as well as the right to remuneration for their work.

3.1.1

Who May Be Appointed as a Civil Supervisor?

Suitable candidates for the position of CS include both natural and legal persons that possess the necessary expertise in specified areas and whose independence and

61

2012 LPP Proposal, pp. 103–104. Jovičić (2013), pp. 32–38: The Public Procurement Office is the central control institution of PP procedures in Polish law. The PPO consists of a President, the Public Procurement Council (PPC) – its main advisory body – and permanent staff. Both the President and the members of the PPC are appointed by the Prime Minister, on the basis of prescribed criteria. The PPO conducts ex-ante control of PP procedures which are mandatory in case the value of the planned procurement exceeds the prescribed financial threshold. In case the contracting authority fails to comply with the abovementioned recommendations, the President of the PPO may impose financial fines on it or instigate judicial proceedings. Consequently, this institution is also equipped with instruments of “hard law”, as opposed to the tools that remain at the disposal of the Serbian CS. 63 Knežević Bojović (2013a), p. 492. 64 Official Gazette of the Republic of Serbia, No. 29 of 29 March 2013. 62

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impartiality are beyond doubt. More specifically, Article 28 of the 2012 LPP stipulates that prominent experts in the domain of PP or in the field related to the subject matter of a specific PP (para. 2), as well as associations dealing with PP, the prevention of corruption, or conflict of interests (para. 3), could be appointed as CS. On the other hand, impediments to performing the task of integrity watchdog include employment or any other connection with the contracting authority or persons associated with the contracting authority, as well as membership in political organizations (Art. 28, para. 4). The Rulebook reiterates these criteria, complementing them with additional conditions for eligibility that depend on whether the candidate for CS is a natural or a legal person. When it comes to natural persons, these include requirements consisting of the following: (a) He/she has the appropriate education, expertise, and experience in the field of PP or the specific field in which the PP is conducted. (b) He/she is not a member of a political organization. (c) He/she is not employed or in any way engaged in the activities of the contracting authority. (d) He/she had not been convicted of criminal offenses to a sentence of unconditional imprisonment. (e) And he/she does not perform a public function, i.e., did not perform a public function in a period of two years before submitting a request for appointment as CS.65 As for legal persons, i.e., associations, the stipulated conditions for appointment entail the following: (a) It must be registered pursuant to the relevant legislation on registration.66 (b) The association or its members must be involved in the analysis of legislation in the field of their respective expertise (PP or the prevention of corruption/conflict of interests), the analysis of the implementation of that legislation, and the conduct of contracting authorities in different phases of the procurement cycle, i.e., conflict of interests and other. (c) At least one member or employee of the association or a contract agent must be involved in the said areas. (d) The person performing the competences of CS on behalf of the association is not a member of a political organization, pursuant to the legislation on financing political organizations. (e) The association had not been established by a political organization, nor did it enter into contracts with a political subject that would result in its dependency.

65

Art. 4, para. 1 of the Rulebook. Art. 5, para. 2 of the Rulebook: This is attested by submitting excerpts from the Serbian Business Registers Agency. 66

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(f) And the person performing the competences of CS on behalf of the association is not employed or is in any way associated with the contracting authority.67 The Rulebook also specifies that compliance with the stipulated criteria for natural persons is attested by providing certificates of education, proof of acquired experience in conducting or controlling PP, published academic or expert papers etc., as well as a statement under full financial, criminal, and moral responsibility that verifies the nonexistence of impediments for appointment.68 For legal persons, this entails the description of experience in the areas for which the CS is appointed, as well as a statement from the president of the association under full material, criminal, and moral responsibility that there are no impediments to appointment concerning political influence or connections with the contracting authority.69 The prescribed criteria are in line with the requirements regarding the qualification and independence of civil observers in comparative law. Still, in the context of other provisions on the CS and bearing in mind the overall capacities of the civil sector, it was perhaps overly ambitious to assume that individual experts would embark on this responsible role – as correctly pinpointed in literature and upheld by practical experiences, which will be presented later on.70

3.1.2

Public Procurement Procedures Monitored by the Civil Supervisor

When it comes to the question of procedures that fall under the ambit of civil control, there are two aspects that need to be considered – the type of PP procedures and the phase of the procurement cycle that is monitored by the CS. Regarding the first aspect, Article 28, para. 1, of the 2012 LPP stipulates that where the contracting authority conducts a PP procedure and its estimated value exceeds one billion Serbian dinars (RSD),71 the procedure shall be monitored by a CS. 72 High-value procurements, especially the ones reserved for strategically important and politically sensitive projects (e.g., the construction or maintenance of public infrastructure), are particularly vulnerable to corrupt practices, which is why it is necessary to ensure stringent control in these cases. In this light, the Serbian solution seems logical, and it is not isolated, bearing in mind the already shown examples in comparative law.73 However, corruption is not limited to the award of 67

Art. 5, paras. 1 and 2 of the Rulebook. Art. 4, para. 2 of the Rulebook. Srećkov and Toplica Center for Democracy and Human Rights (2014), p. 15. 69 Art. 4, para. 2 of the Rulebook. 70 Knežević Bojović (2013b), pp. 94, 97 and 107. 71 An equivalent of approximately 10 million EUR. 72 2012 LPP Proposal: The initially envisaged threshold amounted to 700 000 RSD and was estimated on the basis of the analysis of the most valuable contracts concluded during 2010. 73 Knežević Bojović (2013b), pp. 89–90. 68

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contracts above a certain financial threshold, which is why it would have been better if the legislator provided at least the possibility of appointing CSs for monitoring less valuable procurements that are found to be particularly vulnerable due to their sensitive subject matter, the sector in which they are conducted, or their importance for the contracting authority or the local community. As advanced by Knežević Bojović, that solution would have demonstrated a “clearer and more efficient sign of commitment towards involving the civil society in combatting corruption in PP” on the part of State institutions.74 As per the second aspect, Article 28, para. 9, of the 2012 LPP (reiterated in Art. 9, para. 1, of the Rulebook), prescribes the obligation of the CS to submit a report on the conducted procurement within 20 days from the date the contract had been concluded or the decision to terminate/suspend the PP procedure had been passed.75 It follows that the execution of the awarded public contract falls outside the scope of civil monitoring. Nevertheless, we consider that the added value of civil monitoring would have been greater if CSs, just like the Mexican social witnesses, had been granted the competence to monitor the execution of awarded contracts as well, bearing in mind that many irregularities occur precisely during the execution phase (e.g., due to its subsequent substantial modification), as well as the fact that this phase lacks such exhaustive regulation in comparison to the tendering phase.76

3.1.3

The Appointment of Civil Supervisors

Article 28, para. 6, of the 2012 LPP stipulates that the PPO shall appoint the CS no later than the day set in the annual PP plan as the tentative day to initiate the PP procedure, i.e., no later than 30 days from the day the PP plan was received.77 Moreover, the contracting authority may not launch the procedure prior to the appointment of CS.78 However, the legislator did not elaborate any further on this important aspect, leaving it up to the PPO to regulate the conditions and criteria for appointment in more detail on the basis of a bylaw.79 Unfortunately, the Rulebook simply reiterates provisions of the 2012 LPP.80

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Knežević Bojović (2013a), pp. 500–502. Srećkov and Toplica Center for Democracy and Human Rights (2014), p. 92: As it was pointed out by both representatives of the CSO and the PPO, this provision should be understood as implying that the 20-day deadline for submitting the report lapses when the decision to terminate proceedings has become final. This is important seeing how either the unsuccessful bidders or authorized authorities may file a request for the protection of rights in the meantime and this could alter the outcome of the procedure. 76 Partnership for Social Development (2017), p. 50. 77 Art. 28, para. 6 of the 2012 LPP. 78 Art. 28, para. 7 of the 2012 LPP. 79 Art. 28, para. 5 of the 2012 LPP. 80 See Art. 2 of the Rulebook. 75

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This lack of clear and elaborate rules on the procedure for the appointment, which would ensure transparency in the process and the integrity of potential candidates, is doubtlessly one of the biggest shortcomings of the domestic legal framework, which not only makes it more difficult for the PPO to appoint CSs but also leaves significant leeway for legal uncertainty and different irregularities in practice. Another important question that has not found its place in the regulatory framework concerns situations in which the function of CS could be terminated. It is advanced in literature that a logical solution would be to enable the termination in the following cases: firstly, on the basis of a personal request of the CS; secondly, if the appointed CS fails to comply with the conditions stipulated in the Rulebook; and, thirdly, if it is determined that the monitoring is not conducted in the manner prescribed by the Rulebook, i.e., if he/she negligently performs his/her duty and abuses the function of CS.81

3.1.4

The Monitoring Process: Work Methods and the Right to Remuneration

The main task of the CS is to closely observe each phase in the procurement process for which he/she is appointed. A precondition for successfully performing this task is the availability of all relevant information for assessing whether the observed PP has been conducted in line with the pertinent legislation. To that end, the legislator granted the CS permanent insight into the procedure, documents, and communication between the contracting authority and interested parties, i.e. bidders.82 It is clarified in the Rulebook that such permanent insight entails the following: (a) The follow-up of information published on the Public Procurement Portal, Internet presentation of the contracting authority and other media outlets, as well as the analysis of the obtained information in order to assert whether the principles and rules for conducting the procedure prescribed by the 2012 LPP have been complied with (b) The follow-up and analysis of all acts passed by the contracting authority before, during, and after the procurement procedure,83 up until the moment of submitting the report (c) Direct insight into the activities performed by the contracting authority during the PP procedure

81

Ibid., p. 23. Art. 28, para. 8 of the 2012 LPP. 83 Srećkov and Toplica Center for Democracy and Human Rights (2014), pp. 78–83: Examples of acts passed by the contracting authority prior to instigating the PP procedure include the financial plan, the PP plan or the Internal act, whereas the act on the basis of which the PP Committee is constituted, the decision to award the public/contract i.e. terminate the procedure are examples of acts passed during the procedure. 82

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(d) Direct insight into the communication of the contracting authority with interested parties i.e., bidders; the internal communication of the contracting authority; as well as its communication with other bodies/institutions related to the subject matter of the PP in question (e) Acquiring additional information from the contracting authority upon request (f) Obtaining information on the legality of the PP procedure from persons who contact the CS and verifying the accuracy of this information or notifying the competent authorities in case he/she is not able to perform the check his/herself, where the information is important from the point of view of the legality of the PP procedure.84 This control mechanism would be futile if the CS would simply be a silent observer of the PP procedure that he/she is appointed to monitor. That is why the legislator equipped CSs with several competences that guarantee their active role in the procedure under scrutiny. These include giving opinions, informing competent authorities of the problems detected in the monitoring process, and submitting a request for the protection of rights. Opinions of the CS may be directed toward improving the efficiency, transparency, competition, etc. of the ongoing PP procedure.85 While these opinions are not legally binding, the responsiveness of the contracting authority and its (in)action upon them are all factors to consider when assessing the overall integrity and efficiency of the PP and will be pointed out in the final report.86 In the event of detected irregularities, the ensuing measures and the institutions addressed by the CS depend on the nature of the problem in question. Article 8, para. 10, of the 2012 LPP requires the CS to notify the competent authorities and the public in case he/she suspects that the PP procedure had been conducted illegally. In this context, the Rulebook distinguishes several situations: (a) When the CS was not provided with a document or information that may reveal illegalities in the procurement process, he/she shall inform the PPO and the competent supervisory body without delay thereof. (b) If the CS considers – based on available documents, direct insight into the PP procedure as well as information obtained in another way – that the PP was conducted contrary to the law or that an offense punishable by law had been committed, he/she shall inform the authority competent for instigating criminal and misdemeanor, i.e., commercial offense, proceedings. (c) And, finally, if allegations of the existence of an offense are confirmed or if the CS does not receive a response from the addressed public authority that would waive any suspicion that an infringement of PP legislation had been committed in the case at hand, the CS shall inform the public thereof.87

84

Art. 6, para. 2, pp. 1–6 of the Rulebook. Art. 6, para. 3 of the Rulebook. 86 Knežević Bojović (2013b), pp. 100–101. 87 Art. 10, paras. 1–3 of the Rulebook. 85

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Where the CS receives a report of suspected corruption concerning the PP procedure at hand, he/she shall notify the PPO, the Anti-Corruption Agency, and the competent public prosecution without delay. The CS is also obliged to provide the person who reported the corruption with a follow-up of the steps taken, i.e., whether the competent institutions have been informed in a timely manner;88 otherwise, the “whistleblower” may inform the public of the failure of the CS to act upon corruption allegations.89 Finally, the provision in Article 8, para. 1, of the Rulebook is a good illustration of the corrective nature of civil control, seeing how the CS is required to inform the contracting authority without delay of any other irregularity in the observed PP procedure, thereby allowing it to remedy the situation before any further steps are taken. However, if the contracting authority fails to take action in a timely manner or if the exposed irregularities cannot be remedied in another way, the CS shall submit a request for the protection of rights and inform the competent supervisory body, competent state institutions, and the public.90 This provision relies on Article 148 of the 2012 LPP, which gives the CS, along with the PPO, the State Audit Institution, and the Public Attorney, locus standi for submitting the request for the protection of rights in the public interest.91 This has proven to be an invaluable competence of the CS, especially in cases where other authorized claimants were reluctant to challenge ostensibly illegal acts of the contracting authority, as will be seen in the subsection dedicated to the practical experiences of CSs.92 In order to guarantee the integrity and professionalism of civil observers in performing the described competences and responsibilities, the Rulebook stipulates that CSs shall act in accordance with the principles of objectivity, independence, impartiality, and abidance by ethical principles and the rules of professional conduct.93 This entails, for example, the exemption of the appointed CS from the procedure in case of conflict of interests due to professional or personal relations with the contracting authority/bidders or the prohibition of disclosure of personal data, classified information, or business secrets that may compromise the integrity of the PP.94 Another provision aimed at ensuring the full independence of civil control is found in Article 28, para. 11, of the 2012 LPP, and it stipulates that the CS is not entitled to remuneration for his/her work.95 Interestingly, one of the drafts of the

88

Art. 7, par.1 of the Rulebook. Article 24, para. 3, p. 3 of the 2012 LPP. 90 Art. 8, para. 2 of the Rulebook. 91 Art. 148, par. 2 of the 2012 LPP. 92 Transparency Serbia (2015). 93 Art. 6, para. 1 of the Rulebook. 94 Srećkov and Toplica Center for Democracy and Human Rights (2014), p. 78. 95 Art. 28, para. 11 of the 2012 LPP. 89

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2012 LPP envisaged a contrary solution, granting the CS a reward determined on the basis of a certain percentage of the value of PP.96 The meandering of the legislator on this aspect is understandable, bearing in mind that the funding is one of the most debated questions related to civil control, and there is no universal or ideal approach to solving it. However, the Mexican example clearly shows that long-term sustainability of civil control could only be achieved through a stable source of funding, paid in a transparent and strictly regulated manner. The effects of the lack of remuneration on the motivation of civil observers is also nonnegligible, as the experiences with the CS indicate. What is more, neither the 2012 LPP nor the Rulebook address the question of whether CSs would at least be entitled to a compensation of the costs incurred as a result of monitoring PP procedures. Despite opinions that there are no impediments to claiming such costs as these cannot be considered a reward for their work stricto sensu and suggestions that these could be covered from independent sources such as donations of international organizations,97 leaving this question unregulated not only is a demotivating factor but also paves the way for abuse of law, which is contrary to the very idea of civil monitoring.

3.1.5

Report of the Civil Supervisor

As part of the final phase of the monitoring process, the CS is required to prepare a report on the conducted PP and submit it to the committee of the National Assembly in charge of finance or to the assembly of the autonomous province or local selfgovernment unit (depending on who the contracting authority is), as well as to the PPO, within the time frame of 20 days from the date the awarded contract had been concluded or the decision to terminate the PP procedure had been adopted.98 Prior to submitting the report to the competent parliamentary committee, draft of the report is sent to the contracting authority, enabling it to provide comments within five days of receipt.99 The report of the CS is published on the Internet presentations of the PPO and the contracting authority.100 Seeing how the CS’s report is the main transparency tool of this institution and one of the principal reasons for engaging representatives of the civil society in PP procedures, the failure to at least prescribe guidelines, if not precise rules on the form and content of the report, as well the lack of instruments that would warrant the timely publication of the report on all relevant media outlets (such as deadlines for publishing the report on the Internet presentations of the PPO and contracting authorities, sanctions for failure to do so, requirement to publish the report on the

96

Knežević Bojović (2013b), p. 104. See: Srećkov and Toplica Center for Democracy and Human Rights (2014), p. 102. 98 Article 28, para. 9 of the 2012 LPP. 99 Art. 9, para. 2 of the Rulebook. 100 Art. 9, para. 3 of the Rulebook. 97

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PP Portal, etc.),101 is an unacceptable omission that rendered the work of the CS more difficult and diminished the credibility of this institute. As will be shown in the following subsection, the practical consequence of this legal solution, coupled with the unrealistically short deadline for submitting the report, represented one of the main reasons behind the frequent delays or even failure to comply with this central obligation of the CS.

3.2

Practical Experiences

According to data provided by the PPO in its reports, in the period between 2013 and the first half of 2019, this institution appointed CSs for monitoring 227 procurements whose value exceeded 1 billion RSD.102 The appointed CSs include the following CSOs: Transparency Serbia and the Toplica Centre for Democracy and Human Rights (TCDHR) – both with respectable experience in monitoring the expenditure of public finances and exposing cases of corruption in PP – the Business Association of Serbian Bidders in Public Procurement Procedures; the Legal Scanner; Belgrade Centre for Security Policy (BCSP); the Center for Research, Transparency and Accountability (CRTA); the Center for Development of the Non-profit Sector; and Society Against Corruption. These organizations were initially appointed on their own initiative, thereby expressing interest of the civil society in Serbia for embarking on the role of an integrity watchdog.103 It has been mentioned in the Introduction of this paper that a significant decline in the number of submitted reports has been stressed as one of the main indicators of the inefficiency of the institute of CS. Indeed, the discrepancy between the number of monitored procurements and the number of reports submitted is striking. Namely, out of the 227 monitored procurements, only 44 reports have been published on the Internet presentation of the PPO, which is excessively low even if we take into account that some procurements might still be ongoing and a number of others suspended.104 However, one must consider the factors that affected the state of affairs in order to draw conclusions on the overall performance of the CS. Practical experiences signal that the reasons for this could be sought in the insufficient capacities of the civil society to ensure a timely compliance with the responsibilities of the CS, the described shortcomings of the legal framework, as well as the absence of

101

Knežević Bojović (2013b), pp. 101–103. Public Procurement Office, Reports of the Public Procurement Office, (accessed 10 April 2020). 103 Šarić and Stojanović (2018), (accessed 5 April 2020). 104 Public Procurement Office, Reports of the Civil Supervisor, (accessed 10 April 2020). 102

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cooperation and even direct obstruction of their work from contracting authorities and relevant State institutions. In its Notification on the Appointment of CS issued on July 30, 2013, the PPO envisaged that insufficient capacity of the civil society sector in Serbia to meet the demand of contracting authorities expressed in their annual procurement plans without proper “preparation and planning” was going to be one of the biggest challenges in the implementation of this institute. That is why the PPO decided to postpone the full implementation of the provisions on CS until 2014, in order not to obstruct the most valuable PPs, and highlighted that enhancing the capacities of CSOs with the help of international organizations was going to be placed high on the agenda in the meantime.105 However, this continued to be a major problem. As it could have been expected, individual experts106 have shown reluctance in taking on the responsibilities of CS from the outset – the lack of financial incentives that would compensate for the amount of time, effort, and expenses, as well as the wish to avoid the risk of potential “problems or pressure” being the prevalent ones.107 In addition to that, appointed CSs frequently had to rely on the expertise of personal acquaintances in order to compensate for the lack of sector-specific knowledge in the diverse areas in which high-value procurements had been conducted – such as health care, energy, transportation, infrastructure, and the oil/petroleum industry.108 This has been particularly problematic in the procurement of medications, which are among the most frequent but also the most “sensitive” purchased goods.109 The loopholes of the regulatory framework indicated in the previous subsection have resounded on the ability of both the PPO and CSs to perform their work. Due to a lack of clear rules on the procedure for appointment, the PPO established a practice of appointing individual CSOs to monitor specific procurements from the list of CSs created after assessing that the organization that expressed its interest in performing civil monitoring by submitting a request fulfills all the relevant criteria.110 However, in several cases, CSOs requested to resign since they had not given their consent prior to the appointment, whereas others claimed that the PPO continued to appoint Public Procurement Office, Notification on the Appointment of Civil Supervisors, (accessed 1 April 2020). 106 The lack of available information on the appointment of CSs makes it difficult to tell with certainty whether Rade Đurić and Danilo Pejović – both engaged in the activities of the CSO Transparency Serbia – were appointed as individual experts or they performed the tasks of CS in the capacity of representatives of their organization. The reports they submitted to the PPO suggest the former conclusion, whereas the latter is inferred from the list of monitored procurements, which the Centre for Investigative Journalism of Serbia (CINS) obtained from the PPO. 107 Šarić and Stojanović (2018), (accessed 5 April 2020). 108 Public Procurement Office, Reports of the Civil Supervisor, (accessed 10 April 2020). 109 Šarić and Stojanović (2018), (accessed 5 April 2020). 110 Srećkov and Toplica Center for Democracy and Human Rights (2014), pp. 22–23. 105

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them despite the fact that they stopped conducting the control of PPs.111 An additional problem concerned the fact that the deadline for delivering reports on the monitored procurement was too short, bearing in mind the complexity of PP procedures, as well as the fact that CSOs normally performed the function of CS alongside their regular work activities. Moreover, since the contracting authority is given five days to provide comments on the draft report, the CS is actually left with a much shorter deadline than the prescribed 20 days – approximately 13–14 days for writing the report and a couple more to take the contracting authority’s comments into account.112 An illustrative example of difficulties in maintaining permanent insight into the PP procedure due to the problems in communication with representatives of the contracting authority is the experience of BCSP in monitoring the procurement of energy products (gasoline, liquid oil, diesel, etc.) conducted by the National Health Insurance Fund (NHIF). In the case at hand, the NHIF failed to inform the appointed CS in advance that the PP procedure had been launched, which resulted in its exclusion from the preparation of the tender documentation, and a significant part of the procedure was left unmonitored.113 Another recurring problem was the fact that CSs often received relevant information and documents from the contracting authority only upon repeated and persistent requests. This was the case with another PP procedure conducted by the NHIF for the acquisition of electrical energy and monitored by CRTA. Namely, the appointed CS had to inquire three times whether the awarded contract had been concluded, the result being a delay in submitting the final report.114 A particularly acute example of the negative impact of the institutional environment on the ability of CSs to perform their function is the PP conducted for the execution of works on the reconstruction of the train reception, dispatch, and rail traffic management in the railway station Belgrade Center – phase I (Prokop). The procurement in question was launched by Serbian Railways JSC in 2013, as the first phase in the development of “Belgrade Waterfront” – the key urban development project headed by the Government of the Republic of Serbia. The PPO appointed TCDHR to monitor the procurement, on behalf of which Dragan Dobrašinović performed the function of a CS. In his Report dated 10 November 2014 (Report), Mr. Dobrašinović exposed grave breaches of the 2012 LPP, the principal ones being (1) consistent obstruction of the work of CS by the contracting

Šarić and Stojanović (2018), (accessed 5 April 2020). 112 Srećkov and Toplica Center for Democracy and Human Rights (2014), p. 94. 113 Report of the Civil Supervisor BCSP, pp. 8–9, 24. Available via: (accessed 12 April 2020). 114 Report of the Civil Supervisor CRTA (2015), pp. 10–11. Available via: (accessed 12 April 2020). 111

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authority, (2) reduction of competition, and (3) infringement of anticorruption provisions in the award of the contract.115 The CS submitted a request for the protection of rights (request) to the Republic Commission for the Protection of Rights in PP Procedures (Commission) against the decision to award the contract, on the ground that Article 23 of the 2012 LPP,116 which lays down the rules for the protection of the integrity of PP procedures, had been infringed. Despite solid evidence that one of the representatives of the successful bidder had previously been employed for the contracting authority and thus participated in the preparation and verification of parts of the tender documentation, the Commission rejected the request as unfounded based on questionable legal argumentation.117 Particularly appalling was the Commission’s view that it was not possible to address the conflict of interest allegations, seeing how the contracting authority did not adopt the internal anticorruption plan in line with Article 21, para 7, of the 2012 LPP, on the basis of which such situations could be defined and recognized (sic!).118 As it was pointed out in the Report, such reasoning not only represents “a legal precedent” but is also highly dangerous since it “opens the door to corruption in the PP system.”119 After having received the Commission’s decision as much as 21 days after the date of its delivery, the CS challenged it before the Administrative Court.120 What ensued was a “game of ping-pong” between the two institutions, and it was only after the Administrative Court’s second judgement from 2018, in which it upheld the lawsuit of the CS and quashed the Commission’s decision as illegal once again, that the Commission altered its initial decision by adopting the request and partially annulling the conducted procurement.121 To make matters worse, Mr. Dobrašinović was hindered from presenting the Report before the NA Committee on Finance, State Budget and Control of Public Spending and was accused by the president of the committee of “dealing with 115

Report of the Civil Supervisor Toplica Center for Democracy and Human Rights (2014), pp. 21–22. Available via: (accessed 13 April 2020). 116 Art. 23 of the 2012 LPP reads: “Person, who has participated in planning of the public procurement, in preparing the tender documents or separate parts thereof, and the person related to him, may neither act as a bidder or as a bidder’s subcontractor, nor cooperate with bidders or subcontractors in the course of bid preparation. In that case, the contracting authority shall reject the bid and notify the competent government bodies without delay.” 117 Republic Commission for the Protection of Rights in PP Procedures (Commission), Resolution No. 4-00-1495/2014 of 4 July 2014. Seeing how the said act was not available on the internet presentation of the Commission during the preparation of this paper, the primary source has been the Report of the CS. 118 Report of the Civil Supervisor Toplica Center for Democracy and Human Rights (2014), pp. 18–19. Available via: (accessed 13 April 2020). 119 Ibid. 120 Ibid., p. 18. 121 Republic Commission for the Protection of Rights in PP Procedures (Commission), Resolution No. 4-00-1495/2014 of 16 April 2019.

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politics instead of the report.”122 This was not the first time CSs had difficulties in presenting their reports. According to information published by investigative journalists, by the end of 2017, the competent Committee of the NA failed to review or debate on any of the 15 submitted reports, under the pretext of a lack of time due to a heavy workload. The situation does not appear to be much better with parliamentary committees of the Autonomous Province of Vojvodina or those at the local level.123 The lack of institutional support is closely related to the low visibility of CSs and the results of their work in the public space, due to a lack of wider media support and scarce information provided on the internet presentation of the PPO, much less the PP Portal.124 In addition to that, the acts (resolutions) on the basis of which the PPO would appoint individual CSOs have not been made publicly available, thus making it difficult for not only ordinary citizens but also potential bidders to contact the CS and report corruption or other irregularities in the PP procedure. In order to help in overcoming this problem, the TCDHR (in cooperation with the Open Society Foundation) launched the Internet platform The Civil Supervisor in 2017. The idea was to create an interactive platform that would provide real-time information on the monitored PP procedures and make the “first step towards greater visibility and improvement of the level of communication with the professional and general public.”125 Despite the fact that it did not contain updated information on all cases of performed monitoring to date, it certainly contributed to a greater transparency of the institution of civil oversight. The described experiences with the appointment and work of CSs demonstrate all of the weaknesses of the domestic PP system and the attitude of public officials toward independent external control, especially when high interests are at stake. On the other hand, they also depict the significance of an institute such as the CS and its contribution in establishing legal certainty when other control mechanisms fail. What is more, it should be pointed out that not all of the available reports reveal such a somber picture, and there are examples in which contracting authorities have shown professionalism not only by providing all of the relevant information in time and enabling the appointed CS to take part in crucial phases of the procedure but also in their readiness to take into account and implement the recommendations coming from the CS.126

Šarić and Stojanović (2018), (accessed 5 April 2020). 123 Ibid. 124 Ibid. 125 The Civil Supervisor, (accessed 13 April 2020). 126 For example, see the Report of the Civil Supervisor Business Association of Serbian Bidders in Public Procurement Procedures available via: (accessed 12 April 2020). 122

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4 The Way Forward: Prospects for Future Civil Society Participation in the Serbian Public Procurement System The new Serbian LPP has been scheduled to take effect on July 1, 2020,127 and, as previously mentioned, it does not envisage the institutionalized civil control mechanism introduced by its predecessor. While this undoubtedly represents a setback both from the standpoint of ensuring a comprehensive control of public spending and the credibility of proclamations that combatting corruption remains at the forefront of political and strategic aims, it in no way diminishes the importance of civil involvement in the Serbian PP system pro futuro. On the contrary, the 2019 Progress Report of the European Commission highlights that “there were no developments in integrity and handling conflicts of interest” in the observed period and that “[s]ignificant efforts are needed to further improve competition, efficiency and transparency in public tenders.”128 Moreover, it has become a standard practice in Serbia to pass a lex specialis for regulating specific infrastructure projects, particularly those that involve substantial investments and are of strategic and political importance.129 A recent example is the Law on Special Procedures for the Realization of Projects for the Construction and Reconstruction of Line Infrastructure Facilities of Special Importance for the Republic of Serbia (Law on Line Infrastructure Projects),130 which entrusts the government with substantial discretion to suspend PP legislation in the process of selecting strategic partners.131 This leaves significant room for corruption and poses the risk of direct contract awards without the minimum observance of transparency and competition, which could all affect the quality of infrastructure and should therefore be closely monitored by all relevant stakeholders. Bearing in mind the aforesaid national context, it is clear that lessons learned through the experiences with the institute of CS – both positive and negative –

A group of NGOs, associations and experts in the field of PP, gathered around the National Convent for Chapter 5 – Public procurement, recently submitted an initiative to the representatives of competent State institutions, requesting that the deadline for the full implementation of the new LPP be postponed until 1 January 2021 or 1 September 2020 the earliest. Proposers based their arguments on the fact that the new law introduces substantial novelties that require the “construction, testing of the functionality of the new PP Portal, passing a number of bylaws and a thorough preparation and training of economic operators, contracting authorities and competent institutions”. However, the crisis caused by the COVID-19 pandemic significantly affected the capacity of public authorities to comply with the prescribed obligations and organize adequate training. The success of the initiative is still unknown at the moment of submitting this paper. Transparency Serbia, (accessed 4 June 2020). 128 European Commission (2019), pp. 59–60. 129 Peščanik, Nemanja Nenadić, Specijalni zakoni za specijalnu državu [Special Laws for a Special State], (accessed 12 June 2020). 130 Official Gazette of the Republic of Serbia, No. 9/2020. 131 See for instance Art. 37 of the Law on Line Infrastructure Projects. 127

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represent an invaluable tool for the further improvement of the efficiency and integrity of PP in Serbia. In the upcoming period, emphasis should be on nurturing the “culture of respecting the rules.”132 This entails the following: (a) Enabling representatives of the civil society sector to actively participate in the process of drafting anticorruption and PP policy documents and legislation: opportunities for this arise from the recently adopted Guidelines for the Inclusion of CSOs in Working Groups for the Preparation of Public Policies and Drafts (Guidelines),133 prepared by the Government’s Office for Cooperation with the Civil Society.134 The goal of these Guidelines is to assist public authorities in the process of engaging the civil sector at the policy-making level on the basis of principles such as transparency, proportionality, expertise of the representatives of CSOs, continuousness of policy making, partnership between the public sector and the civil society sector, etc. (b) Continual professionalization and education of all stakeholders – civil servants, representatives of economic operators and businesses, and CSOs – in preventing, recognizing, and eradicating corrupt practices in PP: this could be done by organizing adequate seminars and training programs, as well through designing university courses so as to embed PP in the curricula at various levels of academic studies, in order to prepare students at an early stage for becoming future experts.135 (c) Promoting the resort to IPs, especially in infrastructure projects, in order to enable representatives of the civil sector to monitor adherence to PP rules and principles of integrity throughout the entire project, with particular focus on the contract execution phase: seeing how their successful implementation requires the readiness of all of the actors involved to refrain from anticompetitive and unethical behavior, it has a strong potential to improve the perception among potential bidders that PP procedures are properly conducted, which could, in turn, lead to an increase in the number of bids and improve competition. (d) Considering legislative revisions that would enable interested and experienced representatives of the civil society to monitor PP procedures at the request of the contracting authority so as to gain wider support and a good reputation among potential bidders, which is especially important at the local level. (e) Encouraging cooperation between CSOs and State institutions in different spheres, which would enable a better understanding of the importance and

132

Milovanović et al. (2016), p. 164. Official Gazette of the Republic of Serbia, No. 8/20. 134 The Guidelines are a continuation of efforts started in 2014 to enable representatives of the civil society to participate in work groups for drafting legislative proposals, bylaws and policy documents, codified in the Guidelines for the Inclusion of CSOs in the Regulation Adoption Process – which rely on the Code of good practice for civil participation in the decision-making process adopted by Council of Europe. Available at: (accessed 14 June 2020). 135 Milovanović et al. (2016), p. 170. 133

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benefits of civil sector involvement in the oversight of public expenditure: a good example of the result of such cooperation is the Guide on Civil Supervisor (Guide), prepared by a representative of the PPO in cooperation with two CSOs – the already mentioned TCDHR and the Užice Center for Democracy and Human Rights. The Guide represents a comprehensive analysis of legislative provisions that underpin the institute of CS and relies on practical experiences in their appointment and work in order to provide valuable assistance in the monitoring process. (f) Fostering coalitions and exchanging best practices between CSOs at the national, regional, and international levels in order to overcome the deficiency of financial, technical, and other resources that are a common challenge of the civil sector: an illustrative example of such initiatives is Balkan Tender Watch – the regional coalition of CSOs in the Western Balkans, whose activities are directed toward the fight against corruption in PP. (g) Mobilizing citizens and communities to monitor local procurement projects that affect them directly, similarly to the described initiative for safeguarding EU funds and the Bantay Eskuwela project in the Philippines: this successful project is a result of the cooperation between PWI and the Department of Education, and it engages teachers, parents, students, and other volunteers in counting and verifying the quality of procured books and school furniture.136 (h) Enhancing transparency throughout all stages of the procurement cycle by disseminating relevant and accurate information in a timely manner to the wider public – a condicio sine qua non for successful monitoring: that is why it is crucial to provide technical preconditions for making full use of the new e-procurement tools introduced by the 2019 LPP, especially the improved PP Portal.

5 Concluding Remarks Comparative experiences with the involvement of civil society in monitoring PP have taught us two valuable lessons. First, the vulnerability of the PP sector to corruption, anticompetitive behavior, and other forms of malfeasance is a feature that is, to a greater or lesser extent, common to all procurement systems around the world. Second, the challenges with which different civil societal actors are faced in the attempt to actively partake in the oversight of public expenditure are, in essence, quite similar. Nevertheless, their ability to overcome such difficulties depends, to a great extent, on the national contexts in which they operate. The context surrounding the institute of CS has been particularly unfavorable. The weak regulatory foundation of the Serbian system of civil control, the scarcity of resources, invisibility in the public sphere, as well as the “hostile” political and

136

De Simone and Shah (2012), p. 47.

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institutional environments have been hindering the work of organizations appointed to perform the function of integrity watchdogs. Nevertheless, despite these aggravating circumstances, CSs have managed to expose cases of grave infringements of procurement and anticorruption legislation, thus proving to be a valuable tool for safeguarding the integrity of the domestic PP system. As the Mexican example clearly demonstrates, investments toward building a strong “civil infrastructure” and equipping civil society with better normative tools to overcome the numerous problems they encounter have the potential to generate positive results such as “disciplining” contracting authorities, improving competition, enhancing transparency, and promoting the efficiency of PP procedures. In light of these considerations, it is highly unfortunate that the Serbian legislator decided to tear down the existing “civil infrastructure” by having abandoned the institute of CS, instead of modifying it in order to make full use of all the “benefits of institutionalized activism of the civil society in combatting corruption.”137 This would have certainly been more coherent with the proclaimed goals of the reform of the PP system, as well as the global trend of greater civil society involvement in the control of public finances. Nevertheless, the role of civil society in the Serbian PP environment remains equally important in the upcoming period. A central part in this context should be played by organizations with firsthand experience as CS since they are the most “skilled” in recognizing red flags of corruption in PP. Relying on best comparative practices, as well as the lessons learned from domestic experiences, focus should be on continual and innovative efforts coming from both the State institutions and the civil society sector to foster mutual trust, cooperation, and professionalization among all stakeholders in order to improve the quality of procured goods, works, and services and enhance the overall efficiency of PP to the benefit of economic operators and the society as a whole.

References Balkan Anti-Corruption Civic Initiative (2011) Partnership for Social Development, Zagreb Caranta R (2013) Civil society organizations and administrative law. Hamline J Public Law Policy 36(1):39–80 De Simone F, Shah S (2012) Civil society procurement monitoring: challenges and opportunities. In: Bohórquez A, Devrim D (eds) A new role for citizens in public procurement. Transparencia Mexicana, Mexico City, pp 41–49 Dobrašinović D (2013) Uvod (Introduction). In: Toplički centar za demokratiju i ljudska prava, Institut za uporedno pravo. Građanska kontrola javnih nabavki (Civil Control of Public Procurement), Prokuplje, pp 7–10 European Commission (2019) Commission Staff Working Document, Serbia 2019 Report, Communication on EU Enlargement Policy {COM (2019) 260 final}, Brussels

137

Ibid.

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Jovičić K (2013) Sistem kontrole javnih nabavki u Poljskoj (The System of Public Procurement Control in Poland). Građanska kontrola javnih nabavki, Prokuplje, pp 27–40 Knežević Bojović A (2013a) Građanski nadzornik-novi mehanizam kontrole javnih nabavki u Srbiji (Civil Monitor – A New Mechanism for Scrutinizing Public Procurement in the Republic of Serbia). Law Econ 7–9:491–513 Knežević Bojović A (2013b) Građanski nadzornik u Srbiji-analiza normativnog okvira i prakse i predlozi za njihovo unapređenje (Civil Supervisor in Serbia – Analysis of the Normative Framework and Practice and Recommendations for Improvement). In: Toplički centar za demokratiju i ljudska prava, Institut za uporedno pravo. Građanska kontrola javnih nabavki, Prokuplje, pp 88–115 Knežević Bojović A (2013c) Građanski nadzornik - Testigo Social - u Meksiku i drugi mehanizmi građanske kontrole javnih nabavki u Latinskoj Americi (Civil Supervisor-Testigo Social- in Mexico and Other Mechanisms of Civil Control of Public Procurement in Latin America). In: Toplički centar za demokratiju i ljudska prava, Institut za uporedno pravo. Građanska kontrola javnih nabavki, Prokuplje, pp 41–60 Matić M (2013) Učešće civilnog sektora u javnim nabavkama u zemljama Azije (Participation of the Civil Sector in Public Procurement in Asian Countries). In: Toplički centar za demokratiju i ljudska prava, Institut za uporedno pravo. Građanska kontrola javni nabavki, Prokuplje, pp 61–75 Milovanović D, Cucić V, Stojanović B (2016) Unapređenje sistema javnih nabavki u cilju unapređenja poslovnog okruženja (Promotion of Public Procurement System in order to Improve the Business Environment). Usklađivanje poslovnog prava Srbije sa pravom Evropske unije (Aligning Serbian Business Law with European Union Law), pp 146–171 OECD (2007) Integrity in Public Procurement: Good Practice from A to Z, Paris OECD (2009) Principles for Integrity in Public Procurement, Paris ONG Contraloria Ciudadana para la Rendicion de Cuentas (2011) El Testigo Social – Experiencia de Incidencia de la Sociedad Civil en la Gestion Publica. Available via: https:// rendiciondecuentas.org.mx/el-testigo-social-experiencia-de-incidencia-de-la-sociedad-civil-enla-gestion-publica/ Partnership for Social Development (2017) Public Procurement Systems in the Western Balkans: An Assessment of Integrity, Performance and Vulnerability to Capture, Country Report: Serbia. Available via: www.integrityobservers.eu Rabrenović A (2013) Učešće civilnog sektora u nadgledanju javnih nabavki u zemljama Azije (Participation of the Civil Society Sector in Monitoring Public Procurement in Asian Countries). In: Toplički centar za demokratiju i ljudska prava, Institut za uporedno pravo. Građanska kontrola javnih nabavki, Prokuplje, pp 11–26 Racca G, Yukins C (eds) (2014) Introduction. Steps in integrity in public procurement. In: Integrity and Efficiency in Sustainable Public Contracts, Balancing Corruption Concerns in Public Procurement Internationally, Brussels, pp 1–9 Šarić M, Stojanović M (2018) Nadzornici Odustaju od kontrole Najsuuptjih Nabavki (Supervisoes give up on the control of the most valuable peocurements). Available via: https://www.cins.rs/ nadzornici-odustaju-od-kontrole-najskupljih-javnih-nabavki/. Accessed 5 April 2020 Srećkov D, Toplički centar za demokratiju i ljudska prava (2014) Vodič za građanskog nadzornika (Guide for the Civil Supervisor)), Prokuplje The World Bank Group (2009) Civic engagement in procurement: a review of eight international case studies. Washington, DC. Available via: http://documents.worldbank.org/curated/en/ 900321468041934999/Civic-engagement-in-procurement-a-review-of-eight-internationalcase-studies Todorović B, Ilić N (2018) Pravnoekonomska analiza korupcije u javnim nabavkama (Legaleconomic analysis of corruption in public procurement). Pravo i privreda 7–9:234–250 Toplički centar za demokratiju i ljudska prava (Toplica Center for Democracy and Human Rights) (2012) Vodič kroz efikasan monitoring javnih nabavki (Guide through Efficient Public Procurement Monitoring), Prokuplje. Available via: http://www.nadzor.org.rs/pdf/Vodic%20kroz %20efikasan%20monitoring%20javnih%20nabavki.pdf

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Transparency Serbia (2015) Recommendations for amendments of legal framework related to the work of civil supervisors of public procurements in the Republic of Serbia Villanueva PA (2020) Why civil society cannot battle it all alone: the roles of civil society environment, transparent laws and quality of public administration in political corruption mitigation. Int J Public Adm 43(6):552–561. https://doi.org/10.1080/01900692.2019.1638933 Williams-Elegbe S (2018) Systemic corruption and public procurement in developing countries: are there any solutions? J Public Procurement 18(2):131–147

Employment Contracts and the Law Applicable to the Right to a Patent: Czech Considerations Pavel Koukal, Tereza Kyselovská, and Zuzana Vlachová

Contents 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Employment Contracts and the Law Applicable to the Right to a Patent . . . . . . . . . . . . . . . . . 2.1 International Conventions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 Rome I Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 Regulation of the Employment Contracts Under the Rome I Regulation . . . . . . . . . . . 2.4 Employee Inventions and the Law of the Protecting Country (Lex Loci Protectionis) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

177 180 180 182 185 187 193 194

1 Introduction There is no doubt that new, rapidly evolving technologies and advancing globalization intensify the existence of cross-border elements in private law relationships. The fact that the international elements appear more frequently than in the past has an impact on contractual as well as noncontractual obligations associated with the production and subsequent utilization of intangible assets (works of art, inventions, databases, etc.) and intellectual property rights (IPRs) that guarantee protection in different countries. The consequences of the free movement of workers around the planet are obvious. On the one hand, this phenomenon brings a greater variety of This paper was written within the project and with the financial support of the Grant Agency of the Czech Republic, No. GA17-19923S, “Private International Law and Intellectual Property Rights – Law Applicable.” P. Koukal (*), T. Kyselovská, and Z. Vlachová Faculty of Law, Masaryk University, Brno, Czech Republic e-mail: [email protected]; [email protected]; [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 Z. Meškić et al. (eds.), Balkan Yearbook of European and International Law 2020, Balkan Yearbook of European and International Law (2021) 2020: 177–198, https://doi.org/10.1007/16247_2020_18, Published online: 23 January 2021

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goods and services. International teams of creative people produce new inventions, copyrighted works, or designs,1 which give us pleasure or bring opportunities for investments. On the other hand, this also brings new challenges for the utilization of intellectual property rights, licensing practices, or the transfer of technologies. Complicated legal issues are nowadays also connected with copyright or trademark infringements on the Internet.2 The main feature of the intangible assets is their ubiquitous nature since their existence is independent of the tangible mediums in which they are embodied.3 When a work is published on the Internet without the consent of the rights holder, or a description for the production of a new drug is used without the permission of the pharmaceutical company in another country, then we must take into account not only the intellectual property rights but also the private international law issues that relate to the cross-border production and use of intangible assets. When teams of foreign employees produce scientific results or develop new inventions, the employers first address the issues of employment contracts and nondisclosure agreements. In many countries, researchers commit themselves to the arrangement that all results they create during the research and development will be owned by the employer in any country of the world. Hence, it is necessary to define how private international law regulates the employment contracts of the inventors and if the same conflict-of-law rules also govern intellectual property issues. Are there any limitations, or will the law agreed upon by the parties apply to intellectual property protection as well? For many employers, this issue is crucial since they want the investments that they have put to the development of the invention to be protected as much as possible. They want to know if the results of the scientific or artistic production are also protected in other jurisdictions and if the

1 Intellectual property law usually covers two main areas: copyright and rights related to copyright, and industrial property rights. In this paper, we will focus only on industrial property rights to inventions and we will discuss situations where inventions are achieved in the course of employment. We will leave aside the issue of copyrighted works created by employees, even though we know that the original ownership of copyright is of the same importance as our topic and that, especially in German legal theory, there have been expressed different opinions on the law applicable to this question. See mainly Ulmer (1975), p. 43; Schack (1979), p. 66 ff.; Schack (2013), pp. 499–500; Drexl (2018), p. 1277 ff.; Beckstein (2010), p. 309. 2 Due to the potential ubiquity of intangible assets and ease of the file sharing on the Internet, copyright infringements occur very often. Cross-border infringements of trademarks are a significant problem as well. See decisions of the CJEU in Cases C-523/10, Wintersteiger AG v. Products 4U Sondermaschinenbau GmbH, EU:C:2012:220 (CJEU, April 19, 2012); C-441/13, Pez Hejduk v EnergieAgentur.NRW GmbH, EU:C:2015:28 (CJEU, January 22, 2015), hereinafter “Pez Hejduk”; C-170/12, Peter Pinckney v KDG Mediatech AG, EU:C:2013:635 (CJEU, October 3, 2013), hereinafter “Pinckney”. Analyses of international private law issues on the Internet is the subject of several publications. Cf. Beckstein (2010), p. 141 ff.; Trimble (2015), p. 339 ff.; Gössl (2014), p. 55 ff.; Kunda (2016), p. 454; Drexl (2018), pp. 1320–1337. 3 Troller (1983), p. 55; Götting (2006), p. 356; Rehbinder and Peukert (2015), pp. 2, 28. This issue has been analyzed also by Czech and Slovak scholars. See Knap and Kunz (1981), pp. 16, 304; Knap et al. (1994), p. 12; Adamová (2016), p. 253; Vojčík (2014), pp. 21–23; Kyselovská and Koukal (2019), p. 71 ff.

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original holder of rights related to the intellectual creations can also claim protection in other countries. In other words, employers are afraid that the holder of rights in other jurisdictions might be an employee or that an employer might be limited by employees' economic or moral rights. These questions are not easy to answer, and they vary from country to country.4 In our paper, we will point out the Czech private international law approach, which emphasizes more intellectual property protection based on the connecting factor of lex loci protectionis5 rather than the contractual regime of the employment agreements (lex contractus). We will try to defend the thesis that such an approach has its rational basis and highlights the fact that the closest connection subsists in the intellectual property regime, not in the legal regime of the employment contract agreed upon by the parties. In our paper, we will start with an analysis of Article 8 Rome I Regulation,6 which regulates the law applicable to employment contracts. Given that the Rome I Regulation does not expressly apply to matters associated with the utilization of the intellectual property assets and that the law applicable to contractual obligations has its limits, we will shift our attention to the application of Sec. 80 Czech Private International Law Act (hereinafter “Czech PILA”),7 which, similarly to Article 110 (1) Swiss Private International Law Act (hereinafter “Swiss PILA”),8 provides that intellectual property rights are subject to laws of the State which recognizes 4 Martiny (2018), p. 361; Drexl (2018), p. 1343; Fawcett and Torremans (2011), p. 731; Matanovac Vučković and Kunda (2011), p. 107; Kyselovská and Koukal (2019), p. 294 ff.; Metzger (2013), p. 271. 5 In this paper, we will not consider tort law issues which are regulated by Art. 8 Rome II Regulation [Regulation (EC) No 864/2007 of the European Parliament and of the Council of 11 July 2007 on the law applicable to non-contractual obligations]. This provision also contains the connecting factor of lex loci protectionis, but it does apply only to tort obligations. Sec. 80 Czech Private International Law Act has a broader scope and applies to a wider category of legal issues. In our paper, we will also not address the issue of jurisdiction in cross-border disputes over IPRs to employee inventions. For this issue, see e.g. Ubertazzi (2012a) Exclusive jurisdiction in intellectual property; Ubertazzi (2012b), Infringement and Exclusive Jurisdiction in Intellectual Property: a Comparison for the International Law Association, pp. 227–262; Kono and Jurčys (2012), p. 19 ff.; Jurčys (2012), pp. 174–226. The ECJ addressed the jurisdiction in employee inventions disputes in a decision Duijnstee [Case C-288/82, Ferdinand M.J.J. Duijnstee v Lodewijk Goderbauer, EU: C:1983:326 (ECJ, November 15, 1983)]. Here, the Court dealt with the interpretation of the term of ‘proceedings for the registration or validity of patents’, which is nowadays contained in Art. 24 (4) Brussels I bis Regulation [Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters]. The Court concluded that this term did not cover a dispute between an employee and employer about the question of who is the owner or applicant for a patent, if the dispute’s subject-matter is the ownership of respective rights in that patent arising from the employment contract. 6 Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I). 7 Act No. 91/2012 Coll., on Private International Law [online]. 8 Bundesgesetz über das Internationale Privatrecht (IPRG) vom 18. Dezember 1987 (Stand am 1. Januar 2019) [online].

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these rights and provides them with protection.9 We conclude that this provision imposes limits on issues related to the ownership of scientific results. Moreover, the legal system chosen by the parties for their obligations does not apply to matters such as the existence and duration of rights, transferability of rights, effects of the transfer on third parties, exceptions, and limitations from the protection or exhaustion of rights.10

2 Employment Contracts and the Law Applicable to the Right to a Patent 2.1

International Conventions

Although employers need to have legal certainty that they are full owners of the intellectual property rights to inventions created by their employees, there exists, unfortunately, no direct regulation at the international level, which would address issues related to the ownership and utilization of the IPRs.11 For obligations related to intellectual property, we do not find any so-called uniform substantive rules directly regulating rights and obligations and taking precedence over the application of the EU or national conflict-of-law rules.12 The most important international convention regulating uniform substantive rules, the United Nations Convention on Contracts for the International Sale of Goods (CISG),13 contains only provisions applicable to the contracts for the sale of goods. However, the CISG does not apply to technology transfers or license contracts. According to its interpretation, the term “goods” (Art. 2 CISG) covers only tangible objects and does not apply to intangible assets, including inventions.

9

Unlike Art. 122 (3) Swiss PILA, and Sec. 34 (2) Austrian Private International Law Act, the Czech PILA contains no special provision in respect of employees’ works or inventions. Therefore, issues related to the ownership of rights are considered according to the lex loci protectionis. 10 Cf. Drexl (2018), p. 1320 ff.; Fawcett and Torremans (2011), p. 728; Metzger (2012), p. 596 ff.; Matanovac Vučković and Kunda (2011), p. 107. 11 However, this issue is solved by comparative academic projects, which deal with cross-border aspects of intellectual property rights. See § 315 (1) ALI Principles; Art. 3:201, Art. 3:501 CLIP Principles, Art. 307 and Art. 308 Joint Proposal Drafted by Members of the Private International Law Association of Korea and Japan; Art. 305, Art. 306 Transparency Proposal; Art. 19-23 ILA Guidelines. For a comparison of these academic projects, see Matulionytė (2011), pp. 25 ff, 220 ff; Matulionytė (2012), p. 268 ff. Concerning the jurisdiction in intellectual property cross-border disputes, see mainly Ubertazzi (2012b), Infringement and Exclusive Jurisdiction in Intellectual Property: a Comparison for the International Law Association, p. 227 ff.; Ubertazzi (2012a) Exclusive jurisdiction in intellectual property, p. 180 ff.; Jurčys (2012), p. 174 ff. 12 Fawcett and Torremans (2011), p. 737 ff.; Drexl (2018), pp. 1260 ff., 1340. 13 United Nations Convention of 11 April 1980 on Contracts for the International Sale of Goods [online]. United Nations Commission on International Trade Law (UNCITRAL).

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The only exception, accepted by some authors, is the sale of software.14 However, such conclusion is not accepted worldwide, and the majority of authors conclude that we cannot apply the CISG in any way to the transfer of intellectual property rights.15 Moreover, when an employee transfers his/her “right to a patent” (Art. 8 (1) Czech Patent Act (Zákon o vynálezech),16 Art. 6 German Patent Act (Patentgesetz)),17 such contract is not considered to be a contract for the sale of goods (Art. 1 (1) CISG). The same conclusion applies when the employer claims against the employee the right to a patent (Art. 9 (2) Czech Patent Act, Art. 6 Employee Inventions Act (Arbeitnehmererfindungsgesetz)),18 which subsequently passes to the employer. The main argument for the inapplicability of the CISG is that the material scope of this Convention does not cover these legal issues. The only international convention that contains rules governing the transfer of intellectual property rights based on employment contracts is the European Patent Convention (EPC).19 According to Article 60 (1) EPC, the right to a European patent should belong to the inventor or his/her successors in title. The second sentence explicitly covers a conflict-of-law rule20 for situations when an employee produces an invention during his/her employment. The law applicable should be primarily the law of the country of habitual performance of the work by the inventor. Alternatively, when it is impossible to determine in which country the inventor is mainly employed, the law of the State where the place of business of the employer who employed the inventor is situated shall apply.21 However, this provision can be applied only to a limited amount of scientific creations since it relates only to inventions and covers only the issue of the “right to a

14 Understood as software sold together with a tangible carrier. Cf. Magnus (2009), p. 37; Schlechtriem and Butler (2009), p. 30; Diedrich (1993), p. 441; Fakes (1990), p. 559 ff. 15 Gössl (2014), p. 103; Schlechtriem and Butler (2009), p. 31; Siehr (2010), p. 23. 16 Act No. 527/1990 Coll., on Inventions and Rationalisation Proposals, as amended [online]. 17 Patentgesetz in der Fassung der Bekanntmachung vom 16. Dezember 1980 (BGBl. 1981 I S. 1), das zuletzt durch Artikel 4 des Gesetzes vom 8. Oktober 2017 (BGBl. I S. 3546) geändert worden ist [online]. 18 Gesetz über Arbeitnehmererfindungen in der im Bundesgesetzblatt Teil III, Gliederungsnummer 422-1, veröffentlichten bereinigten Fassung, das zuletzt durch Artikel 7 des Gesetzes vom 31. Juli 2009 (BGBl. I S. 2521) geändert worden ist [online]. 19 Convention on the Grant of European Patents (European Patent Convention) of 5 October 1973 as revised by the Act revising Article 63 EPC of 17 December 1991 and the Act revising the EPC of 29 November 2000 [online]. 20 Fawcett and Torremans (2011), p. 738. There are also opinions that Art. 60 EPC does not contain a conflict-of-law rule, but a substantial direct rule. For a discussion about this issue among German scholars, see Rüve (2009), p. 69; Drexl (2018), p. 1342. 21 It has not been clarified yet if the rule in Art. 60 (1) EPC permits renvoi or not since EPC itself does not explicitly regulate this issue. Nevertheless, it appears from the structure and the purpose of EPC that it does not provide for that. See Matanovac Vučković and Kunda (2011), p. 109; Kunda (2016), p. 468; Fawcett and Torremans (2011), p. 739; Metzger (2012), p. 597; Drexl (2018), p. 1342.

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European patent.” If the patent is registered with the national patent office or if it concerns the right to acquire a patent in a third country, the second sentence of Article 60 (1) EPC does not apply.22 Furthermore, we can see that Article 60 EPC does not allow the contractual parties to choose the law applicable to the transfer of the right to a European patent.23 Ulmer concluded that this restriction primarily protects employees because the choice of law should not deprive them of adequate legal protection.24 Furthermore, Ulmer explains that the intellectual property protection should prevail over the choice of law not only for the European patents but also for the national patents filed with the national patent offices. Drexl follows this line of argumentation and concludes that the choice of law, which is allowed by the EU or national rules of the private international law, is overridden by the mandatory provisions (Art. 9 Rome I Regulation) established both in the national legislation (e.g., Arbeitnehmererfindungsgesetz) and in Article 60 European Patent Convention.25

2.2

Rome I Regulation

As for international conventions, except for Article 60 EPC, they do not contain substantive uniform rules on the law applicable to the transfer of intellectual property rights or rights that entitle the inventor or his/her successor in title to obtain patent protection; in the EU, we shall apply unified conflict-of-law rules that are provided for in the Rome I Regulation. It replaces its predecessor, the 1980 Rome Convention, and is binding for all European Union member states (excl. Denmark). The Rome I Regulation applies to contracts concluded after December 17, 2009 (Art. 28), and is universally applicable (Art. 2). It governs contractual obligations in civil and commercial matters in cases including a cross-border element (Art. 1 (1) defines the material scope of the Rome I Regulation). Even though intellectual property rights play a vital role in the business world of the twenty-first century and the employers want to have free disposal of inventions without any limitations from the part of the employees’ rights, the employees, too, need adequate protection, mainly in order to secure their appropriate remuneration for their achievements and their moral rights to be recognized as the authors or inventors. It is thus necessary to precisely define the rights and obligations of the parties.

22

Drexl (2018), p. 1342. Fawcett and Torremans (2011), p. 739. Straus expressed an opposite view, concluding that Art. 60 EPC refers to the entire legal order of a State, including the rules of private international law. Straus (1984), p. 6. This opinion is also discussed by Rüve. Cf. Rüve (2009), pp. 57 ff., 76. 24 Ulmer (1975), p. 80. 25 Drexl (2018), p. 1341. 23

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The overwhelming opinion in the business law circles today links most issues related to employees’ inventions – especially the assignment of a right to a patent – to the law of the State, which regulates the rights and obligations of the parties under the employment contract (employment statute).26 Also, it affirms the possibility of a choice of law. According to these opinions, the acquisition of the right to employees’ inventions is so closely linked to the rules of the remaining employment contract that it is subject to the same law applicable and should not be divided into numerous rights in the protecting countries. To determine the law applicable under the Rome I Regulation, it is necessary to qualify the facts of the case (Classification, Qualification, Qualifikation). Even though within the EU law there is no specific rule about the classification as such,27 it is always necessary to determine the exact nature of the contractual obligations from the EU law perspective and to interpret all terms autonomously, pursuant to the case law of the CJEU and other sources of the EU legislation.28 Concerning employee inventions and the right to a patent that relates to them, the Rome I Regulation establishes three likely applicable provisions: Article 3, which regulates the choice of law;29 Article 4, which provides for alternative (objective) connecting factors for contractual obligations in the absence of choice of law;30 and, finally, Article 8, which governs the conflict-of-law rules for employment contracts. How do we determine if the right to a patent that is transferred with the employee invention falls within the scope of Article 8 and not within Article 3 or 4, as is the case with licensing or transfer agreements? The employee inventions concern patent protection as well as issues related to the employment relationship (labor law) and moral (personal) rights of the inventor.31 26

Nishitani (2009), p. 74; Martiny (2018), p. 361. For a discussion of the lex contractus and its scope, see also Rüve (2009), p. 25 ff. Regarding academic projects, see Art. 3:201 (3), Art. 3:503 CLIP Principles; Art. 308 (4) Joint Proposal Drafted by Members of the Private International Law Association of Korea and Japan; Art. 23 (1) ILA Guidelines. The ALI Principles do not contain a specific conflict-of-law rule governing employment contracts either. However, this issue is addressed by the question of the initial ownership which is regulated by the employment relationship. See Metzger (2010), p. 169; Heinze (2013), p. 286. 27 In contrast, Art. 20 Czech PILA, provides that the qualification should primarily be carried out according to lex fori [Art. 20 (1)]. The so-called functional classification [Art. 20 (2)] might be the second option, where the issue is classified regarding its function in the national legal system. Paragraph 3 of the Art. 20 enables the lex causae classification. Art. 20 (4) explicitly establishes that the connecting factors within Czech PILA has to be qualified according to Czech law (i.e., lex fori). Pauknerová et al. (2013), p. 141 ff.; Rozehnalová et al. (2015), p. 74; Bříza (2014), p. 129 ff. 28 Cf. Recitals 7 and 17 Rome I Regulation. See also Stone (2010), p. 356; Lüttringhaus (2015), p. 25. 29 Nishitani (2009), pp. 53–55; Fawcett and Torremans (2011), p. 753 ff. As regards the analysis of connecting factors in Art. 3 see also Bělohlávek (2010), p. 664 ff.; Ragno (2015), p. 94 ff.; Mankowski (2017), p. 87 ff. 30 Nishitani (2009), p. 55 ff.; Fawcett and Torremans (2011), p. 762 ff.; Magnus (2017), p. 420 ff. Towards Art. 4, see also Bělohlávek (2010), p. 763; Magnus (2009), p. 27 ff.; Magnus (2017), p. 263 ff.; Ferrari and Bischoff (2015), p. 120 ff. 31 Drexl (2018), pp. 1341–1342; Rüve (2009), p. 55; Chloupek et al. (2017), pp. 61–62.

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The reconciliation of conflicting interests between the inventor and his/her employer can be found in the Czech Patent Act (in Germany, it is the Arbeitnehmererfindungsgesetz), which grants the employer the right to claim a right to the patent32 against an employee, and the employee is granted a right to remuneration. The right of the inventor to the patent arises when the invention is completed, and it grants a legal title to the exclusive control over the invention and entitles the owner to submit a patent application. On the other hand, if the employer fails to claim his/her right to the patent against the employee (Sec. 9 (2) Czech Patent Act), it cannot be legally transposed to the patent law without the explicit transfer of the right to the patent that the contractual parties voluntarily concluded.33 The right to the patent is thus one of the basic preconditions for patent protection. The Czech Patent Act, similarly as the German Arbeitnehmererfindungsgesetz, therefore provides that the employer is the derivative holder of intellectual property rights to the invention. On the other hand, the employee inventions are not created independently, but they are results of the employment relationship in research and development. The employee is paid a salary to develop an invention in collaboration with other team scientists, who are controlled and managed by the employer. The main aspect, which determines that the transfer of the right to the patent related to employee inventions should be, at least to some extent, subsumed within the scope of Article 8 Rome I Regulation, therefore, is the dominance of the employment (dependent) character.

32

The right to a patent (Sec. 8 Czech Patent Act) is a proprietary right that is transferable. On the other hand, the moral (personal) right to an invention is the right of a moral (personal) nature and is not transferable. Czech Patent Act, like the German Patentgesetz, grants both the rights to the inventor due to the application of the creative principle (Schöpferprinzip). Chloupek et al. (2017), pp. 55–59. While the typical results of the average work belong to the employer, this approach does not apply to creative results. Due to their personal nature, they belong to their creator, although they were created in the course of employment. On the other hand, the employer acquires ownership of the patterns, models, and drawings produced by an employee as well as ownership of the paper documents, data carriers, handicraft objects produced by employed artists or inventors. In this respect, the acquisition of rights to tangible and intangible assets is fundamentally different. The transferability of intellectual property rights, in general, is recognized as one of the questions covered by lex loci protectionis, also in the academic projects. Regarding transferability of intellectual property see Art. 3:301 CLIP Principles; Art. 309 Joint Proposal Drafted by Members of the Private International Law Association of Korea and Japan; Sec. 314 ALI Principles; Art. 305 Transparency Proposal; Art. 19 ILA Guidelines. 33 Chloupek et al. (2017), p. 77.

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Regulation of the Employment Contracts Under the Rome I Regulation

An employee is considered a weaker party in the contractual relationship. Therefore, Article 8 Rome I Regulation34 provides for a special conflict-of-law rule that takes precedence over the application of general conflict-of-law rules contained in Article 3 and Article 4 in order to ensure the protection of employees.35 The first option provided by Article 8 (1) Rome I Regulation consists in the material choice of applicable law agreed upon by the parties. Compared to Article 3, the choice of law is limited by the mandatory provisions of the law applicable to the employment contract which would have been otherwise applied if the parties had not chosen the law (see Art. 8, Paragraphs 2–4 Rome I Regulation).36 We can say that these provisions provide rules for an objective connecting factor in the absence of choice of law.37 The scope of regulation of Article 8 extends to individual employment contracts. This term is to be interpreted autonomously under the general principles of the EU private international law.38 Accordingly, Article 8 Rome I Regulation is to be applied to agreements between employers and employees under which the employee undertakes to perform an activity for remuneration in situations of economic dependency and social subordination.39 If the parties do not choose the law applicable, the law of the country in which the employee habitually carries out his/her work shall govern the contract. The determination of such a country shall not change due to a temporary employment in another country (Art. 8 (2) Rome I Regulation). If it is not possible to determine the law applicable under Paragraph 2, the law of the country in which is situated the place of business through which the employee was engaged (Art. 8 (3) Rome I Regulation) governs the contract. Paragraph 4 includes the so-called escape clause.40

34

There were no essential changes between Art. 8 Rome I Regulation and the former Art. 6 Rome Convention. For the minor differences between Rome I Regulation and Rome Convention concerning individual employment contracts, see Mankowski (2009), p. 174 ff.; Staudinger (2015), p. 295; Martiny (2018), p. 328. 35 Recital 35 also expressly confirms the protective nature of Art. 8 Rome I Regulation. See also Mankowski (2009), p. 185; Bělohlávek (2010), p. 1344 ff.; Staudinger (2015), p. 290. 36 However, there is a significant difference between national mandatory provisions of a State, in which or from which the employee habitually carries out his/her work in the performance of the contract [Art. 8 (2) Rome I Regulation], and overriding, i.e. internationally mandatory, provisions established in Art. 9 Rome I Regulation. The law applicable according to Art. 8, Paragraphs 2–4 Rome I Regulation sets the minimum standard of protection for the employee. In addition to the law chosen, the mandatory provisions of the objective employment contract statute also apply. See Mankowski (2009), p. 184; Staudinger (2015), p. 298. 37 Staudinger (2015), p. 289. 38 Mankowski (2009), p. 201; Staudinger (2015), p. 295; Palao Moreno (2017), pp. 581–582. 39 Heinze (2013), p. 281. 40 Mankowski (2009), p. 201; Staudinger (2015), p. 311; Palao Moreno (2017), p. 595.

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Thus, if it appears from the circumstances that there is a closer connection between the employment contract and another country than determined by Paragraph 2 or 3, the law specified by Article 8 (4) Rome I Regulation should apply. Nowadays, the overwhelming opinion relates most issues concerning employee inventions – especially the assignment of the right to a patent – to the law of the State, which regulates the rights and obligations of the parties under the employment contract (employment statute).41 However, this view leads to problems if the national substantive laws differently regulate whether the employee or the employer has the right to the employee inventions.42 The alleged holder of the right to the patent will hardly be able to persuade foreign patent offices to deviate from their national patent laws. Against this opinion, there is the fact that a labor law qualification of the law applicable to the employee inventions collides with the principle of territoriality (see below).43 Moreover, the prevailing opinion that the right to the patent is to be assessed according to the employment statute does not mean that the same law should determine all questions that could arise. First, it needs to be explained which legal questions should be covered by the employment statute. The scope of application is a matter of characterization.44 Since the Rome I Regulation does not include a special rule for the characterization of employment contracts, we shall apply the general rule in Article 12,45 which provides a nonexclusive list of issues covered by the Rome I Regulation. This provision expressly includes the interpretation of the contract, its performance, the consequences of a breach of an obligation, the possibilities of termination of the contract, and the consequences of the nullity of the contract. Additionally, other aspects, such as consent and material validity, are regulated by lex contractus (Art. 10).

41 Straus (1984), p. 2; Rüve (2009), p. 122; Fawcett and Torremans (2011), p. 731; Martiny (2018), p. 361. Kunda declares that, for example, the initial ownership of intellectual property rights is expressly linked to the employment statute in some Eastern European countries like Bulgaria, Montenegro, or Lithuania. Kunda (2016), p. 467. See also Art. 3:201 (3), Art. 3:503 CLIP Principles; Art. 308 (4) Joint Proposal Drafted by Members of the Private International Law Association of Korea and Japan; Art. 23 (1) ILA Guidelines. 42 In the majority of academic projects, the conflict between the contractual freedom and the protection of the employee’s interests is resolved in such a way that while the parties can choose the applicable law, such choice cannot deprive the employee of the protection afforded to him/her by mandatory provisions of the applicable law that would have been applied in the absence of the choice of law [Art. 3:503 CLIP Principles; Art. 23 (1) ILA Guidelines]. See also Metzger (2010), p. 169; Kono and Jurčys (2012), p. 182; Heinze (2013), p. 284 ff.; Matulionytė (2011), p. 210 ff. 43 Rüve (2009), p. 19, 25; Drexl (2018), p. 1341. 44 Mankowski (2009), pp. 207–209; Nishitani (2009), s. 53; Heinze (2013), p. 281; Rozehnalová et al. (2015), p. 73. 45 Mankowski (2009), p. 209.

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On the other hand, questions of legal personality or legal capacity46 and rights in rem do not fall within the scope of the law applicable to the contract. These issues are governed by the national conflict-of-law rules.47 The law applicable to the employment contract under Article 8 Rome I Regulation typically applies to the rights and obligations of the parties that directly relate to the employment relationship. As an example, we can mention working conditions, wage conditions, nondiscrimination issues, leave, dismissal, damages, etc.48 Collective employment agreements, however, are excluded.49 Similarly, issues of the employee’s personal rights or the protection of the employer’s property do not fall within the scope of the employment statute. Considering that the employment statute is an obligation statute, we may, in general, conclude that it only applies to the relationship between the contractual parties (the employee and the employer). Any issues that concern erga omnes rights are, in principle, excluded from the employment statute.

2.4

Employee Inventions and the Law of the Protecting Country (Lex Loci Protectionis)

The employment statute first defines whether the employee invention is classified as a free invention or an employment (service) invention (Art. 9 (1) Czech Patent Act). According to the employment statute, we assess whether there is an employment relationship between the parties and whether the employment contract is valid. The employment statute also applies to the temporal scope of the employee inventions. It determines that there was an employment relationship between the inventor and the employer at the time when the invention was made, even though the inventor later changed his/her job (Sec. 10 Czech Patent Act).50 Thus, all inventions that were 46

With the exception set forth by the Art. 13 Rome I Regulation, capacity issues are explicitly excluded from the scope of the Rome I Regulation according to Art. 1 (2)(a). Lüttringhaus (2015), p. 42. Althammer and Kühle (2015), p. 425. 47 In areas that are not covered by any bilateral or multilateral international conventions the national rules apply. In the Czech Republic, the relevant conflict-of-law rules are provided for in Sec. 29 ff. Czech PILA (legal personality and capacity) and Sec. 69 ff. Czech PILA (rights in rem). See Rozehnalová et al. (2015), pp. 87, 180. 48 Martiny (2018), p. 359. 49 Staudinger (2015), p. 296; Palao Moreno (2017), p. 582. 50 As an employee invention we should consider every invention created as a result of an employee’s inventive work which he/she has completed in the course of their employment. From the perspective of the patent protection it is crucial that an invention can be made by a person skilled in the art (Sec. 6 Czech Patent Act) without any further inventive considerations. However, it does not have to be ready for the production. The time of the registration of patent rights is also irrelevant. As for the temporal scope, the employment contract’s legal status, and not the actual activity of the employee, is decisive. Therefore, it does not collide with the status of the employees’ inventions if the invention was made in his/her leisure time, on vacation, during an illness, or during a strike.

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made by the inventor during his/her employment as a result of inventive work and the instructions of the employer should principally fall within the concept of the employee invention.51 However, other issues related to the transfer of the economic right to a patent from the employee to the employer does not have to be assessed according to a legal system chosen by the parties (one-size-fits-all solution; Einheitslösung),52 but according to national regulations in countries where the right to the patent is exercised by the employer filing a patent application. Therefore, we believe that the law of the State which the parties have chosen or which is determined under Article 8, Paragraphs 2–4, Rome I Regulation does not determine the conditions under which the right to a patent passes from the employee to the employer. The peculiar nature of the subject matter (creation of a new invention) leads to a specific regulation of two categories of rights: the moral (personal) right of the inventor (right to the invention) and the economic right of the inventor (right to the patent). Due to the specific legal regulation, which reflects both the moral and economic interests of the inventor, the obligation statute does not need to be applied to this issue. Just as the property statute is primarily governed by the connecting factor of the law of the position of the thing (lex rei sitae), not by the obligation statute,53 also the “intellectual property statute” has a separate conflict-of-law regulation. National patent laws provide the existence, the content, and the lapse of the patent protection for the geographical scope of the State. This is the result of the principle of territoriality.54 Another result of this principle is that the inventor is granted the

51

Chloupek et al. (2017), p. 62 ff. Rüve (2009), p. 33; Drexl (2018), p. 1341. 53 Martiny (2018), p. 156; Rozehnalová et al. (2015), p. 177 ff. The general rule of Sec. 69 (1) Czech PILA also applies to movable things. However, Sec. 70 regulates some additional exceptions to the lex rei sitae principle. Above all, if we transfer the ownership to movable assets upon a contract, Sec. 70 (2) rules that formation/termination of the ownership is governed by the law applicable to the contract (i.e. lex causae). Sec. 70 (1) Czech PILA then regulates the so-called mobile conflicts, i.e. it reflects the fact that the location of movable assets regularly changes in time. Sec. 70 (3) deals with the formation/termination of rights in rem to movable assets which are already subject to transport at the time of the formation/termination of those rights. See Rozehnalová et al. (2015), pp. 181–183. 54 The principle of territoriality traditionally applies to intellectual property rights and is accepted almost in all jurisdictions. Concerning the Czech and Slovak jurisdictions, see: Knap and Kunz (1981), p. 17 ff.; Knap et al. (1988), p. 19; Kučera et al. (2015), p. 270; Adamová (2016), p. 256; Telec (2017), p. 38. As for the German and Swiss jurisdictions, see: Troller (1952), p. 48; Schack (1979), p. 20; Troller (1983), p. 135; Ulmer (1975), p. 9; Götting (2006), p. 358; Beckstein (2010), p. 18 ff.; Jaeger (2013), p. 12; Drexl (2018), p. 1247 ff. As far as common-law jurisdictions are concerned, see: Pila and Torremans (2016), p. 29 ff.; Goldstein (2001), p. 63 ff.; Goldstein and Hugenholtz (2010), p. 95 ff.; Trimble (2015), pp. 339, 383–384. The principle of territoriality of the intellectual property protection was also expressed in the CJEU case law: Cf. the judgments in Case C-192/04, Lagardère Active Broadcast v Société pour la perception de la rémunération équitable (SPRE) and Gesellschaft zur Verwertung von Leistungsschutzrechten mbH (GVL), EU:C:2005:475 (CJEU, July 4, 2005), para 46; Case C-9/93, IHT Internationale Heiztechnik GmbH and Uwe 52

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inventor’s personality right (right to the invention) regardless of who is entitled to file the patent application or, subsequently, who is granted the patent protection. This moral right includes the right to be named as the inventor in the patent application and publication of it in the patent bulletin (see Article 4ter Paris Convention for the Protection of Industrial Property; Sec. 25 Czech Patent Act; Sec. 37 (1), Sec. 63 (1) German Patent Act). This right is absolute and personal; therefore, it should be covered by the most closely related law applicable, which is the law of the protecting country (lex loci protectionis; Sec. 80 Czech PILA).55

Danzinger v Ideal-Standard GmbH and Wabco Standard GmbH, EU:C:1994:261 (CJEU, June 22, 1994), para 22 (hereinafter “IHT Internationale Heiztechnik”); Pinckney, para 22; Pez Hejduk, para 22. The principle of territoriality can be limited in some situations. Under EU law, we can, for example, mention the exhaustion of rights, where the territoriality nature of intellectual property rights is balanced with the principle of free movement of goods [see Judgment of the ECJ in Case 24/67, Parke, Davis and Co. v Probel, Reese, Beintema-Interpharm and Centrafarm, EU: C:1968:11 (ECJ, February 29, 1968); Case 78/70, Deutsche Grammophon Gesellschaft mbH v Metro-SB-Großmärkte GmbH & Co. KG, EU:C:1971:59 (ECJ, June 8, 1971); Case 119/75, Terrapin (Overseas) Ltd. v. Terranova Industrie CA Kapferer & Co., EU:C:1976:94 (ECJ, June 22, 1976)]. Another example, where the territoriality principle can be overcome is the breach of EU unitary rights. In its judgment in “Nintendo/BigBen” case [Joined Cases C-24/16 and 25/16, Nintendo Co. Ltd v BigBen Interactive GmbH and BigBen Interactive SA, EU:C:2017:724 (CJEU, September 27, 2017)], the CJEU found that Art. 8 (2) Rome II Regulation as a special provision for non-contractual obligations arising from a violation of EU-wide intellectual property rights provides a specific connecting factor that deviates from the general principle of the lex loci damni provided for in Art. 4 (1) Rome II Regulation. The CJEU ruled that the criterion in Art. 8 (2) Rome II Regulation (state “in which the act of infringement was committed”) should be interpreted as including the state in which the event giving rise to the damage occurred, i.e., the state in which the infringement was committed (Nintendo/BigBen, para 98). The CJEU emphasized that unitary intellectual property rights are protected across the Union and that acts of infringement can be committed in the numerous Member States, making it difficult to predict which substantive law would apply to issues not regulated autonomously by the relevant Union instrument (Nintendo/ BigBen, para 101). Furthermore, the CJEU pointed out that, according to recitals 6, 13, 14 and 16 Rome II Regulation, the predictability of the outcome of legal disputes, the certainty about the applicable law as well as the uniform application of the regulation should be guaranteed in all Member States. In view of these objectives, the CJEU found that in the case of multi-state violations, it is not necessary to rely on each individual act of harm in determining the event that caused the damage, but an overall appraisal of his behavior is to be determined in order to identify the place where the original tortious act, on which the infringing behavior is based, has been committed. Such an interpretation enables the courts in Member States to easily determine the applicable law on the basis of a uniform connection criterion (a place where the infringement was committed or is likely to result from several acts of which is a defendant accused of). 55 Academic projects offer a different view on the closest connection and connect law applicable to the choice of law, which is limited by the application of mandatory rules. See Art. 3:503 CLIP Principles; Art. 23 (1) ILA Guidelines. The ALI refers to the law of the closest connection (Sec. 315 ALI Principles). The Transparency Proposal includes the rule of law-of-the-closer-connection, extensively for the question of transfer and licensing contracts (Art. 306 Transparency Proposal). However, we believe that in the Czech private international law system, it is not possible to prioritize a choice of law that, in principle, conflicts with the absolute nature of the right to the invention and the right to a patent, without the express provision of the legislator.

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The principle of territoriality provides that intellectual property rights have effect only within the territory of a particular State and that these rights exist for each State separately, and therefore no global intellectual property protection arises worldwide. The individual national laws together form only a so-called bundle of rights (Bündel nationaler Rechte)56 and therefore exist side by side and independently of each other.57 Although some rights arise informally (copyright, moral rights of the inventor), these rights exist separately in each State by fulfilling the legal conditions set by the national legislation for the existence and validity of the protection.58 From the perspective of private international law and with regard to the principles of the intellectual property protection, the inventor neither acquires a single right to the invention nor the right to the patent in the State determined by Article 8 Rome I Regulation, which would also be recognized as such in other countries. On the contrary, the inventor acquires, without any formal requirements, in each contracting State of the Paris Convention for the Protection of Industrial Property a separate moral (personal) right to the invention and in most countries an economic right to the patent as well. The moral right to the invention is inalienable; however, the right to be granted a patent can be freely transferred to the legal successor (Sec. 8 (1) Czech Patent Act, Sec. 6 (1) German Patent Act), or it can be passed when the employer claims his/her right to the patent against the employee (Sec. 9 (1) Czech Patent Act; Sec. 6 (1), 7 (1) Arbeitnehmererfindungsgesetz).59 Therefore, when the inventor completes the invention, he/she has as many independent inventor rights (right to the invention, right to the patent) as they are granted by the legal systems that link such legal consequence to the achievement of the invention. The principle of territoriality applies both to the inventor’s moral rights (right to the invention) and to his/her right to being granted a patent (right to the patent). The acquisition of these rights is determined solely by the law of the country of protection (i.e., the country for which the protection is sought, lex loci protectionis). When the right to the patent is passed from the inventor to the employer, such acquisition of the right only applies to the territory of the State that recognizes this

56 Cf. the CJEU judgement IHT Internationale Heiztechnik para 24. See also Ahrens (2012), p. 75; Beckstein (2010), p. 22; Drexl (2018), p. 1247; Richter (2017), p. 31. 57 Drexl (2018), p. 1247. On the other hand, the so-called principle of universality is based on natural law presumptions and expresses that at the moment of the creation of a work/invention, an absolute right with worldwide effects arises for the person of the author/inventor, which is only recognized by other legal systems. Schack (1979), p. 23. See also Fawcett and Torremans (2011), p. 273. 58 Knap and Kunz (1981), p. 17; Kunda (2016), p. 458; Drexl (2018), p. 1253. 59 Based on the employer’s claim, the employer acquires all economic exploitation rights to the employee’s invention. He/she becomes the employee’s successor under intellectual property law; he/she may submit the application of the invention for patent protection and use the invention. However, the non-transferable inventor’s moral (personality) rights (right to be designated as the inventor) always remain with the employees.

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category of legal transfer and is not necessarily recognized in other States, unless the conflict-of-law rule provides otherwise. Only if there is an explicit conflict-of-law rule60 can we conclude that a certain question is to be assessed according to foreign laws. If we take as an example Sec. 14 (1) Arbeitnehmererfindungsgesetz (“After claiming the employees’ invention, the employer is also entitled to submit the application abroad for the granting of protective rights”), we must take into consideration that this provision has no effect in other countries, unless the rules of the private international law of those States provide otherwise. Therefore, a fundamental question to be answered is what is the adequate balance between the scope of the employment statute (lex contractus) on the one hand and the scope of the legal order of the State in which protection is sought (lex loci protectionis) on the other. Proponents of a broad scope of the employment statute emphasize the need for a unified solution that would protect the employer’s investment.61 According to them, the main reason is that if an invention has been developed by an inventor, then the moral (personal) right to the invention automatically applies in the vast majority of countries in the world. This right is acquired by the inventor regardless of the need for registration or another formal act. The economic right to a patent then just reflects this informally evolved moral right. Following this line of argumentation, we cannot apply the territoriality principle to the right to a patent because even before the patent was granted, the inventor had had a moral (personal) right to the invention, which granted him/her right to take any action against an unauthorized applicant or patent owner. Since the rights to an invention are also acquired without a state administrative act and only once, unlike the patent law itself, the principle of territoriality can be disregarded as far as the right to a patent is concerned.

60 If there was a specific rule in the Czech private international law that contain some legal systems (Switzerland, Austria) or that we find in the abovementioned academic projects, the situation would be different. However, we still consider that the legal order, which is most closely linked to the right to an invention and the right to a patent, is the lex loci protectionis, not the lex laboris or the lex contractus. The reason for this conclusion is primarily the absolute nature of these rights. Similar conclusions were also expressed by Spanish or Greek scholars. See Kono and Jurčys (2012), p. 183. 61 Martiny (2018), p. 361. Rüve concludes that the respective national patent rights thus apply to the patentability issues and territorial effects of the patent protection. However, they are not necessarily fixed with the assignment of the right to the invention or the right to the patent since the right to the invention arises informally and independently of a State administrative act. Thus, the inventor initially obtains the right to the patent for all countries, and the territoriality principle does not apply. Under the maxim that the protection should be “fair, cheap, expedient,” the fragmentation of the right to the patent to the rights of numerous protected countries should be expediently denied. Rüve (2009), p. 50. A compromise between Martiny’s conclusions and the proponents of lex loci protectionis can be found in the judgment of the OLG Karlsruhe in the Rohrleitungsprüfung case (OLG Karlsruhe, decision from 13th April 2018, file No. 6 U 161/16). Here the court concluded that the issue of employee inventions falls under the scope of Article 8 of the Rome I Regulation. However, the issue of the vindication of the right to a patent is already a matter of the application of the lex loci protectionis.

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However, we do not agree with these conclusions. All rights are territorial in nature.62 This fact stems from the principle of territoriality, which is the basis of the functioning of state power and the principles of public international law,63 especially the principle of sovereign equality of States and the principle of noninterference. The fact that we can apply a foreign legal system to a particular issue follows from the specific permission expressed by the national or EU legislatures in the conflict-oflaw rule. We argue that proponents of the unified solution tend to overlook the different nature of tangible and intangible assets. As far as rights in rem are concerned, in most countries of the world we apply the universally accepted connecting factor lex rei sitae; regarding rights to intangible assets, we have no such connecting factor for which there would be a general consent. In the Czech legal doctrine, Knap and Kunz declared that the absence of a uniform conflict-of-law rule is derived from a fundamental difference between intellectual property rights and rights in rem.64 Unlike rights in rem, where lex rei sitae allows foreign laws to produce erga omnes effects also in other States, the correct application of lex loci protectionis should not lead to effects of the intellectual property rights of one State in the territory of other States. The main reason why conflict-of-law rules nowadays use lex loci protectionis as a connecting factor for determining the law applicable to intellectual property rights is the prohibition of discrimination against foreign nationals (Art. 5 (1) Berne Convention, Arts. 2 and 3 Paris Convention for the Protection of Industrial Property, Art. 3 of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement). This requirement of equal treatment is traditionally called the principle of assimilation65 or national treatment66 (in Article 4 TRIPS Agreement, this is supplemented by the most-favored-nation regime). If the State aims to meet the requirement of the equal treatment imposed by international conventions, it must treat both domestic and foreign right holders in the same manner.67 This goal can be achieved by applying a uniform regime, and the law applicable will, therefore, be the law of the State for which protection is sought (lex loci protectionis). Therefore, we can deduce that the effects of lex loci protectionis (Sec. 80 Czech PILA) are only for the territory of the State that “confers rights and provides them with protection,” and this conclusion applies both to the right to the invention and to the right to the patent, unless the legislator expressly specifies otherwise. 62

Knap and Kunz (1981), p. 19; Knap et al. (1988), p. 20; Fentiman (2005), p. 138; Ubertazzi (2012a) Exclusive jurisdiction in intellectual property, p. 137. 63 Shaw (2003), p. 576; Potočný and Ondřej (2011), p. 11; Malenovský (2014), p. 19; Čepelka and Šturma (2018), p. 137. 64 Knap and Kunz (1981), p. 18. 65 Troller (1952), p. 150; Knap et al. (1988), p. 34. 66 Dutfield and Suthersanen (2008), p. 25; Fawcett and Torremans (2011), pp. 678, 686; Goldstein and Hugenholtz (2010), p. 99 ff.; Basedow (2013), p. 230; Drexl (2018), p. 1264; Schack (2013), p. 465 ff. 67 Drexl (2018), p. 1277, 1279.

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3 Conclusions The issue of initial and also derivative ownership of intellectual property rights falls under the scope of the application of lex loci protectionis (Sec. 80 Czech PILA).68 In the system of Czech private international law, these conclusions are valid not only for the copyrighted works but also for employees’ inventions.69 We have concluded that the obligation statute, which stems from Article 8 Rome I Regulation, defines only specific issues. Contrary to the conclusions reached by some scholars in the German legal theory70 and in case law of German courts,71 we argue that lex loci protectionis limits the obligation statute concerning the question who is the holder of the right to an invention or the owner of the right to a patent. We do not agree with the conclusion that the assignment of rights to an invention or to a patent to the employer is more closely related to the employment statute than to the law of the protecting country. Both the right to the invention and the right to the patent are associated with the erga omnes effects of the intellectual property rights. The moral (personal) right to the invention gives his/her holder an absolute personal right to be indicated as the author of the invention, and the economic right to a patent is then an essential precondition for the subsequent patent rights. Moreover, the right to a patent not only applies in relations between the employee and the employer but is also enforceable against all persons who would unlawfully apply for patent protection. If the law applicable under Sec. 80 Czech PILA was the law of the Czech Republic, then we would consider issues related to the right to a patent and its passing to an employer according to Sec. 9 Czech Patent Act. This conclusion would not be, in our opinion, the result of the application of the mandatory rules under Article 8 (1) Rome I Regulation but a restriction of the obligation statute by lex loci protectionis. We could consider a hypothetical situation where the contracting parties, an employer who is seated in Germany and a Cambodian employee, chose the applicable law of the Federal Republic of Germany, while the scientist was working on his invention from his/her home in Cambodia. A German company would then file a patent application in the Czech Republic, claiming that it lawfully obtained a right to the patent. The reason why we would apply the Czech law to the transfer of the right to the employer is not any of the objective connecting factors in

68 In the German legal theory, see Drexl (2018), p. 1340. Similar conclusions were expressed also by other scholars. Cf. Fawcett and Torremans (2011), p. 728; Kunda (2016), p. 455; Kono and Jurčys (2012), pp. 139–140. Kyselovská and Koukal (2019), p. 156 ff. A similar approach can also be found in Spanish [De Miguel Asensio (2012), p. 1014] or Greek law [Grammaticaki-Alexiou and Synodinou (2012), p. 631]. 69 Nishitani (2009), p. 73, 80. See also Matanovac Vučković and Kunda (2011), pp. 106–108; Kyselovská and Koukal (2019), p. 136. 70 See Martiny (2018), p. 361. 71 The decision of the OLG Karlsruhe from April 13, 2018, file No. 6 U 161/16.

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Article 8 Rome I Regulation72 but the fact that we deal with a Czech right to a patent arising from the Czech Patent Act. When the right to the patent is passed from the inventor to the employer, such acquisition of the right only applies to the territory of a State that recognizes this category of legal transfer and is not necessarily recognized in other States, unless the express conflict-of-law rule provides otherwise. If the inventor completes the invention, he/she obtains as many independent inventor rights (right to the invention, right to the patent) as they are granted by the legal systems that link such legal consequence to the achievement of the invention.

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Part III

International Law

Recognition and Enforcement of Foreign Judgments in the Field of Bilateral Conventions of Greece with Balkan States Apostolos Anthimos

Contents 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 The Treatment of Bilateral Conventions in the Greek Legal Order . . . . . . . . . . . . . . . . . . . . . . . . 3 The Bilateral Conventions of Greece with Balkan States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 Albania . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 Bulgaria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3 Romania . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4 Ex-Yugoslavia and Successor States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Conditions for Recognition and Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1 Finality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3 Due Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4 Irreconcilable Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5 Public Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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A. Anthimos (*) European University Cyprus, Department of Greek Law, Nicosia, Cyprus e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 Z. Meškić et al. (eds.), Balkan Yearbook of European and International Law 2020, Balkan Yearbook of European and International Law (2021) 2020: 201–224, https://doi.org/10.1007/16247_2020_19, Published online: 29 January 2021

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1 Introduction1 The Hellenic Republic has been very prolific in the conclusion of bilateral conventions in the field of judicial cooperation.2 Part of the latter has always been the issue of recognition and enforcement, i.e. the procedure and the requirements or impediments for the recognition and enforcement of foreign judgments. In addition, Greece has concluded two bilateral treaties focusing exclusively on recognition and enforcement.3 Before entering into the particulars of the bilateral conventions with Balkan states, a brief presentation of the overall landscape of bilateral treaties and its treatment in Greece will precede. Questions of coexistence with domestic law, international conventions, and EU law will be examined. Issues related to the radius of bilateral treaties will be tackled.

2 The Treatment of Bilateral Conventions in the Greek Legal Order The national key provisions are Arts. 323, 780, and 905 of the Greek Code of Civil Procedure (CPC).4 Article 323 of CPC stipulates the requirements for the recognition and enforcement of judgments.5 Article 780 of CPC covers the same issue, 1 The law reviews mentioned thereon are the following: Achaian Law Reports [in Greek: Αχαι__κή Νoμoλoγία]; Armenopoulos [in Greek: Αρμενóπoυλoς (Thessaloniki Bar Review)]; Case Law Archive [in Greek: Αρχείo Νoμoλoγίας]; Chronicles of Private Law [in Greek: Χρoνικά Iδιωτικoύ Δικαίoυ]; Civil Procedure Law Review [in Greek: Επιθεω  ρηση Πoλιτικής Δικoνoμίας]; Dike [in Greek: ΔIKΗ]; Hellenic Jurists Review [in Greek: Εφημερίς Ελλήνων Νoμικω  ν]; Hellenic Justice [in Greek: Ελληνική Δικαιoσύνη]; Hellenic Review of European Law [in Greek: Ελληνική Επιθεω  ρηση Ευρωπαι__κoύ Δικαίoυ]; Immigration Law Review [in Greek: Επιθεω  ρηση Mεταναστευτικoύ Δικαίoυ]; Legal Tribune [in Greek: Νoμικó Βήμα (Athens Bar Review)]; Piraeus Law Reports [in Greek: Πειραι__κή Νoμoλoγία]. In addition, reference is made to the following legal data bases: (1) ISOCRATES ¼ Athens Bar legal data base, and (2) NOMOS, a privately owned legal data base. Courts are referred as follows: CFI ¼ Court of 1st Instance; CoA ¼ Court of Appeal; SC ¼ Supreme Court. 2 The full catalogue of bilateral treaties is available in: Yessiou-Faltsi (2019), nr. 29, pp. 49 et seq. For a detailed analysis of bilateral treaties in force in Greece, see Yessiou-Faltsi (2006), § 92, pp. 875–1052, and Anthimos (2014a). 3 Greek-Yugoslav (1959) and Greek-German (1961) conventions. 4 For a brief analysis of the Greek system, see Kerameus and Kozyris (2008), pp. 399–402. With regard to the recognition of foreign personal status judgments, which take the lion’s share in practice, see Yessiou-Faltsi (2005), pp. 733–747. 5 Art. 323 of CPC: Subject to the provisions of international conventions, a judgment of a foreign civil court is given res iudicata effect in Greece without any proceedings, if (1) it is final according to the law of the place of origin; (2) the case was subjected to the jurisdiction of the courts of the state, to which the court which rendered the judgment belongs; (3) the losing party has not been deprived of its right of defence and generally its right to participate in the proceedings, unless it has enjoyed equal opportunities to nationals of the country, whose court rendered the judgment; (4) the

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focusing on foreign judgments rendered in voluntary proceedings.6 Article 905 of CPC regulates the procedure to be followed for the recognition and/or enforcement of foreign judgments,7 irrespective of their nature. Domestic provisions are to be applied subject to the existence of overlapping international, i.e. bilateral and/or multilateral, conventions.8 This is an imperative rule, which becomes evident in the wording of the provisions aforementioned, and is of grave importance for the present topic. Notwithstanding the prevalence of bilateral conventions over domestic law,9 legal scholarship attributes to courts the powers to set aside the bilateral convention, and to opt for the application of domestic law, for the sole purpose of promoting the free circulation of judgments.10 A selective application of both regimes11 (so-called Rosinentheorie in the German doctrine) is, however, not accepted.12 Case law delivers a somehow incoherent picture: in practice, one is confronted with three different situations: the first one relates to decisions applying exclusively domestic law, in defiance, or, to be more precise, ignorance of the existing bilateral convention;13 the second relates to decisions applying jointly both domestic law and the

foreign judgment is inconsistent to a domestic judgment issued in the same case and being binding for the same parties; (5) the foreign judgment must not be contrary to morality or public policy. 6 Art. 780 of CPC: Subject to the provisions of international conventions, a judgment of a foreign court is granted without any proceedings the same authority in Greece to that recognized by the law of the state of the court which issued the judgment, if (1) the decision applied the same substantive rules which would have been applicable under Greek conflict of laws rules, and must have been rendered by a court having jurisdiction under the law of the State whose substantive rules were applied; (2) it is not contrary to morality and public policy. 7 Article 905 of CPC: 1. Subject to the provisions of international conventions, enforcement of a foreign instrument may be carried out in Greece as from the time such instrument is declared enforceable by a decision of the Single-Member Court of First Instance of the debtor’s domicile, or, in its absence, of the debtor’s residence, or, in the absence of both, of the country’s capital. The Single-Member Court of First Instance shall follow the procedure of articles 740 to 781. 2. The Single-Member Court of First Instance shall declare the foreign instrument as enforceable on the condition that it is enforceable according to the law of its origin and is not contrary to morality or public policy. 3. If the foreign instrument is a court decision, the conditions laid down under Article 323 Nrs. 2 to 5 must also be met. 4. The provisions of paragraphs 1 to 3 shall also apply for the recognition of the res iudicata effect of a decision from a foreign court relating to personal status. 8 The importance of the matter is additionally evidenced in Art. 2 Introductory Law to the Code of Civil Procedure, which stipulates that the force of international conventions is not affected by the introduction of the CPC. 9 Supported by Vassilakakis and Yiannopoulos (2002), p. 962; Yiannopoulos (2003), pp. 274 et seq.; Tsikrikas (1991), pp. 267 et seq. 10 Prevailing opinion, see Yessiou-Faltsi (2006), § 92, nr. 6, p. 881, referring to abundant case law under note 29, and in detail, nr. 7 et seq., pp. 882-889; Kerameus et al. (2000) Art. 780, nr. 6; Vrellis (2008), pp. 432 et seq.; Kaissis (2003), p. 211. 11 Supported by Beys (1976), p. 1319. 12 Yessiou-Faltsi (2006), § 92, nr. 8, p. 884; Vrellis (2008), p. 433. 13 Yessiou-Faltsi (2006), § 92, nr. 9, p. 889 et seq. See also Vrellis (1987), p. 464, on the basis of statistical evidence.

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bilateral convention;14 finally, the third category relates to decisions applying exclusively the respective bilateral convention.15 All of the above will be examined separately from each bilateral convention. A different issue deals with the application of domestic law if the bilateral convention demonstrates a vacuum pursuant to the courts’ perception. This is particularly the case in regard to two conventions (with (ex-)Soviet Union and China), where public policy is not regulated as a ground for refusal. These matters will not be examined in this paper, given that the emphasis is placed on the Balkan region. A third issue that continues to puzzle Greek courts concerns the inclusion of decisions rendered in voluntary proceedings within the ambit of bilateral conventions. This is a very delicate matter, taking into account that the requirements for recognition pursuant to Art. 780 of CPC are different than those of bilateral conventions. It is noteworthy that only one of the existing treaties mentioned explicitly the above decisions.16 Legal scholarship supports the application of the conventions also in judgments rendered in the course of voluntary proceedings, as long as no explicit exclusion exists.17 Courts are divided, leading to different paths, i.e. either the application of the convention in question18 or resort to domestic law (Art. 780 of CPC).19 Sometimes courts opt for the judgment of Solomon by referring to both domestic law and the bilateral convention.20 Finally, a fourth option is to apply deliberately domestic law for the benefit of free circulation of judgments.21 A significant number of conventions have lost their importance due to ongoing Europeanization (formerly communitarization) in the field.22 Three are the most

Yessiou-Faltsi (2006), § 92, nr. 9, p. 886, referring to dozens of decisions under note 52. Yessiou-Faltsi (2006), § 92, nr. 9, p. 887. See also Supreme Court 483/1991, Hellenic Justice 1992, p. 80. 16 Art. 1.1 Greek-German Agreement. Art. 29 of the Greek-Cypriot convention refers specifically to the mutual recognition of certificates of succession, and other decisions/documents emanating from inheritance matters, which pursuant to Greek perceptions form part of non-contentious proceedings. 17 Yiannopoulos (2003), pp. 254 et seq., Yessiou-Faltsi (2006), § 92, nr. 32, p. 904. 18 Thessaloniki CFI 2859/2011, ISOCRATES [Albanian divorce in mutual consent]; Thessaloniki CFI 3998/2014 [Albanian adoption decree]; Thessaloniki CFI 1065/2012, ISOCRATES [Armenian declaration of absence]; Thessaloniki CFI 37993/2009, 10745/2010, 24170/2011, ISOCRATES [German decisions on the appointment of a guardian]; Thessaloniki CFI 8949/2012, unreported [Ukrainian judgment]. 19 Thessaloniki CFI 7616/2013 [Albanian certificate of inheritance]; Thessaloniki CFI 8370/2014, unreported [German certificate of inheritance]; Athens CFI 3569/2003, Legal Tribune 2003, p. 1456 [Bulgarian insolvency decision]; Thessaloniki CFI 8090/2011, ISOCRATES [Georgian divorce certificate]. 20 Thessaloniki CFI 42487/2007, ISOCRATES [German certificate of inheritance]; Thessaloniki CFI 44756/2007, ISOCRATES [Georgian adoption decree]. 21 Rhodes CFI 806/2005, NOMOS. 22 The remaining space for application is confined to judgments on matters not covered by EU Regulations, or those rendered prior to the entry into force of the respective Regulation, see Yessiou-Faltsi (2006), § 92, nr. 29, p. 900 et seq., with regard to the Brussels I & II bis Regulations. 14 15

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active conventions up to date: the Greek-German,23 the Greek-Albanian, and the Greek-(ex-) USSR24 convention. The first was, has been, and quite probably will continue to be a very important convention for Greek courts, in spite of the EU ties embracing the two countries, given that judicial cooperation in Europe has not yet covered the full radius of civil and commercial matters.25 The second flourished as a result of a massive wave of migration of Albanian citizens in the country since the early 1990s. Finally, the third prospered because of the repatriation of a large number of Greeks or people of Greek origin, following the dissolution of the Soviet Union. In addition, a number of pertinent conventions have been made redundant because they are entirely replaced by EU regulations or other multilateral instruments. These are the 1965 Greek-Austrian convention on judicial assistance in civil and commercial matters;26 the 1927 Greek-Swiss convention on establishment and judicial protection;27 the 1948 Greek-Italian convention on friendship, commerce and admiralty, and on conciliation and judicial settlements;28 finally, the 1986 Greek-ex-East Germany bilateral convention on judicial assistance.29 Mention needs to be made to a very peculiar set of judgments rendered by courts of some contracting states, which certified that the applicant owns a Greek nationality. Subsequently, the foreign decisions reached the threshold of Greek courts, with a request to be recognized. After some initial confusion with regard to judgments for30 and against31 recognition, the issue was solved by the Council of State, which ruled that granting Greek nationality to a person is not a matter for a foreign court to decide; moreover, it is an issue falling under the competence of Greek authorities. Therefore, the Council of State continues that the foreign decisions, although recognized by Greek courts, are not binding for the Hellenic Republic, which was no party to the proceedings.32

23

For a brief case law survey, see Anthimos (2015), pp. 361–363. For the application of the convention, see Anthimos (2014b). 25 See the statistics delivered by Vrellis (1987), p. 464. 26 Ratified by Presidential Decree 137/1969, in force since 13.1.1971. It covers solely provisions on the enforcement of costs orders (Art. 15-18), a matter which is included in the EU Regulations radius. 27 Ratified by law 3610/1928. It covers solely provisions on the enforcement of costs orders (Art. 18–19), a matter which is regulated in the Lugano Convention. 28 Ratified by Legislative Decree 1269/1949. 29 Ratified by law 1651/1986, in force from 20/4/1987. The unification with the Federal Republic of Germany led to the official abrogation of the convention in 1992. 30 Thessaloniki CFI 3107/2014, unreported [Albanian judgment]. 31 Thessaloniki CFI 2613/2013, ISOCRATES [Armenian judgment]. 32 Council of State 316/2014, NOMOS, concerning the recognition of a Russian judgment. For a brief summary in English, see Anthimos (2014c). 24

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3 The Bilateral Conventions of Greece with Balkan States The bilateral conventions do not cover the matter in a solid fashion; there are differences concerning the field of application, the instruments/titles included, and the conditions for recognition and enforcement. The following brief presentation of the bilateral conventions will focus on a general outline and some specific remarks related to the implementation of each convention in Greece. The presentation takes place in alphabetical order. The requirements/grounds for refusal will be examined later on.33

3.1 3.1.1

Albania General Remarks

The convention on judicial assistance in civil and criminal matters between the Hellenic Republic and the Republic of Albania was ratified in Greece by Law Nr. 2311/1995.34 It entered into force in Greece on September 15,1995.35

3.1.2

The Relevant Provisions

The third chapter (Arts. 23–30) regulates the issue of recognition and enforcement. Pursuant to Art. 23 §§ 1 and 2, the following judgments are within the scope of the convention: (a) judgments rendered in civil, family, and commercial matters; (b) judgments rendered in criminal matters in regard to compensation claims; (c) arbitral awards;36 and (d) court settlements. No reference is made regarding authentic instruments; they have to be recognized pursuant to domestic law.37 Article 24 features the requirements for recognition and enforcement. The necessary documents for the exequatur proceedings are mentioned under Art. 26. The court may not go beyond the examination of the conditions set forth under Arts. 24–26 (Art. 27.2). A rather unclear wording contains Art. 27.3, which allows the judgment

33

See infra Sect. 4. Official Greek Gazette Vol. Α 119/1995. 35 Official Greek Gazette Vol. Α 194/1995. 36 Art. 25 refers to the 1958 New York Convention on Recognition and Enforcement of Foreign Arbitral Awards. Paradoxically, Albania accepted the application of the New York Convention before its ratification (in force since 25/9/2001). 37 Yessiou-Faltsi (2006), § 92, nr. 32, p. 904. 34

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debtor to raise all defences available in the court of origin.38 A special provision deals with the enforcement of cost orders (Art. 28).

3.1.3

Case Law

Unlike its first years of existence, the bilateral treaty has gained tremendous importance and is nowadays the forerunner in terms of application. The reasons for this astonishing revival are evident: thousands of Albanian nationals have been well rooted in Greece since the early 1990s. Therefore, the necessity for the recognition and enforcement of Albanian decisions, originated mostly from the family law and personal status sector, has become imperative.39 Consequently, pertinent case law is dominated by Albanian divorce decrees,40 sometimes in conjunction with additional requests for the recognition and/or enforcement of ‘correction’ of last names,41 birth certificates,42 assignment43 or termination44 of parental responsibility45 and custody46 and/or contact47 rights, and child support.48 Furthermore, applications have been filed for the recognition of judgments with respect to a person’s identity,49

38

The rule was interpreted by Yessiou-Faltsi as referring even to defences on the merits of the dispute, which according to Greek law is not allowed during the exequatur stage, see Yessiou-Faltsi (2006), § 92, nr. 42, p. 906 et seq. The issue did not appear in practice yet. 39 Recognition may also take place incidentally, see Athens CFI 11385/2017, Civil Procedure Law Review 2018, pp. 185 et seq., note Papadopoulou: Action filed before Greek courts was dismissed due to foreign res iudicata produced by an Albanian judgment, recognized incidentally by the Athens court upon the defendant’s motion. 40 Examples: Thessaloniki CFI 4440/2009, 1754/2010, 17525/2010, ISOCRATES, Chalkidiki CFI 335/2012, unreported, Rhodes CFI 66/2012, ISOCRATES, Thessaloniki CFI 7616/2013, 8364/ 2014, 8155/2015, unreported. 41 The ‘correction’ consists in the return of the applicant’s last name before marriage, Thessaloniki CFI 188/2014, ISOCRATES, Thessaloniki CFI 8280/2015, 15559/2017, 16209/2017, unreported. 42 Thessaloniki CFI 284/2009, ISOCRATES. 43 Thessaloniki CFI 2422/2009, ISOCRATES. 44 Thessaloniki CFI 14955/2010, ISOCRATES. 45 Ad hoc Anthimos (2016), pp. 197 f. 46 Examples: Thessaloniki CFI 30590/2008, 18718/2010, ISOCRATES, Thessaloniki CFI 323/2012, unreported, Thessaloniki CFI 9433/2013, unreported. Solely custody rights: Thessaloniki CFI 40007/2008, 23511/2010, 23651/2011, ISOCRATES, Thessaloniki CFI 24233/ 2012, unreported, Thessaloniki CFI 15469/2013, unreported. 47 Thessaloniki CFI 2325/2013, 9395/2015, 10030/2015, 11243/2015, 14859/2015, 15253/2015, 15407/2015, 9576/2017, unreported. 48 SC 670/2013, ISOCRATES. Further examples: Thessaloniki CFI 43969/2007, 18718/2010, 23962/2010, 4131/2011, ISOCRATES, Chalkidiki CFI 203/2012, unreported, Thessaloniki CFI 19576/2012, 2325/2013, 21778/2013, 9131/2015, unreported. 49 Patras CoA 1105/2007, Achaian Law Reports 2008, p. 720, Thessaloniki CFI 24500/2008, ISOCRATES, Piraeus CFI 3199/2009, Immigration Law Review 2010, p. 87, note Marinaki.

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family status,50 change of name and surname,51 correction of children’s birthplace,52 recognition of succession rights (certificates of inheritance),53 recognition of the inexistence of a father-child relationship,54 appointment of a guardian,55 and finally adoption decrees.56 Courts apply the convention either exclusively57 or in conjunction with domestic CPC provisions.58 Still, in some occasions, courts relied solely on national law.59 This variety of approaches serves as the paradigm of confusion throughout the spectre of bilateral conventions.60 Stay of proceedings has been ordered under the following circumstances: (i) no production of the whole text of the judgment;61 (ii) no clear indication as to the nature of the foreign judgment (i.e. contradictory or default proceedings); 62 (iii) lack of a certificate proving that the Albanian judgment is final;63 it is important to stress out that, unlike Greek law,64 Albanian law (like many other jurisdictions) does not

50

Athens CFI 37962/2008, ISOCRATES. Thessaloniki CFI 19576/2012, 24275/2013, 17561/2013, unreported, Athens CFI 2109/2008, ISOCRATES (here even the father’s name). 52 Chalkidiki CFI 45/2015, unreported. 53 Thessaloniki CFI 7616/2013 & 12563/2014, 11939/2017, unreported. 54 Thessaloniki CFI 7204/2009, ISOCRATES. 55 Thessaloniki CFI 41679/2007, ISOCRATES. 56 Thessaloniki CFI 3998/2014, unreported. 57 Expressis verbis, Patras CoA 1105/2007, Achaian Law Reports 2008, p. 720. Further examples: Thessaloniki CFI 7204/2009, 35328/2010, 4131/2011, ISOCRATES, Thessaloniki CFI 322/2012, 2325/2013, 4993/2013, 22300/2013, 1076/2014, 4850/2014, 12563/2014, unreported. 58 Thessaloniki CFI 2859/2011, ISOCRATES 900 [see also Panopoulos (2012), pp. 619], Thessaloniki CFI 17561/2013, unreported. In this case, domestic provisions apply additionally, and only if they do not contravene the provisions of the bilateral convention, see SC 670/2013, ISOCRATES. Further examples: Athens CoA 6044/2011, Legal Tribune 2012, p. 900 [see also Panopoulos (2012), pp. 618 et seq.], Thessaloniki CFI 40007/2008, 2422/2009, 1754/2010, ISOCRATES, Thessaloniki CFI 3107/2014, unreported. 59 Chania CFI 392/2007, ΝΟMΟΣ, Athens CFI 1370/2008, ISOCRATES, Thessaloniki CFI 11905/ 2012, unreported. 60 Especially for the Greek-Albanian convention, see Panopoulos (2012), pp. 618–620. 61 Thessaloniki CFI 3222/2017, unreported. The court referred to the requirement set under Art. 26.2 (a). Similarly Thessaloniki CFI 19137/2017, unreported. 62 Thessaloniki CFI 19146/2017, unreported. Without this clarification, the court may not know whether it has to proceed to a control of the condition under Art. 24. 63 Thessaloniki CFI 8157/2015, unreported: The fact that the judgment of the Durrës court states that an appeal may be lodged within 15 days following service may not lead to the assumption that the judgment is final, given that no certificate of service of the judgment was included in the file. Even the production of a certificate by the local civil registry, stating that the applicant was ‘divorced’, did not convince the Greek court. See also Thessaloniki CFI 3292/2017, unreported: Regardless of the fact that the judgment of the Devoll court was rendered 20 years ago, the Greek court is not in position to know whether this leads to finality according to Albanian law. 64 There is a peculiarity inherent to domestic procedural law, i.e. the distinction between final and unappealable (or irrevocable) judgments: the former refers to judgments not subject to appeal and/or opposition to set aside a default judgment, whereas the latter to judgments not subject to any 51

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distinguish between final and unappealable judgments;65 (iv) no reference to the last residence of the deceased;66 (v) lack of a certificate proving that no claim is pending67 or no pertinent final judgment68 has been issued in Greece (Art. 24 (d)); and (vi) no production of a service certificate (Art. 26 para 2 (b)),69 even if it refers to the party who is the applicant in the recognition proceedings.70

3.2 3.2.1

Bulgaria General Remarks

The Greek-Bulgarian convention on judicial assistance in civil and criminal matters was ratified by the Hellenic Republic by virtue of Law Nr. 841/1978 and entered into force on 26 April 1980.71 In light of the entrance of Bulgaria to the EU since 2007,

appeals, i.e. apart from the latter, to cassation and/or restitution of proceedings, see Yessiou-Faltsi (2019), Nr. 238, p. 160. 65 This is evidenced by Art. 510 Albanian CPC, which is mentioned in: Thessaloniki CFI 16209/ 2017, unreported. 66 This is necessary in cases regarding recognition of a certificate of inheritance, because the court may not exercise its control under Art. 24 (b). It is a crucial point, given that Art. 30 CPC grants exclusive jurisdiction of Greek courts in succession matters, if the deceased was domiciled in or was a resident of Greece, see Thessaloniki CFI 11939/2017, unreported. 67 Thessaloniki CFI 4680/2016, 3219/2017, 3292/2017, unreported. If the certificate furnished mentions the existence of a similar claim, the applicant is burdened with proving that the claim aforementioned is not anymore pending, Thessaloniki CFI 18010/2017, unreported, following Thessaloniki CFI 3440/2017, unreported, which stayed proceedings for the reason above. Similarly, Thessaloniki CFI 1625/2016, ISOCRATES. 68 Thessaloniki CFI 8156/2015, 3220/2017, 11939/2017, all unreported. 69 Thessaloniki CFI 8157/2015, unreported: The court ordered stay of proceedings, although the Albanian court stated in its judgment that the defendant was properly served. The Greek court’s reasoning was related to Art. 24 (c), i.e. its inability to examine the specific requirement for recognition. See also Thessaloniki CFI 10145/2015, unreported: The Pogradeci judgment was given in default of appearance; in its reasoning however, the court referred to the defendant’s assertions and statements. This ambiguity led the Greek court to order stay of proceedings. Similarly Thessaloniki CFI 3221/2017, unreported: Participation of the defendant in conciliation attempts does not prove knowledge of the hearing date. See also Thessaloniki CFI 14838/2015, unreported. Mere reference to Art. 133 of the Albanian Code of Civil Procedure (service of process abroad) is not undisputable evidence of service allowed under the convention, in light of Art. 24 (c) which disallows service by attaching the document to the defendant’s door, see Thessaloniki CFI 200/2016, unreported. 70 Thessaloniki CFI 6979 & 6980/2017, unreported. In the court’s view, even in this case, service of process is a prerequisite according to the convention. Beyond that, it is one of the cornerstones of a fair trial enshrined in the Greek Constitution and the ECHR. These judgments run contrary to the prevailing opinion, which considers filing as evidence that the applicant has undoubtedly accepted the outcome of the foreign proceedings, see e.g. Thessaloniki CFI 9576/2017, unreported. 71 Official Greek Gazette Vol. Α 228/1978, and Vol. Α 80/1980 respectively. A French version is attached to the Greek text of the treaty.

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the bilateral treaty has been deprived of its significance on a wide range of matters in the field. Nevertheless, there is still a margin for application, as will be demonstrated immediately below.

3.2.2

The Relevant Provisions

Chapter III regulates the topic of recognition and enforcement (Arts. 27–33). The convention covers a wide range of judgments, as evidenced under Article 27, i.e. (a) court decisions in civil, family, and commercial matters; (b) penal sentences with regard to compensation claims; and (c) court settlements. In regard to recognition and enforcement, it must be underlined that the bilateral convention has been replaced by EU Regulations 44/2001 and 2201/2003, in force in Bulgaria since 1 January 2007, as well as all ensuing Regulations in the field of judicial cooperation in civil matters. No reference is made regarding authentic instruments; they have to be recognized pursuant to EU or domestic law.72 Unlike many other conventions, Article 32 is formulated in a negative fashion; hence, this convention states grounds for refusal, not requirements for recognition and enforcement.73 The necessary documents for recognition and exequatur proceedings are stated under Article 29. Courts may request clarifications from the parties or even from the court of origin (Art. 30). In a similar fashion to the Greek-Albanian convention, Article 31.2 sets forth that the judgment debtor may raise defences on the merits, as long as it is foreseen by the law of the court of origin.74

3.2.3

Case Law

Given the geographical proximity of the countries, a vast array of cases appeared throughout the convention’s life span, going beyond family and personal status matters. In particular, Greek courts examined applications for the recognition of divorce decrees,75 filiation,76 insolvency,77 amendment of birth certificates,78 adoption,79 parental responsibility,80 as well as requests for the execution of foreign court

72

Yessiou-Faltsi (2006),§ 92, nr. 61, p. 921. Yessiou-Faltsi (2006),§ 92, nr. 62, p. 921. 74 In this case the Bulgarian law, given that Greek law does not contain such a rule. 75 Examples: Athens CFI 5935/2006, ISOCRATES, Thessaloniki CFI 25621/2008, 2090/2009, 9043/2010, 2088/2011, ISOCRATES. 76 Athens CFI 39530/2009, ISOCRATES. 77 Athens CFI 3569/2003, Legal Tribune 2003, p. 1456. 78 Piraeus CFI 262/2009, Civil Procedure Law Review 2009, p. 385, note Yiannopoulos. 79 Examples: Athens CFI 14678/2010, ISOCRATES, Thessaloniki CFI 10156/2010 & 370/2011, ISOCRATES, Thessaloniki CFI 23972/2013, unreported. 80 Thessaloniki CFI 21646/2013, unreported. 73

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judgments81 and arbitral awards.82 The convention is not anymore relevant in divorce,83 parental responsibility,84 and matrimonial85 and partnership property cases; however, it is not replaced by EU regulations with respect to divorce decrees issued prior to 1 January 2007.86 For the latter, the convention prevails over national provisions.87

3.3 3.3.1

Romania General Remarks

The Greek-Romanian convention on judicial assistance in civil and criminal matters was ratified by the Hellenic Republic by Law Decree Nr. 429/197488 and entered into force on 29 April 1975. Under Article 1 of the Protocol attached to the treaty, it is clarified that civil matters include commercial, family, and personal status cases. In light of the entrance of Romania to the EU in 2007, the bilateral treaty has been deprived of its significance on a wide range of matters in the field. Nevertheless, there is still a small margin for its application, especially dealing with cases of transitional nature.89

3.3.2

The Relevant Provisions

The treaty contains a special chapter on recognition and enforcement (chapter V: Arts. 21–28). Judgments and court settlements in civil, family, succession, and commercial matters, including those issued in criminal proceedings, with respect to compensation of damages and restitution of goods, are within the convention’s field of application (Art. 21 in conjunction with point I.1. of the Protocol, attached to 81

Athens CoA 6814/1983, Legal Tribune 1984, p. 92, Thessaloniki CFI 364/1996, Armenopoulos 1999, p. 970, note Vassilakakis. 82 SC 250/1990, Hellenic Jurists Review 1990, p. 717, Thessaloniki CFI 9165/2014, unreported. 83 Thessaloniki CFI 25621/2008, ISOCRATES, Thessaloniki CFI 566/2013, unreported. The convention was mistakenly not applied on an application for the recognition of a Bulgarian divorce decree rendered in 2005, so Athens CFI 5935/2006, ISOCRATES. 84 Thessaloniki CFI 21646/2013, unreported. 85 Before the entry into force of the Matrimonial Property Regulation nr. 2016/1103, a court applied mistakenly the Brussels II bis Regulation for a residence arrangement case, Thessaloniki CFI 14927/2015, Armenopoulos 2017, pp. 1559 et seq., commented by Lagoudi, ibid, p. 1562, indicating the non-application of the bilateral convention. 86 Thessaloniki CFI 9043/2010 & 2088/2011, ISOCRATES. 87 Thessaloniki CFI 370/2011, ISOCRATES. 88 Official Greek Gazette Vol. Α 178/1974. A French version is attached to the Greek text of the treaty. 89 Still, a 2004 divorce decree was recognized in accordance with domestic provisions, see Athens CFI 6445/2007, ISOCRATES.

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the convention). Authentic instruments are left out of the convention’s scope.90 The necessary documents in the exequatur stage are stated under Article 23.2. No review on the merits is allowed (Art. 24.2). The court’s powers are confined within the limits of Article 22 (requirements for recognition and enforcement). Finally, an exception is provided for personal status matters: recognition proceedings are made redundant if the parties are nationals of the country of origin (Art. 25). Nevertheless, the finality of the judgment has to be verified, coupled with the control of the parties’ nationality.91

3.3.3

Case Law

The existing material shows that the convention has been applied almost exclusively in the course of recognition of family and personal status decisions, such as divorce, adoption,92 and filiation.93 It does not apply to authentic instruments, such as a renunciation of succession signed and sealed by a notary public.94

3.4 3.4.1

Ex-Yugoslavia and Successor States General Remarks

In the field of judicial assistance, Greece has signed two treaties with ex-Yugoslavia. The first95 covers mostly matters of service of process abroad, containing however a special provision on the declaration of enforceability concerning exclusively cost orders (Art. 2), while the second focuses exclusively on mutual recognition and enforcement of foreign judgments. The latter convention was ratified by Law Decree Nr. 4007/195996 and entered into force on 1 April 1960.97 It is noteworthy that it is the first bilateral convention exclusively focusing on recognition and enforcement, only to be followed two years later by the Greek-German treaty.

Hence, EU or domestic rules apply, see Yessiou-Faltsi (2006), § 92, Nr. 209, p. 1014 et seq. Yessiou-Faltsi (2006), § 92, Nr. 217, p. 1017. 92 Thessaloniki CFI 1159/2000, Hellenic Review of European Law 2000, p. 705, note Yiannopoulos, Thessaloniki CFI 16412/2011, ISOCRATES. The bilateral convention was mistakenly not applied by Thessaloniki CFI 1475/2000, Private Law Chronicles 2001, p. 909, note Yiannopoulos. 93 Thessaloniki CFI 8047/2008, ISOCRATES. 94 Thessaloniki CoA 1207/2016, Civil Procedure Law Review 2016, p. 593, note Anthimos. 95 Convention on mutual judicial relations, signed in Athens on 18/6/1959, ratified by the Hellenic Republic by virtue of legislative decree 4009/1959, Official Greek Gazette Vol. A 238/1959, in force since 1.4.1960, Official Greek Gazette Vol. A 34/1960. 96 Official Greek Gazette Vol. Α 236/1959. A French version is attached. 97 Official Greek Gazette Vol. Α 34/1960. 90 91

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The gradual dissolution of Yugoslavia reduced the geographical radius of the treaty. A short reference to the position taken by the succession states is therefore imperative: the treaties were applicable to Slovenia and Croatia before their accession to the EU.98 Nevertheless, the treaties continue to apply to the Republic of Serbia and to some of the successor states (Bosnia and Herzegovina,99 Montenegro100). With respect to North Macedonia, in accordance with Art. 12 § 1 of the Interim Agreement between the two countries signed on 13 September 1995, it had been agreed that, upon its enactment, the parties shall apply, among others, the 1959 bilateral treaty concluded between Greece and the then Yugoslavia.101 The above status remained untouched in the Prespa Agreement, which was ratified by Law 4588/2019.102 A special status relates to Kosovo: the conventions do not apply within the territory of the Republic of Kosovo. Hence, the Greek CPC provisions should apply for the recognition and enforcement of judgments rendered by Kosovar courts. However, prior to the regime applicable, an answer needs to be given to the repercussions in the field by the non-recognition of the Republic of Kosovo by the Hellenic Republic. So far, practice shows a friendly stance, overcoming the lack of direct diplomatic relations. Accordingly, it has been ruled that the validity of authentic instruments issued by administrative bodies of Kosovo and the standing to sue of a Kosovar company are not affected by the non-recognition of their country

98 Communication on the entry into force between the Hellenic Republic and the Republic of Slovenia, Official Greek Gazette Vol. Α 24/1995, and Communication on the succession of Croatia on conventions concluded between Yugoslavia and Greece, Official Greek Gazette Vol. Α 249/1995. 99 Communication on the conclusion of diplomatic relations between Greece and Bosnia and Herzegovina, Φ0544/4/ΑΣ 8/M.4541, Official Greek Gazette Vol. Α 4/1996. According to Art. 4, the contracting parties agreed that, in anticipation of new treaties between those states, the existing treaties concluded between Greece and Yugoslavia remain in force. So far, no bilateral convention has been signed with Bosnia and Herzegovina. Hence, the 1959 convention on mutual recognition and enforcement still applies for judgments of Bosnian courts. 100 Communication on the continuation in force of the bilateral agreements signed between the Socialist Federal Republic of Yugoslavia, Federal Republic of Yugoslavia, and Serbia and Montenegro on the one side, and the Hellenic Republic on the other side, on the relations of Montenegro, as a succession state, and the Hellenic Republic, Official Greek Gazette Vol. Α 275/2011. 101 The English text of Art. 12.1 reads as follows: “D. Treaty Relations. Article 12.1. Upon entry into force of this Interim Accord, the Parties shall in their relations be directed by the provisions of the following bilateral agreements that had been concluded between the former Socialist Federal Republic of Yugoslavia and the Party of the First Part on 18 June 1959: (b) The agreement concerning the reciprocal recognition and the enforcement of judicial decisions. . . The Parties shall promptly consult with a view to entering into new agreements substantially similar to those referred to above.” So far, no bilateral convention has been signed. Hence, the 1959 convention on mutual recognition and enforcement still applies. 102 Official Greek Gazette Vol. A 9/2019. Article 18 § 1 (b) makes specific reference to the bilateral treaty.

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of origin by Greece.103 The same direction was also followed in the sole known case for the recognition of a Kosovar decision.104

3.4.2

The Relevant Provisions

The convention applies to judgments issued in civil, commercial (Arts. 1–2), and personal status matters. The latter are regulated separately, featuring diverse recognition requirements (Arts. 8–10). The procedure for recognition and enforcement is, however, commonly regulated (Arts. 5, 6, & 9). The documents to be produced are listed in Art. 6.2 (to which Art. 9.3 refers). Decisions issued in criminal proceedings with respect to civil claims, and court settlements, are within the convention’s ambit (Art. 1.1 (b) & 1.1 (a) respectively). Insolvency matters are explicitly excluded (Art. 1.1 (a)). The court examines exclusively the requirements under Art. 2, without entering into the merits. Unlike the rest of the conventions, Art. 1.3 stipulates that the qualification of a dispute as to its commercial nature will take place in accordance with the law of the country where recognition and/or enforcement is sought. Pursuant to Article 2 (a), recognition and enforcement is allowed if the foreign court could proceed to the hearing of the case according to the laws of the court of destination. This provision has been accepted as resembling to Article 323 point 2 CPC.105

3.4.3

Case Law

In a life span of 60 years, the bilateral treaty’s application has been admittedly poor. Divorce decrees are in the forefront,106 followed by enforcement of judgments.107

103

Supreme Court 1938/2017, Civil Procedure Law Review 2018, pp. 538 et seq., reported by Anthimos in: International Journal of Procedural Law 2019, pp. 132-134. See also Thessaloniki CFI 20115/2012, Armenopoulos 2014, p. 2099, note Anthimos. 104 Thessaloniki CFI 18126/2009, recognizing a personal status decision issued by the Kaçanik District court. See however Larissa CFI 21/2012, Armenopoulos 2013, p. 1120, critically commented by Anthimos: the bilateral convention applies, because, according to the Greek Public International law position, Kosovo remains part of ex-Yugoslavia, meanwhile the Republic of Serbia. 105 Yessiou-Faltsi (2006), § 92, Nr. 112, p. 957 et seq. The rule was applied in a divorce decree seeking recognition: The Greek court acknowledged the jurisdiction of the Serbian court on the grounds of the spouse’s nationality, which resembles the provision of Art. 601 CPC, Thessaloniki CFI 8039/2012, unreported. 106 Heraklion CFI 304/2006, ΝΟMΟΣ, Thessaloniki CFI 40254/2007, 46072/2007, 14576/2011, 22019/2011, ISOCRATES, Thessaloniki CFI 8039/2012, unreported. 107 Chalkidiki CFI 91/2013, and 138/2013, both unreported.

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Greek courts do occasionally omit any reference to the convention,108 which was also disregarded for the recognition of a Bosnian adoption decree,109 and all reported and unreported decisions issued by courts of North Macedonia prior to the Prespa Agreement.110 The convention was, however, applied for the declaration of enforceability of a judgment rendered by the Banja Luka commercial court.111

4 Conditions for Recognition and Enforcement As previously mentioned, the conditions for the recognition and enforcement of foreign judgments in the text of bilateral conventions are divided into positive and negative. Focusing on treaties concluded with Balkan states, one may notice a clear preference for positive conditions, i.e. requirements for allowing recognition,112 whereas the negative option, i.e. grounds for refusal, is the exception.113 The

108

Thessaloniki CFI 23812/2009, ISOCRATES, Thessaloniki CFI 1767/2012, and 3003/2012, unreported, Chalkidiki CFI 72/2015, unreported [divorce], Athens CoA 6341/1998, Case Law Archive 1999, p. 703 [adoption]. 109 Thessaloniki CFI 6258/2007, ISOCRATES. 110 Thessaloniki CFI 11/2013, Hellenic Justice 2014, pp. 222 et seq., and 21774/2013, unreported [divorce decrees]; Thessaloniki CFI 12915/2014, unreported [custody and child support]; Thessaloniki CFI 23726/2013, Armenopoulos 2016, p. 1021, and 12977/2014, unreported [adoption decrees]; Thessaloniki CFI 23663/2013, unreported [change of surname]; Thessaloniki CFI 285/2012, unreported [certificate of succession], and Thessaloniki CFI 17150/2017, unreported [change of surname]. The direct application of domestic law was not reasoned, which leads to the conclusion that the courts were simply unaware of the bilateral treaty. Shortly before the Prespa Agreement, a court gave reasoning for not applying the bilateral convention, which emanates from Public International Law reservations, and may be summarized as follows: The 1995 agreement was of an interim nature; it was not ratified by the Hellenic Parliament, therefore it was not published in the Official Gazette. Hence, it is not binding for Greek judges, who should revert to domestic rules of recognition and enforcement, Thessaloniki CFI 17483/2018, Armenopoulos 2018, pp. 1705 et seq. Ad hoc Lagoudi (2018), pp. 1801 et seq., describing the transition from the interim to the final agreement, and the ramifications for the domain of recognition and enforcement between the two countries. 111 Serres CFI 325/2015, unreported. 112 See Art. 24 Greek-Albanian, Art. 22 Greek-Romanian, and Art. 2 Greek-Yugoslav conventions. 113 See Art. 32 Greek-Bulgarian convention.

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content, however, is predominantly the same and reminiscent of domestic provisions114 and EU regulations.115 Therefore, the analysis below will feature the standard conditions embedded in all four bilateral conventions, namely, (i) finality of the foreign judgment, (ii) jurisdiction of the foreign court, (iii) rights of defence of the respondent, (iv) irreconcilable judgments, and (v) public policy.

4.1

Finality

Unlike domestic law, some treaties set the finality of foreign judgment as a precondition, both for recognition and execution in the country of destination.116 Problems arise out of the proper interpretation of the term final.117 On the contrary, no res iudicata of the foreign judgment is required by the Greek-Yugoslav118 and the Greek-Bulgarian119 conventions. From the personal status decisions’ point of view, though, the lack of finality is considered as devoid of any practical significance, given that res iudicata is a prerequisite for those matters according to Article 602 CPC.

4.2

Jurisdiction

The condition of the foreign court’s international jurisdiction is a ubiquitous rule. A foreign judgment is recognized only if there is no exclusive jurisdiction of Greek

114

Articles 323, 780 & 905 CPC. Brussels I Regulation Nr. 44/2001 (replaced by Brussels I bis Regulation Nr. 1215/2012), Brussels II bis Regulation Nr. 2201/2003 (to be replaced by Brussels II bis Recast Nr. 2019/ 1111), Maintenance Regulation Nr. 4/2009, Succession Regulation Nr. 650/2012, Matrimonial Property Regulation Nr. 2016/1103, Registered Partnerships Property Regulation nr. 2016/1104. 116 See Articles 24 a & 26.2 a Greek-Albanian convention, and Articles 21.1 a, 22 b & 23.2 a GreekRomanian convention. 117 Thessaloniki CFI 22189/2013 & Kilkis CFI 85/2016, unreported, concerning recognition of an Albanian divorce decree: Although the bilateral convention refers to finality, the courts stayed proceedings, and requested proof that the foreign judgment is not subjected to any appeal. Contrary Thessaloniki CFI 3432/2015, unreported: Since the term unappealable does not exist in Albanian law, finality suffices for the purposes of divorce recognition. 118 Art. 2 (b) Greek-Yugoslav convention. 119 Art. 32 Greek-Bulgarian convention. 115

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courts on the matter.120 Misinterpretation of the provision has seldom led to a refusal of recognition.121 The Greek-Romanian Convention opted for an alternative formulation on the issue: pursuant to Article 22 (a), recognition and enforcement is granted if the jurisdiction of the court of origin may not be excluded according to the law of the court of destination. The proper meaning of this provision is that recognition and enforcement is guaranteed unless there is exclusive jurisdiction either of the courts of destination or of third courts, in accordance with the law of the state where the foreign judgment is seeking recognition or enforcement.122

4.3

Due Process

A variety of divergent formulations is evident in the condition in question. It is therefore imperative to classify the existing landscape: the majority of conventions include both duly and timely service of the writ as a requirement for or impediment to recognition.123 Contrary to the above, the Greek-Bulgarian treaty124 focuses on the former (duly), while legal scholarship and case law interpret this provision as covering the latter condition (timely) as well.125 Some conventions exclude explicitly all forms of notification concluded by affixing the document to the door of the recipient126 and add the condition of proper legal representation for those parties

120

Article 24 (b) Greek-Albanian Convention; Art. 32 (d) Greek-Bulgarian convention. A slightly different approach is followed in Art. 2 (a) Greek-Yugoslav convention: The court of destination examines according to its law, whether the foreign court had jurisdiction. The rule was applied in a decision of the Thessaloniki CFI, Nr. 8039/2012, unreported: Given that the spouse of the applicant was a Serbian national, the international jurisdiction of the Serbian court was confirmed. 121 Samos CFI 171/2010, Immigration Law Review 2011, p. 73, note Marinaki: An Albanian divorce decree was refused recognition on the erroneous assumption, that Art. 39 CPC (last common residence of the spouses) establishes exclusive jurisdiction of Greek courts. However, this provision serves as a concurrent ground of jurisdiction, see Yessiou-Faltsi (2019), Nr. 123, p. 106 f. See also Panopoulos (2011), p. 711. 122 Yessiou-Faltsi (2006), § 92, Nr. 211, p. 1014. So far, courts did not have the chance to rule on the interpretation of the provision aforementioned. 123 Greek-Albanian Convention [Article 24 (c)]; Greek-Yugoslav Convention [Art. 2 (d)]; GreekRomanian Convention [Article 22 (e)]. 124 Article 32 (a). 125 Anthimos (2002), p. 63. This may be concluded by Article 29 (b) of the convention. The official French version reads as follows: Devront être annexes à la demande d’exequatur: . . .b. Un document faisant foi qu’une citation a été remise en temps utile au défendeur par défaut. 126 Greek-Albanian Convention [Article 24 (c) ii], ad hoc see SC 864/2013, CPLRev2013, 700, Piraeus CoA 798/2010, Piraeus Law Reports 2010, p. 423 [see also Panopoulos (2011), p. 711], Thessaloniki CoA 51/2012, Hellenic Justice 2013, 166. The provision of the Albanian CPC allowing such a form of service (Art. 133) does not prevail over Art. 10 of the bilateral convention, which requires the actual receipt of the summons, see Piraeus CoA 798/2010, ibid,

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incapable of conducting litigation.127 Finally, an explicit prohibition of service by publication is stated under Article 32 (a) Greek-Bulgarian Convention. In order to complete the picture, some additional remarks are imperative: the Greek-Romanian convention refers generally to the losing party,128 which allows the assumption that the provision applies both to plaintiffs and respondents. With regard to cases falling under the ambit of voluntary proceedings, it has been supported that issues of proper notice are irrelevant, given the ex parte nature of the process.129 Similarly, courts refrain from examining proper service in the course of a foreign judgment, which simply rectifies the content of a previous one, already recognized in Greece.130 The propriety of service is examined either on the basis of the domestic law of the country of origin or in accordance with the 1965 Hague Service Convention, as long as the contracting state is a signatory member.131 However, bilateral treaties regulating the mutual service of process may take precedence over both domestic law and the multilateral convention.132 All conventions focus on the proper service of the writ instituting proceedings. The timeliness of service depends both on the provisions of the country of origin and the perceptions of the Greek court. Failure to produce the documents required under the conventions leads primarily to the stay of proceedings133 and eventually to the dismissal of the application for recognition and enforcement.134 Still, courts are frequently demonstrating a liberal approach, accepting alternative documents, which prove that the rights of audience

Thessaloniki CFI 32607/2009, ISOCRATES. See also Greek-Romanian Convention [Article 22 (e) ii]. 127 Greek-Albanian Convention [Article 24 (c)]. 128 Article 22 (e). 129 See Fragistas and Yessiou-Faltsi (1976), p. 70, note 54, regarding the Greek-Yugoslav Convention [Articles 8.1 & 2 (d)]. This view has been confirmed in the practice of the courts, see Thessaloniki CFI 41679/2007 & 13617/2011, ISOCRATES (request for the appointment of a guardian); Thessaloniki CFI 1065/2012, ISOCRATES (declaration of disappearance of a person); Thessaloniki CFI 24388/2010, ISOCRATES (divorce in mutual consent). 130 Thessaloniki CFI 35540/2008, ISOCRATES [Greek-Albanian convention]. 131 With the exception of Kosovo, all Balkan countries are signatories of the 1965 Hague Service Convention, see https://www.hcch.net/en/instruments/conventions/status-table/?cid¼17. 132 This is the case with respect to the countries applying the Greek-Yugoslav Convention of 18.6.1959, ‘on mutual judicial matters’. The convention contains a number of provisions regulating service of proceedings [Art. 6-17]. It has been ruled that the above convention prevails over domestic provisions and the 1965 Hague Service Convention, see Thessaloniki CoA 1446/1984, Armenopoulos 1985, p. 490, Thessaloniki CFI 2415/1985, Armenopoulos 1985, pp. 656 et seq. [658], Arta CFI (chamber) 9/1993, Hellenic Justice 1993, 1163. 133 Standard court practice, in order to give the applicant a second chance to submit the documents required according to each bilateral convention, see Thessaloniki CFI 41654/2009, ISOCRATES [Greek-Albanian Convention, Article 26.2 (b)]. 134 Athens CoA 6814/1983, Legal Tribune 1984, p. 92: A letter of informative nature signed by a legal counsellor of the Sofia court has been considered insufficient for verifying proper service for the purposes of Art. 29 of the Greek-Bulgarian Convention.

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have not been violated. Examples include the foreign certificate of service, submitted in authorized translation;135 an affidavit of the counterparty, stating that she had received notice of the proceedings in the court of origin,136 and that her default of appearance was related to the fact that she agreed with the requested dissolution of marriage,137 or she was unable to appear on financial grounds;138 the admission of the applicant before Greek courts that he was duly served in the court of origin (hence, being the defendant in the foreign proceedings), which is reason enough to accept that his rights of audience were respected;139 and the text of the foreign judgment, wherefrom the court may conclude that the defendant was duly and timely served with the proceedings.140 This may include methods of service by publication, as long as the bilateral convention does not prohibit such a form of service, and a divorce certificate by the civil registry, stating whether the divorce was issued in mutual consent or in contradictory proceedings, so that the domestic court may examine whether the right to be heard was respected or not. Recognition is refused if the applicant served proceedings deliberately by publication, despite the fact that he knew of the whereabouts of the defendant.141 As evidenced by the categorization aforementioned, no bilateral convention contains a provision that bears significance to a previous challenge of the default judgment in the country of origin. Nevertheless, Greek courts have sporadically attributed importance to the defendant’s action or omission to lodge an appeal.142 The Supreme Court held that lodging an appeal at the state of origin does not hinder the defence if the said appeal was not examined on the merits.143 With respect to the recognition and enforcement of cost orders, the landscape varies: whereas the Greek-Bulgarian and Greek-Yugoslav conventions do not have a specific provision

135

Thessaloniki CFI 30590/2008, ISOCRATES [Greek-Albanian convention]. A statement of the defendant in his application for access rights in summary proceedings, which confirms receipt service of process and appearance in preliminary proceedings, was not considered sufficient for acknowledging full protection of the defendants’ rights of audience, given that the latter defaulted in the main proceedings, Thessaloniki CFI 6000/2015, unreported. [Greek-Albanian convention]. 137 Thessaloniki CFI 7278/2010, ISOCRATES [Albania]. 138 Thessaloniki CFI 6000/2025, unreported [Albania]. 139 Thessaloniki CFI 380/2009, ISOCRATES [Albania]. 140 Thessaloniki CFI 35328/2010, ISOCRATES [Albania]. 141 Ioannina CoA 2/2013, NOMOS [Greek-Albanian Convention]. Confirmed by SC 2264/2014, NOMOS. 142 Two examples from the Greek-Albanian Convention may shed some light to the issue: In the first case, the court granted recognition in spite of lacking evidence as to proper service, because the defendant did not challenge the judgment in Albania, Thessaloniki CFI 9469/2013, unreported. In the second case, the court recognized the Albanian judgment, although service took place in violation of Art. 24 c of the convention, because the defendant challenged (unsuccessfully) the judgment before Albanian courts, Thessaloniki CFI 9433/2013, unreported. 143 Supreme Court 2264/2014, NOMOS. 136

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dealing with the matter, the Greek-Romanian and Greek-Albanian conventions set enforceability and finality as a condition for granting exequatur.144

4.4

Irreconcilable Judgments

A systematic approach is needed in order to spot similarities and differences with the domestic rule, i.e. Article 323 point 4 CPC. We can divide the issue into three categories: the ground rule is that a foreign judgment may not be recognized and enforced if a previous domestic decision has acquired res iudicata. Either this is mentioned expressly,145 or it is concluded by the wording of the respective provision.146 A second group of provisions includes additionally the so-called definitive decisions as a condition or impediment to recognition and enforcement.147 Finally, a third group of provisions introduces domestic lis pendens as a condition or impediment to recognition and enforcement.148 It is imperative to furnish a certificate issued by the secretary of the court examining the application, which demonstrates the absence of inconsistent domestic decisions and/or actions filed. If it is evidenced by the certificate that an action has been filed in Greece, the applicant has to prove that the latter is no longer pending.149 Practice shows that this requirement is frequently neglected by the applicant’s lawyers. This is particularly evident in the field of the Greek-Albanian convention.150

4.5

Public Policy

Article 323 point 5 of CPC states that the foreign judgment must not be contrary to morality (bona mores) or public policy.151 For the sake of accuracy, the provision’s objective is to hinder foreign judgments whose recognition contravenes Greek

144

Art. 26.4 Greek-Romanian Convention and Article 28.2Greek-Albanian Convention. However, Article 28.3 refers to Article 26, which imposes the duty to furnish a certificate that duly and timely service has taken place [Art. 26.2 b]. 145 Greek-Albanian Convention [Article 24 (d)]; Greek-Romanian Convention [Art. 22 (d)]. 146 Greek-Bulgarian Convention [Art. 32 (d)]. 147 Greek-Yugoslav Convention [Art. 2 (e)]. 148 Greek-Albanian Convention [Article 24 (d)]. 149 Thessaloniki CFI 15513/2015, unreported [Albanian divorce]. 150 Indicatively, see Thessaloniki CFI 22189/2013 & 6000/2015, unreported. 151 For a general overview on the development of the clause in Greece, see Anthimos (2000a), pp. 60 et seq.

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public order.152 The public policy clause is of an exceptional nature;153 its control may not reach the stage of a révision au fond.154 In line with international standards, the distinction between procedural and substantive public policy is also followed in Greece.155 An examination of the defence presupposes that the respondent did not have the chance to challenge the judgment in the country of origin.156 This is not the case if the appeal lodged in the first state was considered inadmissible, i.e. without examination on the merits.157 Regarding the content of the clause, courts and legal scholarship are unanimously referring to the definition given by Maridakis:158 a foreign decision is regarded as contrary to public policy when its effects within the Greek territory are introducing conditions directly inconsistent with the current moral, state, and economic order, to which the foundation of everyday life is based upon.159 The essence of Greek public policy may emanate from the Constitution, laws or other legislative acts, international conventions ratified by Greece, or even unwritten values and principles. Mostly family matters tend to bring public policy issues on the surface.160 Divorce cases are at the forefront, especially those emanating from countries of different religions. It may be supported that Greek courts demonstrate a liberal approach.161 Parental care decisions are also frequently put to the public order test. In many cases, courts dismissed allegations of public policy violations in foreign divorce proceedings. The nature of the body ordering the dissolution of marriage does not hinder recognition anymore.

152 Maridakis (1970), p. 65: It is not the judgment itself, but its effects in the Greek legal order in the particular moment, which are scrutinized. 153 Anthimos (2000b), p. 331. 154 Yessiou-Faltsi (2019), Nr. 515, p. 278; Frangou (2017), pp. 79 et seq., SC 950/1991, Legal Tribune 1993, p. 289: The Greek court may not re-examine evidence or the application of law, Athens CoA 9640/1990, Hellenic Justice 1991, p. 1064, also reported by Grammatikaki-Alexiou (1992), p. 243. 155 In detail Kaissis (2003), pp. 70 et seq.; Anthimos (2000a), pp. 35 et seq. Especially on procedural public policy, see ibid, pp. 63 et seq. 156 If the right to appeal was given, however not exercised, a public policy test may not take place, Kaissis (2003), p. 72; Piraeus CFI 84/1987, Legal Tribune 1987, p. 534. 157 This is not explicitly mentioned in the law; it is premised on a Supreme Court ruling, SC 169/1987, Dike 1987, p. 328. It is still unclear whether the defence may be put forward, if the judgment debtor had raised the reservation clause in the court of origin, only to see his assertions being dismissed. In this matter, the Supreme Court was divided in the decision aforementioned. The case was referred to the Full Bench; however a hearing did never take place. Compare Frangou (2017), pp. 59 et seq., adhering to the minority opinion. 158 Maridakis (1970), p. 65. 159 Translation slightly modified by Yessiou-Faltsi (2019), nr. 512 p. 277. A French version is available in Vrellis (1987), p. 424. For a German version, see Anthimos (2000a), p. 65, note 246. 160 Kerameus and Kozyris (2008), p. 400. 161 On the contrary, the landscape was rather hostile until the 1980s, see Vrellis (1987), pp. 425 et seq.

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With two notable exceptions,162 public policy appears in all bilateral conventions,163 either as a requirement for or an impediment to recognition and enforcement. Courts usually dismiss the allegation of public policy violation. Returning to the bilateral conventions with Balkan states, it is evident that public policy is hardly a barrier to recognition and enforcement.164 There is only one reported judgment that applied the public policy clause: a Bulgarian judgment certifying that the identity of the applicant was refused recognition due to the fact that the matter was examined in voluntary, not contradictory, proceedings.165

5 Conclusion The analysis of bilateral conventions between the Hellenic Republic one the one side and Balkan states on the other leads to several important conclusions. Among the conventions, the Greek-Albanian one is by far the most important bilateral treaty in the field of recognition and enforcement. In spite of its poor presence in the Greek legal press, the convention is literally thriving in the practice of courts. The Greek-Bulgarian and Greek-Romanian treaties are gradually loosing on significance, especially since 2007, when Bulgaria and Romania became EU Member States. At present, they apply only to matters not covered by the EU acquis and judgments falling outside its scope ratione temporis. The Greek-(ex-)Yugoslav treaty is still fully operative in regard to Bosnia and Herzegovina, Montenegro, North Macedonia, and Serbia, whereas for Croatia and Slovenia, the situation resembles the conventions signed with Bulgaria and Romania since the former two states acceded to EU in 2004 and 2013 respectively. Interestingly, no judgment seeking recognition and/or enforcement has been traced with respect to Croatia, Montenegro, and Slovenia. The Greek-(ex-)Yugoslav treaty is not applicable in Kosovo; thus, the judgments coming from Kosovo are subject to recognition and/or enforcement pursuant to Greek national rules. The

162

Greek-Chinese & Greek-USSR Convention. For the Balkan countries, see Art. 24 (e) Greek-Albanian, 32 (c) Greek-Bulgarian, 22 (c) GreekRomanian, and 2 (c) Greek-Yugoslav conventions. 164 Courts dismissed the defence in the following cases: recognition of an Albanian judgment assigning parental responsibility on the basis of the best interests of the child, which is the core criterion according to Greek perceptions too, Thessaloniki CFI 5382/2011, ISOCRATES; recognition of an Albanian judgment ordering the removal of parental responsibility from the parents, and assigning it to the husband of the infant’s sister, Thessaloniki CFI 37368/2009 & 10331/2010, ISOCRATES; recognition of an Albanian judgment ordering the preservation of the divorced husband’s surname by the applicant, Thessaloniki CFI 13524/2012, unreported. 165 Piraeus CFI 262/2009, CPLRev2009, 385, critically commented by Yiannopoulos, ibid, 387. In this case, the court invoked Art. 32 c of the Greek-Bulgarian convention, i.e. the public policy reservation, given that the subject matter is not covered by any EU Regulation. 163

Recognition and Enforcement of Foreign Judgments in the Field of Bilateral. . .

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non-recognition of Kosovo by the Hellenic Republic appears not to stand in the way of this practice. Taken on the whole, foreign judgments seeking recognition are the overwhelming majority, predominantly related to family and personal status matters. On the contrary, exequatur proceedings appear rarely. Insufficient preparation of the file and failure to furnish the necessary documents lead frequently to the stay of proceedings for recognition and/or enforcement. Nevertheless, the recognition of foreign judgments seems to be the prevalent rule. Therefore, with only minor exceptions, the free circulation of judicial decisions from Balkan states towards Greece is guaranteed by the treaties currently in force.

References Anthimos A (2000a) Der prozessuale ordre public bei der Anerkennung und Vollstreckung ausländischer Gerichtsentscheidungen nach deutschem und griechischem Zivilprozeßrecht und nach dem Europäischen Gerichtsstands- und Vollstreckungsübereinkommen. In: Anthimos AM, Delp M-A, Harazim H (eds) Harmonisierungsprobleme im europäischen Wirtschaftsrecht, pp 11–153 Anthimos A (2000b) Der verfahrensrechtliche ordre public im griechischen internationalen Zivilprozeßrecht Griechenlands. IPRax 20:327–331 Anthimos A (2002) Αναγνω  ριση και εκτελεση ερήμην αλλoδαπω  ν απoφάσεων [Εσωτερικó δίκαιo – Διμερείς και πoλυμερείς συμβάσεις – Koινoτικó δίκαιo] ¼ Recognition and enforcement of foreign default judgments [Domestic law – bilateral and multilateral agreements – EC law] Anthimos A (2014a) Αλλoδαπες δικαστικες και διαιτητικες απoφάσεις ¼ Foreign court judgements and arbitral awards Anthimos A (2014b) Recognition of Russian personal status Judgments in Greece. Russian Law J 2 (3):49–61 Anthimos A (2014c) Greek Council of State refuses to abide by foreign res iudicata recognized in Greece. http://icl-in-greece.blogspot.com/2014/06/greek-council-of-state-refuses-to-abide.html Anthimos A (2015) Zum verbleibenden Wert des Deutsch-Griechischen Anerkennungs- und Vollstreckungsvertrags von 1961. IPRax 35:361–363  ν απoφάσεων γoνικής με ριμνας, Anthimos A (2016) Αναγνω  ριση και εκτε λεση αλλoδαπω Ε.ΝΟ.Β.Ε. 72: 185-200 ¼ Recognition and enforcement of foreign judgments in parental responsibility matters. Assoc Jurists North Greece 72:185–200 Beys C (1976) Πoλιτική Δικoνoμία ¼ Civil Procedure Fragistas C, Yessiou-Faltsi P (1976) Αι διεθνείς συμβάσεις της Ελλάδoς εις τo αστικóν δικoνoμικóν δίκαιoν ¼ The international conventions of Greece in the field of Civil Procedure Frangou G (2017) Vollstreckung ausländischer Entscheidungen in Griechenland – Die Anwendung des europäischen Zivilprozessrechts durch die griechische Rechtsprechung, Internationales und europäisches Privat-und Verfahrensrecht, Band 18 Grammatikaki-Alexiou A (1992) Private international law – a review of Greek case law. RHDI: 241–252 ν Kaissis Α (2003) Εκφάνσεις της δημóσιας τάξης στην αναγνω  ριση και εκτελεση αλλoδαπω δικαστικω  ν και διαιτητικω  ν απoφάσεων ¼ Public policy aspects in the process of recognition and enforcement of foreign judgments and arbitral awards Kerameus C, Kondylis D, Nikas N, Arvanitakis P (2000) Kω  δικας Πoλιτικής Δικoνoμίας – Kατ’ άρθρoν ερμηνεία ¼ Code of Civil Procedure – A Commentary Kerameus K, Kozyris P (eds) (2008) Introduction to Greek Law

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Lagoudi A (2018) Αναγνω  ριση και εκτελεση απoφάσεων δικαστηρίων της ΠΓΔM - απó την ενδιάμεση συμφωνία στη συμφωνία των Πρεσπω  ν ¼ Recognition and enforcement of judgments issued by courts of FYROM – from the interim agreement to the Prespa agreement. Armenopoulos 72:1801 et seq Maridakis G (1970) Η εκτελεσις αλλoδαπω  ν απoφάσεων (κατά τo ισχύoν εις την Ελλάδα Δίκαιoν) ¼ Enforcing foreign judgments (in accordance with the law in force in Greece) Panopoulos G (2011) La jurisprudence grecque de droit international privé en 2010. RHDI:689–713 Panopoulos G (2012) La jurisprudence grecque de droit international privé en 2011. RHDI:597–623 Tsikrikas D (1991) Εφαρμoγή τoυ αυτóνoμoυ ημεδαπoύ δικαίoυ ή τoυ διεθνoύς συμβατικoύ δικαίoυ για την κήρυξη εκτελεστής στην Ελλάδα διαταγής πληρωμής γερμανικoύ δικαστηρίoυ ¼ Application of domestic or international conventional law for the declaration of enforceability of a payment order issued by a German court in Greece. Dike 22:263–273 Vassilakakis E, Yiannopoulos P (2002) Αναγνω  ριση και εκτελεση απoφάσεων κατά τη διμερή Σύμβαση Ελλάδoς-Σoβιετικής Ενω  σεως για τη δικαστική αρωγή σε αστικες και πoινικες υπoθεσεις ¼ Recognition and enforcement of judgments according to the bilateral convention between Greece and the Soviet Union on judicial assistance in civil and penal matters. Chronicles Priv Law 2:962 et seq Vrellis S (1987) Reconnaissance et exécution de décisions étrangères tant judiciaires qu’arbitrales (Le système en vigueur et ses améliorations)”. In: Justice and Efficiency. The contribution of the Greek science of procedural law to the 8th world conference of Civil Procedure in Utrecht, pp 399 et seq Vrellis S (2008) Iδιωτικó Διεθνες Δίκαιo ¼ Private International Law Yessiou-Faltsi P (2005) Anerkennung ausländischer Personenstandsentscheidungen nach autonomem griechischem Recht. In: Festschrift für S Walter H. Rechberger, pp 733–747 Yessiou-Faltsi P (2006) Δίκαιo Αναγκαστικής Εκτελεσεως III – Η διεθνής αναγκαστική εκτελεση ¼ Enforcement Proceedings, Vol. III – Enforcement of judgments in the international context Yessiou-Faltsi P (2019) Civil Procedure in Hellas Yiannopoulos P (2003) Αναγνω  ριση αλλoδαπω  ν απoφάσεων εκoύσιας δικαιoδoσίας στην ελληνική εννoμη τάξη ¼ Recognition of foreign non-contentious judgments in Greece

Holding All the Aces? Hate Speech: Features and Suppression in Croatia Barbara Herceg Pakšić

Contents 1 Rocking the Boat of Freedom of Expression . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Freedom of Expression and Hate Speech Suppression in Croatia: Standards, Provisions and Effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Discovering (New) Hate Speech Features and Insights? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Tilting at Hate Speech Windmills or What Lies Ahead? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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1 Rocking the Boat of Freedom of Expression In general, it is impossible to overestimate the role that freedom of expression plays in a democratic society.1 Almost half a century ago, the European Court of Human Rights (ECtHR) thoroughly described its indisputable importance,2 later 1 The free exchange of ideas and the scrutiny of power by society, mechanisms in which the media are essential intermediaries, are the cornerstone of such a society. The Court of Justice of the European Union, Spiegel Online GmbH v Volker Beck, Request for a preliminary ruling from the Bundesgerichtshof, Opinion of Advocate General Szpunar in Case C-516/17, ECLI:EU:C:2019:16, 10 January 2019, Introduction, p. 1. 2 “The freedom of expression. . .constitutes one of the essential foundations of such a society, one of the basic conditions for its progress and for the development of every man.” ECtHR, Case of Handyside v. The United Kingdom, Application no. 5493/72, 7 December 1976, Series A No. 24, para 49.

B. Herceg Pakšić (*) Faculty of Law, University of Josip Juraj Strossmayer, Osijek, Croatia e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 Z. Meškić et al. (eds.), Balkan Yearbook of European and International Law 2020, Balkan Yearbook of European and International Law (2021) 2020: 225–248, https://doi.org/10.1007/16247_2020_20, Published online: 29 January 2021

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emphasizing the necessity of racial discrimination suppression3 as well as respect for dignity and tolerance in contemporary society.4 Freedom of expression was first recognized as a fundamental right in Article 11 of the Declaration of the Rights of Man and of the Citizen from 1789.5 It encompasses a variety of forms and methods of spreading and receiving information and ideas through any media and regardless of frontiers, as well as various ways of verbal and nonverbal expression, closely connected with other rights and freedoms. With its extensively interpreted6 threepart content – thoughts, dissemination and reception of ideas and information7 – a potential conflict with other human rights8 and market freedoms9 is understandable. It is not only verbalized content but also published facts and news, data, photographs, television and radio programmes, artistic expression, social and political information and transmission mode, as well as the role of the media in a democratic society,10 that are threads running through the freedom of expression. In its implementation and enforcement, as a general legal standard that needs to be in concreto applied through case law, it remains a complex right bedevilled with limitations and exceptions11 challenging the proportionality principle. Intervention possibilities depend on conditions of legal regulation, protective purpose and necessary society extent.12 Using this freedom to manifest various forms of incitement to hate and

3 ECtHR, Case of Jersild v. Denmark, Application no. 15890/89, 22 August 1994, Series A No. 298, para 30. 4 ECtHR, Case of Müslüm Günduz v. Turkey, Application no. 35071/97, 4 December 2003, para 40, and Case of Erbakan v. Turkey, Application no. 59405/00, 6 July 2006, para 56. 5 Court of Justice of the European Union, Spiegel Online GmbH v Volker Beck, Request for a preliminary ruling from the Bundesgerichtshof, Opinion of Advocate General Szpunar in Case C-516/17, ECLI:EU:C:2019:16, 10 January 2019 Opinion of Advocate General Szpunar in CJEU Case C-516/17/ (Spiegel Online GmbH v Volker Beck) 10 01 2019, Introduction, p. 2. 6 Where the mode of information transmission as well as the situational context need to be respected. Herceg Pakšić (2017), p. 233. 7 Đurđević (2011), pp. 154–159. 8 Weber (2009), p. 2. Freedom of expression cases often overlap with other rights, notably regarding privacy, religion, assembly and association set out in articles 8, 9, 11. Schabas (2015), p. 452. This opens the question of fair balance, which leads to challenges of proportionate restrictions and legitimate purpose. Alaburić (2002), pp. 56–57. 9 Court of Justice of the European Union, Eugen Schmidberger, Internationale Transporte und Planzüge v Republik Österreich, Reference for a preliminary ruling: Oberlandesgericht Innsbruck – Austria, C-112/00, ECLI:EU:C:2003:333, 12 June 2003. 10 Weber (2009), pp. 20–22. 11 Schabas (2015), p. 445. 12 Necessary democratic society extent relates to the so-called pressing social need. The test of “necessity in a democratic society” requires the Court to determine whether the interference complained of corresponded to a “pressing social need”. The Contracting States have a certain margin of appreciation in assessing whether such a need exists, but it goes hand in hand with European supervision, embracing both the legislation and the decisions applying it, even those delivered by an independent court. ECtHR, Case of Ljerka Kovac v Croatia, Application no. 49910/ 06, 11 March 2010, part b (The Court’s assessment). It is marked with vagueness, heterogeneity and different protection intentions. Pressing social need is partially incorporated in Strict Scrutiny Test

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intolerance based on discrimination and prejudice lead to a quite common negative phenomenon in society, widely known as hate speech. Without generally accepted definition13 which is a criticism suitable ground,14 it is easy to assume (and claim) its distinctiveness. In everyday life, hate speech is linked to discriminatory social phenomena. Its description has been adapted over time to address situations, technology development, language alterations, shifting understandings of equality and the resulting harms.15 Hate speech is, above all, a social and cultural challenge that is not particularly suitable for legal regulation.16 Regardless of the wording (speech), it entails a broader scope of expression. “Orally or in print, or disseminated through electronic media, including the Internet and social networking sites, as well as non-verbal forms of expression such as the display of racist symbols, images and behaviour at public gatherings, including sporting events.”17 It is not wrong to assert that in the European area, hate speech belongs to an unprotected and restricted expression. However, the implementation of restrictions (which of course assumes legal boundaries) is often squaring a circle. The various international and European acts that address the limitations on the freedom of expression, the need for the suppression of hate speech and the different requirements of states would go beyond the scope of this paper.18

applied by USA Supreme Court as well as the Oakes Test in Canadian Supreme Court. Brown (2015), pp. 239–240. 13 Simpson (2013), pp. 701–728. 14 Authors stipulate that hate speech can actually mean whatever people choose, because it lacks an objective element of judgment. In this context, no one knows what hate speech is or how to determine it. Kiska (2012–2013), p. 110. Foxman and Wolf (2013), p. 74. 15 ‘Hate Speech’ Explained; A Toolkit, ARTICLE 19 Free Word Centre, 2015, p. 9. According to same source, the lowest common denominator definition entails any expression of discriminatory hate towards people that does not necessarily include a particular consequence. However, this captures a very broad range of expression, including lawful ones so is too uncertain for identifying what may legitimately be restricted. See p. 10. 16 Such a definition does not exist in international human rights documents and in national penal legislatures because it is hard to concretize all the constitutive elements of this term. That is conditioned by the determination complexity that includes boundaries between freedom of expression and elementary democratic value of modern society and hate speech as negative aspect that should fall under bash of penal-legal restrictions. Kambovski (2013), p. 330. 17 UN Committee on the Elimination of Racial Discrimination (CERD), General recommendation No. 35: Combating racist hate speech, 26 September 2013, CERD/C/GC/35, 3, point 7. 18 For example, Charter of the United Nations from 1945 (Article 55c); Universal Declaration of Human Rights from 1948 (Article 19); European Convention of Human Rights and Fundamental Freedoms 1950; International Convention on the Elimination of All Forms of Racial Discrimination from 1965 (Article 2 (1) d and Article 4; International Covenant on Civil and Political Rights from 1966, (Article 20 and 26); for the overview, see Weber (2009), pp. 7–17. There is also soft-law. The Camden Principles on Freedom of Expression and Equality from 2009 represent a progressive interpretation of related international law and standards. Rabat Plan of Action on the prohibition of advocacy of national, racial or religious hatred that constitutes incitement to discrimination, hostility or violence from 2013.

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The content of hate speech is oriented towards specific social groups with common characteristics19 based on identity assumptions; extreme political, religious attitudes; and use of certain hate symbols to develop the culture of hatred.20 In broad strokes, it includes all forms of expression that spread, incite, promote or justify racial hatred, xenophobia, anti-Semitism or other forms of hatred based on intolerance, including intolerance through aggressive nationalism and ethnocentrism, discrimination and hostility towards minorities, migrants and immigrant origin persons.21 Hate speech suppression is certainly the most complex border problem in the field of freedom of expression22 and necessarily involves the relation of a legal system to the weak and different ones.23 Protective core are the “rights of others” (discrimination protection; protection from hatred and violence; privacy protection; a fair trial; professional, market-commercial and business interests protection; effective and unbiased democratic institutions. . . etc.).24 Having in mind that “incitement to radicalization towards violent extremism” has grown in recent years,25 it stands to reason that harmful effects should be also viewed on the part of the victim. These are related to emotional distress, humiliation and loss of dignity, denial and restrictions of human rights and freedoms, discriminatory messages, maintenance of social subordination and inequality, silencing through intimidation and encouraging individual and mass violence.26 The effective legal and social response to hate verbalization can be on the horns of dilemma if there is a lack of simple guidelines on hate speech reaction in general communication processes.27 The appropriate measures, justifiable to ensure respect for the rights and freedoms of others, still vary greatly.28 Different approaches to legal responses to the need for sanctioning hate speech are mostly a product of the second half of the twentieth century.29 The view of wide and

19

Alaburić (2003), pp. 63–65. Promoting the idea of belonging to a common social determinism implies susceptibility to contempt. Weber (2009), p. 3. 21 Recommendation No. R (97)20 of 30 October 1997, the Committee of Ministers to Member states on “Hate speech” adopted on 30 October 1997, Appendix, Scope. On minorities rights in the context of International Covenant on Civil and Political Rights regarding hate speech protection, Ghanea (2010), pp. 423–446. 22 Alaburić (2003), p. 62. 23 Herceg Pakšić and Lachner (2015), p. 298. 24 Alaburić (2002), p. 52. According to Mill, preventing harm to others is the only instance when freedom of expression could be limited. Stuart Mill (1978), p. 9. 25 Alava et al. (2017), p. 1. 26 Alaburić (2003), pp. 66–68. 27 Brink divides hate speech approaches to the egalitarian (it should be restricted for the welfare of the community) and libertarian view (hate speech is the price, which every individual has to pay for their fundamental rights) and that “the correct response to hate speech is more speech.” Brink (2001), p. 119. 28 Schabas (2015), p. 445. 29 Prohibition provisions are considered to have spread throughout Europe the early 1990s, which was influenced by different national circumstances and experiences. Lobba (2015), p. 238. 20

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unconstrained freedom of expression consequently includes the velvet gloves treatment towards hate speech, even on the most vulgar forms.30 In the USA, where the First Amendment usually extends to hate speech,31 three speech types are saving the (punishment) bell: the obscene (licentious) speech, slander (defamation) and speech that represents a “clear and present danger”32 creating substantial damage. Even though it has its advantages, the US model is a result of a complex sum of circumstances and is not applicable to the European countries or adaptable to young democracies. In the European countries, legal restrictions of speech are mostly unchallenged on the basis of the “values-based” approach, balancing freedom of expression with the principles of dignity, equality and the prohibition of discrimination. The regulated limits are justified reasoning with government responsibility for these values and principles realization (positive and negative obligations).33 Hate speech sanctioning can be a result of complex historic circumstances leading to future lessons and serving as influential example34 that continues to improve

30 In famous 1977 U. S. Supreme Court case National Socialist Party of America v. Village of Skokie, No. 76-1786, decision June 14, 1977, 432 U.S. 43, the Court allowed a “Nazi parade” to march through the streets of predominantly Jewish town. See also Foxman and Wolf (2013), p. 62. This approach accepts the avoidance of state interference in freedom of expression protected in the First Amendment and many US authors support that kind of the case law. Simpson (2013), p. 702. In that sense, other cases (Brandenburg v. Ohio, 395 US 444, decision on 9 June 1969, paras 448–449; Texas v. Johnson 491 US 397, decision on 21 June 1989, para 420; Snyder v. Phelps 562 US 443, decision on 2 March 2011, para 1220), are notable examples to present racial violence proclamations, burning flags or protesting on homosexual equality held at the funeral of one soldier, as any form of speech. Brugger (2002), p. 231. 31 Foxman and Wolf (2013), p. 61. 32 In the U. S. Supreme Court case Schenck v. United States, 249 US 47, decision on 03 March 1919, Judge Oliver Wendell Holmes advocated hate speech punishment if circumstances indicate a clear and present danger causing certain harms that Congress has a right to sanction, since freedom of speech does not mean freedom to terrorize or to arouse hatred. See p. 52 of decision and Kiska (2012), p. 139. On hate speech and the law in the United States, see Foxman and Wolf (2013), pp. 59–62. 33 See, Cohen (2014), pp. 238–239. In case Reno v. ACLU 521 US 844, decision on 26 June 1997, p. 885, the US Supreme Court balancing between human dignity and freedom of speech, stated that The interest in encouraging freedom of expression in a democratic society outweighs any theoretical but unproven benefit of censorship. 34 Kübler (1998), pp. 336–338. In accordance with extensive provisions of Art 84, 85 and 130 of the German Criminal Code (Strafgesetzbuch), hate speech is punishable as well as the Holocaust denial (often referred to as Auschwitz Lüge). See, Sternberg-Lieben (2014), pp. 1521–1522. On genocide denial and the ECtHR stance, see Herceg Pakšić (2017), pp. 229–253.

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(Germany).35 On the other hand, hate speech sanctioning can be conditioned by the culture environment to the level of strictest hate speech prohibition in Europe (France).36

2 Freedom of Expression and Hate Speech Suppression in Croatia: Standards, Provisions and Effects The Croatian legal framework regarding hate speech suppression includes not only abuse of the freedom of expression but also a violation of the equality principle.37 Hate speech is a true constitutional category in the sense that related challenge is clearly positioned in the context of human rights and freedoms.38 Freedom of expression has a constitutional level.39 It encompasses freedom of the press and other media, freedom of speech, public appearance and freedom of establishment of all media institutions. However, invitation or incitement to war or use of violence; national, racial or religious hatred; or any form of intolerance is forbidden and punishable. Respect for and the legal protection of personal and family life, dignity, reputation and honour are also guaranteed. Human freedoms and rights can be restricted by law, to protect the freedoms and rights of others, the legal order, public morals and health.40 Restrictions are subjected to the proportionality principle and

35 The newest measures aiming to intensify supression of extremism and hate crime are related to Netzwerkdurchsetzungsgesetz (Netz DG, Gesetz zur Verbesserung der Rechtsdurchsetzung in sozialen Netzwerken also known as Facebook-Gesetz) in effect since 1 October 2017. https:// www.bmjv.de/SharedDocs/Gesetzgebungsverfahren/DE/Bekaempfung_Rechtsextremismus_ Hasskriminalitaet.html. 36 It is described it as a country that has ruthless culture of free speech repression, preventing that certain topics become public. Schulman (2015), p. 1. Within the relevant French legislation, we can count the Media Act (Law of the Press) and amendments Pleven Law and Gayssot Act. 37 The defendant, with his statements indulged in hate speech and justification of physical confrontation and attacks on the homosexual group. He directly incited to violence and hatred towards LGBT people. This represents discrimination prohibited by Anti-discrimination Act, Article 4 (1) and Article 1 (1), (2), based on sexual orientation. Supreme Court of Croatia, decision VSRH Gž 38/2011-2, 07 March 2012. 38 Gardašević (2016), p. 153. 39 Constitution of Republic of Croatia, Official Gazette, 56/1990, 135/1997, 113/2000, 28/2001, 76/2010, 5/2014. Articles 35, 38, 39, 16, 17. 40 The ordinary courts have to convincingly establish an overriding social need that would require the right of a private prosecutor to protect his reputation to take precedence over the applicant’s right to freedom of expression and the general interest in protecting freedom of expression when it comes to a public interest hearing. Croatian Constitutional Court, U-III/1084/2015, part C (Conclusion), 10 December 2019. Therefore, in assessing reporting on content of general interest, government bodies are constrained by the interest of a democratic society in enabling the print media to play their key role as a ‘public interest watchdog’. Croatian Constitutional Court, U-III-2858/2008, 22 December 2011 It is interesting to mention that freedom of expression restrictions regulated in Article 16 are shorter than legitimate aims for a restriction in the ECHR

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must not result in the inequality of citizens based on race, colour, sex, language, religion, national or social origin. Even though it entered into force in 1953, the European Convention on Human Rights has been binding in Croatia since 1997.41 Some authors stipulate that it is the first human rights instrument providing freedom of expression restrictions.42 The right to freedom of expression proclaimed in Article 10 includes freedom to hold opinions and to receive and impart information and ideas without interference by public authority and regardless of frontiers with possible subjection to formalities, conditions, restrictions or penalties. Prescribed by law and necessary in a democratic society, restrictions have seven variations based on three needs: protection (of health or morals and the reputation or rights of others), interest (national security, territorial integrity or public safety, maintaining judicial authority and impartiality43) and prevention (disorder or crime, disclosure of confidential information).44 It is well known in ECtHR case law that hate speech involves a substantial departure from the doctrines of national courts.45 As a human right in the form of a general legal standard that needs to be in concreto applied, freedom of expression finds its full significance in case law interpretation when a state is observed as a possible violator As a human right in the form of a general legal standard that needs to be in concreto applied, freedom of expression finds its full significance in case law interpretation when a state is observed as a guarantee of human rights and freedoms compliance

in Article 10 (2). Constitution provides four and the ECHR a total of seven of them. Herceg Pakšić and Lachner (2015), p. 311. 41 The Convention for the Protection of Human Rights and Fundamental Freedoms, 05 November 1997, the Act on Ratification of the ECHR came into force (Official Gazette-International Treaties 18/97). The basic proclamations of the ECHR entered the Croatian legal system earlier, we can say from the end of 1991, when the Constitutional Act on Human Rights and Freedoms and Rights of Ethnic Minorities in the Republic of Croatia came into force since Article 1 of this Act states the obligation to respect the ECHR and its protocols. 42 Clayton and Tomlinson (2000), p. 1058. 43 The phrase “authority of the judiciary” includes, in particular, the notion that the courts are, and are accepted by the public at large as being, the proper forum for the ascertainment of legal rights and obligations and the settlement of disputes relative thereto; further, that the public at large have respect for and confidence in the courts’ capacity to fulfil that function. . . It should therefore be protected against unfounded attacks. ECtHR, Case of Ljerka Kovac v Croatia, Application no. 49910/06, 11 March 2010, part b (The Court’s assessment), Sunday Times v. the United Kingdom (no. 1), Application no. 6538/74, A/30, 26 April 1979, § 55. 44 Restrictions on the right to freedom of expression must be considered in the context of the case as a whole, including the content of the statements and the context in which they are made. ECtHR, Case of Europapress holding d.o.o. v Croatia, Application no. 25333/06, 22 October 2009, § 54. 45 On autonomous concept theory and relevant cases, Weber (2009), p. 3. There were cases where the ECtHR did not accept hate speech categorization earlier acknowledged by national courts (ECtHR, Case of Müslüm Günduz v. Turkey, Application no. 35071/97, 4 December 2003) and vice versa (ECtHR, Case of Sürek v Turkey, Application no. 26682/95, 8 July 1999).

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and as their possible violator.46 Until mid-March 2020, the ECtHR made 17 decisions regarding freedom of expression concerning Croatia,47 and a violation was established in nearly 30% (five) of the cases48 In its reasoning, the ECtHR examined the limitations stated in Article 10 (2) as well as the prohibition on abuse of rights, a clause regulated under Article 17 (often in relation to Article 14, which prohibits discrimination). Article 17 deprives a person of the right to engage in any activity aimed at the destruction of Convention rights and freedoms or at their limitation to a greater extent than provided.49 There was no standard hate speech mechanism regarding Croatia, but the Court presented some valuable views. In a landmark decision made in Rujak v Croatia, it was stated that lewd and obscene speech with vulgar and offensive language has no essential role in the expression of ideas. It falls outside the protection of freedom of expression since it “amounted to wanton denigration and its sole intent was to insult”.50 In the latest decision concerning Croatia, the Šimunić case, the Court declared that speech that is incompatible with the values proclaimed and guaranteed by the Convention is not protected by Article 10 but used Article 17 only as an aid to interpretation.51 There was no opportunity yet for the European Court of Justice to decide on hate speech cases.52 Croatian law

46 On negative and positive obligations, see Schabas (2015), pp. 453–454. Alaburić (2002), p. 12; Đurđević (2011), p. 162. 47 The first was case of Želimir Jovanović v. Croatia, Application no. 599109/00, decision on 18 February 2002. There are six more pending ( Prvić, Bon, Bilan, Tӧlle, Štefanac, Miljenić). Đurđević (2019), p. 10. 48 ECtHR, Narodni list d.d. v Croatia, Application no. 2782/12, decision on 08 November 2018; Slava Jurišić v Croatia, Application no. 79584/12, 08 February 2018; Marunić v Croatia, Application no. 51706/11, 28 March 2017; Radobuljac v Croatia, Application no. 51000/11, 28 June 2016; Stojanović v Croatia, Application no. 23160/09, 19 September 2013. 49 Article 17, often reffered to as case killer mechanism, was firstly applied in 1957 in ECtHR, Case of Communist Party (KPD) v. Federal Republic of Germany, Application no. 250/57, decision on 20 July 1957, Weber (2009), pp. 22–26. It was later explained that. . .no person may be able to take advantage of the provisions of the Convention to perform acts aimed at destroying the rights and freedoms; whereas this provision which is negative in scope, cannot be construed a contrario as depriving a physical person of the fundamental individual rights guaranteed by Articles 5 and 6 of the Convention. ECtHR, Case of Lawless vs. Ireland, Application no. 332/57, 14 November 1960, the Law, § 7. Also, Guide on Article 17 of the European Convention on Human Rights, Prohibition of abuse of rights (2019). 50 ECtHR, Case of Rujak v Croatia, Application no. 57942/10, decision on 02 October 2012. Croatian soldier (previously convicted of Tarnishing the Reputation of Republic Croatia), in quarrel with other soldiers used obscene and insulting language regarding religion and origins of Croats. § 29, 30. See also Schabas (2015), p. 456, Đurđević (2019), p. 11. 51 A football player, convicted for shouting, at a football match, “For Home” several times. While the original meaning was literary and poetic, it had also been used as an official greeting of the Ustashe movement, which had originated from fascism, and of totalitarian regime. The Court did not find it necessary to address the applicability of Article 17 because it considered it should only be resorted to on an exceptional basis and in extreme cases. ECtHR, Case of Šimunić v Croatia, Application no. 20373/17, decision on 29 January 2019. Also, Guide on Article 17 of the European Convention on Human Rights, Prohibition of abuse of rights (2019), p. 25. 52 Some suggest that decision in the Feryn case represent speech that meets hate speech characteristics. Vasiljević and Vinković (2019), p. 84. See Court of Justice of the European Union, Centrum

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foresees hate speech suppression through a range of provisions in three branches of law: criminal, misdemeanour and civil procedures. Related provisions use various terms (e.g. not named “hate speech”) and include a different content depending on the legal area involved. The Croatian criminal law view of a limited protection of the freedom of expression is not new. Due to a needed balancing of all legal interests that deserve criminal law protection (honour and reputation,53 prohibition on discrimination, confidentiality obligation, protection of public order, etc.), freedom of expression interference was also provided in previous Criminal Code versions. The provision forbidding hate speech existed earlier,54 but its practical importance was low due to the absence of judicial decisions55 or decisions of the State Attorney’s Office,56 which consequently makes it difficult or impossible to form judicial standards. The incrimination scope was expanding over time but simultaneously characterized as inadequate.57 The Croatian Criminal Code reformed hate speech incrimination named Public incitement to violence and hatred.58 reformed hate speech suppression incrimination named Public incitement to violence and hatred. Placed among Offences Against Public Order, Article 325 was guided by the standards of Council Framework Decision 2008/913/JHA of 28 November 2008

voor gelijkheid van kansen en voor racismebestrijding v Firma Feryn NV., C-54/07 – Feryn, ECLI: EU:C:2008:397, 10 July 2008. This was the first time the ECJ reasonated on direct discrimination based on race or ethnic origin. 53 Some Croatian authors find this to be the most significant limitation to freedom of expression. Đurđević (2011), p. 173. Bojanić (2007), pp. 405–457. 54 For detailed incrimination overview from 1977 until 2013, see Herceg Pakšić and Lachner (2015), pp. 312–316. 55 Identifying a particular community as the culprit for certain inappropriate behaviors and proposing violent treatment (placing in a barrack and releasing gas) undoubtedly points to a discriminatory and hateful attitude. The essence of the content of hatred is manifested in the feeling of the need to do evil to others and the feelings of aversion to another that pursues the evil that should happen to another. County Court Varaždin, Kž-199/14, 24 June 2014. For committing a crime, it is not a matter of mere personal views, but a public incitement to violence or hatred directed at a particular group of people is necessary . . . the perpetrator actively seeks to encourage others to express hatred or violence against a particular group. County Court Zagreb, Kž-128/14, 03 June 2014. 56 In 2015 Zagreb Municipal State’s Attorney’s Office rejected the criminal complaint against the author of the online message “Fagots to the camps”, on the grounds that he was influenced by “psychology of crowd”, indicating a lack of intent. At that time, the County State Attorney’s Office reversed the decision and ordered the investigation to be conducted, and the State Attorney’s Office of the Republic of Croatia, issued Communication on decision-making errors and announced checking the procedure for the Article 325 CC in the last three years. Available at http://www. dorh.hr/DrzavnoOdvjetnistvoRepublikeHrvatskePriopcenje11. 57 The awareness of competent authorities and the prevailing “social climate” are important prosecution factors as well as the fact that hate speech, even after all of these changes, was without adequate provision. Munivrana Vajda (2014), p. 364. 58 In effect since 2013. Official Gazette, 125/11, 144/12, 56/15, 61/15, 101/2017, 118/2018, 126/2019.

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on combating certain forms and expressions of racism and xenophobia by means of criminal law.59 In essence, any manner of public incitement to commit violence and hatred directed towards a group or the members of a group based on any60 characteristic is punishable by up to three years of imprisonment. The same is valid for anyone who publicly approves, denies or significantly reduces genocide,61 crime of aggression, crime against humanity or war crime. Due to the fourth European Commission Against Racism and Intolerance (ECRI) Report,62 the organization or leading of a group (of three or more persons) as well as being a part of a group to commit the offence is also punishable.63 There are also some specific hate speech 59

Official Journal of the European Union, L 328/55 from 06 December 2008. In the Croatian CC hate speech is criminalized on more widely grounds – apart from those mentioned in the Framework Decision – it includes language, gender, sexual orientation, gender identity, disability and other characteristics. The Framework Decision possibilities on narrowing punitive zone and adapting incrimination to own legal tradition were not used. 60 Even though number of discriminatory basis is expresis verbis part of relevant provision, the Croatian legislator has decided to leave open possibility of victim selection based on other characteristics, which is a doubtful advantage. In criminal law vocabulary, this assumes a general (open) clause. There are two ends to that stick: it may result in advancement in the protection of victims but at the same time may lead to over extensive interpretation. In this regard, one Croatian court (Pula) has interpreted and therefore positioned the affiliation to police officials as well as veterans to protected groups. This was rightly criticized by Munivrana Vajda and Šurina Marton (2016), p. 455. 61 Croatian incrimination penalizes every genocide denial. Judicial decision is possible, independent of the specific genocide. The Croatian Criminal Code did not use the Framework Decision possibility to limit incrimination only if the crimes referred to have been established by a final decision of a national court and/or an international court, or by a final decision of an international court only. In addition, the possibility choice to punish only conduct either which is carried out in a manner likely to disturb public order or which is threatening, abusive or insulting, was not used. 62 European Commission against Racism and Intolerance Report On Croatia (fourth monitoring cycle), adopted on 20 June 2012, published on 25 September 2012, Council of Europe, CRI(2012) 45, p. 11. 63 Article 325 (1) Who, through a press, radio, television, computer system or network, publicly or otherwise publicly encourages or makes available to the public leaflets, images or other material that invokes violence or hatred directed against a group of people or a member of a group because of their race, religious, national or ethnic affiliation, language, origin, color, gender, sexual orientation, gender identity, disability or any other characteristics, shall be punished by imprisonment for a term not exceeding three years. (2) Who organizes or manages a group of three or more persons for the purpose of committing the act referred to in paragraph 1 of this Article, shall be punished by imprisonment for a term between six months and five years. (3) Who participates in the association referred to in paragraph 2 of this Article, shall be punished by imprisonment for a term not exceeding one year. (4) The punishment referred to in paragraph 1 of this Article shall be punishable by anyone who publicly approves, denies or substantially diminishes the criminal offense of genocide, crime of aggression, crime against humanity or war crime directed against a group of people or a member of the group because of their racial, religious, national or ethnicity, origin or color, in a manner that is appropriate to incite violence or hatred against such a group or members of that group. (5) The perpetrator shall be punished for attempting the criminal offense referred to in paragraphs 1 and 4 of this Article.

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forms regarding incitement to genocide and to the crime of aggression as well as incitement to terrorism.64 Croatian criminal law does not require hostility model, which implies the need to ascribe hatred as a personal attribute to the perpetrator (proof of “hate”). What is needed is the selection of the victim based on actual or presumed affiliation to a specific group (discriminatory selection model).65 According to an available case law analysis, perpetrators have, mostly online, incited the public to display violence and hatred based on national affiliation, LGBTQ affiliation and ethnic origin. To all convicted offenders, a suspended sentence was imposed, with differences regarding the length of the sentence and probation period. Community service or specific obligations were not imposed.66 Described sanctioning is lacking of special prevention effect and of general prevention message to society. Article 87 defines hate crime in general67 and labels it as an aggravating circumstance unless a heavier punishment for specific offences is provided. According to the Office for Democratic Institutions and Human Rights (ODIHR) standards, hate speech is not considered a criminal act of hatred because this concept assumes existence of some “basic act” (murder, bodily injury, etc.).68 In addition to criminal law liability, the Croatian law also enables the sanctioning of hate speech under misdemeanour and civil liability through a range of legislation. The Anti-Discrimination Act69 provides for a fine of 5,000–30,000 HRK for

64

Incitement to genocide and crime of aggression is criminalized as public and direct, and incitement to terorrism as public. See Article 88 and 89 (both paragraph 3) and 99 of the Criminal Code. 65 The discriminatory selection model takes an objective approach that means that the selection of the victim does not need to involve negative emotions on behalf of the perpetrator towards an individual or a group. Prosecuting hate crimes. A practical guide, OSCE, Office for Democratic Institutions and Human Rights (ODIHR), Poland 2014, pp. 50–51. Also, Munivrana Vajda and Šurina Marton (2016), p. 451. 66 Munivrana Vajda and Šurina Marton (2016), pp. 445–456. Case law analysis includes the 3 and a half time period (01 January 2013-30 June 2016) where there was 19 final decisions related to 24 person from which only one was acquitted. 67 Article 87 point 21 of the Criminal Code: Hate crime is a crime committed on the basis of race, skin color, religion, national or ethnic origin, language, disability, gender, sexual orientation or gender identity of another person. Such treatment will be taken as an aggravating circumstance if this Act does not explicitly prescribe more severe punishment. In ECtHR, Case of Škorjanec v Croatia, Application no. 25536/14, decision on 28 March 2017, concerning complaint under Articles 3 and 14 of the Convention, on the failure by the domestic authorities to effectively discharge their positive obligations in relation to a racially motivated act of violence against the applicant admissible and confirmed a violation of the procedural aspect of Article 3 in conjunction with Article 14 of the Convention. In relation to the earlier legal solution, there is a reduction in the discriminatory basis, so political or other belief, national or social background, property, birth, education, social status and age are no longer basis for qualification of hate crime and there is no general clause allowing other features to be included. 68 “Hate speech” is not about “basic act” that by rule has a violent character and racial or similar hatred is shown as its motive. Hate speech represents a criminal act by itself (libel, violation of security, etc.) Kambovski (2013), pp. 329–330. 69 Zakon o zabrani diskriminacije, Official Gazette 85/2008, 112/2012.

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violation of the dignity of a person with the purpose of causing fear or creating a hostile, degrading or abusive environment based on differences in race, ethnicity, skin colour, gender, language, religion, political or other beliefs, national or social background, wealth, union membership, social status, marital or family status, age, state of health, disability, genetic inheritance, gender identity or expression and sexual orientation. The Public Order and Peace Act70 includes provisions on different forms of expression that causes a disruption of public peace. The Prevention of Violence at Sporting Events Act and the Public Gatherings Act, so-called media law, have anti hate-speech provisions. The Media Act,71 the Electronic Media Act72 and the Croatian Radio and Television Act73 contain provisions prohibiting incitement to hatred based on several grounds, including race, sex, religion, nationality and sexual orientation. Other relevant acts are the Gender Equality Act74 and the Civil Partnership of the Same Sex Act75 regulating freedom of expression, information and discrimination prohibition.76 What seems to be a first-grade challenge is the demarcation line between the above-mentioned offences and criminal law offences. The latter is described as “imprecise” in relation to misdemeanours, resulting in inconsistency in case law when very similar behaviour is placed sometimes under criminal law and sometimes under misdemeanour law liability.77 In view of the ultima ratio purpose of criminal law, we advocate for the necessity of a restrictive interpretation. According to the 2013 United Nations Committee on the Elimination of Racial Discrimination (CERD) stance on hate speech, criminalization should be reserved for serious cases, while less serious cases should be addressed by means other than criminal law, taking into account, inter alia, the nature and extent of the impact on targeted persons and groups.78 In 2018, the ECtHR emphasized the vital importance of a cautious approach to hate speech crimes in order to avoid excessive interference 70 Zakon o prekršajima protiv javnog reda i mira, Official Gazette 41/1977, 47/1989, 55/1989, 83/1989, 47/1990, 55/1991, 29/1994. 71 Zakon o medijima, Official Gazette 59/2004, 84/2011, 81/2013. 72 Zakon o elektroničkim medijima, Official Gazette 153/2009, 84/2011, 94/2013, 136/2013. 73 Zakon o Hrvatskoj radioteleviziji, Official Gazette 137/2010, 76/2012, 78/2016, 46/2017, 73/2017, 94/2018. 74 Zakon o ravnopravnosti spolova, Official Gazette 82/2008, 125/2011, 20/2012, 138/2012, 69/2017. 75 Zakon o životnom partnerstvu osoba istog spola, Official Gazette 92/2014, 98/2019. 76 For a detail overview of provisions regarding freedom of speech as a part of anti-discrimination legislation see Đurđević (2011), pp. 163–172. 77 Zločini iz mržnje u Republici Hrvatskoj - pregled pravnog i konceptualnog okvira (2019). IRIS – “Unapređenje borbe protiv nesnošljivosti kroz istraživanje, izradu preporuka i obuku”. http://www. hpc.hr/wp-content/uploads/2019/07/Pregled-pravnog-i-konceptualnog-okvira-zlocina-iz-mrznje. pdf, pp. 21–22. 78 UN Committee on the Elimination of Racial Discrimination (CERD), General recommendation No. 35: Combating racist hate speech, 26 September 2013, CERD/C/GC/35,4, point 12. Considering that State obligations from various acts require hate speech to be punishable by law, it means

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to freedom of expression.79 To heal the borderline rift between forbidden and protected speech, a steer clear of unnecessary restrictions is a common denominator as they should be clearly and narrowly defined, proportionate and capable of the least intrusion.80 However, since hate speech is, inter alia, even an “emotive concept”,81 adequate and appropriate criteria for sanctioning are a chink in legal armour. The explosive growth of the Internet has also resulted in a rapid increase in hatebased activities in cyberspace.82 The Internet itself is not a lever for radicalization and violence, but the current use of social media and issues on online information regulation merit research as to whether social media is effectively used to raise radicalization ideas and develop violent extremist mindsets, especially among young men and women.83 The mentioned case law analysis has shown that the dominant modality for hate speech is through social networks (i.e. Facebook) and that sanctioning, except in the case of a suspended sentence, does not include Internet access ban as a security measure.84 Some Member States have adopted recent legislation seeking to reduce the incidence of online hate speech at national level by clearly establishing the responsibility of social platforms for the removal of illegal content. In this regard, Germany adopted the Network Enforcement Act in June 2017 aimed at monitoring the responsibility of social networks.85 In the beginning of 2019 in Croatia, there were some public debates regarding this topic, leading to the announcement of the passing of an Illegal Behaviour on the Internet Act,86 but to this day, the Act has not even been proposed, let alone passed. Although such Act should generally be supported, its content must be the result of a quality public debate on the possible consequences (going beyond hate speech) of the Act, especially given the standards of the ECtHR when it comes to banning and removing online content.87 In the context of national efforts, it is worth mentioning that other branches of law, besides criminal law, can be used taking into account that criminal law sanctions should be governed by principles of legality, proportionality and necessity. 79 Specially under the guise of action taken against “hate speech”, where such charges are brought for a mere criticism of the Government, State institutions and their policies and practices. ECtHR, Case of Stomakhin v. Russia, Application no. 52273/07, 9 May 2018., §117. In order of “clearer” demarcation from anti-discrimination legislation, Croatian authors also advocate restrictive interpretation. Munivrana Vajda (2014), p. 368. 80 E.g. The Camden Principles on Freedom of Expression and Equality, 9. 81 ‘Hate Speech’ Explained; A Toolkit, ARTICLE 19 Free Word Centre, 9. 82 Wigerfelt et al. (2015), p. 1859. 83 UNESCO (2017), pp. 13–14. 84 Munivrana Vajda and Šurina Marton (2016), pp. 446–448. 85 Netzwerkdurchsetzungsgesetz-NetzDG puts pressure on social media companies to respond to user complaints and delete specific content from their websites. Kaye (2017) and the Government response available at https://www.ohchr.org/Documents/Issues/Opinion/Legislation/ GermanyReply9Aug2017.pdf. The Act raised many issues, including the one regarding selfcensorship. Müller-Franken (2018), pp. 1–13. 86 Herceg Pakšić (2019), p. 161. 87 For example ECtHR, Case of Delfi As V. Estonia, Application no. 64569/09, 16 June 2015; Case of Magyar Tartalomszolgáltatók Egyesülete and Index.hu Zrt v. Hungary, Application no. 22947/

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that the Compendium of Practices for hate crimes, published by the EU Fundamental Rights Agency (FRA) in 2016, included Croatian Rules of Procedure in hate crime cases (Protocol, 2011) as well as the Hate Crimes Monitoring Working Group as promising practices.88

3 Discovering (New) Hate Speech Features and Insights? From an expert and scientific point of view, despite a relatively large public interest and a range of media-exposed cases, the hate speech topic in Croatia is marginalized.89 The Croatian Ombudsman Report for 2018 states that hate grounded on national origin is prevailing in hate crimes in general.90 The latest Report of the European Commission Against Racism and Intolerance (ECRI) confirmed that ultranationalistic, xenophobic, racist and homo-/transphobic hate speech was on the rise during 2019 in various election campaigns and on social media networks.91 The last ECRI Report on Croatia from 2018 states that racist and intolerant hate speech in public discourse is escalating and the main targets are Serbs, LGBT persons and Roma and that authorities rarely direct anti-hate speech messages in public.92 According to the same Report, criminal law repression from January 2014 until April 2017 counts only 21 convictions for Article 325 violation, based mostly on sexual orientation and national origin.93 Recent data reveal that in 2018, there were

13, 2 February 2016, Case of Pihl v. Sweden, Application no. 74742/14, 07 February 2017, Case Of Magyar Jeti Zrt v. Hungary, Application no. 11257/16, 04 December 2018, Case of Høiness v. Norway, Application no. 43624/14, 19 March 2019. 88 European Union Agency for Fundamental Rights, Compendium for practices for Hate crime, https://fra.europa.eu/en/theme/hate-crime/compendium-practices?field_fra_country_tid%5B% 5D¼998&combine¼&sort_by¼title&sort_order¼ASC. 89 Munivrana Vajda and Šurina Marton (2016), pp. 437–438. 90 Hate based on the victim’s national origin thus remains by far the most common motive for committing these crimes in 2018, with threat and malicious mischief the most common criminal offences committed out of hate. Annual Report of the Ombudsman of Croatia for 2018, https:// www.ombudsman.hr/en/reports/ p. 36. 91 Annual Report on ECRI’s Activites covering the period from 1 January to 31 December 2019, Strassbourg, March 2020, p. 8. 92 ECRI(2018)17, ECRI Report On Croatia (fifth monitoring cycle). Adopted on 21 March 2018, published on 15 May 2018, 9. Among mentioned areas are growing rise of nationalism, particularly among the youth, which primarily takes the form of praising the fascist Ustaša regime. In the regional media and on Internet, expressions of racism and xenophobia against Serbs, LGBT persons and refugees are commonplace, as is abusive language when referring to Roma. 93 At the same time, misdemeanour law repression counts 38 convictions. ECRI, 14–15 Some of the earlier data (2010–2013) when the previous Criminal Code was valid, show also predominantly low convictions number- only 14 for incriminations Racial and other discrimination and Public incitement to violence or hatred. See Herceg Pakšić and Lachner (2015), p. 317 and yearly Publication Punoljetni počinitelji kaznenih djela-prijave, optužbe i osude, statistička izvješća/Adult Perpetrators

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nine convictions,94 which overall means that the number of (criminal law) conviction per year is around ten. On the other hand, questioning citizens’ experiences shows that hate speech is thick on the ground. At the end of 2019, the results of the survey “Hate Speech Online and Youth” were presented,95 revealing that in the last five years, almost every second a young person had the experience of online hateful comments or insults. Ninety-six per cent revealed to have seen online bigoted comments grounded on national or ethnic origin, gender or sex, religious affiliation, skin colour, sexual orientation, physical appearance and financial status in the last three months. According to results, hate speech is largely represented in the public space in the form of graffiti and posters (84%), at political gatherings (83%), on television or radio (70%) and even more in comments on social networks (90%), news portals (89%) and forums (83%). The most common grounds are national or ethnic origin (79%), sexual orientation (68%) and physical appearance (56%). For the purposes of this paper, a research was conducted96 to gain insights on the characteristics of hate speech in Croatia. A questionnaire, designed for his research, consisted of a total of 13 questions, including respondents’ socioeconomic attributes and stances on hate speech content, manner of expression and the efficiency of Croatia’s effort to suppress it. It was prepared and conducted during February and March 2020 and was answered anonymously, voluntarily and online. The starting hypothesis was that prevalent occurrences are through social networks and online content and that hate speech suppression in Croatia is found inefficient. In addition, it seemed as suitable ballon d’essai to validate previously presented insights on hate speech.

of Criminal Offences, Reports, Accusations and Convictions for 2010, 2011, 2012, 2013, by the Croatian Central Bureau of Statistics. 94 Adult Perpetrators of Criminal Offences, Reports, Accusations and Convictions in 2018, 1650, Statistical Reports, Croatian Bureau of Statistics, Zagreb, 2019, p. 134. 95 Research results on online hate speech and youth presented “Govor mržnje na Internetu i mladi” https://www.ombudsman.hr/hr/predstavljeni-rezultati-istrazivanja-govor-mrznje-na-internetu-imladi/. 96 The research was conducted on a sample. The selected research topic has the advantage of not requiring restriction to specific characteristics in the population suitable for expressing their views. In this sense, the characteristics of the respondents are not predetermined. Respondents in the sample have the same characteristics as the people in the population, which can be considered representative. Given the initial hypothesis of the prevalence of hate speech occurrence on social networks and online, it was decided to conduct the research online in an effort to obtain a random sample. This was achieved by placing the questionnaire on the social network profiles of private individuals, asking respondents to share the questionnaire (which many did, and this was evident by monitoring the “share” option) and in this context, there was no control over the sample. In addition, a questionnaire was posted on the public profile of Slavonian Television, which is followed by almost 17,000 people to enable higher reach. Finally, the mail-in survey method was applied. Of course, in this way, only approximate values are obtained and it is an assessment that should always be taken cum grano salis if it is to be generalized. On the other hand, it is undoubtedly valuable since it serves as a strong indicator of challenges related to social reaction to hate speech in Croatia. The author thanks to Antonija Tomasović, Editor- in-Chief of Slavonian television in Osijek, Croatia, for her help in gathering data.

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The number of respondents was 745 (65.5% women and 34.5% men). The reported frequency of hate speech encounter was sometimes for 39.1%, very often for 30.3% and every day for 8.1%. Only 3.4% has never encountered hate speech and 19.2% rarely. Hate speech content was oriented mostly towards nationality or ethnic origin (38.8%), followed by sexual (22.8%) and religious affiliation (15.4%). Lower incidence was directed to race (5.6%), social status (6.8%) and disability (0.8%). An experience of a direct hate speech exposure was reported on behalf of 39.3% respondents, of which 25.3% had repeated experience. A total of 45.5% has never had this experience, and what was interesting to discover is that 15.2% respondents were not sure. A five-point Likert scale was used to measure the strength/intensity of respondent attitude toward most frequent occurrences on hate speech in different kinds of online and offline surroundings (never, rarely, sometimes, often and very often). The results have shown that attitude on hate speech occurrence was rarely on radio (41.7%). It was reported as sometimes on television (37.6%), sometimes in journals and magazines (39.3%) and sometimes in conversation (36.1%). Attitudes on occurrence were often or very often on online media and portals (altogether 79.2%; divided: often 31.1%, very often 48.1%) and often and very often on public gatherings like concerts, matches, political gatherings (altogether 67.9%; divided: often 30.3%, very often 37.6%). Respondents agreed that occurrence was very often on social networks like Facebook, Instagram and Twitter (70.6%). When asked about the willingness to report hate speech to the authorities, only 35.7% have confirmed it. Surprisingly, 18.4% would not report it, and almost half of them, 45.8%, are not sure. Respondents were then asked to further elaborate on their responses. Interpretation of the content analysis discovered that reasons for the unwillingness to report hate speech can be summed up into four main categories. First is citizens’ distrust in competent authorities and the justice system due to laws that are not applied, procedures that take a long time or are completely ignored and the persuasion that competent services should respond ex offo instead of waiting for the report. Second is the self-disclosed lack of education on the proper reporting procedure and of hate speech recognition that opens places for reflection: Are they in reality au fait with hate speech, or are they guided with an emotive concept? Third is the belief that taking a stand is a shot in the dark, a Sisyphean task that will lead to no difference or will make no sense. The fourth category of respondents remain silent in view of the fact that it is someone else’s problem, which has no weight for them, or that they do not want problems or complications in life. When asked if Croatia is efficiently suppressing hate speech; 63% denied, 24.8% were not sure and 12.2% confirmed. The answers in the content analysis regarding inefficient hate speech suppression revolves around the following four grounds. First, hate speech is present on the highest state level. Politicians either use it themselves or attend gatherings where hate speech assumes large proportions, without someone being accountable. Second, respondents recognize the value of civic education as the suitable manner for suppression but emphasize the permanent deficiency in education and lifelong learning. Third, they reveal to never have seen or experienced any of the results of hate speech suppression, so they remain empty handed on any positive changes in that area (e.g. still no suitable solution for

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accountability for what is written on social networks). Forth, historically and culturally based, hate speech became tolerated phenomena, going hand in hand with social intolerance described as a “. . . part of Balkan identity”.

4 Tilting at Hate Speech Windmills or What Lies Ahead? Being a complex social and cultural phenomenon that includes even an emotive description, hate speech is a difficulty captured by legal regulation. On the other hand, legal regulation is much needed-it is not a novelty that hate speech is often the first step in violence manifestation. Certain social consequences range from social polarization (stigmatization, marginalization, disintegration) to individual feelings (discomfort and fear). Supporting contemporary democracy values and ideas (multiculturalism, mutual respect, pluralism and tolerance without discrimination and prejudice) includes adequate legal response extending through several legal branches. The Croatian legal framework foresees a constitutional proclamation of freedom of expression, limited by other rights and freedoms. Hate speech suppression is provided through mechanisms of several law branches. However and unsurprisingly, the largest challenges lie in their practical impact. The low conviction number has become a tradition (regardless of the regulation mode) due to several issues: imprecise demarcation of relevant criminal and misdemeanor law provisions, case law inconsistency (same or similar factual situation under different law mechanisms) and low number of criminal accusations (inter alia, due to citizens report reluctance). This legal stance supports the existing social tolerance to hate speech. In Croatia, criminal law is not taking the helm of suppression, since hate speech cases are mainly responded to through anti-discriminatory and misdemeanor legislation. This situation remained unaltered even after the advancement of provisions and compliance with European standards, which the Criminal Code brought upon taking effect in 2013. It is the 11th hour for online hate speech issues, so a novelty in this regard was the announcement of a specific act directed towards illegal behaviour on the Internet, expecting related questions to be addressed at the right quarters. However, this was not brought to life. The latest remarks that Croatia received concerned the escalation of hate speech in public discourse grounded on national or ethnic origin and sexual affiliation, which included observation of lack of antihate messages on behalf of competent authorities. This was confirmed by “internal evaluations” (e.g. the Ombudsman) and the results of the conducted research. They show that hate speech is highly present in public space. To contribute to these findings, research was made involving 7,500 respondents, who were asked to offer their views, insights and beliefs on the suppression of Croatian hate speech. This research goes in favour of previously known problems considering that the starting hypotheses were convincingly confirmed, labelling suppression as inefficient and marking online content and social networks as leading challenges (almost 80% of respondents agree that they emanate hate often or very often). The latter findings put into perspective the so far unsuccessful efforts on a new legal framework for online

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behaviour as a necessity. One should bear in mind that long-term efficiency assumes high-quality provisions, taking existing comparative experience and standards into consideration. Otherwise, it could easily reap the whirlwind of any intentions to suppress. Elaboration on the inefficiency of national suppression revolves around, inter alia, poor examples coming from politicians and other state authorities or public opinion formers. The contemporary politician role implies (or should imply) a contribution to a positive social climate towards protected groups, promoting positive examples. In that sense, public condemnation and dissociation from hateful ideas are a form of desirable behaviour. The opposite creates encouragement for a negative role model behaviour and can support justification of a hatred culture. Respondents emphasized the lack of visible results in the reduction of the amount of hate speech in everyday life and permanent lack of civic education. The presence of hate speech is highly common in everyday lives (only around 3.5% respondents have never encountered it) and is mostly oriented towards national and ethnic affiliation. It was directed to almost 40% respondents, but a quarter of them had a repeated experience, which is a warning sign. Compared to high hate speech perception, it is contradictory and challenging that only relatively low number of respondents is willing to give voice to it. Given state of play seems to be serving two masters. Their reluctance is explained by the lack of trust in institutions, the lack of procedural knowledge and the beliefs that their action will not make any changes and that this is someone else’s problem. This enhances the impression on hate speech prohibition as being merely symbolic, somewhere in-between an insufficient report hammer and an inefficient suppression anvil. Taking into account all of the above, it seems that the ground for legal Solomon solution is layered. However, legal reaction alone, as it comes ex post, cannot present long-term and effective means of suppression. Repression is obviously playing the wrong card. What should be discussed, as stepping stones, are the possible means and impacts of preventing and the manners of countering hate speech. A trump card is primarily going through adequate, tailor-made education. Insufficient education is the common denominator for both the explanations for not reporting hate speech and the views on ineffective hate speech suppression. Lack of civic awareness, knowledge and responsibility diminishes individual obligations towards the society, perpetuating a belief of individual disempowerment; moreover, it weakens society’s power to support and enhance free and complete individual development.

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Herceg Pakšić B, Lachner V (2015) Hate speech as a violation of human rights: the meaning, implications and regulation in criminal law. In: Vinković M (ed) New developments in EU labour. Equality and Human Rights Law, Osijek, pp 295–320 Mill JS (1978) On liberty, 8th edn. Hackett Publishing Company, Indianapolis Munivrana Vajda M (2014) Zakonska podloga za sankcioniranje govora mržnje-devedestih i danas. In Dubljević M (ed) Procesuiranje ratnih zločina-jamstvo procesa suočavanja s prošlošću u Hrvatskoj Documenta, Zagreb, pp 359–371 Schabas WA (2015) The European Convention on human rights. A commentary. Oxford commentaries on international law. Oxford University Press Sternberg-Lieben D (2014) Straftaten gegen die öffentliche Ordnung. In: Schönke A, Schröder H (eds) Strafgesetzbuch, Kommentar, 29. Auflage. C.H. Beck, pp 1464–1620 Vasiljević S, Vinković M (2019) Temeljna prava i zabrana diskriminacije u praksi europskih i nacionalnih sudova. Narodne novine, Zagreb

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The Challenges of the World Health Organization: Lessons from the Outbreak of COVID-19 Virdzhiniya Petrova Georgieva

Contents 1 2 3 4

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . WHO’s Limited Legal Arsenal to Fight Against COVID-19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . WHO’s Financial Deficit and Its Impacts on the Response to COVID-19 . . . . . . . . . . . . . . . . The Systematic Violation of WHO’s Rules and Recommendations During the COVID-19 Pandemic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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1 Introduction The post-World War II international liberal order was born with the promise to preserve future generations “from the scourge of war” and to guarantee, beyond all, respect for human rights and fundamental freedoms. This order was constructed on the basis of a complex legal and institutional framework, aimed at fostering states’ economic, cultural, and social development and at promoting democracy and the rule of law. To that effect were created, in an extremely short period of time, many international intergovernmental organizations: the United Nations (UN) in 1945, the two Bretton Woods institutions—the World Bank (WB) and the International Monetary Fund (IMF)—in 1947, and the North Atlantic Treaty Organization (NATO) in 1949. During the same period, in 1948, member states of the international community established the World Health Organization (WHO), whose principal objective is to enhance respect for the human right to health and the enjoyment, by all persons, “of V. P. Georgieva (*) National Autonomous University of Mexico, Mexico City, Mexico © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 Z. Meškić et al. (eds.), Balkan Yearbook of European and International Law 2020, Balkan Yearbook of European and International Law (2021) 2020: 249–276, https://doi.org/10.1007/16247_2020_21, Published online: 29 January 2021

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the highest attainable standard of health.”1 WHO’s constitutive treaty defines health as “a state of complete physical, mental and social well-being and not merely the absence of disease or infirmity” and considers it as an essential requirement not only for the exercise of all other human rights but also for the “peace and security” between nations.2 WHO is endowed with an international legal personality, and according to article 2 of its Constitution, the organization can act as “the directing and coordinating authority on international health work.” In this sense, WHO has received competence to “assist Governments, upon request, in strengthening health services”; “furnish appropriate technical assistance and, in emergencies, necessary aid upon the request or acceptance of Governments”; “establish and maintain such administrative and technical services as may be required, including epidemiological and statistical services”; “promote, in co-operation with other specialized agencies (. . .), the prevention of accidental injuries; (. . .) the improvement of nutrition, housing, sanitation, recreation, economic or working conditions and other aspects of environmental hygiene”; and, in general, “to perform such duties as may be assigned thereby to the Organization and are consistent with its objective.”3 According to article 2 g) of WHO’s Constitution, the organization can also adopt all the necessary measures “to stimulate and advance work to eradicate epidemic, endemic and other diseases.” In fact, one of WHO’s main functions is related to the control of such diseases. The suppression of all types of barriers between states (economic, political, cultural, etc.) has intensified the import and export of communicable diseases. The liberalization of the global movements of goods, persons, and services has spread these diseases beyond the borders of single states and has obliged WHO to implement new legal mechanisms of international cooperation in the fight against global epidemics. The legal basis of WHO’s competence in this field is found in article 21 g) of the organization’s Constitution. This provision authorizes the World Health Assembly to adopt “regulations concerning: (a) sanitary and quarantine requirements and other procedures designed to prevent the international spread

1

Preamble of WHO Constitution. Preamble of WHO Constitution. 3 By virtue of article 2 of the WHO Constitution, the organization’s functions encompass the following: “to promote maternal and child health and welfare and to foster the ability to live harmoniously in a changing total environment; (m)to foster activities in the field of mental health, especially those affecting the harmony of human relations; (n) to promote and conduct research in the field of health; (o) to promote improved standards of teaching and training in the health, medical and related professions; (p) to study and report on, in co-operation with other specialized agencies where necessary, administrative and social techniques affecting public health and medical care from preventive and curative points of view, including hospital services and social security; (q) to provide information, counsel and assistance in the field of health; (r) to assist in developing an informed public opinion among all peoples on matters of health; (s) to establish and revise as necessary international nomenclatures of diseases, of causes of death and of public health practices; (t) to standardize diagnostic procedures as necessary; (u) to develop, establish and promote international standards with respect to food, biological, pharmaceutical and similar products; (v) generally to take all necessary action to attain the objective of the Organization.” 2

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of disease.” In the application of article 21 g), in 1969, WHO adopted the International Health Regulations (IHR), with the purpose to “prevent, protect against, control and provide a public health response to the international spread of disease (. . .).” The last modification of the IHR dates from 2005. According to these regulations, WHO’s Director General can determine that particular events related to the international spread of communicable diseases constitute a “public health emergency of international concern.” Since the entry in force of IHR’s last modification, WHO has declared five “health emergencies of international concern”: the spread of the ZIKA virus in 2016, the epidemic of the Ebola virus in 2014, the international dissemination of poliovirus in 2014 and the outbreak of the AH1N1 virus. The last declaration of an emergency of that kind was announced by Tedros Adhanom—the current WHO Director General—on January 30, 2020, after the outbreak of the novel COVID-19. The decisions adopted by WHO and the responses of its member states to the pandemic provoked by COVID-19 have revealed some of the challenges of this intergovernmental organization in its ability to provide efficient responses to the health and health security problems of the international community in the beginning of the twenty-first century. In this sense, the main objective of this article will be to analyze WHO’s structural challenges and appreciate their implications in the actions taken by the organization after the declaration of the health emergency of international concern related to the global spread of COVID-19. The first part of the article will prove that WHO’s normative deficit has negatively affected the organization’s fight against the outbreak of the novel coronavirus (Sect. 2). The second part of the research will demonstrate that the chronic financial deficit of the organization has also determined its failures to control and eradicate the COVID-19 pandemic (Sect. 3). The third part of the article will show that the persistent violations of the rules and recommendations, adopted under WHO’s auspices, and the lack of control and accountability mechanisms in its legal framework have induced the little success of the institution’s intents to contain the global COVID-19 crisis (Sect. 4). WHO could only surmount these challenges and continue to play a crucial role as a leader forum for states’ international coordination in health and health security matters, if its members accept to reform the organization’s legal and institutional design.

2 WHO’s Limited Legal Arsenal to Fight Against COVID-19 WHO’s Constitution endows the organization with important normative powers and the capacity to create droit dérivé, i.e., norms adopted by its organs on the basis of the provisions of its constitutive treaty. According to article 2 k) of WHO’s Constitution, the organization has authority “to propose conventions, agreements and regulations, and make recommendations with respect to international health matters

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(. . .).” Additionally, article 23 states: “The Health Assembly shall have authority to make recommendations to Members (. . .),” and article 19 expressly authorizes this political body “to adopt conventions or agreements with respect to any matter within the competence of the Organization.” By virtue of article 21, these conventions or agreements are binding for member states, unless they notify the Director General of the nonacceptance of the instrument.4 In the same sense, WHO is one of the few post-World War II international organizations that has authority to adopt, under its auspices, not only treaties and conventions but also binding regulations for its member states. In fact, according to article 21 of WHO’s constitutive treaty, “the Health Assembly shall have authority to adopt regulations concerning” a wide range of issues.5 Despite these extensive normative powers, since its creation in 1948, WHO has adopted mainly “soft law” instruments, without any binding legal force in international law.6 In 1981, the organization elaborated the International Code of Marketing of Breast-Milk Substitutes and, in 2010, the Global Code of Practice on the International Recruitment of Health Personnel. Other “soft law” norms of WHO’s legal arsenal concern the so-called global strategies, technical standards, guidelines for health care and and/or the prevention of diseases,7 and less formal instruments that amount to simple technical recommendations, by medical experts, on different subjects falling within WHO’s functions.8 Regarding the creation of “hard law” norms, in more than 70 years of history, WHO has used its normative powers to adopt only one binding treaty: the

In this sense, article 21 of the WHO’s Constitution states: “Each Member undertakes that it will, within eighteen months after the adoption by the Health Assembly of a convention or agreement, take action relative to the acceptance of such convention or agreement. Each Member shall notify the Director-General of the action taken, and if it does not accept such convention or agreement within the time limit, it will furnish a statement of the reasons for non-acceptance. In case of acceptance, each Member agrees to make an annual report to the Director-General in accordance with Chapter XIV.” 5 Namely: “a) sanitary and quarantine requirements and other procedures designed to prevent the international spread of disease; b) nomenclatures with respect to diseases, causes of death and public health practices; (c) standards with respect to diagnostic procedures for international use; (d) standards with respect to the safety, purity and potency of biological, pharmaceutical and similar products moving in international commerce; (e) advertising and labelling of biological, pharmaceutical and similar products moving in international commerce” (article 2-k of WHO’s Constitution). 6 Many of these soft law instruments influenced the adoption of national legislation and international measures in health protection related matters. See Velasques (2012). 7 Examples of that kind of norms can be found in WHO’s Global Strategy on Diet, Physical Activity and Health (2010), Global Strategy to Reduce the Harmful Use of Alcohol (2008), Global Strategy for Women’s, Children’s and Adolescent’s Health (2016), Road Safety Strategies and Action Plans, Guide-lines for the Prevention of Maternal Diseases, etc. 8 Ostin (2015), p. 5. 4

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Framework Convention on Tobacco Fight Control, in 2003,9 and two binding regulations: the Nomenclature Regulations in 196710 and the IHR in 1968.11 This normative deficit has significant implications on WHO’s capacity to fulfill its statutory objectives. The lack of legal regulation of many relevant subjects for health and health security protection substantially limits the scope of the organization’s global actions and functions during health emergencies of international concern, such as the one provoked by the global spread of COVID-19. As mentioned above, the IHR are the only binding instrument that provides mechanisms for the international coordination of the measures undertaken to control and eradicate the spread of communicable diseases. The IHR establish some important duties on behalf of states that have to be accomplished in respect of their citizens’ human rights and fundamental freedoms. In the first place, by virtue of the regulations, states should develop their internal capacity to detect, assess, notify and report events that occur inside their borders but represent serious risks for the international spread of communicable diseases (article 5 of the IHR).12 As mentioned above, the IHR create an international system of alarm through the determination of “a public health emergency of international concern,” in accordance with the conditions established in article 12-4 of the regulations.13 If the Director General, after consulting the Emergency Committee of WHO, declares a situation of this type, he can issue “temporary 9 The Tobacco Convention is aimed to control and regulate the cross-border effects of the tobacco epidemic. 10 The Nomenclature Regulations unify the standards for compilation and publication of the statistics of mortality and morbidity for the international classification of diseases. The last modification of the instrument was adopted in 2013. 11 The first International Sanitary Regulations were adopted at the end of the nineteenth century, in order to improve the international response against communicable diseases. In 1969, the instrument was named International Health Regulations (IHR) and was intended to control six infectious diseases: cholera, plague, yellow fever, smallpox, relapsing fever and typhus. After the spread of the Severe Acute Respiratory Syndrome (SARS), the World Health Assembly adopted the last modification of the IHR, in 2005. 12 In particular, states have the duty to notify to WHO detailed public health information “including case definitions, laboratory results, source and type of the risk, number of cases and deaths, conditions affecting the spread of the disease and the health measures employed” (article 6 of the IHR). This information is then shared by the WHO to all the other member states, who can entail consultation with each other and with the organization, in order to improve the measures adopted in response to the control and eradication of the disease. 13 According to this provision: “In determining whether an event constitutes a public health emergency of international concern, the Director-General shall consider: (a) information provided by the State Party; (b) the decision instrument contained in Annex 2; (c) the advice of the Emergency Committee; (d) scientific principles as well as the available scientific evidence and other relevant information; and (e) an assessment of the risk to human health, of the risk of international spread of disease and of the risk of interference with international traffic. 5. If the Director-General, following consultations with the State Party within whose territory the public health emergency of international concern has occurred, considers that a public health emergency of international concern has ended, the Director-General shall take a decision in accordance with the procedure set out in Article 49.”

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recommendations” of health security measures to be implemented by member states in order to control the emergency.14 However, the IHR suffer from a “legal myopia” and lack a full vision of the complex causes and consequences of health emergencies of international concern, such as the one originated by the global spread of COVID-19. In the first place, the IHR only provide mechanisms for a posteriori response to the dissemination of communicable diseases, i.e., once their propagation has already commenced. This instrument does not include a vision of their possible prevention. In this sense, the IHR do not promote sufficiently the improvement of the internal health systems of WHO’s member states and their real capacity to contain epidemics of international concern. The domestic health systems that are not well developed fail to stop the international propagation of communicable diseases that are able to collapse even the most developed health systems. In fact, the IHR’s binding obligation only encompasses a result: strengthen the capacity to respond to public emergencies of international concern,15 caused by the propagation of communicable diseases, but does not create additional duties regarding the appropriate means to reach this result. Additionally, the IHR authorize WHO to publish guidelines on these measures,16 but the guidelines have no binding legal character and member states are not obliged to comply with them. This challenge was already discussed in the proposals for the reform of WHO, presented by its Director General in 2011,17 but none of the suggested actions have succeeded. The current pandemic of COVID-19 has dramatically shown the urgent need to implement new rules in this regard. The Chinese health system was unable to control and eradicate the spread of the novel coronavirus on the territory of this country and its consequent propagation all over the world. The disease collapsed the allegedly well-developed health systems of many other states (such as the United States, Italy, France, Spain, etc.).18 The crisis provoked by the novel coronavirus has shown the

These recommendations may include: “health measures (. . .) regarding persons, baggage, cargo, containers, conveyances, goods and/or postal parcels (. . .)” (Article 15-2 of the IHR), such as the application of medical exams, the requirement of additional documents and information concerning travelers destination, the disinfection and decontamination of conveyances, etc. 15 Article 13 of the IHR provides: “Each State Party shall develop, strengthen and maintain (. . .), the capacity to respond promptly and effectively to public health risks and public health emergencies of international concern as set out in Annex 1.” 16 According to article 13 of the IHR: “WHO shall publish, in consultation with Member States, guidelines to support States Parties in the development of public health response capacities.” 17 By virtue of this document: “The strengthening of national health systems and public health functions, based on the principles of primary health care and universal coverage, underpins many aspects of the Organization’s work – not just in terms of technical content but by providing a set of guiding values. In the last few years, the Organization’s work has focused on the building blocks of health systems (health service delivery, health workforce, health information systems, access to essential medicines, health systems financing, and leadership and governance). Now WHO’s focus will be to put those building blocks together into an integrated framework at community, district and national levels.” (WHO 2011, p. 7). 18 Reuters (2020a), New York Times (2020a), and Euronews (2020). 14

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lack of preparedness on the part of national health systems to contain the outbreak of diseases that increment the use of emergency health equipment and hospital facilities (beds, protective equipment of health personnel, ventilators, etc.), most of which have become unavailable in many countries.19 The lack of binding legal norms on the need, for WHO’s member states, to maintain stocks of essential medicines and health technologies and designate hospitals with sufficient equipment and intensive care units to receive patients of infectious diseases has left most countries unprepared for the unprecedented challenge of the COVID-19 pandemic. Thus, in the future, WHO’s current normative deficit must be filled by legal rules that provide better guidance for the strengthening of domestic health systems’ real and infrastructural capacities to respond to health emergencies of international concern. Another important lesson from the global propagation of COVID-19 concerns WHO’s weak legal arsenal for guarantying respect for the human right to health. In fact, even if the right to health is recognized in WHO’s Constitution, its meaning and concrete scope within the organization’s normative framework are still unclear and surrounded by controversies. The Constitution’s Preamble only provides a general statement on the right to health20 but does not define the components of this right nor establish the different contexts of its application (in peaceful conditions, during armed conflicts, during pandemics of communicable diseases, etc.) or its relation to other rights (the right of free movement of persons and goods, the right to nondiscrimination, the right to a healthy environment, etc.). The right to health is recognized in similar terms in other international instruments,21 such as article 12 of the International Covenant on Economic, Social and Cultural Rights.22 The UN Committee on Economic, Social and Cultural Rights adopted, in 2000, General Comment 14, which clarifies the contours of the right to health.23 By 19

New York Times (2020b) and WHO (2020g). By virtue of WHO’s Constitution’s Preamble: “The enjoyment of the highest attainable standard of health is one of the fundamental rights of every human being without distinction of race, religion, political belief, economic or social condition.” 21 For example in article 5 (e) (iv) of the International Convention on the Elimination of All Forms of Racial Discrimination of 1965, in articles 11.1 (f) and 12 of the Convention on the Elimination of All Forms of Discrimination against Women of 1979 and in article 24 of the Convention on the Rights of the Child of 1989. The right to health is also recognized in the European Social Charter of 1961 as revised (art. 11), the African Charter on Human and Peoples’ Rights of 1981 (art. 16) and the Additional Protocol to the American Convention on Human Rights in the Area of Economic, Social and Cultural Rights of 1988 (art. 10). 22 According to this provision: “1. The States Parties to the present Covenant recognize the right of everyone to the enjoyment of the highest attainable standard of physical and mental health. 2. The steps to be taken by the States Parties to the present Covenant to achieve the full realization of this right shall include those necessary for: (a) The provision for the reduction of the stillbirth-rate and of infant mortality and for the healthy development of the child; (b) The improvement of all aspects of environmental and industrial hygiene; (c) The prevention, treatment and control of epidemic, endemic, occupational and other diseases; (d) The creation of conditions which would assure to all medical service and medical attention in the event of sickness.” 23 The commentary states: “3.The right to health is closely related to and dependent upon the realization of other human rights, as contained in the International Bill of Rights, including the 20

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virtue of this commentary, in order to guarantee the right to health, states have to provide “functioning public health and health-care facilities that have to be available in sufficient quantity within the State.” States also shares the duty to ensure the existence of health facilities, “accessible to everyone without discrimination,” “respectful of medical ethics and culturally appropriate,” “scientifically and medically appropriate and of good quality”. However, this commentary is not endowed with a binding legal force. WHO’s binding IHR only include a summary recognition of the duty of states to not violate the human right to health of persons submitted to restrictive sanitary measures.24 The regulations do not encompass the correlative obligations of states to guarantee the human right to health of the patients affected by infectious diseases. Thus, they do not take into account the components of the right to health established in General Comment 14 and do not ensure that, in case of the propagation of infectious diseases, states afford available, accessible, and acceptable public health services and facilities to their citizens, without any type of discrimination. In the present fight against COVID-19, many WHO member states have repeatedly violated the human right to health of the patients infected by the virus. Many of them do not have access to health care and facilities with the abovementioned characteristics.25 Additionally, some COVID-19 patients have been subject to discrimination practices that are incompatible with the objectives of the human right to health. The inexistence of definition of the scope of the right to health in WHO’s Constitution and/or its droit dérivé has, in part, been responsible for the insufficient international protection of this right against its violation in states’ responses to the novel coronavirus. The global spread of COVID-19 has also shown that the absence of a definition of the human right to health in WHO’s normative framework has (pre)determined the capacity of member states to implement the recommendations of the organization in the fight against the pandemic. WHO has constantly recommended washing hands and maintaining hygienic habits as the best means of protection against the infection from COVID-19. However, by not obliging states to respect the determinants of the right to health, such as access to water and sanitation, WHO is undermining the potential success of these recommendations. Millions of people around the world do not have access to fresh water and sanitation and are not able to wash their hands on a

rights to food, housing, work, education, human dignity, life, non-discrimination, equality, the prohibition against torture, privacy, access to information, and the freedoms of association, assembly and movement.” It also “acknowledges that the right to health embraces a wide range of socioeconomic factors that promote conditions in which people can lead a healthy life, and extends to the underlying determinants of health, such as food and nutrition, housing, access to safe and potable water and adequate sanitation, safe and healthy working conditions, and a healthy environment.” 24 According to article 32 of the IHR: “In implementing health measures under these Regulations, States Parties shall treat travellers with respect for their dignity, human rights and fundamental freedoms and minimize any discomfort or distress associated with such measures.” 25 Human Rights Watch (2020).

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regular basis, which makes them particularly vulnerable to infections from all type of virus, including coronavirus. The health emergency of international concern originating from the propagation of COVID-19 has also demonstrated the negative effects of WHO’s normative deficit regarding the relationship between health protection and environmental protection. The majority of that type of emergencies have been provoked by zootomic diseases: the VIH/AIDS is a virus originally transmitted by monkeys and then crossed over to humans; the ZIKA virus is spread by mosquitos; and the Ebola and COVID-19 viruses are present in bats. Scientists have suggested that pangolins served as the intermediate host for the novel coronavirus before its crossover to humans.26 In this sense, the outbreak of COVID-19 and other zootomic viruses is closely related to the illicit traffic of wildlife species. In international law, the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) aims to ban this traffic by limiting the global demand for endangered species and avoiding their overexploitation.27 According to the Convention, the pangolin is a muchendangered species, included in its Appendices I, and its international traffic is banned by the treaty. Bats are also an animal species covered by the CITES agreement. Unfortunately, one of the negative consequences of the regulation of the licit traffic of endangered wildlife species was the development of an onerous illicit market, and one of the current challenges of the CITES is precisely the lack of binging obligations, upon states, regarding the domestic trade and exploitation of animal and plant species, within countries’ own borders. Additionally, this treaty does not take into account the consumption of wildlife species by local populations (for traditional medicines, exotic food, pets, and luxury jewels and articles, for example) in their culture, traditions, and customs.28 In the case of the COVID-19 spread, the alimentary and cultural traditions of the Chinese people and the development of a black market for wildlife species, such as bats and pangolins, in this country have been important factors for the internal and international propagation of the novel coronavirus. This proves that WHO’s legal arsenal should include a normative regulation of the interplay between the international protection of wildlife species and the fight against the propagation of zootomic communicable diseases. Because of its universal membership and extensive normative powers, WHO is the perfect forum for the negotiation and adoption of a global treaty (and/or other binding international instruments, such as a revised version of the IHR) on health and environmental protection matters in the control and eradication of the propagation of these diseases. 26

Tzeng (2020), pp. 1346–1351. The CITES subjects the international trade of certain species to strict controls and includes them in three Appendices. CITES’ Appendices 1 includes 600 animal and 300 plant species, whose traffic is prohibited with very few exceptions. Appendices 2 covers 48,000 animal and 30,000 plant species, whose traffic is permitted but subject to strict controls, and Appendices 3 lists 135 animal and 15 plant species, the traffic of which is permitted under some control. 28 Challender et al. (2015), pp. 129–148. 27

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WHO’s normative deficit also determines the insufficiency of its response to the COVID-19 global outbreak because of the lack of regulation on the development and transfer of biomedical technologies. In fact, at present, the global scientific community is in search of vaccines and/or medicines against the novel coronavirus.29 But these efforts are taking place outside the auspices of WHO and without any formal coordination between the organization and its member states’ scientific lobbies. Moreover, when (and if) these medicines and vaccines are commercialized, the transfer and access to the biomedical technologies, required for their development, will not be mandated by WHO’s Constitution and/or droit dérivé. However, the attainment of people’s “most high health conditions” necessarily includes free access to the biomedical technologies, able to provide vital medicines and vaccines, such as those required to reduce the mortality of COVID-19. In consequence, one of the most important lessons from the outbreak of the new coronavirus for the future of WHO is related to the need to strengthen the organization’s legal arsenal in this field. WHO seems to be the best forum for the adoption of a binding convention on biomedical technologies for the development of vaccines and medicines, used to fight communicable and noncommunicable diseases. WHO could take into account the experience of international environmental law concerning the transfer of technology from developed to developing countries and establish obligations upon its member states, similar to those included in the UN Convention on Biological Diversity.30 Finally, WHO’s normative deficit is negatively affecting its fight against COVID19 because of the absence of legal regulation on the implications of member states’ unequal capacities to respond to health emergencies of international concerns. According to the Preamble of the IHR’s last version, the World Health Assembly requests the Director General “to collaborate with States Parties to the extent possible in the mobilization of financial resources to provide support to developing countries in building, strengthening and maintaining the capacities required under the International Health Regulations.” However, the regulations do not include any further obligation upon member states to provide assistance to developing countries (through transfer of funds or technologies, for example) in their response to the international spread of infectious diseases. The fight against COVID-19 has shown the vulnerability of developing countries’ health systems and economies due to the effect of the novel coronavirus. But the actions taken by WHO and its developed member states have not included any real support to these countries in their fight against COVID-19. Thus, another lesson from the global spread of the novel

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WHO (2020a). According to article 16 of the Convention: “1. Each Contracting Party, recognizing that technology includes biotechnology, and that both access to and transfer of technology among Contracting Parties are essential elements for the attainment of the objectives of this Convention, undertakes subject to the provisions of this Article to provide and/or facilitate access for and transfer to other Contracting Parties of technologies that are relevant to the conservation and sustainable use of biological diversity or make use of genetic resources and do not cause significant damage to the environment.”

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coronavirus concerns the enrichment of WHO’s normative framework with rules related to the common but differentiated responsibilities and capacities of developed and developing nations through health and health security protection. In general, the global spread of COVID-19 has demonstrated the need to extend the material scope of WHO’s normative framework. Infectious diseases and the tobacco epidemic are not the only health problems that transcend state borders. Global health issues include the fight against noncommunicable and chronic diseases (such as obesity, diabetes, cardiovascular diseases, mental diseases, etc.); the negative effects on health of environmental degradation and climate change; health protection in the context of domestic and international conflicts; health protection against the use and fabrication of biological, chemical, and nuclear weapons; access to vaccines and medicines; trade globalization and its effects on lifestyle-related diseases; etc.31 Additionally, global health issues encompass not only health protection but also the determinants of health.32 In this sense, WHO’s normative framework should comprehend the adoption of binding and/or soft law rules on these important issues. According to this objective, WHO could host the negotiation and adoption of a Global Health Convention—a single binding legal instrument to unify and enrich WHO’s fragmented legal framework. This unique treaty could include not only the obligation of developed countries to transfer biomedical technologies to developing countries but also the duty for all countries to provide access and global health coverage as the only way to ensure universal respect for the right to health.33 The functions assigned to the organization by its constitutive treaty are very ambitious and, as shown by the COVID-19 outbreak, cannot be fulfilled unless it starts to use more actively its normative powers. Its traditional reluctance towards international law has become a handicap for the international response to the different and complex global health challenges.34 Thus, a renewed international law agenda for WHO is central for an increasing importance of the international protection of the health of individuals and groups and for the harmonization of the domestic health legislation and politics of the organization’s member states.35 After the adoption of the Tobacco Convention, the organization has taken some important steps in this direction.36

31

Toebes (2015), p. 300. As stated by the Director-General of the WHO in 2011—Margaret Chan—in its Proposal for Reforms, the organization’s future work should “increasingly be concerned with building the capacity needed in countries to monitor and act on the environmental, economic and social determinants of health.” (Retrieved April 27, 2020 from https://apps.who.int/gb/ebwha/pdf_files/ EBSS/EBSS2_2-en.pdf, p. 6). 33 Ostin (2015), p. 5. 34 Toebes (2015), p. 300. 35 Ostin (2015), p. 7. 36 In the first place, inspiring itself from the example of the global environmental treaties, the convention has created a COP (conference of parties), where states’ officials meet periodically to discuss subjects related to the interpretation and application of the Convention. The COP has 32

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3 WHO’s Financial Deficit and Its Impacts on the Response to COVID-19 All the UN specialized agencies, including WHO, are financed by the voluntary or compulsory contributions of their member states. However, WHO can receive donations not only from states but also from private, nonstate entities. The principal states that are voluntary contributors to the budget of WHO are the United States and Japan, followed by Germany.37 There are two main types of contributions: the assessment contributions cover a part of WHO’s expenses and are distributed between member states according to their size and the weight of their economies. The second are the extra-budget contributions that arise from voluntary donations from states and private entities. WHO’s budget depends only for 20% on states’ contributions, and the remaining 80% of its funds comes from the support of private entities. The donors frequently canalize these contributions to specific programs, diseases, or countries.38 This directionality of the funds negatively affects the flexibility of WHO’s expenses and gives place to an excessive financial dependence on private donors.39 The mayor private contributor to the WHO is the “Bill and Melinda Gates Association,” which maintains very close links with the pharmaceutical industry. The almost exclusive financial dependency of WHO towards the contributions of private donors has corroded the legitimacy of the organization and has created doubts about its autonomy and impartiality in the defense of global public (not private) goods and interests. Besides, the agenda of private donors is circumstantial and changing over every year, and this creates serious obstacles to the adoption of a long-running vision of WHO’s financial goals and priorities.40 The amount of WHO’s budget is not sufficient for the effective fulfillment of its statutory objectives and undermines its capacity to respond to the international propagation of communicable diseases and to health emergencies of international concern. The organization’s budget is smaller than the health budget of many developed countries. As a comparison, the health budget of the United States for 2020 amounts to 81.7 billions of dollars in discretionary budget authority,41 and the budget of WHO for 2020–2021 is 4840 millions of dollars, from which only 463 millions of dollars are assigned to address global health emergencies.

adopted an additional Protocol to the convention, which is a treaty itself. Both the Convention and the Protocol have produced an important impact in states’ domestic legal system, as 80% of the members have adopted new legislation to implement their provisions at the national level (Nikogosian 2016, p. 684). 37 WHO (2020b). 38 Ostin (2015), p. 7. 39 Ostin (2015), p. 7. 40 Ostin (2015), p. 7. 41 US Department of Health and Human Services (2020).

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The chronic insufficiency of WHO’s budget has been emphasized in the initiative for reforms of the organization, presented in 2011 by its Director General. The instrument expressly stated: “The current level of assessed contributions is not sufficient to carry out WHO’s work.” The document also added that “There is now a gap between what the governing bodies approve in terms of strategic direction and budget for the Organization and the resources actually made available. Effective financing is only a means to an end and needs to build on a clear vision for the Organization, focusing on its core functions. The objectives for a more effective financing of WHO must be based first on strengthening effective governance.”42 The main proposal for reform in 2011 was “to increase the percentage of the Organization’s budget that is predictable (before the beginning of the biennium) to at least 70%.”43 Regarding WHO’s response to health emergencies of international concern, the document proposed the creation of a “contingency fund (. . .), based on the recommendations of the International Health Regulations Review Committee, to be used for activating the immediate response in a public health emergency” and to be “open to contributions from Member States and other donors.”44 Some authors suggest that the best way to improve WHO’s financial capacity would be to increase at least 50% of the organization’s current budget through compulsory and/or voluntary contributions from member states but without the possibility to “unit” them to particular programmes or objectives so that the organization could recover its decision-making autonomy regarding the assignment of the funds.45 Nevertheless, none of these proposals for reforms have succeeded, and consultations with member states on the initiative formulated in 2011 are still pending in 2020.46 WHO’s financial problems had severe impacts on the response of the organization to the Ebola outbreak in 2016. During this year, the budget of the organization was reduced, especially regarding the funds assigned to address the health emergencies of international concern. Additionally, the personnel in charge of these events passed from 94 to 34 persons47 due to the diminution of the available funds. WHO According to the same document: “Voluntary contributions are the major source of the Organization’s funding2 and are expected to remain so. Voluntary contributions are often highly specified and not fully aligned with the programme budget. The majority of WHO’s funding is not sufficiently predictable or sustainable. There is an imbalance of funding for different programmes between technical cooperation and normative work, and between staff costs and activities.” See WHO (2011), p. 25. 43 In this sense, the initiative envisaged the “institution of a collective financing approach designed to secure a shared commitment by Member States and other donors to fully finance the Organization’s priorities as agreed by Member States in the programme budget” and “proposed that Member States and other donors increase the proportion of WHO’s income that is flexible by providing voluntary contributions that are less specified i.e. linked to higher level strategic components of the programme Budget”. See WHO (2011), p. 41. 44 WHO (2011), p. 27. 45 Ostin (2015), p. 8. 46 WHO (2011), p. 41. 47 Ostin (2015). p. 8. 42

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was accused of “egregious failure” on the management of the Ebola epidemic,48 most of which was due to the financial and organizational constraints upon the institution.49 The financial deficit of the organization reveals a deep tension between the ambitious functions assigned to WHO and its limited operational facility. As Margaret Young, the Director General of WHO during the Ebola outbreak, suggested: “It was a fantasy to think of the WHO as a first responder ready to lead the fight against a deadly outbreak.’50 As Wenham argues, during the Ebola crisis, “the affected states suffered from chronically underfunded, weak health systems and (. . .) they were unable to respond on their own. The WHO did not have operational authority or resources to respond on their behalf (. . .).”51 The same is true for WHO’s response to the COVID-19 crisis. It is clear that the budget of the organization for 2020–2021 is absolutely insufficient to provide the operational facilities needed to control or eradicate a pandemic that has expanded to almost all countries around the globe, with more than four million people infected by the new disease.52 As mentioned above, the Emergency Fund for Health Emergency of International Concern was never created, and there are not any additional funds that can be used to finance WHO’s actions against the COVID-19 pandemic. WHO is unable to provide any further material support in medical equipment, infrastructure, and/or medical personnel to its member states in the fight against the pandemic. Until the April 8, 2020, WHO had bought and shipped to 133 countries 974,000 surgical and N95 masks, one million boxes of gloves, 115,500 gowns, 18,000 goggles, and 34,000 face shields. Additionally, “it supplied 1.5 million diagnostic kits to 126 countries to increase countries’ clinical management capacity.”53 These actions were not sufficient to increase WHO’s member states’ preparedness to respond to the propagation of COVID-19, and in most terms, regarding the operational facilities of their internal health systems, countries are left on their own. Under the pressure of the pandemic, caused by the spread of the novel coronavirus, WHO recently created a COVID-19 Solidarity Response Fund, which is open for donations from state and nonstate entities.54 Additionally, WHO called for a total resource requirement of 675 million dollars, of which 61.5 million were for WHO’s urgent preparedness and response activities for the period of February to April 2020. As of April 29, the organization received 405,733,150 dollars of contributions for its COVID-19 appeal, both coming from states and nonstate entities. The major state contributor is Kuwait with 60,000,000 dollars, followed by Japan with 47,500,000

48

Reuters (2014). Wenham (2017), p. 1721. 50 New York Times (2014). 51 Wenham (2017). 52 WHO (2020c). 53 WHO (2020d). 54 WHO (2020i). 49

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dollars.55 This international funding showed countries’ solidarity in the fight against COVID-19 and their willingness to endow WHO with sufficient operational capacity to prevent and control the global spread of the disease. The amount launched almost doubles the initial budget of the organization for 2020–2021. The way that WHO will make use of these additional funds will be revealing of its capacity to adapt to new emergency circumstances and fill the expectations placed upon the organization by the state donors. At the same time, WHO will be facing an almost existential financial crisis due to the recent decision of the US President Donald Trump to withdraw its country’s contributions to the organization. President Trump has blamed WHO and its Director General, Tedros Adhanom, for excessive political deference towards the Chinese government, for delaying too much the declaration of health emergency of international concern, and for not sending experts to Wuhan, China, after the outbreak of COVID-19 began.56 In a press conference, he stated: “Today I’m instructing my administration to halt funding of the World Health Organization while a review is conducted to assess the World Health Organization’s role in severely mismanaging and covering up the spread of the coronavirus.”57 The US President’s decision will have devastating effects on the future of WHO, unless the solidarity shown by other member states of the organization through voluntary contributions to the COVID-19 Emergency Fund continues regarding its general budget. Otherwise, the operational capacity of WHO will be even more weak and its financial crisis deeper.

4 The Systematic Violation of WHO’s Rules and Recommendations During the COVID-19 Pandemic As mentioned above, the majority of the rules adopted under WHO’s auspices are “soft law” and are not endowed with a binding legal force. Additionally, WHO’s normative framework does not provide mechanisms to control the compliance of member states with the organization’s droit dérivé and does not establish sanctions against member states if they violate their international commitments. Consequently, states could violate WHO’s rules and recommendations without assuming any negative legal consequences for this unlawful behavior. The violations of WHO’s droit dérivé are due, in part, to states’ unwillingness to delegate sovereign normative powers over health and health security issues to the organization. As Ostin suggests, in principle, member states agree on the need, for WHO, to coordinate their internal health agendas but, in fact, no state accepts to be “coordinated.” Countries show their favor towards the efficiency of the rules and measures, adopted by WHO, but, at the same time, they are taking actions that could 55

WHO (2020e). CNBC (2020a). 57 CNBC (2020b). 56

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block this efficiency. Additionally, the organization is frequently situated in the middle of political and geopolitical conflicts and rivalries between its member states. The United States, Japan, and the European countries (which are the principal donors of the organization) are opposed to developing countries (such as China, Russia, Brazil, or India) on the definition of WHO’s goals and priorities.58 It is worthy to mention that these political and geopolitical confrontations are affecting not only WHO but also all the other post-World War II international organizations. Thus, for example, at the World Trade Organization (as the successor of General Agreement on Tariffs and Trade (GATT)), the rivalry between developed and developing countries has blocked its decision-making mechanisms, which are based on the consensus rule.59 At NATO, the polarization of the relations between the United States, under the Presidency of Donald Trump, and the European “allies” has corroded, from the inside, the cooperation within the Euro-Atlantic alliance.60 These geopolitical confrontations are symptomatic of the crisis of the post-World War II liberal international order as a whole. This order was built upon the historical, political, cultural, and even linguistic affinity between countries from the so-called West (essentially, Western Europe and the United States). The end of the Second World War and the end of the Cold War sealed the victory of “western” values over other “civilizational” options, such as those envisaged by Nazi Germany, imperialistic Japan, and authoritarian Soviet Union, and permitted the consolidation of the Euro-Atlantic leadership over international community’s destiny.61 At the same time, the international liberal order is vertical and hegemonic in its nature. The United States’ privileged position after the end of World War II allowed this country to become the main “architect” of the legal and political design of all the international institutions created in this period. The main objective of this institutionbuilding process was to create a global environment where American hegemony and superpower (military, economic, and political) could flourish and be maintained. Consequently, the rules governing the functioning of all the post-World War II intergovernmental organizations recognize exorbitant privileges to the United States.62 These exorbitant privileges are visible, as well, at the legal and institutional design of WHO. As mentioned above, the United States was, until its decision to withhold its contributions, the main sponsor of WHO. The most important private donor to WHO is the association “Bill and Melinda Gates,” which is a moral person with American nationality. The Unites States also participates actively in the nomination and election of the organization’s Director General and holds leadership in 58

Ostin (2015), p. 7. Dupret (2014), p. 9. 60 Peterson (2019). 61 Ikenberry (2012). 62 For example, this country has a veto power in the UN Security Council and special voting rights at the two Bretton Woods institutions (the International Monetary Fund and the World Bank). In the same sense, the Director of the World Bank has to be an American citizen, NATO is dependent on the American military (super) power and the United States is the principal contributor to the budget of most of these organizations, including the UN. 59

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the decision-making process of WHO and in the definition of its priorities in health and health security. However, these geopolitical foundations of WHO and the other post-World War II international institutions have, nowadays, moved shapely from their original design. New no Western (and no democratic) power poles have appeared and are putting pressure on the traditional functioning of the intergovernmental international organizations. Countries, such as Russia, China, and India, want their voice to be heard at these institutions and to play a new role in their decision-making mechanisms. The principal consequence of this shift in the distribution of power within the global order is the crisis of multilateralism in intergovernmental cooperation. The return of protectionism in states’ international trade policies and the ongoing trend toward the celebration of bilateral negotiations between countries’ officials are symptomatic of the changing nature of the world order. The (re)emergence of competing power poles with their own spheres of influence around the world is maybe leading to the end of the American hegemony and to the reappearance of a bior tripolar order at the international scale. These trends are particularly visible at WHO in the present context of the fight against COVID-19. The geopolitical clash between the United States and China has provoked President Trump’s withholding of support to the organization, which he considered to be too “China centric.”63 The last elections of WHO’s Director General was marked by a Chinese support to the candidature of Dr. Tedros Adhanom. For the first time in WHO’s history, the United States supported a candidate who lost the elections.64 The conflict between the United States and China, and the one that opposes China to other WHO’s member states (such as France and Australia), shows that countries are reticent to resolve their differences by the tools of multilateralism promoted by the UN and all its specialized agencies, including WHO. WHO’s Director General vainly called on the unity of member states and insisted that there is “no need to politicize” the novel virus.65 The crisis of multilateralism and the geopolitical rivalry between the multiple power poles in the global order will probably continue to disrupt cooperation within WHO. The context of the polarization of the relations between WHO’s member states has significantly reduced the efficiency of the recommendations adopted by the institution during the COVID-19 pandemic and explains the systematic violations of the rules of its droit dérivé. In the first place, these rules seem to be violated by WHO’s authorities themselves. As mentioned above, the Director General’s decision to declare a public health emergency of international concern until the end of January 2020 is considered by some countries, particularly the United States, as a violation of article 12 of

63

BBC (2020a). DW (2020). 65 BBC (2020b). 64

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the IHR.66 According to this provision, the Director General’s decision shall consider “scientific principles as well as the available scientific evidence and other relevant information; and an assessment of the risk to human health, of the risk of international spread of disease and of the risk of interference with international traffic.” The scientific evidence about the nature and the characteristics of the novel coronavirus and the risks for human health of its international spread probably should have justified an earlier declaration of health emergency of international concern67 as the spread of COVID-19 began in China at the end of November, 2019, or even before. In the second place, China is accused of violating articles 6 and 7 of the IHR68 due to the delay in the notification of the spread of the novel coronavirus to WHO and to other states parties of the IHR. According to article 6, every state member of the organization has to notify WHO, “within 24 hours of assessment of public health information,” of all events that occur within its borders and that might constitute a health emergency of international concern. China allegedly hid information about the virus and persecuted persons who tried to alert the public opinion about the risks and dangers of COVID-19 for human health. The Chinese government’s actions against Dr. Li Wenliang, who tried to share information about COVID-19 in social media platforms, before dying from the same disease himself,69 is considered sufficient evidence of the will of the government to keep in secrecy this sensible information, in disrespect of its international duty to report to WHO, according to the IHR. Additionally, many other states could be held responsible for a violation of the recommendations adopted by WHO’s Director General in response to the COVID19 outbreak. In fact, these recommendations did not include border closures, ban of 66 According to article 6: “The Director-General shall determine, on the basis of the information received, in particular from the State Party within whose territory an event is occurring, whether an event constitutes a public health emergency of international concern in accordance with the criteria and the procedure set out in these Regulations. (. . .) In determining whether an event constitutes a public health emergency of international concern, the Director-General shall consider: (a) information provided by the State Party; (b) the decision instrument contained in Annex 2; (c) the advice of the Emergency Committee; (d) scientific principles as well as the available scientific evidence and other relevant information; and (e) an assessment of the risk to human health, of the risk of international spread of disease and of the risk of interference with international traffic.” By virtue of article 7: “If a State Party has evidence of an unexpected or unusual public health event within its territory, irrespective of origin or source, which may constitute a public health emergency of international concern, it shall provide to WHO all relevant public health information. In such a case, the provisions of Article 6 shall apply in full.” 67 Burci (2020). 68 By virtue of this article: “Each State Party shall assess events occurring within its territory by using the decision instrument in Annex 2. Each State Party shall notify WHO, by the most efficient means of communication available, by way of the National IHR Focal Point, and within 24 hours of assessment of public health information, of all events which may constitute a public health emergency of international concern within its territory in accordance with the decision instrument, as well as any health measure implemented in response to those events.” 69 BBC (2020c).

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entry of travelers on member states’ territory, or flight cancellations.70 However, many WHO member states implemented precisely these kinds of measures. The most prominent example was the decision of the United States’ government to impose an absolute ban on the entry to its territory of travelers returning from China, only 2 days after the declaration by WHO of health emergency of international concern.71 The IHR authorizes states to implement additional health measures if they are based on “scientific principles,” are “applied in a transparent and non-discriminatory manner,” and are not “more restrictive of international traffic and not more invasive or intrusive to persons than reasonably available alternatives that would achieve the appropriate level of health protection.”72 During the COVID-19 crisis, no state member of WHO justified the border closures and/or controls it implemented on scientific principles. These measures did cause important restrictions on the international traffic and were extremely invasive to persons’ human rights and fundamental freedoms. They also gave place to practices of discrimination, xenophobia, and even racism, which are incompatible with the overall objectives of the IHR. It is clear that, according to article 43 of the regulations, there were other less restrictive measures that states could implement to control and eradicate the COVID-19 outbreak. As pointed out by WHO, these measures could include communicating the risks of infection and propagation of the novel virus, isolating patients with suspected COVID-19, implementing empiric additional precautions (droplet and contact and, whenever applicable, airborne precautions) for suspected cases of COVID-19, implementing administrative controls, and using environmental and engineering controls.73 The violations of the IHR during the COVID-19 crisis have not brought any negative legal consequences for their perpetrators. WHO’s vision has always been flexible and nonconfrontational regarding states’ accountability for breaches of its normative framework.74 As mentioned above, WHO’s normative framework does not provide for sufficient control mechanisms for the respect, by member states, of the obligations incumbent on them by virtue of the rules and recommendations adopted under the auspices of the organization. WHO’s Constitution only establishes some reporting mechanisms75 that are not sufficient to guarantee that member states respect their commitments under the 70

WHO (2020f). Aljazeera (2020a). 72 Articles 42 and 43 of the IHR. 73 WHO (2020h). 74 Burci (2019), p. 233. 75 According to article 61: “Each Member shall report annually to the Organization on the action taken and progress achieved in improving the health of its people.” In the same sense, in conformity with article 62: “Each Member shall report annually on the action taken with respect to recommendations made to it by the Organization and with respect to conventions, agreements and regulations.” Article 63 provides: “Each Member shall communicate promptly to the Organization 71

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institution’s normative framework. Additionally, WHO’s constitutive treaty does not provide a basis for the imposition of sanctions against member states that violate the organization’s rules and recommendations.76 The same nonconfrontational and flexible vision of the control of compliance by member states with their duties under WHO’s droit dérivé was adopted in the IHR.77 Additionally, the regulations provide mechanisms for the settlement of disputes between the organization and its member states and/or two member states, concerning the interpretation and application of the regulations.78 These mechanisms include, in the first place, recourse to negotiation and mediation and, in the

important laws, regulations, official reports and statistics pertaining to health which have been published in the State concerned.” 76 Other treaties, establishing international organizations, set up mechanisms and sanctions that can be applied in such cases. Thus, for example, the Statute of the International Monetary Fund includes the imposition of sanctions against member States that do not respect the obligations incumbent on them by virtue of this agreement. The sanctions include the publication of public reports with sensible information on countries’ economic situation, the negative to afford financial assistance and credits to the State that has failed to fulfil its international obligations, the suspension of its voting rights, and, ultimately, its expulsion from the organization. 77 As mentioned above, article 43 of the regulations permits to the organization’s member states to implement additional measures to those provided by the Director-General’s recommendations after the declaration of a health emergency of international concern. However, the IHR do not include any negative consequences of the possible incompatibility between the measures adopted by the member states and those recommended by the Director-General. According to article 43-4: “After assessing information provided pursuant to paragraph 3 and 5 of this Article and other relevant information, WHO may request that the State Party concerned reconsider the application of the measures.” This “request” to “reconsider” the application of the measure does not include any duty to “put an end” to the inconsistent measures and exhorts state parties to the IHR to cooperate with the WHO, on a completely voluntary (and not compulsory) basis. State’s only binding obligation regarding their compliance with the IHR “is to report to the Health Assembly on the implementation of these Regulations” (article 54 of the IHR). 78 According to article 56 of the IHR: “in the event of a dispute between two or more States Parties concerning the interpretation or application of these Regulations, the States Parties concerned shall seek in the first instance to settle the dispute through negotiation or any other peaceful means of their own choice, including good offices, mediation or conciliation (. . .). In the event that the dispute is not settled by the means described under paragraph 1 of this Article, the States Parties concerned may agree to refer the dispute to the Director-General, who shall make every effort to settle it. 3. A State Party may at any time declare in writing to the Director-General that it accepts arbitration as compulsory with regard to all disputes concerning the interpretation or application of these Regulations to which it is a party or with regard to a specific dispute in relation to any other State Party accepting the same obligation. The arbitration shall be conducted in accordance with the Permanent Court of Arbitration Optional Rules for Arbitrating Disputes between Two States applicable at the time a request for arbitration is made. The States Parties that have agreed to accept arbitration as compulsory shall accept the arbitral award as binding and final. The Director-General shall inform the Health Assembly regarding such action as appropriate. 4. Nothing in these Regulations shall impair the rights of States Parties under any international agreement to which they may be parties to resort to the dispute settlement mechanisms of other intergovernmental organizations or established under any international agreement. 5. In the event of a dispute between WHO and one or more States Parties concerning the interpretation or application of these Regulations, the matter shall be submitted to the Health Assembly.”

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second place, the possibility to initiate arbitral proceedings according to the Permanent Court of Arbitration Optional Rules. However, article 56 of the IHR has never been used in WHO’s practice. No arbitral tribunal has ever been constituted on the basis of this provision, and there is no jurisprudence concerning state members’ compliance with the regulations. The conflicts between member states and/or WHO, respective of the interpretation and application of the IHR, have always been solved through alternative means and political negotiations. As mentioned above, the COVID-19 pandemic has provoked many conflicts of particular intensity related to alleged violations of WHO’s droit dérivé that might justify the application of article 56 of the IHR for the first time in the institution’s history. In the first place, the ongoing conflict between the United States and WHO, aggravated by this country’s decision to withhold its financial support to the organization, is not near to being over. According to article 56, this conflict should be resolved by the Health Assembly. If this occurs, it will create an important precedent for future cases and might improve the legal functioning of the organization as its main political organ will be given the competence to control the conformity with the IHR of the actions taken by member states (and by the organization itself) after the declaration of health emergency of international concern. In the second place, the conflict between China and other WHO member states regarding the actions taken by the Chinese government in response to the propagation of COVID-19 will probably intensify. As mentioned above, China is accused of infringing articles 6 and 7 of the IHR. China has responded firmly to the accusations, stating that the country is a victim and not an initiator of the outspread of COVID19.79 In the same sense, after Australia called for an independent expert assessment of the origins of the novel virus, China replied to the Australian Prime Minister that this could “damage beyond repair” the bilateral relations between the two countries, and Chinese officials threat the Australian government with the use of economic sanctions against this country.80 If this conflict endures and/or escalates, the parties could initiate an arbitral proceeding, under the auspices of the Permanent Court of Arbitration, on the basis of article 56 of the IHR. However, the initiation of any international arbitration under this rule is based on parties’ consent.81 Until now, no country has presented a written declaration of consent, and it is utopic to consider that China will accept to submit itself to arbitration, so that an impartial and independent arbitral body determines the legality of its acts during the COVID-19 outspread, especially taking into account the fact that China has used its veto power

79

Reuters (2020b). The Guardian (2020). 81 According to article 56: “A State Party may at any time declare in writing to the Director-General that it accepts arbitration as compulsory with regard to all disputes concerning the interpretation or application of these Regulations to which it is a party or with regard to a specific dispute in relation to any other State Party accepting the same obligation.” 80

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in the UN Security Council to block the adoption of a binding resolution on the novel coronavirus.82 Other opinions suggest that WHO’s member states should demand China to appear before the International Court of Justice (ICJ) and defend its international responsibility. In fact, the alleged violations of articles 6 and 7 of the IHR are, under international law, internationally wrongful acts.83 As a subject of international law, i.e., an entity endowed with international legal personality, China could be held internationally responsible for these acts and be obliged to repair the damages caused to their victims. However, the jurisdiction of the ICJ is also consensual and not compulsory.84 The IHR does not establish the competence of the ICJ to pronounce itself on disputes relating to states’ compliance with its provisions. Only article 75 of WHO’s Constitution establishes the jurisdiction of the ICJ for questions concerning the interpretation and application of the constitutive treaty itself.85 The Constitution does not create duties on behalf of member states regarding the control and eradication of the international propagation of infectious diseases, such as COVID-19. In this sense, it will be difficult to prove China’s international responsibility for the measures adopted in the context of the outspread of the new coronavirus, only on the basis of possible violations of the provisions of WHO’s Constitution. It will be possible to allege breaches of articles 62 and 6386 of this constitutive treaty and/or of the principles recognized in its Preamble and in general international law, but the arguments might be lacking convincing force.87

82

Tzeng (2020). By virtue of article 2 of the International Law Commission’s Draft Articles on Responsibility of States for Internationally Wrongful Acts: “There is an internationally wrongful act of a State when conduct consisting of an action or omission: (a) is attributable to the State under international law; and (b) constitutes a breach of an international obligation of the State.” 84 International Court of Justice, Declarations recognizing the jurisdiction of the Court as compulsory, Retrieved May 4, 2020 from https://www.icj-cij.org/en/declarations. 85 By virtue of this provision: “Any question or dispute concerning the interpretation or application of this Constitution which is not settled by negotiation or by the Health Assembly shall be referred to the International Court of Justice in conformity with the Statute of the Court, unless the parties concerned agree on another mode of settlement.” 86 According to article 62: “Each Member shall report annually on the action taken with respect to recommendations made to it by the Organization and with respect to conventions, agreements and regulations.” However, the obligation to report annually on the measure taken according to the IHR is different from the one established in the IHR regarding events that might constitute health emergencies of international concern. Consequently, it will be difficult to held China responsible for the violation of article 62 of the Constitution because of the delay of its reports to the WHO on the spread of COVID-19. In the same sense, article 63 of WHO’s constitutive statute provides: “Each Member shall communicate promptly to the Organization important laws, regulations, official reports and statistics pertaining to health which have been published in the State concerned.” The scope of this obligation is too general to fit with China’s response to COVID-19 and only covers published official reports and statistics. As noted above, China is accused to maintain secret and confidential relevant information on the novel virus, not only from the WHO, but also from the public opinion, in general. 87 Tzeng (2020). 83

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Finally, the most radical suggestions consist of submitting the Director General of WHO and other officials of the organization, and/or officials of the Chinese government, to the jurisdiction of the International Criminal Court (ICC)88 for crimes against humanity. According to article 6 of the Rome Statute: “For the purpose of this Statute, ‘crime against humanity’ means any of the following acts when committed as part of a widespread or systematic attack directed against any civilian population, with knowledge of the attack: (. . .) Other inhumane acts of a similar character intentionally causing great suffering, or serious injury to body or to mental or physical health.” However, by virtue of article 12 of the Rome Statute, the Court has jurisdiction over crimes committed by the nationals of a state party to the Statute.89 China has not ratified the treaty; thus, in principle, the ICC is not competent to prosecute Chinese nationals for crimes against humanity.90 It will only be possible to bring cases against Chinese nationals before the ICC if there is proof that they have committed crimes against humanity on the territory of other states that are parties to the Rome Statute.91 The recent and historic decision of the ICC to open an investigation against the United States and Afghanistan, for the alleged commission of war crimes and crimes against humanity during the United States’ war on Afghanistan, in 2003,92 is significant in this regard.93 Finally, a state nonsignatory of the treaty, such as China, can accept the jurisdiction of the Court by a special declaration, with respect to a particular crime,94 but the adoption of a declaration of this type in respect of the commission of international crimes during the COVID-19 pandemic is rather unrealistic. The exercise of ICC’s jurisdiction over acts committed by WHO’s officials in the fight against the spread of the novel 88

Infobae (2020). By virtue of article 12: “A State which becomes a Party to this Statute thereby accepts the jurisdiction of the Court with respect to the crimes referred to in article 5. 2. In the case of article 13, paragraph (a) or (c), the Court may exercise its jurisdiction if one or more of the following States are Parties to this Statute or have accepted the jurisdiction of the Court in accordance with paragraph 3: (. . .) (b) The State of which the person accused of the crime is a national.” 90 A situation, implicating the commission of international crimes can be referred to the ICC, directly, by the UN Security Council, even in relation to States that are not parties to the Rome Statute. However, the paradox of this procedure is that the Council can refer the nationals of other states to the ICC, but never the nationals of its five permanent members (the United States, France, the United Kingdom, Russia and China) because of their veto power during the referral. 91 In fact, article 12 of the Rome Statue establishes the possibility to determine the international criminal responsibility of nationals of a State non-signatory of the Statute, if “the State on the territory of which the conduct in question occurred or, if the crime was committed on board a vessel or aircraft, the State of registration of that vessel or aircraft” has ratified the treaty. 92 Aljazeera (2020b). 93 The investigation will cover international crimes committed by nationals of a State that is not party to the Rome Statute (the United States) on the territory of other States parties to the convention (Afghanistan, Poland or Lithuania). 94 According to article 12-3 of the Rome Statute: “If the acceptance of a State which is not a Party to this Statute is required under paragraph 2, that State may, by declaration lodged with the Registrar, accept the exercise of jurisdiction by the Court with respect to the crime in question. The accepting State shall cooperate with the Court without any delay or exception in accordance with Part 9.” 89

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coronavirus could raise complex questions of jurisdictional immunity that might be too difficult to be resolved.95 Additionally, regarding the scope of ICC’s material jurisdiction, in accordance with article 6 of the Rome Statute, Chinese nationals and/or nationals of other states could only be prosecuted for crimes against humanity if there is sufficient evidence that these individuals “intentionally” created the novel coronavirus and “intentionally” infected patients with COVID-19. The future implications of the violations, by WHO’s member states, of the rules of its droit dérivé and the recommendations adopted by the institution in its fight against COVID-19 are unclear. However, one of the main lessons from the COVID19 crisis concerns the inadequacy of WHO’s exclusively nonconfrontational institutional culture to the seriousness of the challenges caused by the global spread of communicable diseases. As shown by the COVID-19 pandemic, the consequences of the violations of WHO’s rules and recommendations in member states’ responses to health security events could cost millions of human lives. Thus, WHO’s future normative framework should include effective mechanisms to ensure that the perpetrators of violations of its rules and principles will not go unpunished. From an international law perspective, all WHO’s rules and mechanisms are (and should be) aimed to promote accountability and respect for the rule of law.

95 The WHO’s officials enjoys a special legal status under the UN Convention on the Privileges and Immunities of the Specialized Agencies. According to article VI of this treaty: “Officials of the specialized agencies shall: (a) Be immune from legal process in respect of words spoken or written and all acts performed by them in their official capacity;” The broader scope of the term “legal process” seems to include immunity from jurisdiction in cases brought before domestic and international tribunals, such as the ICC. The question of the immunity from jurisdiction of the UN specialized agencies and/or other international organizations officials is not settled in the Rome Statute. Article 27 of the Statute provides: “1. This Statute shall apply equally to all persons without any distinction based on official capacity. In particular, official capacity as a Head of State or Government, a member of a Government or parliament, an elected representative or a government official shall in no case exempt a person from criminal responsibility under this Statute, nor shall it, in and of itself, constitute a ground for reduction of sentence.” However, the WHO is not a party to the Rome Statute and is not bound by this article. Even if its officials are nationals of a State that is party to the treaty, the special legal status of the officials derives from the organization’s own international personality, and is not related to the rights and duties of the organization’s member states. The UN and the ICC celebrated a Special Relationship Agreement in 2014. According to this agreement, if the ICC requests the testimony of a UN official, or wishes to exercise criminal jurisdiction over a person, who enjoys immunity under the UN Convention on Privileges and Immunities, the UN undertakes to cooperate and to waive the immunity. See Higgins et al. (2017), pp. 617–618. Thus, in the present case, the ICC could only hear a case related to the international criminal responsibility of a WHO’s official in relation to the outspread of COVID-19, if the UN Secretary-General expressly authorizes a waiver of its immunity from jurisdiction.

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5 Conclusion The global health crisis originated by the spread of COVID-19 has exposed the gap between the ambitious functions assigned to WHO and the limited impact of its capacities to control and eradicate global pandemics of communicable diseases. This intergovernmental organization faces many structural challenges that restrain its potential to lead the international response to these types of health emergencies. WHO’s legal arsenal is too weak to regulate and guide state behavior during the global outbreaks of deadly viruses. Its constitutive treaty endows the organization with significant normative powers to adopt binding and soft law rules on a wide range of issues concerning health and health security. By acceding to WHO’s Constitution, member states accepted (some degree) of delegation of their sovereign normative powers to the organization. The original will of the authors of the Constitution was to create an intergovernmental institution that would shape states’ expectations and promote their cooperation for the fulfillment of common goals and interests. However, WHO’s evolution departed significantly from this original design, and its functions were achieved more by “technocratic” than by “legal” means. The divide between medicine and international law contributed to the development, at WHO, of an institutional culture that embraced the adoption of technical standards by medical experts and turned its back on international law. States’ cooperation in the field of health and health security was to be fostered by flexible “advice” and “recommendations” and not by strict obedience to “hard” international law. This perspective has been successful in many areas but has resulted in “egregious failures” in others. In particular, WHO’s normative deficit and the organization’s reluctance to use international law as a tool for submitting state power to commonly accepted rules have determined the weakness of its responses to the global outbreak of communicable diseases, such as Ebola and COVID-19. It is unrealistic to consider that WHO, alone, would be able to stop the worldwide dissemination of infectious diseases. However, it is also utopic to think that WHO could guide and coordinate states’ behavior during health emergencies of international concern, without the adoption and implementation of predictable legal rules. Its technical advice alone is not sufficient to support and reinforce states’ solidarity and cooperation in the fight against the outbreak of deadly virus. The COVID-19 pandemic has taught that WHO cannot control and eradicate global emergencies of international concern unless it starts to use more actively its normative powers. The global outbreak of COVID-19 has also revealed WHO’s financial unpreparedness to address health emergencies of international concern. The organization’s budget is too rachitic to uphold an efficient fight against deadly viruses. The financial deficit restrains WHO’s operational capacity and ability to support states’ domestic responses to the global pandemic. The institution does not possess the material means to provide vital medicines, medical equipment, infrastructure, and/or medical personnel to assist states in the guarantee of the human right to health during emergencies of international concern. States only count on WHO’s technical and

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medical advice, but regarding the “on ground” fight against the dissemination of communicable diseases, they are completely left on their own. Consequently, it is urgent to increase the organization’s current budget through compulsory and/or voluntary contributions from member states. WHO’s normative deficit and reluctance vis-à-vis international law explain the nonconfrontational culture of the organization regarding states’ obedience with the legal rules and recommendations adopted under its auspices. The COVID-19 pandemic has shown that states can easily violate WHO’s regulations and disrespect the recommendations of its political organs. However, member states have never assumed any negative legal consequences of such unlawful behavior. When it comes to guaranteeing respect for its own legal and technical standards, WHO relies only on states’ political will and acts as “a tiger without teeth.” At present, states’ political will to cooperate with WHO (and with many other post-World War II international intergovernmental organizations) through the traditional tools of multilateralism is missing. The global crisis of multilateralism is favoring the emergence of conflicts and confrontations between WHO’s member states and is impeding the achievement of any global consensus on the fight against the propagation of infectious diseases. WHO is placed in the middle of geopolitical rivalries between its developed and developing member states and has become a spectator of the clashes between these competing political poles. The end of the American leadership over WHO and over the international liberal order, as a whole, is blocking WHO’s decision-making mechanisms and could also provoke the eclipse of this intergovernmental organization and the deepening of its structural challenges. In this sense, the COVID-19 outbreak might have wounded not only millions of people around the globe and the economic and political domestic systems of almost all states. The global outspread of the novel coronavirus could also mark the beginning of the “swan song” of the post-World War II international liberal order. If a new global order emerges and if it is still based on legal norms and institutions, the UN and its specialized agencies, including WHO, will need to be reformed (and/or suppressed) according to the new power balances and the new “constitutional” moment within the order. Will WHO show the resilience and readjustment needed to endure this period of tension and continue to play a significant role in the global health governance? Perhaps yes, but only future can tell.

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Sacrificing Privacy in the Fight Against Pandemics: How Far Is Too Far? Examples from Bosnia and Herzegovina and Montenegro Nasir Muftić and Tahir Herenda

Contents 1 2 3 4 5

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Measures Undertaken by B&H and MN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Character or the Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Requirement of “Accordance with Law” and “Legitimate Aim” . . . . . . . . . . . . . . . . . . . . . . . . . . Necessary in a Democratic Society . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1 Measures Are Ineffective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2 The Measures Create Opportunity for Abuse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3 Less Intrusive Measures Had Been Available . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Publishing Lists as a Right to Receive Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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1 Introduction With the emergence of the COVID-19 pandemic, states have faced hitherto unprecedented challenge entailing urgent and vigorous governmental actions. Measures taken as a response are almost inevitably a trade-off between human rights and protection of public health and the economy.1 Around the world, privacy is 1 Regulatory responses of the jurisdictions worldwide is divergent. See: Eidenmüller (2020) The Race to Fight COVID-19: On the Desirability of Regulatory Competition. Oxford Law Faculty. https://www.law.ox.ac.uk/business-law-blog/blog/2020/03/race-fight-covid-19-desirability-regula tory-competition?utm_source¼dlvr.it&utm_medium¼facebook0.

N. Muftić (*) and T. Herenda University of Sarajevo, Faculty of Law, Sarajevo, Bosnia and Herzegovina e-mail: [email protected]; [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 Z. Meškić et al. (eds.), Balkan Yearbook of European and International Law 2020, Balkan Yearbook of European and International Law (2021) 2020: 277–292, https://doi.org/10.1007/16247_2020_22, Published online: 2 February 2021

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jeopardized through the use of location data, video camera footage, credit card information, and other methods of tracking.2 Many European States, too, have employed such measures. Bosnia and Herzegovina (B&H) and the Republic of Montenegro (MN) made publicly available lists of persons to whom decisions on mandatory self-isolation have been issued and/or lists of persons who violated such orders. This article addresses these measures. As both B&H and MN are Member States of the Council of Europe, it provides assessment from the perspective of the European Convention of Human Rights (ECHR), a leading human rights instrument for B&H and MN. B&H and MN are not Member States of the European Union (EU), and the acquis is not a mandatory law in these states.3 We claim that the measures of making such personal data available to the public are incompatible with the requirements of the ECHR and the case law of the European Court of Human Rights (ECtHR). Notwithstanding other potential fallacies of the B&H and MN measures, this paper will demonstrate that they do not meet the ECHR requirement of necessity in a democratic society.

2 Measures Undertaken by B&H and MN B&H and MN are relatively close to Italy, which is, at the time of writing this piece, facing a public health disaster caused by COVID-19. Since the perception in public is that Italy’s reckless approach to the situation contributed to the death toll and a high number of confirmed cases, the governments of B&H and MN sought to preempt such scenario with the introduction of strict shutdown measures. On March 17, 2020, B&H has declared a state of emergency, whereas a similar measure is still under consideration by the government of MN.4 Even though the measures undertaken by B&H and MN are not identical, restaurants and coffee shops have been closed, gatherings have been prohibited, and the schools and universities have moved to online teaching in both states.

2

Kharpal (2020). However, since the EU law provides a higher level of protection of privacy and data protection than ECHR, the measures would also be incompatible with the EU law principles. As it will be mentioned in the paper, rules of the EU law would explicitly bar such measures had they been undertaken by a member state of the EU. 4 This paper will not address the state of emergency per se. It that respect, Article 15 of the ECHR stipulates: “In time of war or other public emergency threatening the life of the nation any High Contracting Party may take measures derogating from its obligations under this Convention to the extent strictly required by the exigencies of the situation, provided that such measures are not inconsistent with its other obligations under international law.” Unlike some Member States of the Council of Europe who notified derogation from the ECHR, which is a duty required by Article 15 § 3 of the ECHR, B&H and MN have omitted to do so in the time of publishing of the lists and there are no announcements of such intent in the future. 3

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B&H and MN had decided to publish names of persons to whom decisions on mandatory self-isolation have been issued, due to the corona virus. This measure had been implemented with certain differences between the two states as well as between different levels of government in B&H.5 First, the government of MN published names, addresses, domiciles, and dates of issuance of self-isolation orders regarding persons under mandatory self-isolation on its official website.6 Whereas majority of parts of B&H have not published personal data of persons affected by COVID-19, there are some exceptions. Canton 10 and the municipalities of Konjic, Trebinje, and Čelić have followed the example of MN with certain variations regarding the amount of published personal data. Second, certain other parts of B&H—Tuzla Canton, Republika Srpska, and Brčko District— have published personal data of persons who were in breach of mandatory selfisolation and not of those persons who obeyed the order. This paper deals with two types of lists: 1. Lists that include the names of all self-isolated individuals, irrespective of their behavior 2. Lists that include the names of only those individuals who have breached selfisolation The first type of lists is present in MN, while Bosnian authorities have employed both types alternatively. The key difference between the two types of lists is that, although both lists are informative in nature, the second type has a quasi-punitive character—only individuals who have disobeyed the authorities and their orders are to be presented to the public as potentially dangerous. This means that the stigma connected with these individuals is higher—these are people who are not just suspected of being infected; they have also shown a lack of care and responsibility towards others. The first type of lists contain all individuals who are ordered to undergo self-isolation, and while it avoids the stigma connected to the second type of lists, it still exposes the individuals contained on these lists to the public without them being able to influence that in any way, shape or form. Prior to the publication of the list, the government of MN obtained the consent of the national data protection body—the Agency for Personal Data Protection (hereinafter “the MN Agency”). On March 23, 2020, the National Coordination Body for Infectious Diseases of MN submitted a request for opinion to the MN Agency about the compatibility of publication of personal data concerning persons subject to

5 While in MN only the central government publishes these lists, the situation differs in B&H, where in the absence of such a list being published by the state authorities, several lower tiers of government have published lists of citizens independently. These lists have in some cases been published simultaneously by two different tiers of government concerning the citizens from the same territory (e.g. list of Municipality of Trebinje, and lists of the Republika Srpska, the Entity in which this Municipality is situated). 6 List of persons who were subject to a self-isolation measure. 2020. Official web-site of the Government of the Republic of Montenegro http://www.gov.me/naslovna/samoizolacija. Accessed 19 April 2020.

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mandatory self-isolation with the Personal Data Protection Act of MN (hereinafter “MN Data Protection Act”)7. On the same day, the MN Agency issued an opinion confirming the lawfulness of the proposed measure. It stated that the MN Data Protection Act allows for personal data processing without the consent of data subjects if it is required for the protection of public interest, such as the protection of health. As the MN Data Protection Act defines data processing as, inter alia, operations of publishing or otherwise making available personal data, the MN Agency concluded that the measure under consideration is in accordance with domestic law. The involvement of the national Personal Data Protection Agency in B&H (hereinafter “the B&H Agency”) occurred ex post facto. After Canton 10, Konjic, Trebinje, and Čelić published their lists, the B&H Agency proprio motu issued an Order on March 24, 2020, holding that publishing personal data of persons who were not in breach of the order was unlawful.8 Unlike the MN Agency, the B&H Agency put focus on the sensitive character of personal data related to health and held that publishing of personal data of persons subject to mandatory self-isolation would create a breach of trust in a health system as well as would have detrimental effects on the data subjects. Although one of the lists containing the personal data of persons in breach of mandatory self-isolation was published on the same day the Order of the B&H Agency has been issued,9 the Order omits to mention it. Along with the Order, the B&H Agency issued a statement declaring the publishing of personal data of persons in breach of orders related to COVID-19 is in accordance with the Personal Data Protection Act of B&H10 (hereinafter “B&H Data Protection Act”), provided that domestic law requirements are met. At this moment, the B&H Agency has made a clear distinction between the two types of lists, approving of those that bear a quasi-punitive character while disproving of the concept of merely informative lists. Perhaps due to the ambiguity of such generalized statement, all lists containing the personal data of persons in breach of mandatory self-isolation, except for the list previously published by Republika Srpska, were published subsequently. Only on April 10, 2020, at the time when all the lists in B&H had already been on the Internet, that the B&H Agency issued a statement declaring that publishing of personal data of persons in breach of mandatory self-isolation was illegal as

7

Personal Data Protection Act (Zakon o zaštiti podataka o ličnosti) Official Gazette of Montenegro 79 /08 and 70/0 9, Av ailable at: ht tp://www.azl p.me/docs/zajednicka/zakoni / personaldataprotectionlaweng.pdf. Accessed 8 July 2020 8 Public announcement regarding processing personal data regarding activities in relation to corona virus pandemics. 2020. Official website of the B&H Agency http://www.azlp.ba/saopstenja/? id¼2914. Accessed 19 April 2020. 9 The list in Republika Srpska. 10 Personal Data Protection Act (Zakon o o zaštiti ličnih podataka) (‘Official Gazette of BIH’, nos. 49/06, 76/11 and 89/11), available at: http://azlp.ba/propisi/Default.aspx?id¼5&langTag¼en-US& template_id¼149&pageIndex¼1. Accessed 8 July 2020.

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well.11 It argued that such measure is not prescribed by domestic law and that general and proactive publication of personal data raises many concerns.

3 Character or the Measures Before addressing the main question, which is the necessity of the measures, we find it apt to qualify the type of data that have been published. The Council of Europe has in its Convention 108 defined personal data as any information relating to an identified or identifiable individual,12 with this standard later quoted in Amman v. Switzerland.13 Given that all of the abovementioned lists contain at least the name and surname of a number of individuals, there can hardly be any debate about the character of these data, and consequentially the publishing of these data is an interference with the right to private life under Article 8 of the ECHR.14 But the concept of personal data is a wide one, with many existing subcategories granting different levels of protection. The outbreak of the COVID-19 has led to a debate—do names of individuals who are in mandatory self-isolation represent health-related data? In its Recommendation, the Committee of Ministers has defined medical data as “all personal data concerning the physical or mental health of an individual . . . which reveals information about this individual’s past, current and future health.”15 The ratio of ordering self-isolation to individuals in the two countries was the recent travel history of targeted persons, which puts them at risk of being infected. Therefore, both types of lists are in essence lists of individuals whose future health is at risk, and in the eyes of the authors of this article, it is of no doubt that these data are therefore health data. The individuals in question are not certain to be infected—there is simply a risk that they will be infected. Even in case the affected persons turn out not to be infected, the mere eventuality on which the assumption is based that they carry the virus is sufficient to consider these data health related. The ECtHR has in its case law labeled information about infection by HIV as data whose publishing “may dramatically affect his or her private and family life, as well as social and employment situation, by exposing him or her to opprobrium and the

11

Public announcement regarding illegality of general and proactive publication of personal data of persons in breach of mandatory orders, 2020. Official website of the B&H Agency http://www.azlp. ba/saopstenja/?id¼2936. Accessed 19 April 2020. 12 Convention for the Protection of Individuals with regard to Automatic Processing of Personal Data No. 108 Art. 2 a). 13 Amann v. Switzerland, 2000 – II, Eur. Ct. H.R, 269; Also, Satakunnan Markkinapörssi Oy and Satamedia Oy v. Finland, 2017, 133–138. 14 See e.g. S. and Marper v. UK, 2008 – V, Eur. Ct. H.R, 213. 15 Recommendation CM/Rec(2019) 2 of the Committee of Ministers to member States on the protection of health-related data. 2019. Official website of Council of Europe https://search.coe. int/cm/pages/result_details.aspx?objectid¼090000168093b26e. Accessed 19 April 2020.

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risk of ostracism,”16 and “any State measures compelling communication or disclosure of such information without the consent of the patient call for the most careful scrutiny on the part of the Court.”17 We believe that information regarding the potential of COVID-19 infection bears many similarities to the abovementioned case, given its high level of transmissibility, the rising level of stigma and the potential societal outcast it evokes, and, consequently, the increased vulnerability of the affected persons. Also, lists with quasi-punitive character certainly have a more significant stigmatizing effect on individuals contained on it than merely informative lists, making the level of interference with private life higher. The ECHR stipulates that there is no violation of the Article 8 rights if a measure interfering with private life is in accordance with domestic law, pursuits legitimate aim, and is necessary in a democratic society. Below, these criteria will be addressed vis-à-vis the measures undertaken by B&H and MN.

4 Requirement of “Accordance with Law” and “Legitimate Aim” For the “accordance with law” requirement to be met, there must be domestic law on which the measure is based.18 Also, the law must be of a certain quality—it must be clear, foreseeable, and adequately accessible.19 In the following subsections, we will analyze the relevant legal provisions in both countries. Legal Framework for the Protection of Personal Data in Montenegro The legal foundation of the actions of the Montenegrin authorities is the MN Data Protection Act. The authors of this text claim that the data in question are health data, but the following analysis will consist of two strains, one operating under the assumption that these data are to be categorized as health data and the other considering them as merely personal data. 1) In its Article 9, the MN Law defines data concerning health as a special category of data. Article 13 prescribes special conditions under which the special categories of data may be processed. There are two plausible scenarios that could be invoked in the situation at hand: The special categories of data may be processed where: . . . .(2) processing is necessary for the purpose of detecting, preventing or diagnosing of data subject illness or carrying out his medical treatment, as well for the improvement of health services, in so far as the processing is done by a health worker or other person subject to the duties of keeping professional secret.

16

Z v Finland, App. No. 22009/93, 25 Eur. H.R. Rep. 371, 406 (1997). Ibid. 18 Mockutė v. Lithuania, App no. 66490/09, 101–106 (2018). 19 Delfi AS v. Estonia 2015 – II, Eur. Ct. H.R, 373. 17

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(3) processing is necessary to protect the life, health or interests of the data subject or of another person where the data subject is not in the position to give his consent personally, as well as in other cases provided for by law.

The situation described in para 2 of Article 13 is applicable only if the publication of the data is necessary “for the improvement of health services.” Additionally, the processor of this data is a health worker or another subject with a duty of keeping a professional secret, which means that para. 2 leaves little room for maneuvering in terms of making the data widely accessible. If we are to read this paragraph in a teleological manner, it would be a challenge to discern blanket publication of data as compatible with this paragraph. However, protection of the life, health, or interest of another person, mentioned in para 3, is a basis that may serve to vindicate the actions of the MN authorities. This paragraph is open ended—it enables for other laws to be invoked to justify the publication of the data of the subject. This fact, alongside the obvious vagueness of this provision, may raise some issues as to the foreseeability of the law. 2) The general regime of protection of personal data is expounded in Article 10: Personal data may be processed without the consent of the data subject when processing is necessary. . . (2) for the protection of life and health of an individual who is not in the position to give his consent personally. . . .3). . . (4) for the performance of a task carried out in the public interest or in the exercise of public authority falling within the scope of work or competence of the personal data filing system controller or personal data recipient.

Paragraph 2 of Article 10 is not as easily applicable as para 2 of Article 13—the latter expressly mentions “another person” whose life, rights, or interest is to be protected, while the former fails to do so. The basis mentioned in para 4 of Article 10 seems more suitable to the situation at hand, which basically enables any state authority that is a recipient of personal data to publish the data in question, as long as it falls within its competences. We have previously mentioned that the MN Agency has stated that the MN authorities are allowed to publish the data in question, invoking the provisions of the MN Law. Although it bases its opinion on Article 10 (2) and (4), it also labels the data in question as a special category of data and invokes Article 13. The opinion of the MN Agency is therefore contradictory—if the data in question are a special category of data, Article 10 (2) and (4) is irrelevant. Legal Framework for the Protection of Personal Data in Bosnia and Herzegovina Similar to the MN Data Protection Act, the B&H Data Protection Act establishes that health-related data fall into a special category of data. The acceptable bases for the processing of special categories of data are very similar to those of the MN Law: . . .processing of the special categories of personal data shall be allowed. . . . . . b) if the data processing is necessary to protect the life and health, property and other vital interests of the data subject or some other person for whom such consent cannot be obtained. . .

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. . .d) if the data processing is carried out to serve the needs of preventive medicine, medicinal diagnostics, medical service providing and management, provided that such data are processed by a professional medical officer obligated to keep the professional secret by operation of law or code of conduct of the responsible authority, or other persons who are also obligated to keep the secret. . . . . .g) if it is of special public interest or in other cases stipulated by law. In such cases the law shall have to contain specific provisions on appropriate protection mechanisms.

With points b) and d) being almost identical to provisions of the MN Law, they do not warrant a separate analysis. Point g), on the other hand, contains a blanket provision establishing the competence of authorities to process personal data. It stipulates that any law that is to be invoked needs to contain “specific provisions on appropriate protection mechanisms.” In its public announcement of April 10, 2020, the B&H Agency has found that domestic law does not have any such provision that would enable the publication of personal data had it had been previously done.20 Unlike the MN Agency, the B&H Agency declared measures illegal. However, the ultimate interpreters of domestic law are national courts, rendering the decisions of data protection agencies tentative. The “accordance with law” requirement is, therefore, not definitely settled in either MN or B&H. With respect to the quality of domestic law, it might be argued that both the MN Data Protection Act and the B&H Data Protection Act provide legal basis for the measure, in vague standard, of public interest, which adversely affects foreseeability. Although the criterion of foreseeability cannot be interpreted as requiring that all detailed conditions and procedures be laid down in the substantive law itself,21 the opposite interpretations of the two national agencies demonstrate the lack of clarity of the applied legal standard. The measures pursue a legitimate aim of protecting health, a ground explicitly provided for in Article 8 of the ECHR, which is why this requirement is not questionable in our opinion.22

20

Public announcement on illegality of general and proactive publishing of persons who do not comply with measures related to the Corona virus pandemic (Saopštenje za javnost o nezakonitosti generalnog i proaktivnog objavljivanja ličnih podataka lica koja ne postupaju u skladu sa mjerama zabrane u vezi pandemije virusa korona), 2020. Official website of the B&H Agency http://www. azlp.ba/saopstenja/?id¼2936, Accessed 8 July 2020. 21 Magyar Kétfarkú Kutya Párt V. Hungary, (Application no. 201/17), 2020, para. 94, available at: https://hudoc.echr.coe.int/eng#{%22fulltext%22:[%22Magyar%20K%C3%A9tfark%C3%BA% 20Kutya%20P%C3%A1rt%20V.%20Hungary%22],%22documentcollectionid2%22:[% 22GRANDCHAMBER%22,%22CHAMBER%22],%22itemid%22:[%22001-200657%22]}. 22 In general, ECtHR rarely finds a lack of legitimate aim. See: P. and S. v. Poland, 2012 – II, Eur. Ct. H.R., 133; L.H. v. Latvia, 2014 – I, Eur. Ct. H.R., 50–55.

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5 Necessary in a Democratic Society In its landmark case Sunday Times v. The United Kingdom, the ECtHR has defined that in order for an interference to be considered necessary in a democratic society,23 “(i)t must . . . be decided whether the ‘interference’ complained of corresponded to a ‘pressing social need’, whether it was ‘proportionate to the legitimate aim pursued’, whether the reasons given by the national authorities to justify it are ‘relevant and sufficient.’”24 Besides the “pressing” quality of the need, it is also supposed to contain a requirement of effectiveness, meaning that the measure is supposed to correspond to its aims.25 Translating this standard to the case at hand, we have to address whether and how the measures undertaken by B&H and MN correspond to the aim of protection of health. The effectiveness of the measures is closely related to the question of the relevance and sufficiency of the reasons for those measures, given that if they do not substantially contribute to the achievement of a certain goal, the reasons will probably not be considered reasonable and sufficient.26 When it comes to the proportionality of the measures undertaken, the ECHR does not have a “precise logic of operation”27 and is less formal than the proportionality test in other bills of rights.28 Bearing in mind the earlier findings regarding the effectiveness, reasonability, and sufficiency of the measures undertaken, we would like to approach the issue of proportionality from a practical perspective by asking a simple question—could the states have undertaken less intrusive measures?29 In this regard, we claim that the analyzed measures are not necessary in a democratic society since they are ineffective and create opportunity for abuse, and less intrusive measures had been available. Before looking at the measures undertaken by the authorities through the abovementioned criteria, we consider it necessary to acknowledge another important factor in the decision-making process of the ECtHR. This is the margin of appreciation, the deference that the ECtHR gives to the national authorities when it examines their actions. Depending on the type of issue at hand, the ECtHR can be scrutinous or deferential, i.e., the margin can be narrow or wide. In cases that bare factual similarities to the measures in B&H and MN, Z v. Finland and Avilkina v. Russia, the ECtHR has only confirmed that margin of appreciation exists, without

23

Although the Sunday Times case is related to article 10, the same test has been recognized in relation to article 8, see more: Schabas (2015), p. 406. 24 The Sunday Times v. The United Kingdom, App. No. 6538/74, 2 Eur. H.R. Rep. 245, 277 (1979). The test is also employed in cases concerning Article 8. See e.g. Üner v. the Netherlands, 2006 – XII, Eur. Ct. H.R, 145 and Maslov v Austria, 2008 – III, Eur. Ct. H.R, 322. 25 Fordhman and de la Mare (2001) in Gerards (2013), p. 467. 26 Gerards (2013), p. 467. 27 Jizeng (2016), p. 51. 28 Green (2006), p. 217. 29 This approach has been recognized as a fairly recent development in the jurisprudence of the ECHR, see more: Brems and Lavrysen (2015), pp. 139–168.

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defining its scope, and noted that it “depends on such factors as the nature and seriousness of the interests at stake and the gravity of the interference.”30 However, as it will be elaborated below, the persons affected by the measures are vulnerable, and as such, they receive preferential treatment by the ECtHR. The case law suggests that the vulnerability of the class due to their health conditions is related to narrowing the margin of appreciation down in cases concerning Article 8.31

5.1

Measures Are Ineffective

In our understanding, the publishing of personal data in B&H and MN aimed at informing citizens about potential sources of infection. The message to the public was that, in order to prevent the spread of the virus, contact with the listed persons should be avoided. In case they meet them, citizens should report the listed individuals to the authorities. The measures should have directed the persons whose personal data have been published to comply with the self-isolation policy and to avoid social contact. Having such personal data available created peer pressure as well as fear that they might be reported to the authorities. Certainly, the measures are related to the protection of health, but the effectiveness of these measures is questionable. The authorities seem to have operated on the assumption that the listed individuals are recognizable by a significant number of citizens, which is doubtful at best, especially in more populated areas. Thus far, there have not been any reliable records demonstrating the success of the measures. It is clear that both countries have operated in a previously unknown setting, in a situation where stakes are high and resources are limited. However, the fact remains that the purported goal of these measures is unclear and, thus, that the potential gains in the fight against the pandemic are questionable at best. On the other hand, the interference with the right to privacy is clear and significant, and prima facie in a significant misbalance with the gains to be yielded by its sacrifice.

5.2

The Measures Create Opportunity for Abuse

All the lists containing personal data seem to us disproportionate prima facie. The mere fact that someone came from abroad in the last 14 days is enough to put him on display for the general public as a possible health hazard. In times of the pandemic and the panic it provokes, this type of exposure of individuals might prove to be not

30

Avilkina and others v. Russia (Application no. 1585/09), 2013 para. 46, available at: https:// hudoc.echr.coe.int/fre#{%22itemid%22:[%22001-120071%22]}, Z v Finland, App. No. 22009/93, 25 Eur. H.R. Rep. 371, 407 (1997). 31 Kiyutin v. Russia, 2011-II, Eur. Ct. H.R, 49.

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only stigmatizing, but it might also bring risk of physical harassment. The first type of lists presents a sort of preventive public shaming, without any conscious action of the individuals listed whatsoever, and as such it cannot be considered as proportionate. The logic of the second type of lists is a bit different—only those who have breached the orders shall be named—there is an element of punishment involved, with punishment being understood in a wider sense, given that there are no provisions in law that would foresee this type of sanction. This type of lists seems to be even more detrimental to the safety of individuals involved. They are now effectively singled out as those who have consciously decided to risk the health of the general population, and as such it certainly evokes even more radical reaction from the general public, which in turn increases the risk to their safety and well-being. The measures rendered the affected persons vulnerable to stigmatization and abuse. The ECtHR has recognized the importance of confidentiality of medical information when such information could lead to prejudice and stigmatization.32 Also, the personal data were not protected from abuses. For instance, personal data published in MN had already been utilized by private parties who created a web application that uses geolocation of users to determine their distance from the persons in mandatory self-isolation.33 One cannot claim that further abuses cannot be expected in future and that the effective review of measures is at the disposal of affected individuals.34

5.3

Less Intrusive Measures Had Been Available

The level of intrusion of these measures is substantive. The action of the authorities might create an irreversible domino effect—once this information is published, the possible consequences are out of the control of the government. We have noted earlier the possible aims of the authorities—informing the citizens in order for them to be warned and also for them to exert pressure and possibly “police” the individuals. This type of “transfer of competence” is disproportionate to the specifics of the situation. To our knowledge, B&H and MN are the only European states that made publicly available personal data of persons as a reaction to COVID-19. The comparison with other states of similar level of economic development in the region fails to provide justification for such measures. A comparison with the EU Member States is not feasible as publication of lists containing personal data would be contrary to the General Data Protection Regulation and would fail to take into account fundamental rights enshrined in the Charter. Member States of the European Union apply more stringent constraints as the acquis of the EU provides a higher

32

Ibid. The application is available at: https://crnagorakorona.com/home. 34 M.N. and Others v. San Marino, 2012 – I, Eur. Ct. H.R., para. 81–85. 33

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level of protection than the ECHR. The Charter of Fundamental Rights of the European Union in Article 8 guarantees the right to the protection of personal data. Furthermore, the EU’s General Data Protection Regulation in Article 5 states that personal data shall be “adequate, relevant and limited to what is necessary in relation to the purposes for which they are processed,” “kept in a form which permits identification of data subjects for no longer than is necessary for the purposes for which the personal data are processed,” and “processed in a manner that ensures appropriate security of the personal data, including protection against unauthorized or unlawful processing and against accidental loss, destruction or damage, using appropriate technical or organizational measures.” B&H and MN could have implemented less intrusive measures. The same effect could have been reached with the publication of addresses without names as that would allow the public to avoid those locations, while such measure would be less intrusive.35 The state authorities most certainly have the resources to exert traditional measures of control, such as random phone calls or unannounced visits by the authorities. With respect to the lists that consist of names of those who have breached self-isolation, the authorities could have resorted to sanctioning this behavior as a misdemeanor punishable with fines. A state with a comparable legal and factual background is Serbia, being a member of the Council of Europe and not the European Union. Serbia also recorded a similar number of infections and had adopted similar measures such as mandatory curfew; ban on public gatherings, universities, and schools; and pressure on hospital resources. In order to achieve the same purpose as those of B&H and MN, Serbia published only a number of mandatory self-isolations by location, omitting to list the personal data of affected persons.36 Furthermore, B&H and MN could have employed tracing tools like many European states. Despite raising concerns of their own, the use of a tracking tool would be a less intrusive measure insofar as the personal data are available only to the state (and perhaps a limited number of persons) and not the general public. The current level of economic development of B&H and MN and their available resources and infrastructure do not demonstrate that the technological solutions similar to those employed around Europe could not be developed in these two states. For example, the government of MN deployed a mobile application for collecting health-related information for purposes of tackling the pandemic.37 In the case of Enhorn v Sweden,38 the ECtHR held that a state has to demonstrate that the less intrusive measures could not have been undertaken in order to justify the 35 Although the accordance of this measure with the ECHR would still be questionable as it can also lead to physical abuse or harassment. 36 Open data portal: Covid-19 self-isolation. 2020. Official website of the Government of Serbia. https://data.gov.rs/sr/datasets/covid-19 samoizolatsija/? fbclid¼IwAR0eHQew75AhOc2OsMswJ3gBjycnY4caENOycQq8_Q_u7Rg-InFcjqz7JhY. Accessed 19 April 2020. 37 B.B (2020), available at: http://www.rtcg.me/koronavirus/crnagora/274723/uz-pomoc-mobilneaplikacije-prijavite-simptome.html Accessed 8 July 2020. 38 Enhorn v Sweden, Application No. 56529/00.

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requirements of necessity. Although this case considers deprivation of liberty as a violation of Article 5 ECHR, the holding of the ECtHR vis-à-vis the requirements of necessity is applicable to measures undertaken by B&H and MN.39 The ECtHR refused to give deference to the argument of Sweden, which claimed that other less intrusive measures had been attempted as it failed to provide any examples of less severe measures that had been considered. Mutatis mutandis, we are unaware of any less intrusive measures considered by B&H and MN prior to the adoption of the personal data publication policy. Also, we are unaware that the public had been informed about the deliberation of such measures by the governments. The claim that the publication of personal data was a last resort would be inappropriate as various measures adopted by other states around the world had been at the disposal of the governments of B&H and MN.

6 Publishing Lists as a Right to Receive Information Although none of the authorities have formally claimed that they are publishing the lists to fulfill the rights of other citizens to be informed, it was stated on the official Twitter account of the Government of MN that the list is being published “so that every citizen could know which one of his neighbors is putting them in danger by being undisciplined.”40 One of the underlying implications could be that in a possible future litigation, the authorities could claim that they have opted to publish this information to avoid breaching the rights of citizens to receive information that is potentially extremely valuable for them in times of pandemics. Therefore, we will shortly address this possible, but not a probable, line of defense. The right to receive information is indeed protected under Article 10 of the ECHR. This right, however, has primarily been recognized as a negative obligation of the state, i.e., an obligation not to interfere with or prohibit the flow of information and ideas.41 With the mainstream core of the right clearly not applicable to the situation at hand, we have to look at the less present positive obligation of the state to enable citizens to access certain information, which has been denied existence in 1998 and has been recognized only since 2006.42 The ECtHR has stated that the right to receive information has been recognized “in relation to press freedom which

39

Also, this case concerned a measure aimed at protecting public health or safety. ECtHR addressed the availability of less intrusive measures in Article 8 case in Surikov v. Ukraine, (Application no. 42788/06), 2017, para. 92, available at: https://hudoc.echr.coe.int/fre#{%22itemid%22:[% 22001-170462%22]} affirming the importance of state’s deliberation of that issue. 40 Government of Montenegro (Vlada Crne Gore) (@VladaCG) Twitter (March 21, 2020, 7:38 PM). https://twitter.com/VladaCG/status/1241433943657844742. 41 Eskens et al. (2007), p. 263. 42 Leghe and Weismann (2014), pp. 305–306.

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serves to impart information and ideas.”43 The ECtHR did apply a generous standard and has expanded the right to receive information to nongovernmental organizations (NGOs), given that they have participated in a public debate in a legislative process.44 Several key areas have been recognized as those in which this right is applicable: open political debate, truth finding, social cohesion, avoidance of censorship, and self-development.45 Bearing in mind the approach of the ECtHR in the two judgments quoted above,46 and the provisional list recognized in academic literature,47 it seems that a claim that the actions of B&H and MN can be vindicated by Article 10 is, to put it mildly, a stretch. To the knowledge of the authors of this article, there was no organized attempt of an NGO or any other group of citizens to receive this information prior to their publishing, i.e., there was no formal request to exercise the right to receive information. Another important aspect of a hypothetical Article 10 case would be the fact that the names of individuals in self-isolation are not data of public matter for all the aforementioned reasons. Additionally, even if there was such a request, the hypothetical balancing of this right against the right to privacy would most probably go in the favor of the latter, with the abovementioned arguments relating to proportionality applicable mutatis mutandis.

7 Conclusion There is no doubt that the outbreak of COVID-19 has put many states to a challenge that has not been seen before. With various governments choosing different approaches, we believe that this specific approach of B&H and MN is a choice that simply does not fit the specifics of the challenge. Although the aim of the measures undertaken is beyond doubt legitimate and is of such urgency that human rights issues have been put in the background, these issues should still be present. The privacy of the citizens needs to be protected, even more so in times of collective panic and overboard reactions. The authorities have

43

Társaság a Szabadságjogokért v. Hungary, (Application no. 37374/05), 2009, para. 26, available at: https://hudoc.echr.coe.int/eng#{%22fulltext%22:[%22Tarsasag%20a%20Szabadsagjogokert% 22],%22documentcollectionid2%22:[%22GRANDCHAMBER%22,%22CHAMBER%22],% 22itemid%22:[%22001-92171%22]}. 44 Österreichische Vereinigung zur Erhaltung, Stärkung und Schaffung Eines Wirtschaftlich Gesunden Land- und Forst-Wirtschaftlichen Grundbesitzes v. Austria, (Application no. 39534/ 07), 2013, para. 36, available at: https://hudoc.echr.coe.int/eng#{%22fulltext%22:[% 22osterreichische%22],%22documentcollectionid2%22:[%22GRANDCHAMBER%22,% 22CHAMBER%22],%22itemid%22:[%22001-139084%22]}. 45 Supra note 41, p. 264. 46 See Supra notes 33 and 34. 47 See Supra note 35.

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overreacted and made a miscalculation—which is epitomized in the U-turn made by the B&H Agency. The goal that authorities seek to fulfill with these measures remains uncertain and at best one of questionable effects in the grand scheme of fighting a pandemic. Authorities have never clarified what exactly is the intended effect of publishing these lists, and even though the authors went considerable lengths to try and find a suitable goal, we have found ourselves unable to do so. That being said, we believe that it is clear that the authorities in question have failed to comply with the applicable standards of the ECHR and that there is a considerable risk of losing any future litigation that would touch upon these issues. Committing irreversible breaches of privacy pursuing an undefined goal is unacceptable, irrespective of the margin of appreciation that the ECtHR would choose to apply.

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Law On The Protection Of Personal Data (‘Official Gazette of BIH’, nos. 49/06, 76/11 and 89/11)., available at: http://azlp.ba/propisi/Default.aspx?id¼5&langTag¼en-US&template_id¼149& pageIndex¼1 Leghe F, Weismann P (2014) The european court of human rights and access to information. Int Hum Rights Law Rev 3 M.N. and Others v. San Marino, 2012 – I, Eur. Ct. H.R Magyar Kétfarkú Kutya Párt V. Hungary, (Application no. 201/17), 2020, para. 94, available at: https://hudoc.echr.coe.int/eng#{%22fulltext%22:[%22Magyar%20K%C3%A9tfark%C3%BA %20Kutya%20P%C3%A1rt%20V.%20Hungary%22],%22documentcollectionid2%22:[% 22GRANDCHAMBER%22,%22CHAMBER%22],%22itemid%22:[%22001-200657%22]} Maslov v Austria, 2008 – III, Eur. Ct. H.R Mockutė v. Lithuania, App no. 66490/09, 101 – 106 (2018) Open data portal: Covid-19 self-isolation. 2020. Official website of the Government of Serbia Österreichische Vereinigung zur Erhaltung, Stärkung und Schaffung Eines Wirtschaftlich Gesunden Land- und Forst-Wirtschaftlichen Grundbesitzes v. Austria, (Application no. 39534/07), 2013., available at: https://hudoc.echr.coe.int/eng#{%22fulltext%22:[% 22osterreichische%22],%22documentcollectionid2%22:[%22GRANDCHAMBER%22,% 22CHAMBER%22],%22itemid%22:[%22001-139084%22]} Personal Data Protection Law (Official Gazette of Montenegro 79/08 and 70/09)., Available at: http://www.azlp.me/docs/zajednicka/zakoni/personaldataprotectionlaweng.pdf Public announcement on illegality of general and proactive publishing of persons who do not comply with measures related to the Corona virus pandemic (Saopštenje za javnost o nezakonitosti generalnog i proaktivnog objavljivanja ličnih podataka lica koja ne postupaju u skladu sa mjerama zabrane u vezi pandemije virusa korona) 2020, http://www.azlp.ba/ saopstenja/?id¼2936 Public announcement regarding illegality of general and proactive publication of personal data of persons in breach of mandatory orders. 2020. Official website of the B&H Agency http://www. azlp.ba/saopstenja/?id¼2936 Public announcement regarding processing personal data regarding activities in relation to corona virus pandemics. 2020. Official website of the B&H Agency http://www.azlp.ba/saopstenja/? id¼2914 Recommendation CM/Rec(2019) 2 of the Committee of Ministers to member States on the protection of health-related data. 2019. Official website of Council of Europe S. and Marper v. UK, 2008 – V, Eur. Ct. H.R Satakunnan Markkinapörssi Oy and Satamedia Oy v. Finland, 2017 Schabas W (2015) The european convention on human rights. Oxford University Press, Oxford Surikov v. Ukraine, (Application no. 42788/06), 2017, para. 92, available at: https://hudoc.echr.coe. int/fre#{%22itemid%22:[%22001-170462%22]} Társaság a Szabadságjogokért v. Hungary, (Application no. 37374/05), 2009., available at: https:// hudoc.echr.coe.int/eng#{%22fulltext%22:[%22Tarsasag%20a%20Szabadsagjogokert%22],% 22documentcollectionid2%22:[%22GRANDCHAMBER%22,%22CHAMBER%22],% 22itemid%22:[%22001-92171%22]} Üner v. the Netherlands, 2006 – XII, Eur. Ct. H.R Z v Finland, App. No. 22009/93, 25 Eur. H.R. Rep. 371 (1997)