Implementation of the Default Remedy Mechanisms of the Cape Town Convention and Aircraft Protocol in China

Many of us may board an aeroplane without a second thought on issues relating to financing, sale, lien or mortgage of the aircraft. Why do we even want to know? We need to know this because there are many issues regulating the different parts of the aircraft that we board. Different from principles of public air law found in the Convention on International Civil Aviation signed on 7 December 1944 by 52 States, the present private law Convention on aircraft financing is called the Cape Town Convention on International Interests in Mobile Equipment (also called the Cape Town Convention) and Aircraft Protocol. It was adopted by UNIDROIT on 16 November 2001 and it entered into force on 1 March 2006. The two Conventions do meet at some point in relation to mortgages and financing of aircraft engines and parts. With 59 contracting States, the Cape Town Convention represents a very important private commercial law treaty which sets out the law on security and related interests in aircraft objects. Upon ratifying the Convention, it assists States in the uniform adoption of national laws in this field. Professor Sir Roy Goode’s works in drawing up the Official Commentary on the Convention and Aircraft Protocol are only too well-known. This article seeks to acccount for the implementation of the Cape Town Convention in Malaysia, and to this end highlights the various laws and regulations that impact upon the area before and after the adoption of the Convention . The paper highlights certain lacunae and uncertainties where applicable, particularly the Questionnaire. Systematically reviewing publicly accessible documents and information shows that in Malaysia, there is some systematisation in the implementation of the Cape Town Convention processes delivering on our legislative obligations to meet the Convention’s objectives.

The regime of proprietary security interests in mobile assets under the 2001 Unidroit Convention on International Interests in Mobile Equipment (hereinafter: Cape Town Convention) has developed into one of the most resounding successes in the history of legal harmonisation in the field of secured transactions. By 2013, the Cape Town Convention had attracted 59 Contracting Parties,1 while the 2001 Protocol to the Convention on International Interests in Mobile Equipment on Matters specific to Aircraft Equipment (hereinafter: Aircraft Protocol) boasted 53.2 With the adoption of the 2007 Protocol to the Convention on International Interests in Mobile Equipment on Matters specific to Railway Rolling Stock (hereinafter: Luxembourg Protocol) and the 2012 Protocol to the Convention on International Interests in Mobile Equipment on Matters specific to Space Assets (hereinafter: Berlin Protocol), the secured transaction regime set in place by the Cape Town Convention was completed for all three categories...

This chapter is devoted to the 2001 Cape Town Convention on international interests in mobile equipment and its associated Aircraft Protocol sponsored by UNIDROIT and ICAO. Both instruments have secured a large number of ratifications. Their 99 provisions cover a wide range of issues relating to security and quasi-security interests in aircraft objects, railway rolling stock and space assets. The chapter examines the principles underlying the Convention, its sphere of application, the default remedies, the provisions relating to the International Registry for the registration of international interests and sales and the priority rules based on the order of registration. Key features of the overriding provisions of the Aircraft Protocol are also identified, including strong creditors' remedies in the event of the debtor's insolvency, remedies which are considered a key features in reducing the risks and costs of aviation finance.

For many, aircraft evoke a visceral thrill and sense of romance as they push the limits of human experience and transcend geographical boundaries on a regular basis. To aviation financiers however, the inherent internationality and mobility of aircraft equipment, i.e. airframes, aircraft engines and helicopters, present special challenges. This difficulty is exacerbated by the lack of uniformity across jurisdictions with regards to secured transactions law. Taking into account the high credit risk – the business of aircraft repossession is even said to carry mortal risk – creditors may refuse to lend or charge higher interest on loans.In an effort to “induce the assumption of risk and the release of funds” as well as reduce the cost of financing mobile equipment such as aircraft objects, the Governing Council of the International Institute for the Unification of Private Law (“UNIDROIT”) authorised the creation of a Study Group in 1992 to draft uniform rules on international aspects of security interests in mobile equipment. Over the years, the project developed into a comprehensive international convention accompanied by three protocols, each dealing with a particular category of equipment. The work concerning aircraft equipment was done with the active participation of the International Civil Aviation Organisation (“ICAO”), International Air Transport Association (“IATA”) and the Aviation Working Group (“AWG”) and culminated in the signing of the Convention on International Interests in Mobile Equipment (“Convention”) and the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment (“Aircraft Protocol”) in 2001. After receiving the requisite number of ratifications, both entered into force in 2006. The single and restricted objective of this paper is to rationalise and defend the Convention and Aircraft Protocol’s first-to-register rule despite its problems, which this author believes have been adequately considered by the drafters of the Convention and Aircraft Protocol and addressed by the exceptions to the rule.

Abstract: The Convention on International Interests in Mobile Equipment and the Protocol thereto on Matters specific to Aircraft Equipment were opened to signature in Cape Town on 16 November 2001. Twenty-six States have to date signed both instruments and the signs are good for their early entry into force. The origins of UNIDROIT’s work in this area were both legal and economic in nature, legal in the sense that the lex rei sitae is not particularly appropriate for resolving disputes concerning the validity, enforceability and priority ranking of assets of a kind likely to be moving across or beyond national frontiers on a regular basis, economic by reason of the potential that asset-based financing could have in enhancing access to high-value mobile equipment for debtors in developing and emerging economies. Considerable research by UNIDROIT, and in particular Professor R.C.C. Cuming, provided the basis for this work. A preliminary draft Convention, drawn up by a UNIDROIT study group, chaired by Professor Sir Roy Goode, between 1993 and 1997, and a preliminary draft Protocol on Matters specific to Aircraft Equipment, drawn up by a working group the core members of which were the International Civil Aviation Organization (ICAO), the International Air Transport Association (IATA) and the Aviation Working Group organized by Airbus Industrie and The Boeing Company, between 1997 and 1998, provided the basis for intergovernmental negotiations, co-sponsored by UNIDROIT and ICAO, between 1999 and 2000. The benefits of the new international regimen are intended to be extended to other categories of high-value mobile equipment, in the first place railway rolling stock and space assets. Governmental experts are already at work on a preliminary draft Protocol to the Cape Town Convention on Matters specific to Railway Rolling Stock. Governmental experts will commence consideration of a preliminary draft Protocol on Matters specific to Space Assets in December 2003. A Preparatory Commission was set up by the Cape Town diplomatic Conference, under the guidance and supervision of the ICAO Council, to act as Provisional Supervisory Authority for the establishment of the International Registry for aircraft objects that will underpin the Cape Town Convention and Aircraft Protocol. It was directed by the diplomatic Conference to ensure that the International Registry be set up at the latest by the time of the entry into force of the Convention and the Aircraft Protocol. Those States that participated in the diplomatic Conference and interested private parties were urged by the diplomatic Conference voluntarily to make available, at the earliest possible date, the start-up funding that will be needed for the Preparatory Commission and ICAO to carry out the tasks given to them by the diplomatic Conference. The new international regimen will greatly reduce the cost of credit for the financing of the different categories of high-value mobile equipment covered thereby. The economic gains expected to flow from effective implementation of the Convention and the Aircraft Protocol run to several billion dollars on an annual basis. It is anticipated that the novel solutions embodied in the new international regimen will filter through to the new generation of laws governing secured transactions in general being put in place. The new international regimen is likely to have special significance for developing countries, by providing them with the foreign capital investment needed to help them develop their infrastructure. The unique level of participation at all stages of the development of the new international regimen by representatives of the world of practice, and in particular the different business sectors involved, means that the Convention and its Protocols reflect industry consensus to an unprecedented degree and thus enhances the chances of the new international regimen attracting widespread acceptance.

De-registration and export remedies under the Cape Town Convention on International Interests in Mobile Equipment and its Aircraft Protocol are integral components of the overall suite of remedial rights provided under the treaty and address some of the legal and procedural shortcomings of otherwise available applicable law. This article provides a critical analysis of the key provisions of the Convention and Protocol dealing with de-registration and export remedies and also identifies some of the key areas where the Convention and Protocol may need a broader interpretation in order to give effect to their desired goals. This article also identifies questions surrounding the use of the Irrevocable De-registration and Export Request Authorization (or “IDERA”) and provides suggested guidance for its implementation and use.

The Cape Town Convention and its associated Protocols are primarily concerned with the protection of interests in tangible movables, namely aircraft objects, railway rolling stock and space assets. However, these instruments also contain important provisions on intangible assets related to such objects; indeed, in relation to space assets such rights, in the form of obligations owed to the debtor by third parties (‘debtor's rights’) and assigned to the creditor as additional security are potentially more valuable as collateral than the space asset itself. Yet national laws are ill-equipped to deal with such assignments in an international setting, since not only do they vary from country to country but there are fundamental disagreements as to the appropriate choice of law rule. This article analyses the complex provisions of the Convention and Space Protocol concerning the protection of dealings in intangible assets. Roy Goode acted as Rapporteur at the diplomatic Conference in Berlin in 2012 to adopt the Space Protocol. His Official Commentary on the Convention and Space Protocol was published by UNIDROIT in May 2013 and the third edition of his Official Commentary on the Convention and Aircraft Protocol in July 2013.

The Space Asset Protocol forms part of the Convention on International Interests in Mobile Equipment, the so-called Cape Town Convention of 2001, and was developed under the auspices of the International Institute for the Unification of Private Law (UNIDROIT) as a new secured transactions legal instrument to support asset-based financing of high-value, uniquely identifiable, mobile equipment in different sectors, offering an international approach independent from national legal instruments relating to the creation, registrations, priority, and enforcement of security rights in specific categories of assets. UNIDROIT has a long tradition in harmonization civil law instruments, but with the Space Asset Protocol it was the first time it was applied to space law matters. The overlap of classical property law aspects and international space law has turned out to be a particular challenge. The Space Asset Protocol was opened for signature on March 9, 2012, the concluding day of the Diplomatic Conference held for its adoption in Berlin; therefore, it is also called the Berlin Protocol. Since then, the space sector has undergone several fundamental changes. The rise of the so-called “new space economy” (NewSpace) opens up new fields of application for the Berlin Protocol. It is an option that is independent from the classical project-based financing of space projects. One of its aims is to make it easier for newcomers to the space sector to obtain financing. The Cape Town Convention entered into force in 2006, together with the Aircraft Protocol. The Space Asset Protocol was adopted in 2012, with ten ratifications necessary for its entry into force.

In the inaugural issue of this journal Gilles Cuniberti addressed the question of the nature of the relief pending final determination under the Cape Town Convention. One of his contentions is that the Convention leaves open the question of the nature of the relief provided in Article 13, which has to be seen as a 'hybrid' between an interim relief and a final remedy. In the present paper a different approach to the interpretation of Article 13 is presented. It is suggested that the qualification as a speedy enforcement remedy to obtain the anticipated satisfaction of creditors' claims is more convincing than the alternative of focusing on the interim nature of the relief. This suggestion is based on the specific conditions set forth for the exercise of the relief in the Convention, as well as the changes to Article 13 introduced in the Protocols to the Convention (and in particular the Aircraft Protocol). Advance relief in the Convention and its Protocols should be seen as a sui generis remedy the regime of which is dictated by the treaties themselves and should be interpreted autonomously from any existing domestic counterpart.

In the inaugural issue of this journal Gilles Cuniberti addressed the question of the nature of the relief pending final determination under the Cape Town Convention. One of his contentions is that the Convention leaves open the question of the nature of the relief provided in Article 13, which has to be seen as a ‘hybrid’ between an interim relief and a final remedy. In the present paper a different approach to the interpretation of Article 13 is presented. It is suggested that the qualification as a speedy enforcement remedy to obtain the anticipated satisfaction of creditors' claims is more convincing than the alternative of focusing on the interim nature of the relief. This suggestion is based on the specific conditions set forth for the exercise of the relief in the Convention, as well as the changes to Article 13 introduced in the Protocols to the Convention (and in particular the Aircraft Protocol). Advance relief in the Convention and its Protocols should be seen as a sui generis remedy the regime of which is dictated by the treaties themselves and should be interpreted autonomously from any existing domestic counterpart.

One of the defining features of the Uniform Commercial Code Article 9 is the secured creditor’s ability to take possession of the collateral upon the debtor’s default “without breach of peace.” This standard is meant to protect the debtor from abusive secured creditors, the meaning of which has been shaped by courts on a case-by-case basis. In reforming their secured transactions laws to enhance access to credit, continental legal systems have shown great reception to Article 9 by adopting the unitary concept and functional approach to security interests, introducing private enforcement mechanisms, including various forms of self-help repossession. However, the “without breach of peace” standard seems to be rejected by most national laws and international legal instruments acceded to by civil law countries, to accommodate the supposedly alien idea of self-help repossession with civil law tradition. Based on comparative analysis of secured transactions laws of the US, the UK, Romania, and Hungary (representing national laws), and the Cape Town Convention on International Interests in Mobile Equipment along with the Aircraft Protocol and the Draft Common Frame of Reference (representing international legal instruments), this article demonstrates that continental European legal systems are generally apprehensive with the “without breach of peace” standard. Thus, they are reluctant to transplant it to their legislation and try to either modify it or replace it with different legal requirements. This article concludes that the alternatives of the “without breach of peace” standard prevailing in continental legal systems undermine the privilege of the secured creditor, pose enforcement problems (such as uncertainty of creditors’ rights and possible abuses against consumer-debtors), and restrain out-of-court enforcement.

The legal impediments to the accession of Iran to the Cape Town Convention on International Interests in Mobile Equipment and the Aircraft Protocol

The intent of this publication is to address four significant issues that have played a major role in the international aviation finance and lease practice. These matters are covered by the ‘Convention on International Interests in Mobile Equipment’ and the ‘Protocol on Matters specific to Aircraft Equipment’ (Cape Town Convention, 2001). First, the article addresses the existing national secured interests of the lessees (operator-lessees) of aircraft. For example, in the United States, the Kingdom of the Netherlands and other countries the airlines can obtain these important secured rights. Also at the global level an operator-lessee needs adequate protection of its financial interests when the lessor defaults or becomes insolvent. This contribution submits that the national secured interests of operator-lessees are governed by the Cape Town Convention. Secondly, the fundamental problem of the non-consensual rights that can be established in aircraft is discussed. Where certain requirements are met, under the Cape Town Convention the holders of national liens may be protected. These third-party rights have priority over the registered international interests of the financiers, lessors and operator-lessees. Anecdotal evidence corroborates that several (major) stakeholders are not aware of this important fact which may have a grave impact on their own interests. Thirdly, the contribution investigates the legal effects of choosing the applicable law in aviation finance and lease agreements. For instance, continuously it is proposed that the laws of New York and England provide adequate and modern aviation-related property law regimes. This publication contends that worldwide many lawyers do not appreciate that any choice of law clause in an agreement only has a very limited effect. This theory is endorsed by the Cape Town Convention. Fourthly, the negative consequences of the alleged application of the doctrine of accession to aircraft engines finance and lease transactions are reviewed. This controversial theory dictates that under all circumstances the owner of the aircraft becomes the owner of the engine as soon as the latter object is installed in the former. The Cape Town Convention stipulates that engines are separately financed and leased from the aircraft. Finally, some concluding remarks are made.

This article recommends the Cape Town Convention on International Interests in Mobile Equipment and appeals to African countries to accede to the Luxembourg Protocol on Railway Rolling Stock (Rail Protocol). The discussion in this article focuses on the extent to which Article XXII of the Rail Protocol can be applied with respect to Africa. The article critically analyses the competence of the African Economic Community (AEC) and its sub-regional organizations to accede to the Cape Town Convention and Rail Protocol. The author provides a detailed argumentative analysis of the legal mandate of the AEC and the influence of African Union (AU) laws on the competence of the AEC’s sub-regional organizations to make declarations under the Cape Town Convention and Rail Protocol. The analysis confirms that competence to accede to the Convention and Rail Protocol resides with sovereign States in Africa and not with the AU, the AEC, the Organisation pour l’harmonisation en Afrique du Droit des Affaires, or any existing sub-regional organization in Africa.

This article presents an overview, from a comparative law perspective, of the rules of the Cape Town Convention and the Aircraft Protocol on the creation, perfection and priority of an international interest. Section 1 delineates the scope of the article and points out that the Cape Town Convention and the Aircraft Protocol must be read together; therefore, the analyses in the article refer only to the consolidated version of the two instruments. Section 2 summarises the rules for the constitution of each of the three categories of international interests contemplated by the Convention (a security interest granted under a security agreement, the ownership interest of a seller under a conditional sale and the interest of a lessor under a leasing agreement). Comparisons are made with national law, including on whether or in what circumstances a conditional sale or a lease will be characterised as a security interest. Section 3 deals with the effectiveness against third parties of an international interest: ...