Cape Town Convention: Protect Your Interests in Aircraft Equipment

March 7, 2014

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The Convention on International Interests in Mobile Equipment (the ‘Cape Town Convention’) was opened for signature at Cape Town in 2001.  It is a convention about international interests in aircraft, helicopters, aircraft engines, space assets and railway rolling stock.  Those assets, especially aircraft, are used heavily and frequently cross international boundaries.  They are also quite expensive, representing a significant investment, even for a large business such as an airline or an aircraft leasing company.

It is sensible that there should be a central, international register of financial interests in aircraft equipment.  Many international airlines do not own many of their aircraft – they are more often leased from aircraft leasing companies – which makes it more important to be able to discover who has interests in an aircraft.  Keeping track of financial interests in a sensible, accessible way, protects the aircraft operators, owners and purchasers alike.  The Cape Town Convention establishes such a register.

At present, the Cape Town Convention has six States Parties:  Ethiopia, Ireland, Nigeria, Pakistan, Panama and the United States of America.  Australia is set to join that list shortly.  Legislation allowing Australia’s accession to the Convention is already in place, with the Commonwealth Parliament last year enacting the International Interests in Mobile Equipment (Cape Town Convention) Act 2013 and the International Interests in Mobile Equipment (Cape Town Convention) (Consequential Amendments) Act 2013.  The first of those Acts is to bring the provisions of the Convention into Australian law, and the second makes various amendments to the Air Services Act 1995, the Civil Aviation Act 1988 and the Personal Property Securities Act 2009 that will enable the Convention to function in Australia.  The Acts are to take effect once the Convention enters into force for Australia.  According to Article 49 of the Convention, that will occur three months after the Australian Government lodges its notice of accession with the International Institute for the Unification of Private Law (otherwise known as UNIDROIT).  The Department of Infrastructure and Regional Development is currently in the process of doing so, and expects that this new part of Australian aviation law will enter into force in mid-2014.0

Protections for Financial Interests

As mentioned to above, the Cape Town Convention establishes an international register of financial interests in various classes of equipment.  Protocols subordinate to the Convention set out the arrangements for each class.  The Aircraft Protocol is currently the only Protocol in force and it allows interests in the following aircraft equipment to be registered:

  • ‘airframes’ certified to carry at least 8 persons (including crew) or goods in excess of 2,750 kilograms;
  • ‘helicopters’ certified to carry at least 5 persons (including crew) or goods in excess of 450 kilograms;
  • ‘jet propulsion aircraft engines’ capable of producing at least 1,750 pounds of thrust; or
  • ‘turbine-powered or piston-powered aircraft engines’ capable of producing at least 550 rated take-off shaft horsepower.

For equipment within those categories, the Convention will allow financial interests of the following types to be registered in relation to a uniquely identifiable object:

  • A charge granted under a security agreement;
  • An interest vested in a person who is a conditional seller under a reservation of title agreement (commonly known as a ‘Romalpa clause’); or
  • The interest of a lessor under a leasing agreement.

Where a debtor is in default in relation to a registered interest, there are a number of remedies available, depending upon whether the other party is a chargee, a conditional seller or a lessor.

For a chargee, Article 8 of the Convention provides that the chargee may: 1) take possession or control of the object, 2) sell or lease the object, or 3) collect or receive income or profits arising from the management of the object.  These rights must be exercised in a commercially reasonable manner, but a chargee’s actions will be considered reasonable unless they are ‘manifestly unreasonable’.  When exercising the power to sell or lease the object, the chargee must give reasonable notice to any interested person, including the debtor.  Under Article 9, a chargee may also seek orders from a Court that the ownership of the object be vested in the chargee in or towards satisfaction of the secured obligations.

The rights of a conditional seller or lessor are protected by Article 10, which allows the seller or lessor to terminate the agreement and recover possession of the object, or apply to a Court for orders compelling the defaulting purchaser or lessee to give up possession.

In relation to aircraft, the Aircraft Protocol provides for a remedy of deregistration and export of the aircraft.  Where an aircraft is located overseas, and is registered (for the purposes of civil aviation law) in the foreign jurisdiction, the remedy allows the aircraft to be deregistered and exported to the creditor’s jurisdiction.  The amendments to the Civil Aviation Act will allow the Civil Aviation Safety Authority to administer this remedy for foreigners exercising it in relation to Australian-registered aircraft.

The Register

The register allows registration of both current and prospective international interests in the aircraft equipment.  It also assignments and acquisitions of those interests.  National interests in aircraft equipment can also be registered.  Either party to an interest may register the interest, but only with the written consent of the other party.

Priority of Competing Interests

Where two interests are in conflict, there are a few ways to determine the priority.  The default position is that, under Article 29, a registered interest takes priority over any interest registered subsequently to it, or to any unregistered interest.  This rule applies even if an object was acquired with actual knowledge of a registered interest.  Alternatively, a person registering an interest can state specifically that the interest is subordinate to another interest.

The Personal Property Securities Register

For Australia, some consideration should be given to the newly-established Personal Property Securities Register (PPSR).  The PPSR performs a similar function to the register established by the Cape Town Convention, but allows registration of any interest in any kind of personal property, not just aircraft equipment.  Whilst the PPSR is wider in scope, it also does not provide for remedies specific to aviation, such as the deregistration and export remedy.  This could make it difficult to take possession of an aircraft located in a foreign jurisdiction, even if the interest is registered on the PPSR in Australia.

For more information about the Cape Town Convention and the register of international interests in mobile equipment, contact the Carneys Aviation Team.

Bradley Hayward is an aviation lawyer and a member of the Carneys Team.