Last year we reported on the UK government's announcement of its commitment to ratification of the Cape Town Convention and Aircraft Protocol (the "Convention") and the proposed government consultation in order to garner views on how to implement the Convention. This consultation (entitled "Ratification of the Convention on International Interests in Mobile Equipment (the Cape Town Convention) and Protocol thereto on matters specific to Aircraft Equipment") closed on 14 August 2014 and on 15 March this year the government published its response.
The purpose of the consultation was to obtain industry input on specific practical and technical issues concerning how the Convention should be implemented and work under and alongside current English Law.
The key conclusions of the consultation were as follows:
- The Convention should not apply to interests which already exist, which means that any such interests will retain their priority without the need for registration with the International Registry.
- All non-consensual rights – for example existing and future liens for unpaid airport and navigation charges – will take priority under English law over interests which have been registered with the International Registry (and such non-consensual rights will not be registrable at the International Registry). In addition, statutory detention rights such as the "European fleet lien" would be retained.
- Creditors can exercise extra-judicial remedies without leave of the court. Creditors will be able to de-register and export aircraft equipment by use of an irrevocable de-registration and export request authorisation (or IDERA).
- Under the Convention, a contracting state can opt for the insolvency procedures under either the "hard" or "soft" regime. The UK will follow suit with most of the existing contracting states and adopt the "hard" regime ("Alternative A") which provides that an administrator (or the debtor) must (a) give possession of the aircraft to the creditor or (b) cure the default(s) or agree to perform future obligations within a certain day "waiting period". The waiting period will be 60 days in length.
- Lex Situs is the English law rule which is applied to determine the validity of the creation of a proprietary right (for example under a security agreement) and it states that a transfer of a tangible moveable (for example an aircraft) will only be valid if it was validly effected in the country in which the asset was located at the time the security interest was created. This contrasts with the Convention which provides for the creation of an international interest over an aircraft without reference to the physical location of the aircraft at the time of entry into the mortgage. By way of clarity here (and since the English law lex situs rules cannot be simply ignored in the future), the consultation concluded that the Convention should apply to internal transactions, which will be those where the aircraft and all the parties to the transaction are located in the same state when the agreement is concluded. The government has taken the view that an international interest is a proprietary right that takes effect in law once the conditions for the creation and registration of an international interest are satisfied, so that the Convention's remedies are available as intended. The validity of a security interest or agreement which is not an international interest created under the Convention will still be determined by the application of the lex situs rule.
Next steps
The government has published draft regulations to implement the Convention. Once the final regulations have been submitted to Parliament, the UK will also have to submit its instruments of ratification to Unidroit, the official depositary for the Convention. The Convention will come into effect on the first day of the month, three months after the date of such submission.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
