On December 12, 2012, the federal government of Canada passed legislation that, in conjunction with various provincial laws, ratified its signature to the Convention on International Interests in Mobile Equipment (the "Convention") and the Protocol to the Convention on International Interests in Mobile Equipment on Matters specific to Aircraft Equipment (the "Protocol" collectively with the Convention the "Cape Town Convention") which occurred on March 31, 2004. This ratification is subject to the declarations lodged by the Canadian government (the "Canada Declarations") amending and supplementing sections 39, 52, 53, 54 and 60 of the Convention and articles VIII, X, X(6) XII and XIII of the Protocol.
The Cape Town Convention requires, subject to the exceptions indicated therein and to the Canada Declarations, that a written security agreement, title reservation agreement, leasing agreement or contract of sale1 involving a debtor situated2 in a contracting state of the Cape Town Convention (which now includes Canada), which creates an international interest3 or prospective international interest4in aircraft equipment meeting certain size and power requirements,5 be published in the International Registry of Mobile Assets(the "IRMA") in order for such interest to be enforceable/perfected against third parties and for its priority to be established.
The Cape Town Convention will take effect on April, 1 2013 (the "Implementation Date") in Alberta, British Columbia, Newfoundland and Labrador, Northwest Territories, Nova Scotia, Ontario, Québec and Saskatchewan. Although registration is not required for International Interests, Prospective International Interests or Non-Consensual Rights or Interest (within the meanings given to such terms in the Cape Town Convention) created before the Implementation Date, all such rights and interests created after the Implementation Date will need to be published in the IRMA. The priority of IRMA registrations is established on a "first to register" basis.
The one exception to this rule pertains to Pre-Existing Rights or Interests (within the meaning set forth in the Convention) governed by Sections 426 to 436 of the Bank Act (SC 1991, c 46). Such rights and interest have been given a five year grace period: up until April 1, 2018, such rights and interests will continue to be governed by the Bank Act. However, after April 1, 2018 the Convention will apply for the purposes of determining priority, including the protection of any existing property.
In addition to the abovementioned exception, the Cape Town Convention and the Canada Declarations6 provide that the priority of Non-Consensual Interests (within the meaning set forth in the Cape Town Convention), such as those arising from a government decree or a legal judgment, will continue to have priority over International Interests as defined by the Convention.
At present, the states that have ratified the Cape Town Convention include, but are not limited to, Canada, the United States, Brazil, New Zealand, Mexico, Norway, the United Arab Emirates and Russia. It should be noted however that several western countries including France, Germany, Switzerland, Italy and the United Kingdom have not ratified the Cape Town Convention.
The ratification of the Cape Town Convention by the Government of Canada will greatly alter aircraft financing and sale regimes in the majority of Canadian provinces and territories. The law imposes new obligations for publication and, in practical terms, will require that IRMA searches be included among the standard publication searches conducted in the context of aircraft financing or sale transactions.
The law will also provide creditors with a range of basic default remedies and recourses. Where there is evidence of certain defaults, the Cape Town Convention provides a means of efficiently obtaining interim relief pending final determination of its claim on the merits, deregistration, repossession, sale, lease and export of aircraft equipment.
In light of the above, creditors should conduct a thorough review of their standard financing documents to ensure that the terms and conditions of the Cape Town Convention have been accounted for. For creditors, this will include ensuring that standard documents provide for all rights, recourses and remedies available under the new law.
1 Subject to the adaptations made pursuant to the Protocol.
2 For the purposes of the Convention, the country where a debtor is deemed to be situated is based on the law of which it is incorporated or formed; or where it has its registered office or statutory seat; or where it has its centre of administration; or where it has its place of business.
3 Amendments, assignments, subordinations and subrogations relating to an international interest may also be published.
4 Section 19 of the Convention also allows for the registration of "Prospective International Interests". A Prospective International Interests which becomes an International Interests is treated as if registered from the time that the Prospective International Interests was registered.
5 Section 1 of the Protocol and section 2 of the Convention establish the particular application of the Cape Town Convention.
6 See the Canada Declaration regarding section 39(a) of the Convention.
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.