knowledge | 21 December 2015 |
International Aviation – Clearing the Skies
Registration of international interests under the Cape Town Convention
The Convention on International Interests in Mobile Equipment adopted at Cape Town on 16 November 2001 (the “Cape Town Convention”) provides for the establishment of an International Registry (the “International Registry”) on which certain legal interests (“International Interests”) in relevant mobile equipment (which includes aircraft, aircraft engines and helicopters) (known as “Aircraft Objects”) can be registered. The central premise is that if an International Interest in the relevant mobile equipment is registerable under the Cape Town Convention (and its associated Protocols), and is registered on the International Registry, that International Interest will have priority over other International Interests in the same mobile equipment which are unregistered or are subsequently registered. The International Registry is established in Ireland and operates electronically at https://www. internationalregistry.aero/ir-web.
The registration of an invalid or unregistrable interest on the International Registry can result in serious adverse consequences for aircraft owners, lessors and financiers. It may call into question the title of such parties to an Aircraft Object, the value of security taken over such Aircraft Object and, practically speaking, may frustrate the sale of such Aircraft Object to a third party.
Because of the International Registry’s establishment in Ireland, the Irish courts have exclusive jurisdiction to deal with certain disputes under the Cape Town Convention, particularly those seeking amendment or erasure of entries on the International Registry where the registrant refuses to do so. The Irish courts have demonstrated a willingness, in appropriate circumstances, to make orders directed to the International Registry to discharge invalid or improper registrations. The ability of the Irish courts to make an order directed to the International Registry may be particularly significant in circumstances where an order has been obtained against the registrant, in another jurisdiction, which has not been complied with.1
Registration of Non-Consensual Interests under the Cape Town Convention
The Cape Town Convention permits the registration of certain non-consensual rights or interests, which can arise, and be registered, without the consent of the owner or operator of the asset. The ability to register interests on a nonconsensual basis opens up the possibility of registrations being made illegitimately, or strategically directed at extracting a benefit from the owner or operator in return for removing the registration and/or withdrawing the underlying claim.
In order for a non-consensual interest to be validly registered it must be one which is recognised by a Contracting State which is relevant to one or more of the parties to the underlying transaction or circumstances of registration. Article 40 allows for a Contracting State to deposit a declaration with Unidroit, the official treaty depositary, listing the categories of non-consensual rights or interests which shall be registerable according to its law. On this basis, a right or interest which exists by virtue of a declaration (as opposed to agreement) may be registered as if it were an International Interest; typical examples being the lien of a judgment creditor or liens for taxes or unpaid charges. The corollary is of course that if a Contracting State has not deposited such a declaration, the right to register such nonconsensual rights or interests does not arise under the terms of the Convention. A list of those countries which have made Article 40 declarations is available here.
However, the International Registry depends to a significant extent on the good faith of the registrant. The Registrar does not verify the interest of any registrant or the documents relied on in support of any registration. For this reason, it is theoretically possible to file a nonconsensual interest even in the absence of an Article 40 Declaration having been made.
A number of examples have come before the Irish courts of questionable use of the right to register non-consensual liens where registrations have been made in the absence of a declaration by any relevant Contracting State. For example, in Transfin-M v Stream Aero Investments SA and Aviareto Limited2,just four weeks after the proceedings were issued, the court concluded that the registration of the nonconsensual interest was not valid on the basis that neither Russia nor Panama (the applicant being a Russian corporation and the respondent a Panama company) had made a declaration under Article 40.
Procuring Discharge and Rectifying the Registry
Exclusive Jurisdiction of the Irish High Court
Under Article 44.1 of the Cape Town Convention, the High Court of Ireland has exclusive jurisdiction to make orders directed to the Registrar of the International Registry with regard to the discharge of invalid registrations. Such cases may be brought in the Commercial division of the Irish High Court which, although a more costly procedure, allows for cases to be dealt with on an expedited basis.
This jurisdiction is rooted in Articles 44(2) and 44(3) of the Convention which permit a debtor to seek an order directing the Registrar to discharge a registration. On this basis, the Registrar must be named as respondent in proceedings in which rectification of the Registry is sought, and invariably as a co-respondent with the original registrant.
The Irish courts have, on several occasions, made such orders when presented with evidence of illegal or improper registrations3. Most recently, Ms Justice O’Malley4, in granting an order to discharge an invalid registration, noted that the Irish courts must be “conscious of purpose and principles of the Convention” and the “importance of maintaining the integrity of the Registry”. Additionally, the Irish courts have previously awarded the costs of the application against the registrant where it is clear that there was no proper basis under Article 40 for the registration in question5.
It is clear therefore that the Irish courts have a significant role in upholding the integrity of the International Registry. The Preamble to the Convention makes it clear that the purpose of the Cape Town Convention is to provide for the ‘creation, perfection and priority of international interests’, particularly in circumstances where the assets in question are constantly moving from one State to another. The Irish courts are well attuned to these principles and have demonstrated and developed a clear jurisprudence to protect and vindicate parties’ rights in accordance with the terms of the Convention.
Those operating in the aviation sector should be aware and confident of the competence of the Irish courts as the correct forum for dealing with issues concerning doubtful non-consensual registrations in an effective, timely and efficient manner.
Contributed by Rebecca Walsh
- In PNC Equipment Finance LLC v Aviareto Limited and Link Aviation LL (unreported decision of the High Court, dated 17 December 2012 in which McCann FitzGerald acted) the Irish High Court directed the respondent, who had failed to comply with a Minnesota court order directing discharge of the invalid registration, to procure discharge, failing which, the Registrar was ordered to discharge the registration
- Unreported decision of the High Court, dated 13 May 2013
- eg PNC Equipment Finance LLC v Aviareto Limited and Link Aviation LLC, 2012/397 MCA, Order of Kearns P, 19 December 2012
- Belair Holdings Limited v Aviareto Limited and another  IEHC 569
- eg Maximus Air v Aviareto Limited and Jet Fleet International 2015/292 MCA (in which McCann FitzGerald acted), Order of Mr Justice Gilligan, 16 November 2015
This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.