The Aircraft Protocol to the Cape Town Convention on International Interests in Mobile Equipment

The general conflict of laws rule governing transfers of goods is that the applicable law is the law of the situation of the goods at the time of the relevant dealing. But such a rule is ill-suited to dealings in mobile equipment, for example aircraft which regularly cross national borders. Even if a uniform conflict of laws rule could be devised, this would not remove the uncertainty inhibiting the provision of finance under security, retention of title or leasing agreements, because the applicable law would not be determinable in advance and would vary from jurisdiction to jurisdiction. What is required is a set of uniform substantive law rules, and this is what the 2001 Convention on International Interests in Mobile Equipment and its associated Protocol supply. These two instruments (estimated to save billions of dollars a year through reductions in financing and credit insurance costs) provide for the creation, registration and priority of international interests in mobile equipment (that is, security interests and interests vested in a conditional seller or lessor) and, importantly, create strong protections for the creditor in the event of the debtor’s insolvency. In particular, where Alternative A of Article XI of the Protocol is adopted, as has been done by all States except Mexico, then on default the debtor or insolvency administrator must within a given waiting period cure all defaults and undertake to fulfil all future obligations, failing which the creditor is entitled to be given possession of the aircraft object and the court cannot intervene to halt this or modify the terms of the agreement. The two instruments have been hugely successful, the Convention having been ratified by 85 States and the Protocol by 82 States, together in each case with what is now the European Union. This contribution identifies key provisions of the two instruments.