Abstract
Today no one doubts that the Cape Town Convention is one of the most successful uniform law instruments, already boasting a significant number of Parties 15 years after its adoption. As it represents the international regime for security interests in aircraft, no practitioner in the field can work without knowledge of it. This Report analyses in what respects the Cape Town Convention differs from the existing laws of various jurisdictions, and how it will modify the latter once the State becomes a Party to it. Interestingly, the Cape Town Convention takes a rather modest approach to unifying divergent laws of nations in the traditional sense. Its impact will be greater in modernising the existent laws on secured transactions, which are sometimes outdated, complicated or not favoured by the investors in the capital market. Thus, the Cape Town Convention is not simply a successful example of uniform law, it also models a new role for private law unification, namely to modernise domestic legal systems and make the latter more competitive in the “law market.”
This report was also published in Kozuka, Implementing the Cape Town Convention and the Domestic Laws on Secured Transactions, 2016.
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Notes
- 1.
Convention on International Interests in Mobile Equipment, 2001. The text, States Parties, list of declarations and other information are available on the Unidroit website http://www.unidroit.org/ (accessed on 28 December 2014).
- 2.
International Registry of International Interests in Aircraft Equipment, Eighth Annual Statistical Report of the Registrar to the Supervisory Authority: 1 January 2013-31 December 2013 (2015), available at http://www.awg.aero/assets/docs/Final%208th%20Annual%20Report%20of%20the%20Registrar%202013.pdf (accessed on 31 December 2015).
- 3.
Jeffrey Wool & Andrej Jonovic, “The relationship between transnational commercial law treaties and national law – A framework as applied to the Cape Town Convention,” The Cape Town Convention Journal Issue 2, p.65, at p.69 (2013).
- 4.
There can be a few reasons why states accept the compromised rules produced in this way (Souichirou Kozuka, “The Economic Implications of Uniformity in Law,” in: Jürgen Basedow & Toshiyuki Kono (eds.), An Economic Analysis of Private International Law (Tübingen: Mohr Siebeck, 2006); reprinted with slight modifications in: [2007-4] Uniform Law Review p.683). In the simplest case, the divergency itself causes significant costs in transactions across the borders, while it makes little difference as regards the various rules. In other words, everyone benefits from agreeing to a single rule, but which rule it is does not matter. Another scenario is that the uniform rule, though not considered the best one, is accepted as better than some other rule, which would be applicable if the uniform rule were not agreed on.
- 5.
Roy Goode, From Acorn to Oak Tree: the Development of the Cape Town Convention and Protocols, [2012-4] Uniform Law Review p.599. For more details, see discussions under Sect. 19.2.3 below.
- 6.
The UNIDROIT Convention on International Financial Leasing, 1988; the UNIDROIT Convention on International Factoring, 1988.
- 7.
Herbert Kronke, “Financial Leasing and its Unification by Unidroit – General Report,” [2011-1/2] Uniform Law Review p.23; also published in: K.B. Brown and D.V. Snyder (eds.), General Reports of the XVIIIth Congress of the International Academy of Comparative Law (Heidelberg et al.: Springer, 2012).
- 8.
This was the proposal made by the aircraft manufacturing industry and airlines industry. Lorne S. Clark, “The 2001 Cape Town Convention on International Interests in Mobile Equipment and Aircraft Equipment protocol: Internationalizing Asset-Based Financing Principles for the Acquisition of Aircraft and Engines,” Journal of Air law and Commerce, vol.69, p.3, at p.5 (2004). See also Mark J. Sundahl, The “Cape Town Approach”: A New Method of Making International Law, Columbia Journal of Transnational Law vol.44, p.339 (2006).
- 9.
Unidroit, Seminar – The European Community and the Cape Town Convention: Summary Report (DC9/DEP – Doc.8) (2009), available at http://www.unidroit.org/meetings/328-instruments/security-interests/cape-town-convention-mobile-equipment-2001/overview-capetown2001/711-seminar-report-the-european-union-and-the-cape-town-convention (accessed on 31 December 2015). For example, because the European Union made no declaration as to the treatment of international interests under the insolvency proceedings, member states may not opt in to Alternative A of Article XI of the Aircraft Protocol, which has a critical role in the Cape Town Convention (discussed in Sect. 19.5.1 below). But member states can amend their national law so as to produce the same substantive outcomes as if a declaration had been made.
- 10.
Jeffrey Wool, “Rethinking the notion of uniformity in the drafting of international commercial law: a preliminary proposal for the development of a policy-based unification model,” [1997-1] Uniform Law Review p.46. In other words, the drafters of the Cape Town Convention were fully aware of its nature as instrumentalist type of law, as opposed to the juridical law that has been traditional in Europe. The distinction between these two types of law, sometimes described metaphorically as “islands in the ocean” (Ralf Michaels, “Of Islands and the Ocean: The Two Rationalities of European Private Law,” in: Roger Brownsword, Hans-W Micklitz, Leone Niglia & Stephen Weatherill (eds.), The Foundations of European Private Law p.139 (Oxford and Portland: Hart Publishing, 2011)), is important in understanding the transition in the goals and meanings of uniform law instruments. See Souichirou Kozuka, “The Uniform Law of “Islands” and of “the Ocean”: comparing the Unidroit Principles with the Cape Town Convention”, in: A Volume in Honour of Michael Joachim Bonell, forthcoming.
- 11.
Anthony Saunders, Anand Srinivasan, Ingo Walter and Jeffrey Wool, “The Economic Implications of International Secured Transactions Law Reform: A Case Study,” University of Pennsylvania Journal of International Law vol.20, p.309 (1999).
- 12.
See Ikumi Sato & Yoshinobu Zasu, “Beyond Conflict of Interest: Lessons from the Cape Town Convention,” Asian Journal of Law and Economics Vol.1, Issue 1, p.1 (2010).
- 13.
The OECD publishes the “Sector Understanding on Export Credits for Civil Aircraft” (popularly known as “Aircraft Sector Understanding (ASU)”). Its most up-to-date version as of the end of 2015 is “TAD/PG (2015) 7” dated 15 October 2015, available at http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?doclanguage=en&cote=tad/pg%282015%291 (accessed on 31 December 2015). Participating states in the ASU agree on the framework for the officially supported export credits for the sale and lease of aircraft. As part of the framework, the minimum premium rate (MPR) is regulated (Appendix II to ASU). If the operator (buyer) of the aircraft is situated in a State named in the “Cape Town List”, further reduction of up to 10% to the minimum premium rate is allowed. In order to be included in the Cape Town List, a State must not only be a Party to the Base Convention and Aircraft Protocol, but also make qualifying declarations with regard to some of the options as well as implement them appropriately in its domestic law. See Kristin van Zwieten, “The insolvency provisions of the Cape Town Convention and Protocols: historical and economic perspectives,” The Cape Town Convention Journal Issue 1, p.53, at p.74 (2012).
- 14.
Jeffrey Wool, “Treaty Design, Implementation, and Compliance Benchmarking Economic Benefit – a framework as applied to the Cape Town Convention,” [2012-4]Uniform Law Review p.633.
- 15.
Wool and Jonovic, supra note 3.
- 16.
Rob Cowan & Donal Gallagher, “The International Registry for Aircraft Equipment – Breaking New Ground,” [2012-4] Uniform Law Review p.579; Elizabeth Hirst & Nicolas Gavage, “The International Rail Registry and the Luxembourg Rail Protocol to the Cape Town Convention – Global Registration of Mobile Assets,” Uniform Commercial Code Law Journal Vol.46, p.359 (2015); Jane K. Winn, “The Cape Town Convention’s International Registry: decoding the secrets of success in global electronic commerce,” The Cape Town Convention Journal Issue 1, p.25 (2012).
- 17.
Examples are the International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading (Hague Rules, 1924), the Convention for the Unification of Certain Rules Relating to International Carriage by Air (Warsaw Convention, 1929) and the Convention for the Unification of Certain Rules for International Carriage by Air (Montreal Convention, 1999).
- 18.
For the practice of leasing of rail rolling stocks in the US, see Peter W. Schroth, “Financial Leasing of the equipment in the law of the United States,” [2011-1/2] Uniform Law Review p.437, at pp.453-454.
- 19.
For the application of Article 9 of the UCC to space assets, see Mark J. Sundahl, The Cape Town Convention at p.15 et seq. (Leiden and Boston: Martinus Nijhoff Publishers, 2013).
- 20.
As the definition of “security agreement” refers to an ownership interest, the transfer of title by way of security is covered by the term. See Michel Deschamps, “The perfection and priority rules of the Cape Town Convention and the Aircraft Protocol: A comparative law analysis,” The Cape Town Convention Journal Issue 2, p.51 (2013).
- 21.
The term “functional approach” is often used interchangeably with the “comprehensive approach” or “unitary approach,” as in the UNCITRAL Legislative Guide on Secured Transactions, chap.I, paras.101-109 (New York: United Nations, 2010), endorsing the “functional, integrated and comprehensive approach” to secured transactions. However, a distinction between “functional approach” and “unitary approach” is suggested by some commentators (Michael Bridge, “The Scope and Limits of Security Interests” and Eva-Maria Kieninger, “The Scope and Limits of Security Interests: Commentary” in: Horst Eidenmüller & Eva-Maria Kieninger (eds.), The Future of Secured Credit in Europe (Berlin: De Gruyter Recht, 2008). The suggestion is that the functional approach means that a transaction having the function of securing finance is recharacterised as a security interest and subjected to the same set of rules, while the unitary approach refers to the treatment of any type of secured transactions under a single regime.
- 22.
See Roy Goode, Convention on International Interests in Mobile Equipment and Protocol Thereto on Matters Specific to Aircraft Equipment: Official Commentary, Third edition, para. 4.102 (Rome: Unidroit, 2013).
- 23.
The Kingdom of the Netherlands now consists of the European part and Caribbean part (Bonaire, Sint Eustatius and Saba) as well as three “countries,” namely Aruba, Curaçao and Sint Maarten. The Kingdom acceded to the Base Convention and Aircraft Protocol in May 2010 for “Aruba and the Netherlands Antilles,” based on the structure of the Kingdom at that time. According to the Note Verbal of the government of the Netherlands, the Base Convention and Aircraft Protocol are now applicable to the Caribbean part of the Kingdom and three autonomous countries in the Caribbean region.
- 24.
The Base Convention requires only the chargee under a security agreement to exercise commercial reasonableness in exercising its right, but not the seller under a title reservation agreement or a lessor under a leasing agreement (art.8 (3) of the Base Convention. See Goode, supra note 22, para.4.86). However, all three Protocols extend this requirement to the latter two types of international interest as well.
- 25.
All three Protocols provide alternatives that differ in the extent of the power that the creditor can exercise in case of insolvency of the debtor. However, even under an alternative less favourable to the creditor (Alternative B), the insolvency administrator or debtor in possession shall either cure all defaults and agree to perform all future obligations or give the creditor the opportunity to take possession of the secured object. Alternative C of art.IX of the Luxembourg Rail Protocol seems to be the only exception, which enables the insolvency administrator or the debtor to apply to the court for an order suspending its obligation to allow the creditor to take possession of the secured railway rolling stock.
- 26.
Deschamps (supra note 20) calls this treatment the “dual approach.”
- 27.
In the very early phase of the work, the Convention was intended not to affect the domestic insolvency law. The aim was simply to assure mutual recognition of security interests in mobile equipment. Later, the “bankruptcy remote” provision was strongly endorsed by the industry experts in aircraft financing. For these developments, see van Zwieten, supra note 13, at pp.54-57.
- 28.
Michael Bridge, Louise Gullifer, Gerard McMeel & Sarah Worthington, The Law of Personal Property, para.38-036 (London: Sweet & Maxwell, 2013).
- 29.
Gregory P. Ripple, Note, Special Protection in the Air[line Industry]: The Historical Development of Section 1110 of the Bankruptcy Code, Notre Dame Law Review vol.78, Issue 1, p.281 (2002).
- 30.
Wool & Jonovic, supra note 3.
- 31.
Goode, supra note 22, para. 5.56.
- 32.
UNCITRAL Legislative Guide on Insolvency Law, Chap.II, paras. 36-40 and Chap.IV, paras. 34-35 (New York: United Nations, 2005).
- 33.
For the concept of “law market”, originally focused on the state competition of law-making within the United States, see Erin O’Hara & Larry E. Ribstein, The Law Market (Oxford et al.: Oxford University Press, 2009). As the authors acknowledge, their argument can be extended to international competition in law-making with some modifications.
- 34.
See Gerard McCormack, Secured Credit and the Harmonisation of Law: The UNCITRAL Experience p.17 (Cheltenham: Edward Elgar, 2011).
- 35.
Cf. Heywood W. Fleisig, “The proposed Unidroit Convention on mobile equipment: economic consequences and issues,” [1999-2] Uniform Law Review, p.253. More generally, see Rafael La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer & Robert W. Vishny, “Law and Finance,” Journal of political economy, vol.106, no.6, p.1113 (1998) and Simeon Djankov, Caralee McLiesh & Andrei Shleifer, “Private credit in 129 countries,” Journal of Financial Economics, vol.84, p.299 (2006).
- 36.
The presentation by Hiroo Sono and Masami Okino at the 6th Transnational Commercial Law Conference (held at the Law School of Eötvös Loránd University (Budapest) on 16 to 17 October 2014) pointed out the existence of this type of uniform law instrument.
- 37.
See Sandeep Gopalan, “A Demandeur-centric Approach to Regime Design in Transnational Commercial Law,” Georgetown Journal of International Law vol.39, p.327 (2008).
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Kozuka, S. (2017). Security Interests in Transport Vehicles: The Cape Town Convention and Its Implementation in National Law. In: Schauer, M., Verschraegen, B. (eds) General Reports of the XIXth Congress of the International Academy of Comparative Law Rapports Généraux du XIXème Congrès de l'Académie Internationale de Droit Comparé. Ius Comparatum - Global Studies in Comparative Law(), vol 24. Springer, Dordrecht. https://doi.org/10.1007/978-94-024-1066-2_19
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