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Published by Enhelion, 2020-07-04 01:33:06

Module 2

Module 2

MODULE 2
CAPE TOWN CONVENTION AND AIRCRAFT PROTOCOL

2.1 INTRODUCTION

The Cape Town conference was a fruitful result of thirteen years of hard work. The
UNIDROIT1 worked on its success from 1988-1997, along with them, several other forums
worked on it from 1997-2001, such as, Aviation Working Group (AWG), the International
Air Transport Association (IATA) and the International Civil Aviation Organization
(ICAO).2 The genesis of this idea comes from 1996, when Boeing approached IATA for its
assistance in “breaking the logjam” in UNIDROIT with a specific request of proposing an
protocol for aircraft equipment’s particularly.3 As a result of this idea, on November 16,
2001, members of 68 states and 14 international organizations from around the globe
attended the diplomatic conference and out of them 53 states firmly braced the validation and
acceptance of the Convention on International Interests in Mobile Equipment (the
“Convention”) by signing it at Cape Town, South Africa.4

The fundamental aim of the Convention was to harmonize the private laws in respect to lease,
sale and finance of the concerned mobile equipment’s (aircraft objects5). The Convention
positioned to bring confidence among the parties (particularly lessors) associated to such
interests. It further aimed at bringing more predictability in transactions and establish
standard set of rules guiding the protection, prioritization6, constitution7 and enforcement of

1 The International Institute for the Unification of Private Law (UNIDROIT) is an independent
intergovernmental Organisation with its seat in the Villa Aldobrandini in Rome. Its purpose is to study needs
and methods for modernising, harmonising and co-ordinating private and in particular commercial law as
between States and groups of States and to formulate uniform law instruments, principles and rules to achieve
those objectives. It was set up in 1926 as an auxiliary organ of the League of Nations, the Institute was,
following the demise of the League, re-established in 1940 on the basis of a multilateral agreement,
the UNIDROIT Statute.
2 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 (Vol. 69, Issue I), Journal of Air Law and Commerce, 2004, p. 3.
3 Ibid.
4 Ibid.
5 Article I(2)(l) of the Protocol.
6 Article 29 of the Convention.
7 Article 2 of the Convention.

1

certain rights in aircraft, aircraft engines and helicopters.8 Moreover, it alters rules governing

the sale of aircrafts, leases and financing as per jurisdiction basis by establishment of a new
international substructure and providing for the formation of an International Registry9
supervised by the ICAO.10 The Convention targeted on prioritizing the affairs of formation,
application, perfection and priority in interests of aircraft objects.11 It provides for standard

remedies in the event of an default (default on lease rentals or any other obligation under the
lease agreement) by the lessor.12

Cardinally, it standardizes transactions, creates international interest13 in an aircraft object,

provides creditor range of remedies and system for obtaining speedy claim on event of
default by debtor, establishes international register14 for registering international interests and
provides confidence to prospective creditors.15

As of now, the Convention contains four protocols which are specific to four types of mobile
equipment’s which as follows:

a. Aircraft Equipment ( signed in 2001, also known as the “Aircraft Protocol” or the
“Protocol”)

b. Railways Rolling Stock (duly signed in 2007)16
c. Space Assets (duly signed in 2012)17
d. Mining, Agricultural and Construction Equipment (signed in 2019)18

8 Referred to in the Convention as “aircraft objects”, Article 1(2)(c) of the Protocol; See
https://www.icao.int/sustainability/Pages/Capetown-Convention.aspx.
9 Article 16 of the Convention.
10 As per Article 17(2)(d) and Article XVIII of the Convention and the Protocol respectively, ICAO was
appointed as the “Supervisory Authority”.
11 See Supra Note 6.
12 Department of Business, Innovation and Skills, Govt. of United Kingdom, The International Interests in
Aircraft Equipment (Cape Town Convention), Regulation 2015, March 2015,
https://www.gov.uk/government/publications/international-interests-in-aircraft-equipment-cape-town-
convention-regulations-2015; ICAO is the supervisory authority established under Article 17 of the Convention;
Article IX to XIII of the Protocol and Article 8 to 13 of the Convention.
13 See Supra Note 7.
14 See Supra Note 9.
15 ICAO Legal Seminar at Nairobi Kenya, Overview & Status of Ratification- cape town Convention & Aircraft
Protocol (2001), November, 27, 2017.
16 The rail protocol is being coordinated by UNIDROIT with the close cooperation of OTIF, 41 member State
(mainly European) Intergovernmental Organization for International Carriage by Rail, headquartered in Berne.
17 The space protocol is being developed by UNIDROIT with the cooperation of the U.N. committee on
peaceful uses of outer space.
18 On November 22, 2019, this protocol was introduced to the Convention, adopted in Pretoria, South Africa.
See https://www.unidroit.org/570-instruments/security-interests/cape-town-convention-mac-protocol-

2

Our study is specific to the Aircraft Protocol since the book is devoted to understand the legal
universe of Aircraft Lease Agreements (ALAs). The much awaited Protocol was signed in
2001; it brought enormous joy to the entire aircraft leasing industry.19 The Protocol
superseded the Convention on the International Recognition of Rights in Aircraft which was
signed in Geneva (popularly known as “Geneva Convention”) on June 19, 194820. The
Protocol resulted in certainty, cost savings and speed to aircraft re-possession21, de-
registration and export of an aircraft22 in a State who does not possess creditor-friendly laws
vehemently.23

2.2 TWO INSTRUMENT STRUCTURE

The reasoned explanation behind having two separate instrument structure was primarily, the
convention would need not be equipment specific and secondarily, a separate, controlling
protocol structure for different categories of equipment will exist, governed under the
Convention, namely aircraft objects24, railway rolling stock, space assets and mining,
agricultural and construction equipment.25 In the beginning of the diplomatic conference held
in Cape Town, voting saw that the common vote was inclined towards the two instrument
system rather than one instrument system. This Convention and the Protocol is believed to be
a master piece by the cerebrals of this aviation industry.26

Relationship between the Convention and the Protocol

2019/2717-protocol-to-the-convention-on-international-interests-in-mobile-equipment-on-matters-specific-to-
mac-procotol-test-pretoria-november-2019.
19 Aircraft Protocol, see https://www.unidroit.org/instruments/security-interests/aircraft-protocol.
20 The Convention supersedes only to the extent of scope and the rest of the Geneva Convention is still
applicable.
21 Article IX of the Protocol.
22 Ibid.
23 Dentons, Aircraft finance Briefing- A Practical guide to the Cape Town Convention, July 11, 2016.
24 See https://www.icao.int/sustainability/Documents/CPTConvention_Protocol_AnnexB.pdf.
25 Roy Goode, The Cape Town Convention on International Interests in Mobile Equipment: a driving force for
International Asset-Based Financing, Uniform Law review 2002, 1-15.
26 Ibid.

3

“This Convention and the Protocol shall be read and interpreted together as a single
instrument. To the extent of any inconsistency between this Convention and the Protocol,

the Protocol shall prevail.”27

The Convention and the Protocol provides that they shall be read and interpreted together as
a single instrument.28 The segregated protocols are dedicated to particular mobile
equipment’s with an idea to standardize transactions. The Convention is the constitution of
the protocols to which its auspices follows. This two instrument structure was a very
thoughtful outcome as it enhances clarity and accedes the scope of the Convention. The year
2019, saw the introduction of Mining, Agricultural and Construction Equipment Protocol (
popularly known as “MAC Protocol”) to the Convention, in future, on further realization
and requirement, more mobile equipment’s can be seen added to the list of the protocols
under the Convention.29 The Convention is undoubtedly an alluring piece of art and global
industry shall benefit from its ripe fruits in long run.

2.3 ADVANTAGES OF THE CONVENTION AND THE PROTOCOL

The efforts to bring this Convention and the Protocol in the real world was backed with
pragmatic intentions to bring an international legal regime with uniform rules to increase
predictability & certainty & reduce risks in aviation asset-based financing & leasing. The
major rationales as follows:

a) Predictability & enforceability
It creates an international interest30 which is acknowledged by all the Contracting States. It
establishes an international electronic interest registration system which is the International
Registry of Mobile Assets (International Registry) under the Protocol.31 It works on
improving the predictability with respect to the apposable nature of the securities and the
interest held by the sellers of aviation assets.32 For instance, the World Bank estimates that,

27 Article 6 of the Convention.
28 Ibid.
29 See Supra Note 9.
30 Article 2 of the Convention.
31 Article 16 of the Convention.
32 International Civil Aviation Organization (ICAO), Cape Town Convention and Protocol: Introduction,
https://www.icao.int/sustainability/Pages/Capetown-Convention.aspx.

4

10 months was the average worldwide contract enforcement delay which was reduced to 2
months of delay after the ratification.33

b) Cost Savings
It resulted in reduction in risks for the lenders along with the steep decrease in the borrowing
cost occurring to the debtors. The Cape Town Discount34 passed on its benefits to different
parties starting from the aircraft procurers. 35 The legal approaches were simplified which
resulted in advantageous situation for both the parties, for instance, taking credit for
acquisition of more advanced and fuel-efficient aircraft was comparatively convenient.36 It
was estimated that adoption of the Convention and the Protocol will allow Australian airlines
to save $330,000 on the purchase of a new ATR 72 and $2.5 million on the purchase of an
Airbus A380.37

2.4 CAPE TOWN DISCOUNT

The Organization for Economic Co-operation and Development’s (OECD)38 Aircraft Sector
Understanding (ASU)39 on export credits for civil aircraft provides for an economic benefit
which saves hefty funds of airlines of Contracting States of the Convention and the Protocol.
Under the ASU, the economic benefit associated is the 10 per cent reduction in the minimum
premium rate granted by the government export credit agencies to aircraft operators (Cape
Town Discount)40. In simple words, 10 per cent discount can be availed by aircraft operators
of Contracting States in processing fee of a loan on an event of aircraft acquisition. In order
to avail the Cape Town Discount, the state is required to fulfill a certain criteria:

33 Vadim Linetsky, Economic Benefits of the Cape Town Treaty, October 18, 2009.
34 Discussed under consecutive head.
35 Ibid.
36 See Supra Note 32.
37 FlightGlobal, How new export credit rules will change aircraft finance, January 22, 2013.
38 Organisation for Economic Co-operation and Development (OECD) is an international organisation that
works to build better policies for better lives, https://www.oecd.org/about/.
39 The Aircraft Sector Understanding (ASU), which is a "gentlemen’s agreement", applies to officially
supported export credits relating to civil aircraft. Although integrated as a sectoral annex into the Arrangement,
it is a self-contained agreement, that operates with no recourse to any of the provisions of the Arrangement. The
Participants to the ASU are slightly different from the Participants to the Arrangement. They are: Australia,
Brazil, Canada, the European Union, Japan, Korea, New-Zealand, Norway, Switzerland and the United States,
See https://www.oecd.org/trade/topics/export-credits/arrangement-and-sector-understandings/aircraft-specific-
rules/.
40 Ludwig Weber, Public and private features of the Cape Town Convention (2015) 4, Cape Town Convention
Journal 53, 54.

5

i. become a Contracting party to the Convention;
ii. comply with the qualifying declarations;41 and
iii. effectively implement the Convention (including the qualifying declarations) into

national law.42

Precisely, the Cape Town Discount and the provisions of the Convention and the Protocol
together gave additional secured protection to creditors43, centered on the needs and issues
faced by the lenders/lessors, resulted in more financing being available thereon to acquire
aircraft objects at lower cost, worthy for airlines/states, increased sales by manufacturer and
more jobs and export.44

2.5 ADVANTAGES TO AIRCRAFT LESSORS AND FINANCIERS

Besides various merits, the Convention and the Protocol significantly focused on curbing
insecurities of leasing industry, some of them as follows:

a) Standard remedies in the event of default by the lessor.45
b) When the aircraft object is in a country whose legal system is non-creditor friendly or

otherwise, it ensures pace, certainty and cost-effectiveness in the process of
repossession, de-registration and export of the aircraft object.
c) Protects creditors security interest in the aviation asset by providing a solo
international electronic platform for the registration of international interest in the
aircraft object. This platform was set with the background principle that registered
interests are given priority over unregistered interests. Another positive outlook is
registrations made before have priority over registrations made later.
d) Cape Town Discount- norm set by OECD that 10 per cent discount will be given in
the processing fee for a loan intending for acquisition of an aircraft by airlines of any

41 Criteria for Qualifying Declarations, see http://awg.aero/wp-content/uploads/2019/09/2011-Qualifying-
Declarations.pdf; List of States qualifying for the reduction of the minimum premium rates. See
https://www.oecd.org/trade/topics/export-credits/documents/oecd-export-credits-prevailing-cape-town-list-
asu.pdf.
42 OECD, Aircraft specific rules, https://www.oecd.org/trade/topics/export-credits/arrangement-and-sector-
understandings/aircraft-specific-rules/.
43 Due to remedies provided under the Convention and the Protocol. Discussed in brief under this Chapter;
Article IX to XIII of the Protocol and Article 8 to 13 of the Convention.
44 See Supra Note 32.
45 Chapter II of the Protocol.

6

State that is party to the Convention and the Protocol as discussed in the previous
head.46

2.6 AIRCRAFT OBJECTS

The Convention’s application is limited to airframes, aircraft engines and helicopters which
together forms the definition of “aircraft objects.”47 The aircraft objects are described as
follows:

a) “airframes” that are type-certified to transport at least eight (8) persons including
crew or goods in excess of 2,750 kilograms;48

b) “aircraft engines” having at least 1,750 pounds of thrust if jet propulsion powered or
at least 550 rated take-off shaft horsepower if turbine-powered or piston-powered;49

c) “helicopters” that are type certified to transport at least five (5) persons including
crew or goods in excess of 450 kilograms.50

Each of the aircraft objects includes all the accessories, parts and equipment which are
attached, incorporated or installed. Helicopters include rotors along with all the data, records
and manuals related thereto.51 Aircraft engines (excluding helicopter engines because it has
different approach depending upon whether they are installed or not at the time when an
interest is created in that engine) are treated as different aircraft objects distinct from
airframes because they or of high-value, independent units which are repeatedly bought, sold,
financed and leased separately from the specific airframes on which engines may be installed
from time to time. The Protocol clearly states that the ownership of the interest or an object
shall not be affected at all by its installation or removal from an airframe. In contrary to
aircraft engines, the Protocol hinders the treatment of spare parts as a separate aircraft objects
which are eligible for utilizing treaty benefits.52

46 See Supra Note 25.
47 Article I (2) (c) and II (1) of the Protocol.
48 Article I (2) (e) of the Protocol.
49 Article I (2) (b) of the Protocol.
50 Article I (2) (l) of the Protocol.
51 Article I (2) (b), I (2) (e) and I (2) (l) of the Protocol.
52 Article XIV (3) of the Protocol.

7

2.7 APPLICATION OF THE CONVENTION AND THE PROTOCOL

The debtor (lessee) is required to be physically present in a Contracting state at the time of
creating or registering the international interest, whereas, creditor’s (lessor) location has no
effect on the application of this Convention.

“1. This Convention applies when, at the time of the conclusion of the agreement creating
or providing for the international interest, the debtor is situated in a Contracting State.
2. The fact that the creditor is situated in a non-Contracting State does not affect the
applicability of this Convention.”53

Debtor’s location: The debtor situated in any Contracting State meeting following criteria
shall have this convention applicable on him:

a) under the law of which it is incorporated or formed it’s business;
b) where it has its registered office or statutory seat;
c) where it has its centre of administration; or
d) where it has its place of business.54

If debtor has more than one place of business than his principal place of business will fit the
criteria of part (d) of the Article. Further, if he has no place of business than his habitual
residence will be his place of business as per part (d).

The Protocol, empowers the Convention to be applicable on it only in respect to aircraft
objects. It further provides that together the Convention and the Protocol shall be known as
the Convention on International Interests in Mobile Equipment as applied to aircraft
objects.55 The purpose of having these several factors is to give maximum scope to the
application of the Convention.56 Furthermore, the Convention is applicable on the sale and
prospective sale of an aircraft object as well.57

2.8 SCOPE OF INTERESTS

53 Article 3 of the Convention.
54 Article 4 of the Convention.
55 Article II of the Protocol.
56 Goode at para 4.57 (UNIDROIT, 2013).
57 Article 41 of the Convention.

8

The Convention and the Protocol secures five different categorization in interests which as
follows:

a) International Interests
International interests means an interest held by a creditor under Article 2. 58 The
Article 2 of the Convention elaborates on the constitution and effects of an
international interest. To constitute an “international interest” under the Convention,
an interest must relate to aircraft objects and be:
i. granted by a chargor under a security agreement59;
ii. vested in a person who is conditional seller under a title reservation
agreement60;
iii. vested in a person who is a lessor under a leasing agreement61. 62
iv. granted by the seller under an sale agreement;63 or
v. held by an assignee.64

The last two criteria (iv & v) is only in relation to sale of an aircraft object. The notion
that whether an interest falls within any of the aforementioned criteria is decided by
the Convention’s own interpretations (national laws cannot be referenced).65

Formal requirements of an international interest:

58 As per Article 1 (o) of the Convention.
59As per Article 1(ii) of the Convention, a “security agreement” is defined as an agreement by which a chargor
grants or agrees to grant to a chargee an interest (including an ownership interest) in or over an aircraft object to
secure the performance of any existing or future obligation of the chargor or a third person.
60 As per Article 1 (II) of the Convention, a “title reservation agreement” (often called a conditional sale
agreement) is defined as an agreement for the sale of an aircraft object on terms that ownership does not pass
until fulfillment of the condition or conditions stated in the agreement.
61 As per Article 1 (q) of the convention, a “leasing agreement” is defined as an agreement by which one person
(the lessor) grants a right to possession or control of an aircraft object (with or without an option to purchase) to
another person (the lessee) in return for a rental or other payment. A leasing agreement must be distinguished
from a “wet lease” under which possession or control is retained by the lessor. An agreement of this kind is not
a leasing agreement, but rather simply a contract, and as such it follows that a wet lease does not create an
international interest. See http://awg.aero/wp-content/uploads/2019/10/VED-Practitioners-Guide-9.9.15.pdf.
62 Article 2 of the Convention.
63 Article III of the Protocol.
64 Article 31 (1) of the Convention.
65 AWG, Practitioners’ Guide to the Cape Town Convention and the Aircraft Protocol, September, 2015. See
http://awg.aero/wp-content/uploads/2019/10/VED-Practitioners-Guide-9.9.15.pdf.

9

“An interest is constituted as an international interest under this Convention
where the agreement creating or providing for the interest:
(a) is in writing;

(b) relates to an object of which the chargor, conditional seller or lessor has
power to dispose;

(c) enables the object to be identified in conformity with the Protocol; and
(d) in the case of a security agreement, enables the secured obligations to be
determined, but without the need to state a sum or maximum sum secured.”66

For a valid constitution of an international interest under the Convention, the
intending party has to enter into an agreement (security agreement, title reservation
agreement or leasing agreement) which is creating or providing international interest.
The agreement is required to be in a written form, it shall directly relate to the aircraft
object which is in conformity with the Protocol and the chargor/conditional seller/
lessor has the power to dispose it. This “power to dispose” includes sale, lease,
conditional sale or via security.67

b) Prospective International Interests
This is an interests intended to be taken over existing, identifiable equipment as
international interests in the future but which have not yet become international
interests, for example, in the case of a security agreement because the terms of the
agreement are still being negotiated or the prospective debtor has not yet acquired an
interest in the equipment to be charged.68 A prospective international interest may be
registered as such in the International Registry but does not have effect until it
becomes an international interest, in which case it ranks for priority purposes as from
the time of its registration as a prospective international interest.69

c) National Interests
This is an interests registered under a national registration system which would be
registrable as international interests but for the fact that they are created by internal

66 Article 7 of the Convention and Article V(1)(a) of the Protocol. A “writing” includes electronic records of
information. Article 1 (nn) of the Convention.
67 See Supra Note 65, p. 16.
68 Article 1 (y) of the Convention.
69 Field Fisher Waterhouse, Cape Town Convention, November 2011.

10

transactions in respect of which a Contracting State has made a declaration under
Article 50(1)70 excluding the application of the Convention. However, such an
exclusion is of very limited effect.71

d) Non-consensual Rights or Interests
This is an interests arising under national law and given priority without registration.
A Contracting State may make a declaration under Article 39 specifying non-
consensual rights or interests which under national law would be given priority over
interests equivalent to an international interest and which, to the extent specified in
the declaration, are to have priority over a registered international interest even
though such non-consensual interests are not themselves registered.72

e) Registerable Non-consensual Rights or Interests73
This is an interests arising under national law. A Contracting State may make a
declaration under Article 4074 that non-consensual rights or interests arising under its
law may be registered in the International Registry, and any such right or interest that
is so registered is then treated for the purposes of the Convention as a registered
international interest. Possible examples are a judgment or order affecting equipment
of a category to which the Convention applies and a legal lien in favour of a repairer
or warehouseman. 75

Furthermore, the Convention not only protect the rights of abovementioned categories but
“associated rights” as well. Associated rights include payment rights of debtor under an
agreement (for instance, lease rentals under an “Aircraft lease agreement”) which are
associated with the aircraft object. These rights are only relevant to assignment agreements,

70 Article 50 of the Convention- Internal transactions
1. A Contracting State may, at the time of ratification, acceptance, approval of, or accession to the Protocol,
declare that this Convention shall not apply to a transaction which is an internal transaction in relation to that
State with regard to all types of objects or some of them.
71 Article 1 (r) of the Convention .
72 Article 1 (s) of the Convention.
73 Article 1 (dd) and Article 40 of the Convention.
74 Article 40 of the Convention- Registrable non-consensual rights or interests
A Contracting State may at any time in a declaration deposited with the Depositary of the Protocol list the
categories of non-consensual right or interest which shall be registrable under this Convention as regards any
category of object as if the right or interest were an international interest and shall be regulated accordingly.
Such a declaration may be modified from time to time.
75 Article 1 (dd) and Article 40 of the Convention.

11

no personal rights occurring from an contract or an object are covered under the scope of the
Convention.76

2.9 REGISTERING AN INTEREST

2.9.1 The International Registry

The Convention enables a system for registration of all the international interests known as
the “International Registry”. The system is entirely automated so that it can avoid any
manner of human intervention, whether it be for checking applications or receiving search
requests, issuing search certificates or effecting registrations etc. The Registry is operational
24/777 for registration of interests in aircraft objects.78 The system shuts down for short span,
thereby, in circumstances where it requires timely maintenance and symptoms system
malfunctions. It is operated by Aviareto,79 established as Registrar pursuant to regulations of
the Convention.80

International interests can be construed in all security type agreements related to uniquely
identifiable aircraft objects. The International Registry records details such as manufacturer’s
name, generic model designation and serial number of the aircraft object.81 The order of
registration can be prioritized when it is declared super priority related to non-consensual
rights or interests (for instance, mechanic liens or liens arising due to unpaid air navigation
charges).82

Under an agreement which is related to an existing and identifiable object (aircraft objects)
under the Convention, the creditor/lessor will easily be able to register a prospective
international interest on the registry. The fruitful outcome of this practice is clearly visible
when the registered prospective interest become an completed international interest. It scores

76 See Supra Note 65, p 25.
77 Aircraft Protocol, Article XX (4).
78 Section 3.4 of the Cape Town Regulations.
79 Aviareto limited is based in Dublin, Ireland. It is a joint venture of the Irish government and SITA. In June
2014, the Council of ICAO opted to reappoint Aviareto to operate the International Registry for a third five ear
term from 2016 to 2021.
80 Section 3.1 of the Cape Town Regulations.
81 Article VII of the Protocol.
82 Nom-consensual rights or interests can be current can be accorded priority even without registration if it is
covered under the Chicago Convention.

12

priority from the beginning as from time to time registration of the prospective international
interest provided this registration is still current immediately before the international interest
comes into existence.83

2.9.2 Process of Registration84

Either party to a transaction has the option available to register their interest after receiving
the consent of the other party. Registrations particularly made by an approved user shall take
effect on the website of International Registry. Though, as per the Convention, the
Contracting States may establish an entity or entities in their state as a “designated entry
point” through via the information for registration will be submitted to the International
Registry. For instance, in the United States, the Federal Administration Bureau (FAA) is the
absolute authority designated entry point for transmission of any kind of information to the
International Registry. The registration process as follows:

a. Initially, the conditions applicable in a particular Contracting State has to be met.
b. Either party willing to register shall log into the website of International Registry.
c. Registering party shall enter the required relevant information (For instance, the

details of the other party to the transaction and the description of the aircraft objects).
d. The registering party shall either claim or express its consent to an international

interest in the aircraft object.
e. Then the Registry system will automatically send an electronic notice to the other

party asking for its consent to the registration of the international interest.
f. The other party has the option to respond electronically to the Registry their consent

or objection to the registration of the international interest.
g. Lastly, if the consent is given then the registration is a automatically done

(complete).85

2.9.3 Registration Effect

Whether international interest is registered or not, the default remedies are readily available.
Besides that, registration is crucial in order to:

83 See Supra Note 65.
84 Article 18 of the Convention.
85 See Supra Note 65.

13

a. provide notice of the international interest to the third parties;
b. preserve the creditor’s precedence over unregistered interest; and
c. ensure the effective nature of international interest at the time of insolvency

proceedings.86

Evidentiary value of certificates
After the registration is complete, the international registry issues an certificate which is an
prima facie proof;

a) that it has been so issued; and
b) of the facts recited in it, including the date and time of the registration.87

2.9.4 Discharge

When the obligations required by a registered international interest is duly fulfilled, the
debtor may need the creditor to procure discharge of such registration. The registration can be
further discharged in the name of the party in whose favor it is made, only after acquiring
their consent. Or otherwise, the registration can specify an expiry date, on which the
registration will automatically expire. The registration of a prospective international interest
may get discharged if the intending party has not paid value or contracted to pay value. 88

2.9.5 IR Searches

Any person can search the International Register, it is not necessary for the person to be an
approved user. When a search request is made, the electronic registry search certificate is
issued right away. The certificate either provides the date and time of the conducted search,
or all the information about the registered interest or simply mention that no registrations
exist. 89 The search reveals an international interest or prospective international interest. The
search certificate in both the situations will only mention that the creditor “has acquired or
intends to acquire an international interest in the object”. Hence, the search result will not
stipulate whether the interest is actual or prospective, therefore, the searching party will need

86 Ibid.
87 Article 24 of the Convention
88 Article 21 of the Convention.
89 Article 22 of the Convention.

14

to find out the status of the interest from the creditor directly. A Registry search certificate is
considered as prima facie proof of the facts recited in it.90
There are two kinds of aircraft object searches possible on the International Registry:

a) priority search, and
b) informational search91
A priority search is pursued against the search of manufacturer’s name, generic model
designation and serial number. An informational search only requires the aircraft object’s
manufacturer’s serial number.92
An example of an priority search certificate93 is given below:

2.10 SUPERVISORY AUTHORITY AND REGISTRAR

90 See Supra Note 53.
91 Section 7.1 of the Cape Town Regulations.
92 Section 7.3 of the Cape Town Regulations.
93 See Supra Note 65, p. 95.

15

The Article 17 of the Convention provides for the establishment of an Supervisory Authority.
It further provides that the Supervisory Authority shall;

a) establish or provide for the establishment of the International Registry;
b) except as otherwise provided by the Protocol, appoint and dismiss the Registrar;
c) ensure that nay rights required for the continued effective operation of the

International Registry in the event of the change of Registrar will vest in or be
assignable to the new Registrar;
d) after consultation with the Contracting States, may or approve and ensure the
publication of regulations pursuant to the Protocol dealing with the operation of the
International Registry;
e) establish administrative procedures through which complaints concerning the
operation of the International Registry can be made to the Supervisory Authority;
f) supervise the Registrar and the operation of the International Registry;
g) at the request of the Registrar, provide such guidance to the Registrar as the
Supervisory Authority thinks fit;
h) set and periodically review the structure of fees to be charged for the services and
facilities of the International Registry;
i) do all things necessary to ensure that an efficient notice-based electronic registration
system exists to implement the objectives of the Convention and the Protocol; and
j) report periodically to Contracting States concerning the discharge of its obligations
under this Convention and the Protocol.94

The Supervisory Authority may enter into any agreement requisite for the performance of its
functions, including any agreement referred to in Article 27(3) of the Convention. The article
also provides that the Supervisory Authority shall own all proprietary rights in the data bases
and archives of the International Registry and the Registrar shall ensure the efficient
operation of the International Registry and perform the functions assigned to it by this
Convention, the Protocol and the regulations.

Legal Status of the Supervisory Authority
As per Article 27 of the Convention, the Supervisory Authority shall have:

94 Article 17 of the Convention.

16

a) international legal personality,
b) its officers and its employees shall enjoy immunity from any legal or administrative

process as is specified in the Protocol,
c) enjoy exemption from taxes and such other privileges as may be provided by the

agreement with the “host State”. The “host State” means the State in which the
Supervisory Authority is situated,
d) the assets, documents, data bases and archives of the International Registry shall be
inviolable and immune from seizure or other legal or administrative process,
e) the Supervisory Authority has the power to waive the inviolability and immunity
conferred by point (d).95

International Civil Aviation Authority (ICAO) is the Supervisory Authority for aircraft
objects (Aircraft Protocol).96 It is headquartered in Montreal, Quebec, Canada which shall be
a “host State” within the meaning of the Convention. It is an specialized agency of United
Nations which has special immunity and privileges listed in the standard clauses of the
Convention on the privileges and Immunities of the Specialized Agencies of the United
Nations, 1947 (Annexure III is dedicated to ICAO). As per Article XVII (3) of the Protocol,
the supervisory authority, its employees, officers will enjoy complete immunity from legal
and administrative process.97

The Registrar’s98 responsibility towards the system is stringent and not lenient at any corner.
The liability of system failure or any kind of malfunction, errors and omissions are backed by
strict actions. The consequences exists to make this system function accurate and efficient.
The Registrar would not be liable for factual inaccuracy of registration information received
or transmitted by the Registrar in the form in which it received.99

2.11 PRIORITY OF INTERESTS

95 Article 27 of the Convention.
96 See https://www.icao.int/Meetings/a39/Documents/WP/wp_422_en.pdf.
97 Ibid.
98 Aviareto limited is based in Dublin, Ireland. It is a joint venture of the Irish government and SITA. In June
2014, the Council of ICAO opted to reappoint Aviareto to operate the International Registry for a third five ear
term from 2016 to 2021.
99 Chapter VII- Article 28 of the Convention.

17

As per priority rules, a registered international interest has ultimate priority over any other
subsequent registered interest. The priority can be shifted via an agreement between the
parties (it is not necessary for such agreement to be registered in order to raise binding effect
but it is advisable to get them registered because if not registered it will not be very effective
against third parties). For instance, few non-consensual liens (tax liens) may have priority
over international interests even if it is not registered. Under prospective international
interest, the date of registration of the international interest is considered to be the date of
registration of the prospective international interest. The idea behind this is prioritization of
the international interest. 100

2.12 ASSIGNMENTS

The assignments related to international interests are registrable under the Cape Town
Convention;101 however, such assignments are confined to contractual assignments and do
not include assignments by operation of law, such as assignments resulting from a statutory
merger.102 The Convention defines “assignment” meticulously as:

“a contract which, whether by way of security or otherwise, confers on the assignee
associated rights with or without a transfer of the related international interest.”103

The common rule under the Convention is that an assignment (which includes transfers,
charges and pledges) of associated rights also transfers to the assignee the related
international interest and all interests and priorities of the assignor.104 The Cape Town
Convention defines “associated right” to mean rights to payment or other performance of
certain obligations by a debtor under an agreement that is secured by or associated with the
aircraft object.105 For example, the right to repayment of a loan or rentals under a lease as

100 Chapter VIII: Article 29 of the Convention.
101 Article 22 (3) of the Convention.
102 Goode at para 2.187 (UNIDROIT 2013).
103 Article 1 (b) of the Convention.
104 Article 31 (1) of the Convention.
105 Article 1 (c) of the Convention. Only Creditor can hold and assign associated rights. Goode at para. 4.216
(UNIDROIT 2013).

18

well as rights to other forms of performance, such as insurance or maintenance requirements
related to the applicable aircraft object, all constitute associated rights.106

2.13 INSOLVENCY

For the most part, an international interest is effective in bankruptcy procedures107 against the
debtor if registered before the commencement of the proceedings. The term "effective"
implies that the property interest will be recognized and the creditor will have a claim against
the assets for commitments to be discharged, and won't be constrained to a claim against the
debtor’s pool of assets with unsecured creditors.108 Nothing in the Convention will disable
the effectiveness of an international interest which is in any occasion effective under national
law. One of the advantages of the Convention is that regardless of whether an interest is void
because of an inability to fulfill the registration requirements under national law, it will in
any case be legitimate and enforceable under the Convention (if appropriately enrolled).
Practically, it is thusly prudent for creditors to register their interests in the aircraft objects
with both the relevant national registry and the International Registry.109

2.13.1 Insolvency procedure approach under the Convention
The Contracting States have two options110 for insolvency procedures.

a) Alternative A

Acceptance of this method is one of the norms, to be fulfilled by an Contracting State in
order to avail the economic discount given by the OECD ASU (Cape Town Discount).
Further, the reason behind superseded preference of Alternative A is that on occurrence of an
insolvency-related event, the debtor or insolvency administrator are required to give
possession of the aircraft object to the creditor no later than the earlier of:

a) the end of the waiting period; or
b) the date on which the creditor would ordinarily be entitled to possession of the

aircraft object.111

106 See Supra Note 65, p. 33.
107 Article 30(1) of the Convention.
108 Ibid.
109 Article 30 of the Convention.
110 Article XI: Remedies on insolvency under the Protocol.

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The waiting period is specified by each Contracting State. The aircraft object may be used,
but its value must be preserved and maintained by the insolvency administrator or debtor.
The remedies of de-registration and export of the aircraft are required to be made available on
an expedited base, (not later than five working days) by the aircraft registry authority and
concerned administrative authority of a Contracting State which opts for this Alternative,
along with conformity of aviation safety laws and regulations.112 This Alternative also
provides for an special provision for non-consensual rights or interests that are covered under
Article 39(1) of the Convention, it bestows priority privilege over registered interests in
insolvency proceedings.113 The Alternative A is objected to facilitate structured financing
transactions.114

b) Alternative B
This method is considered to be less useful for the creditors than Alternative A. This method
is not given green light under OECD ASU as norm of qualifying declaration, therefore, no
financing benefits provided herein (Cape Town Discount). Alternative B provides that there
shall be a specified time under the declaration after which the insolvent debtor, upon request
of the creditor must give notice to the creditor within the waiting period stating whether it
will:

a) cure all defaults and perform all future obligations; or
b) give the creditor the opportunity to take possession of the aircraft.115

If the debtor/insolvency practitioner does not give the required statement or give up
possession after stating it will do so, the court may permit the creditor to take possession
upon such terms as the court may order. Until now, Mexico is the only State who declared
Alternative B. Their declaration stated that their waiting period shall be the period agreed by
the parties in the agreement creating the international interest. Most of the Contracting States
have selected Alternative A. 116

111 Article XI of the Protocol; See Supra Note 49.
112 Article XI, Alternative A(2) and (7) of the Protocol.
113 Article XI, Alternative A(12) of the Protocol.
114 See Supra Note 65.
115 Article XI, Alternative B(2) of the Protocol.
116 See Supra Note 65, p. 132.

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To the extent that the Contracting State chooses not to make any declaration, national
insolvency rules will apply. The creditor’s rights on insolvency in these cases depend on how
creditor-friendly the Contracting State’s insolvency laws are. For example, Ireland, is a
creditor- friendly jurisdiction, allowing self-help repossession, whereas in most civil law
countries (e.g. in other European Union member states), self-help procedures are not
available. The Contracting States can opt for either of the procedures for insolvency
proceedings. In case, they decide to choose neither of the given options, then the Contracting
States national procedural rules will be applicable.117

Cooperation of Foreign Courts
Article XII118 of the Protocol provides that the courts of the contracting States where an
aircraft object is located shall cooperate to the maximum possible extent with foreign courts
and insolvency administrators in carrying out the provisions of Article XI (Alternative A or
B). This particular insolvency cooperation clause is significant because it is only applicable if
declared by the Contracting State under Article XXX(1) of the Protocol.

2.14 CONVENTION AND PROTOCOL REMEDIES

The Convention and the Protocol provides for remedies upon default with respect to aircraft
objects that may be exercised by lessors, conditional sellers and secured parties in respect of
international interests in their favour and by assignees of international interests, all in their
roles as creditors.119 The Convention settled one of the major issues arising due to remedies
offered by common law jurisdictions (such as Wales and England) and civil law jurisdictions
( such as France). The Common law jurisdictions are inclined towards favouring Creditors
and allow for self-help remedies whereas in civil law jurisdictions, such concepts where
creditor enforces its remedies without a court order are not recognized. This Convention
reached the consensus and common law rules were designated as the base rules, but it

117 Ibid.
118 Article XII of the Protocol- Insolvency assistance
1. This Article applies only where a Contracting State has made a declaration pursuant to Article XXX(1).
2. The courts of a Contracting State in which an aircraft object is situated shall, in accordance with the law of
the Contracting State, co-operate to the maximum extent possible with foreign courts and foreign insolvency
administrators in carrying out the provisions of Article XI.
119 See Supra Note 65, p. 110.

21

allowed the civil law countries to make a declaration excluding extra-juridical remedies and
require the creditor to obtain leave of court.120

I. Basic Default Remedies
Article 8 to 15 of the Convention and Articles IX TO XIII of the Protocol set forth the default
remedies of conditional seller, lessors, and chargees under the agreements creating
international interests. Article 34 of the Convention is provides for default remedies for the
assignees (for security) of international interests.121

Remedies available under Debtor’s consent
There are certain remedies which can be availed with the debtor’s consent. Subject to certain
conditions (such as compliance with security laws and regulations, the debtor’s consent and
the issuance of an irrevocable de-registration and export request authorisation), the default
remedies will be:

a) procurement of the de-registration of the aircraft object;
b) procurement of the export and physical transfer of the aircraft object from the

territory in which it is situated.122

Meaning Of Default
a) The debtor/creditor may at any time agree in writing as to the events that shall
constitute a default or otherwise give rise to the rights and remedies specified in
Article 8 to 10 and 13.
b) Where the debtor/creditor have not agreed to what shall constitute “default”;
“means a default which substantially deprives the creditor of what it is entitled
to expect under the agreement”123

II. Remedies Available Under Lease Agreements and Title Reservation Agreements

120 See Supra Note 65.
121 Goode at paras 4.78 4.91, 4.245 4.248 (Unidroit 2013).
122 Article IX: Modification of default remedies provisions under the Protocol.
123 Article 11 of the Convention.

22

The remedies are available to conditional seller or lessor under the lease agreement or the
title reservation agreement and not under security agreement because conditional seller or
lessor is the owner of the aircraft object.124 The remedies can be exercised without the court
order under the condition that declaration made by the Contracting State under Article
54(2).125

Article 10 of the Convention provides for certain remedies to conditional seller or lessor:
a) Termination of the agreement and repossession or control of the aircraft object;
b) Application for court order authorizing or directing either of acts mentioned in point
(a).126

Additionally, Article IX of the Protocol provides for certain remedies applicable during act
of repossession:

a) Deregistration of the aircraft; and
b) Export and physical transfer of an aircraft object to a different territory.127

1. Termination
The conditional seller or lessor may terminate the title reservation agreement or lease
agreement with respect to such aircraft object to which the agreement relates or apply for
a court order to authorize or direct such termination.128

2. Possession or Control
The conditional seller or lesser may take possession o control of the aircraft object to
which such agreement relates or applies for a court order to authorize or direct such
possession or control.129

124Goodeatpara.4.102(Unidroit2013).WhiletheOfficialCommentarynotesastoArticle10oftheConventionthattherei
snorequirementof“commercial reasonableness” in connection with these activities because the creditor is simply
exercising its right to recover its own property (Goode at para. 4.86 (Unidroit 2013)), this was changed by the
Protocol. The Protocol at Article IX (3) overrides the commercial reasonableness clause in Article 8(3) of the
Convention as to aircraft objects and expressly covers “all remedies given by the Convention”. See Goode at
para. 5.50 (Unidroit 2013).
125 Goode at para. 4. 104 (Unidroit 2013).
126 Article 10 of the convention.
127 Article XI of the Protocol.
128 Goode at para 4.103 (Unidroit 2013).
129 Article 10(a) and Article 10(b) of the Convention.

23

III. Remedies for Security Agreement
Each of the remedies available are subject to a condition that declaration may be made by the
Contracting State under Article 54130, which permits remedies without leave of the court.131
The Convention provides for default remedies to a chargee under a security agreement upon
default:

1. possession or control of the aircraft object;
2. sell aircraft object;
3. grant lease of the aircraft object; and
4. collect or receive the income or profits arising from the management or use of the

aircraft objects.

1. Possession or Control of the aircraft object
The charge may take the possession or control of the aircraft object charged to it or
apply for a court order to authorize or direct such possession or control.132

2. Sell aircraft object
The charge may unless otherwise agreed among the parties, sell any aircraft object
only upon providing reasonable notice to the interested persons or apply for a court
order to authorize or direct such sale.133

3. Grant lease of the aircraft object
The charge may grant a lease of the aircraft object or apply for a court order to
authorize or direct such a lease.134

4. Collect or receive income or profits

130 Article 54 of the Convention- Declarations regarding remedies
1. A Contracting State may, at the time of ratification, acceptance, approval of, or accession to the Protocol,
declare that while the charged object is situated within, or controlled from its territory the chargee shall not
grant a lease of the object in that territory.
2. A Contracting State shall, at the time of ratification, acceptance, approval of, or accession to the Protocol,
declare whether or not any remedy available to the creditor under any provision of this
Convention which is not there expressed to require application to the court may be exercised only with leave of
the court.
131 Article 8(1) of the Convention.
132 Article 8(1)(a) and Article 8(2) of the Convention.
133 Article 8(1)(b), Article 8(2) and Article 8(4) of the convention. Interested persons as per Article 1(m) of the
Convention. See Goode at para. 2.78 (Unidroit 2013).
134 Article 8(1)(b) and Article 8(2) of the Convention.

24

The charge may collect or receive any income or profits arising from the
management or use of the aircraft object or apply for a court order to authorize or
direct the same.135 The chargee is under obligation to distribute any remaining
surplus among holders of subordinate interests which have been registered or which
the creditor has been given notice, in order of priority, and nay remaining surplus
must be paid to the debtor.136

5. Vesting of object
At any time after the constitution of default under Article 11 of the Convention, the
creditor, the debtor and all the other interested persons may agree that ownership of
any aircraft object covered by the security interest shall vest in the creditor in or
towards satisfaction of the secured obligation.137 As an option, the court can also
permit by order such vesting of ownership, but only under a condition that the
amount of the secured obligation to be satisfied are commensurate with the value of
the aircraft object after taking into account any other payment to be made by the
creditor or any interested person.138

IV. Remedies under Assignments
Article 34 of the Convention provides for application of same remedies as available under
Article 8 (Remedies of chargee), 9 (Vesting of object in satisfaction; Redemption), and
11(Meaning of default), 12 (Additional remedies), 13 (Relief pending final determination),
and 14 (Procedural requirements) to defaults by the assignor under the assignment of
associated rights and the related international interest and enforcement of remedies
assignment as a security interest.139

V. Advance Court Relief Pending Final Determination (Interim Relief) 140
A creditor who adduces evidence of default pending final determination of the creditor’s
claim is entitled to speedy relief under the Convention. Interim relief is only available to the
extent that the debtor has agreed to it. Such relief may take the form of such one or more of
the following orders as the creditor requests:

135 Article 8(1)(c) and Article 8(2) of the Convention.
136 Article 8(6) of the Convention.
137 Article 9(1) of the Convention.
138 Article 9(2) and Article 9(3) of the Convention.
139 See Supra Note 65, p. 121.
140 Article 13 of the Convention.

25

1. the preservation of the aircraft object and its value;141
2. the possession, control or custody of the aircraft object;142
3. the immobilisation of the aircraft object; and/or143
4. the lease or management of the aircraft object and the income therefrom.144

Conditions to Advance Relief
The court may add such conditions as it considers necessary to protect the debtor or other
interested persons in the aircraft object. Contracting States have the option to make a
declaration disapplying the provisions relating to interim relief. In addition to the orders
stated above, the creditor can request an order for a sale and application of proceeds,
provided that the Contracting State has made a declaration145 to opt for this additional relief
and it is specifically agreed by the debtor and creditor in the documentation. 146

VI. Self-help Remedies
India has provided for both the use of self-help remedies and formal judicial proceedings for
the purpose of repossession of aircraft.147 Legally, self-help remedies are permitted only in
limited circumstances.148 In the matter of aircraft repossession, where the self-help remedy is
to be utilised, the following clauses must exist in a lease agreement:

a) Serving a notice of default;
b) circumstances in which, notice can be waived;
c) procedure for taking possession;
d) final opportunity for remediation by the party at default before the sale or auction of

the property; and
e) procedure for the sale or auction of the property.149

141 Article 13(1)(a) of the Convention.
142 Article 13(1)(b) of the Convention.
143 Article 13(1)(c) of the Convention.
144 Article 13(1)(d) of the Convention.
145 Article X(6) of the Convention.
146 Article X of the Protocol. Goode at para. 5.54 (Unidroit 2013).
147 INSOL International, Aircraft repossession upon a default- a review of the issues in the United Kingdom,
USA, India and Nigeria (Technical paper series no. 45), November 2019.
148 The use of muscle power or other similar action which may lead to breach of peace is viewed seriously and
can lead to cancellation of the bank’s license. The Apex Court of India has come down heavily against strong
arm practices and the Reserve Bank of India issues guidelines on the subject. See Ravi Nath Aircraft
Repossession and Enforcement, Practical Aspects, Edited by Ravi Nath and Berend Crans, Kluwer International
Law, 2009.
149 INSOL International, Aircraft repossession upon a default- a review of the issues in the United Kingdom,
USA, India and Nigeria (Technical paper series no. 45), November 2019.

26

Where the above mentioned provisions exist in the lease agreement which are steps taken
required by law. Self-help remedies succeed where quick action is taken. Utilising the self-
help remedies requires access to the airport and the aircraft which, in practice, is nearly
impossible because for that purpose an application to the Court or the Airport Authority of
India (AAI) is required.150

VII. Irrevocable Deregistration and Export Request Authorization (IDERA)
The IDERA are only available in respect of Contracting States that have elected to apply
these. IDERA is issued by a debtor and recorded on the International Registry. The person in
whose favour the authorisation has been issued is termed as IDERA Holder and shall be
entitled to procure:

a) the deregistration of the aircraft object; and
b) the export and physical transfer of the aircraft object from the territory in which it is

situated,

provided that:
a) the debtor has so agreed at any time; and
b) the chargee has given reasonable prior written notice of the de-registration and
export to interested persons (such as the debtor and the guarantor) unless pursuant
to a court order (in which case prior written notice is not required). 151

150 Ibid.
151 Article XIII of the Protocol.

27

A copy of IDERA form annexed with the Protocol:152

152 See https://www.icao.int/sustainability/Documents/CPT
Convention_Protocol_AnnexB.pdf.

28

In India, IDERA was not recognised formally before. Recently, DGCA has amended the
regulation to officially acknowledge the IDERA. The amendment has taken place under Civil
Aviation Requirements, Section 2-Airworthiness, Series F, Part1 on Rev. 9, dated June 12,
2020.153
“7A. Recording of Irrevocable De-registration and Export Request Authorization (IDERA)
For recording IDERA with DGCA the IDERA holder or his authorized signatory or certified
designee of the authorized signatory shall submit application as per Appendix B, along with
Original IDERA and notarized copy or two notarized copy thereof.”154
The authority has also provided for a particular format in which the document will be
accepted. The document is produced below:155

153See
https://dgca.gov.in/digigovportal/?dynamicPage=dynamicPdf/130648442&maincivilAviationRequirements/6/0/
viewDynamicRulesReq.
154 Civil Aviation Requirements, Section 2-Airworthiness, Series F, Part1, 7A.
155See
https://dgca.gov.in/digigovportal/?dynamicPage=dynamicPdf/130648442&maincivilAviationRequirements/6/0/
viewDynamicRulesReq.

29

CIVIL AVIATION REQUIREMENTS SECTION 2
SERIES F PART I 10th SEPTEMBER, 1998

Appendix B
Application for Recording of Irrevocable Deregistration and

Export Request Authorisation (IDERA)

(Please complete this form in BLOCK CAPITALS using black or blue ink.)

SECTION 1 – Aircraft Details

SN. Registration Mark VT-

1. Name and address of Manufacturer

2. Type and Model of Aircraft
3. Manufacturer's serial number of Aircraft
4 Type and Model of Engines
5. Name and registered address of Owner

6. Name and registered address of Lessor

7. Name and registered address of Lessee

8. Any other person having right in or over

the object (mortgagee)
SECTION 2 IDERA holder/ Authorised Person or its certified designee details

The applicant is: (Please tick the appropriate box)

IDERA Holder *Authorised Party * Certified Designee

*Authority letter from IDERA Holder must be submitted by Authorised person or its certified
designee.

Name: Signature:

Address

Email

Telephone

SECTION 3— For Official use only

IDERA Specific Reference Number(SRN):

DGCA/IDERA/ / / /

Name: Designation:

Date: Signature:

Rev. 9, Dated 12th June 2020

19

30

1. Relationship Between Remedies and Insolvency Provisions

Default and interim remedies apply to all international interests regardless of registration
whereas the provisions providing insolvency protection only apply to registered international
interests. In the vast majority of cases, the creditor and the debtor will have agreed in the
agreement giving rise to the international interest that “default” will include the debtor’s
insolvency. Therefore, when insolvency proceedings are commenced against the debtor, this
will normally constitute a default under the agreement which will therefore theoretically
entitle the creditor to relief under the default remedies and interim relief provisions of the
Convention, irrespective of whether the interest was registered. However, in practice, the
default remedies would not be applicable. If the interest was not registered, the availability of
the default remedies would be subject to the national insolvency law of the Contracting State
in which the aircraft object was situated at the time of enforcement. As a result, it is likely
that the creditor will be obliged to resort to specified remedies under local law. If the interest
was registered, then the remedies available will be determined by which, if any, of the two
remedy regimes the Contracting State has selected from the Protocol. If the Contracting State
has selected either the “hard regime” or the “soft regime” then the remedies set out in that
regime will be available to the creditor. If the Contracting State has not selected either of the
regimes, then the national insolvency laws will apply, but subject to the Convention caveat
that a registered international interest is “effective” on the debtor’s insolvency, meaning that
the international interest cannot be set aside or subordinated for the benefit of the debtor,
insolvency practitioner or other claimants.156

2.15 RIGHT OF QUIET POSSESSION

The term “quiet possession” is not defined in the Convention, although it has been taken to
denote freedom from interference with the debtor’s possession, use or enjoyment of the
aircraft object. The Convention provides for a right of quiet possession. The nature of this
right depends upon the agreement between the creditor and debtor. The debtor is given the
right of quiet possession as against:

a) the creditor; and

156 See Supra Note 65.

31

b) the holder of any interest to which the debtor’s right or interest would be subject
(provided that such holder has so agreed).157

2.16 WAIVER OF SOVEREIGN IMMUNITY

The Protocol provides that a waiver of sovereign immunity from jurisdiction of the courts
specified in Article 42158 or Article 43159 of the Convention, which include the courts of a
Contracting State chosen by the parties and the courts of the Contracting State in the territory
of which the debtor is situated, is binding. The waiver is required to be in writing and contain
a description of the aircraft object. According to the Protocol, the waiver will be effective to
confer jurisdiction or to permit enforcement. Generally, as per international law, waiver of
immunity from the suit does not constitute waiver of immunity from enforcement.160 Thus,
the instrument of waiver must be unambiguous as to whether it addresses jurisdiction,
enforcement, or both. 161

2.17 JURISDICTION

The agreement between the parties will determine the court (court in the Contracting State)
in which the jurisdiction will lie in respect to any transactions accruing from it. The selected
court will have the exclusive jurisdiction unless the parties agree otherwise. It is not
mandatory that the selected Contracting State be related in any way to either of the parties or

157 Article XVI of the Protocol.
158 Article 42 of the Convention— Choice of forum
1. Subject to Articles 43 and 44, the courts of a Contracting State chosen by the parties to a transaction have
jurisdiction in respect of any claim brought under this Convention, whether or not the chosen forum has a
connection with the parties or the transaction. Such jurisdiction shall be exclusive unless otherwise agreed
between the parties.
2. Any such agreement shall be in writing or otherwise concluded in accordance with the formal requirements of
the law of the chosen forum.
159 Article 43 of the Convention— Jurisdiction under Article 13
1. The courts of a Contracting State chosen by the parties and the courts of the Contracting State on the territory
of which the object is situated have jurisdiction to grant relief under Article 13(1)(a), (b), (c) and Article 13(4)
in respect of that object.
2. Jurisdiction to grant relief under Article 13(1)(d) or other interim relief by virtue of Article 13(4) may be
exercised either:
(a) by the courts chosen by the parties; or
(b) by the courts of a Contracting State on the territory of which the debtor is situated, being relief which, by
the terms of the order granting it, is enforceable only in the territory of that Contracting State.
3. A court has jurisdiction under the preceding paragraphs even if the final determination of the claim referred to
in Article 13(1) will or may take place in a court of another Contracting State or by arbitration.
160 Goode at para. 5.100 (UNIDROIT 2013).
161 Article XXII of the Protocol.

32

the aircraft object.162 Though, in relation to interim relief, any such selection of the court
cannot exclude the concurrent jurisdiction of the Contracting State in which the aircraft
object is situated and the Contracting State the aircraft object is registered.163 The jurisdiction
provisions of the Convention does not apply to insolvency proceedings.164 The court of the
State in which the Registrar has its center of administration will have exclusive jurisdiction to
award damages or make orders against the Registrar. No court other than this particular court
can make any order to give judgement or rulings against or purporting to bind the
Registrar.165

2.18 RELATIONSHIP WITH OTHER CONVENTIONS

This Convention will prevail over the United Nations Convention on the Assignment of
Receivables in International Trade, which was opened for signature in New York on 12
December, 2001. It relates to the assignments of receivables which are associated rights
related to international interests in aircraft objects, railway rolling stocks and space assets.166
Whereas, the Protocols may determine the relationship between the Convention and the
UNIDROIT Convention on International Financing Leasing, which was signed at Ottawa
on 28 May 1988.167 The Aircraft Protocol provides that the convention will supersede the
UNIDROIT Convention on International Financing Leasing, as it relates to aircraft
objects.168

According to the Protocol:
The Convention will supersede the Convention on the International Recognition of Rights
in Aircraft, signed at Geneva on 19 June 1948. However, with respect to rights or interests
not covered or affected by the present Convention, the Geneva Convention shall not be
superseded.169 Furthermore, the Convention will supersede the Convention for the

162 Article 42 of the Convention.
163 Article 43 of the Convention.
164 Article 45 of the Convention.
165 Article 44 of the Convention.
166 Article 45 of the Convention.
167 Article 46 of the Convention.
168 Article XXVI of the Protocol.
169 Article XXIII of the Protocol.

33

Unification of Certain Rules Relating to the Precautionary Attachment of Aircraft signed
at Rome on 29 May 1933, as it relates to aircraft, as defined in this Protocol.170

2.19 CONCLUSION

In the meadow of security interests, the disparate national laws in most of the cases reflect the
outdated policy concerns that are no longer relevant and when it comes to mobile
equipment’s, it can rarely be confined to one jurisdiction. It is unquestionably a onerous task
to keep track over various security interests mobile equipment in the absence of an
international register that records them. No particular State can create such an arduous
international register. The Cape Town Convention has attempted to quash that debate. It
voiced and tackled the issues of industries dealing in mobile equipment’s globally (lease, sale
etc.). It brought immense confidence among the creditors by providing them remedies they
required desperately in their operations, moreover, advanced industries potential for the long
run.

The instrument has turned out to be an aesthetic piece of sweat and hard work. So far, it is
able to deliver its impetus upon the aircraft leasing industry around the globe convincingly.
Many States were structured with non-creditor friendly laws. The existence of an instrument
that governs all aspects of a transaction directly reduces risk, thereby reducing costs, and thus
lead to a better use of resources. To see the mileage of the Convention and the Protocol, more
States have to realize its ultimate importance and take a foot forward in ratifying it. Only
then, the complete international impact will be visible on the global aviation leasing industry.
As on May 29, 2020, there are 80 parties to the Convention.171

The Convention and the Protocol have attempted to combat major hurdles coming across the
paths of creditors and debtors in their operations. But the parties will barely experience the
benefits until the States ratify and come up with an accompanying national legislation. India
has ratified the Convention and the Protocol in the year 2008 but has shown extreme
sloppiness in bringing a separate legislation resulting which the lessors are struggling with
the complex legal structure of the State at the time of repossession and export of an aircraft

170 Article XXIV of the Protocol.
171 UNIDROIT, Convention on International Interests in Mobile Equipment, https://www.unidroit.org/status-
2001capetown.

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on event of default by the lessee. Though late but it did introduced the Indian Cape Town
Convention Bill in 2018 which is still in the parliament. Before the introduction, the State has
in the meanwhile introduced certain interim measures; the DGCA has accustomed certain
provisions through Civil Aviation Requirements (CARs) in the law. All these aspects will be
discussed in depth in the following Chapter.

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