CAPE TOWN
CONVENTION AND AIRCRAFT PROTOCOL- CURRENT TRENDS RELATING TO AIRCRAFT FINANCE
AND ENFORCEMENT OF AIRCRAFT SECURITY.
Enforcement
of Aircraft Security under the Convention
The
Nigerian Experience.
Presented
by Essien E. Udom, Founding Partner of Udom and Udom (Legal Practitioners) at
the Section of Business Law Conference held in Lagos on the 19th day
of June 2012
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Preamble
In approaching this paper, I would first present
a summary of the purpose of the Convention as captioned in its preamble and
progressively review past Treaties on rights and interests in aircraft to highlight
those inadequacies that necessitated the passage of the Cape Town Convention.
The purpose of the Convention as set out in its
preamble may be summarised as follows:
- To facilitate the acquisition and use of
mobile equipment of high value or particular economic significance in an
efficient manner;
- To facilitate asset-based financing and
leasing transactions by establishing clear rules to govern them.
- To ensure that interest in mobile equipment
are recognised and protected universally;
- To provide broad and mutual economic benefits
for all interested parties;
- To establish rules that reflect the
principles underlying asset-based financing and leasing and promote the
autonomy of the parties necessary in these transactions;
- To take into consideration the objective and
principles enunciated in existing Conventions relating to mobile equipment.
This paper is concerned with the legal
framework established in the Convention and Protocol for the enforcement of
aircraft security and how the various organs of the Nigerian State have fared
so far in facilitating the broad objectives of the Convention.
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BEFORE CAPE TOWN CONVENTION
The scope of the earlier Conventions to serve
as instruments for the enforcement of securities in aircraft by international
convention parties was severely restricted as rights in aircraft were regulated
by the domestic laws of the several contracting States. Under the Chicago
Convention of 1944, Aircraft registries were established in each contracting
State for the purpose of aircraft registration. The Geneva Convention made
provision for the maintenance of separate register of security interest in
aircraft by the authorities of the several Contracting State. The absence of a
central registry and a universally binding international law meant that parties
to aircraft transactions were always enmeshed in the complex issues of conflict
of laws, when contemplating enforcement of securities.
Nigeria is signatory to the Convention on
International Civil Aviation - the Chicago Convention of 1944. The Chicago
Convention regulates the registration of air-frames, aircraft and helicopters
and is part of our laws having been domesticated in the Civil Aviation Act 1964
Cap 51 LFN 1990.
The Convention on International Recognition
of Rights in Aircraft-Geneva Convention was signed in 1948 to provide a
regulatory regime for the international recognition of right in aircraft by
contracting parties.
Thus Article I of Geneva Convention provides
for the recognition by Contracting States of:-
(a) Rights of property in aircraft;
(b) Rights to acquire aircraft by purchase
coupled with possession;
(c) Rights to possession of aircraft under leases
of six months or more;
(d) Mortgages, hypotheques and similar rights in
aircraft which are contractually created as security for payment of an
indebtedness; were all recognised on the following conditions;
(i) The rights must be constituted in accordance
with the law of the Contracting State in which the aircraft was registered as
to nationality at the time of their constitution, and
(ii) The rights are regularly recorded in a public
record of the Contracting State in which the aircraft is registered as to
nationality.
In this regard, Section 31 of the Civil
Aviation Act, 2006, vests the NCAA with functions including:
(a) The registration of any aircraft in
Nigeria and issuance to the owner thereof, of a certificate of registration;
and
(b) The establishment and maintenance of a
system of register for recording the title to or any interest in any aircraft
registered in Nigeria.
In the same vein, Regulations 4.2.1.5 and
4.2.1.6 of the Nigerian Civil Aviation Regulations 2009 provide for the
maintenance of a registry of aircraft and a registry of Legal Interests in
Aircraft showing proprietary rights, interests, liens and other dealings
related to aircraft registered in Nigeria.
The Geneva Convention was domesticated in
Nigeria by virtue of section 73(1) of the Civil Aviation Act 2006. The
objectives of the Geneva Convention still did not address the challenges posed
by the international structure of aircraft financing and operation by not
providing a universally applicable regime of regulations.
2.1 Enforcement
Of Aircraft Securities Before Cape Town
Pre-Cape
Town Registry
Before the coming to force of the Civil
Aviation Act, 2006, the Nigerian Civil Aviation Authority (Establishment) Act,
1999 regulated the functions of the NCAA, having been established to take over
the functions of the Federal Civil Aviation Authority (FCAA), which had been
the Federal organ vested with the statutory duty of implementing the objective
of the Chicago Convention. The FCAA operated more or less as a department of
the Ministry of Aviation as its instrument of establishment made no express
provision for its autonomy. Apart from wet-leased aircraft, every aircraft
operating in Nigeria had to be registered with the Nigerian registration mark
(5N). Entries were made in the register of the names and addresses of the
operators/Lessees and owners/Lessors, the make and Manufacturer’s Serial Number
(MSN), year of manufacture and other details of the aircraft.
A note was also made of any liens, mortgages
or other security interest in the aircraft as were supplied to the registry
since there was no separate registry for that purpose.
Owners and Lessors of aircraft were largely
unsecured as there were no municipal laws or International Treaties for the
perfection of interests in these very highly priced and exceedingly mobile
objects. (A wide bodied aircraft could cost in excess of USD 200 million).
The system of registration was open to fraud
and abuse and in some cases entries at the registry were falsified - The African Trans Air Case.
Repossession of aircraft in event of default
was a nightmare to Owners/Lessors as they were often tied in needless
litigation in local courts which, in some cases, lasted for years while their
assets lay immobilised and wasted – The
Banax Case in PH.
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The
Convention on International Interests in Mobile Equipment
(Cape Town
Convention)
The Convention makes specific provisions for
leasing and taking security over aircraft, engines, helicopters, rail and space
assets and further provide creditors with specific default remedies, including
remedies in the event of insolvency of the debtor (operator). It establishes an
international registry for the registration of International Interest in the
category of mobile objects covered in the Convention.
3.1 Constitution
of International Interests
The Convention defines “International
Interest” as an interest held by a creditor to which Article 2 applies.
Article 2 of the Convention
provides for the constitution and effects of an international interest in
certain categories of mobile equipment and associated rights. The categories
are:
(a) Airframes, aircraft engines and helicopters;
(b) Railway rolling stock; and
(c) Space assets
For the purpose of Aircraft Objects, an International
Interest may be constituted in a uniquely identifiable airframe, aircraft
engine and helicopter under Article 7, in any of the following ways:
(a) Granting by a chargor under a security
agreement;
(b) Vesting in a person who is the conditional
seller under a title reservation agreement; or
(c) Vesting in a person who is the lessor under a
leasing agreement.
Article 2:5 provides that an International
Interest in an object extends to proceeds of that object.
An Aircraft Object to be registered as an International
Interest must have at least one of the following attributes:
- An airframe (other than those used in
military, custom or police services that, when appropriate aircraft engines are
installed thereon, are type certified by the competent aviation authority to
transport at least eight (8) persons including crew; or goods in excess of 2750
kilograms, together with all installed, incorporated or attached accessories,
parts and equipment (other than aircraft engines), and all related data,
manuals and records.
- A helicopter that is type certified to
transport at least five (5) persons including crew, or goods in excess of 450
kilograms.
- A jet propulsion aircraft engine with at
least 1750 pounds of thrust or its equivalent.
- A turbine-powered or piston-powered aircraft
engine with at least 550 rated take-off shaft horse power or its equivalent.
3.2. Written
Agreement Provision
Article 7 of the Convention
provides that for an interest to be constituted as an international interest
under the convention, the agreement creating or providing for the interest must
be in writing and:
- Relate to an object of which the chargor,
conditional seller or lessor has power to
dispose;
- Enable the object to be indentified in
conformity with the Protocol; and
- In the case of a security agreement, enable
the secured obligations to be determined, but without the need to state a sum
or maximum sum secured.
3.3 Domestication
of the Cape Town Convention and Protocol
On the 15th of November, 2006, the
Civil Aviation Act 2006 was signed into law thereby effectively domesticating
the Cape Town Convention and Protocol as part of the laws of Nigeria. Section
73 (2) of the Civil Aviation Act, 2006 provides as follows:
“The
provisions of the Convention on International Interests in Mobile Equipment on
matters specific to aircraft equipment 2001 (the Cape Town Convention and
Protocol) set out in the Fifth Schedule (a) and (b) respectively, shall from
the commencement of this Act, have the force of law in Nigeria.”
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PERFECTION
AND PRIORITIES UNDER CAPE TOWN CONVENTION
4.1 International
Registry
The Convention provides for the establishment
of an International Registry. The perfection of International Interests in
aircraft objects and the determination of priority of International Interests
are accomplished through a system of on-line registration and search of the
International Registry. The International Registry established in Dublin,
Ireland is open to all party States for the registration of interests in
aircraft objects.
It is supervised by the International Civil
Aviation Organisation (ICAO) and is being operated out of Dublin, Ireland by
Aviareto, a joint venture between Societe Internationale de Telecommunications
Aeronotique (SITA), an air transport IT service provider, and the Irish
government.
The International Registry is a web and notice-based
electronic registry system, requiring no physical documentary filing, and
operating 24 hours a day, 7 days a week. The registry is an “object-specific”
registry, meaning that the registrations are made against and searched by
criteria such as manufacturer, model, and serial number of an aircraft object.
The framework of regulations in the
Convention is for the protection of the claims of registered interests only. In
other words, only registered interests may be enforced under the Convention.
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ENFORCEMENT PROVISIONS
5.1 Extra
– Judicial Provisions for the Enforcement of Aircraft Securities
Before
the coming into force of the Cape Town Convention, there was no treaty
regulating the process of repossession and export of aircraft in the event of
default by “debtors”. In Nigeria, the process was entirely dependent on the
Nigerian aircraft registry authority (the NCAA) and the judicial authorities
and much was left to discretion. The Civil Aviation Act, the Nigerian Civil
Aviation Regulations, the Admiralty Jurisdiction Act, the Admiralty
Jurisdiction Procedure Rules and other extant laws made no mandatory provision
to facilitate repossession within a stipulated time.
With
the coming to force of the Cape Town Convention, specific enforcement
provisions of the Convention are now incorporated in the Nigerian Civil
Aviation Regulation, 2009.
Regulation
4.2.1.3(a) of the Nigerian Civil Aviation Regulations,
2009, makes clear provisions for the de-registration of an aircraft in the
following circumstances among others:
(2) If the holder of a valid de-registration Power of
Attorney applies to the Authority for de-registration; and
(3) When the holder of a Certificate of Registration,
owner or lessor or his duly authorized attorney applies in writing for
de-registration of the aircraft from the Nigerian Register.
The
above provisions however, would still not result in the much needed efficiency
in the process of aircraft repossession for the following reasons:
·
Regulation 4.2.1.3(a)(6)
gives the Authority the discretion to refuse de-registration if in its opinion,
it will be in the public interest to do so.
[Question here is: (i) how
do you define public interest and (ii) why should the execution of a lease
between international parties be subject to a local authority’s decision as to
what constitutes public interest.]
·
The regulation gives no time
line for de-registration.
The
Cape Town Convention has given force of international law to the Irrevocable
Deregistration and Export Request Authorisation (IDERA). It has also provided
clear mandatory time lines for deregistration upon notification of the
authority and made clear provisions for Default Remedies and Interim Reliefs available
to the creditor by order of the courts, with definite timelines within which
such reliefs must be granted pending final determination.
5.2 Default Remedies – (Conditional Sales and Leases)
Article
IX(1) of the Protocol provides that in addition to
the remedies specified in Chapter III of the Convention, the creditor may, to
the extent that the debtor has at any time so agreed and in the circumstances
specified in that Chapter:
(a)
procure the de-registration of the aircraft; and
(b)
procure the export and physical transfer of the aircraft object from the
territory in which it is situated.
Article
10 in Chapter III of the Convention which is
relevant to Conditional Sales and Leases provides that in the event of default
under a title reservation agreement or under a leasing agreement as provided in
Article 11, the conditional seller or the lessor, or as the case may be, may:
(a) subject to any declaration that may be made by a
Contracting State under Article 54, terminate the agreement and take possession
or control of any object to which the agreement relates; or
(b) apply for a court order authorising or directing either of these acts.
5.3 Nigeria’s Declaration Under Article 54(2)
The
Federal Republic of Nigeria made a mandatory declaration under Article 54(2) in
the following terms:
“The Federal Republic of Nigeria declares that any
remedies available to the creditor under the Convention which are not expressed
under the relevant provision thereof to require application to the court may be
exercised without court action and without leave of the court.”
[This
declaration was notified to UNIDROIT by the Government of the Federal Republic
of Nigeria, as a subsequent declaration pursuant to Article 57(1) of the
Convention, on 26 March 2007, and in accordance with Article 57(2) of the
Convention it took effect on 1 October 2007.]
The
import of this Declaration is that once the Lessor has filed an IDERA with the
NCAA and the NCAA notified of the termination of the lease, the NCAA is obliged
to de-register and afford all necessary clearance and assistance to the Lessor
for the repossession and exportation of the aircraft without court action and
without leave of the court.
5.4 Irrevocable
Deregistration and Export Request Authorisation (IDERA)
Article
IX(5) of the Protocol provides as follows:
“The registry in a contracting state shall, subject to
any applicable safety laws and regulations, honour a request for
de-registration and export if:
(a) the request is properly submitted by the authorised
party under a recorded irrevocable de-registration and export request
authorisation; and
(b) the authorised party certifies to the registry
authority, if required by that authority, that all registered interests ranking
in priority to that of the creditor in whose favour the authorisation has been
issued have been discharged or that the holders of such interests have
consented to the de-registration and export.”
It
should be noted here that under the Protocol, the registry’s obligation to
honour a request for deregistration and export request is subject only to “any applicable safety laws and regulations”, and NOT
subject to “public interest” as provided in Regulations 4.2.1.3 (a)(6) of
the Nigerian Civil Aviation Regulation, 2009.
5.5 Time Limit for De-registration, Export and
Physical Transfer of Aircraft Object.
Article
X(6) of the Protocol makes the following mandatory stipulations with regard to
remedies in Article IX (1):
(a) they shall be made available by the registry
authority and other administrative authorities, as applicable, in a Contracting
State not later than five working days
after the creditor notifies such authorities that the relief
specified in Article IX (1) is granted or, in the case of
relief granted by a foreign court, recognised by a court of that Contracting
State, and that the creditor is entitled to procure those remedies in
accordance with the Convention; and
(b) the applicable authorities shall expeditiously
co-operate with and assist the creditor in the exercise of such remedies in
conformity with the applicable aviation safety laws and regulations.
5.6 Judicial Relief Pending Final Determination
Article 13 of the Convention stipulates the
nature of interim relief that courts of Contracting States may order for the
benefit of the creditor, pending final determination of an action relating to
an international object.
Subject to any declaration filed by a
Contracting State, a creditor may request the court to make orders for any of
the following relief:
(a) preservation of the object and its value;
(b) possession, control or custody of the
object;
(c) immobilization of the object; and
(d) lease, or except where covered by
sub-paragraphs (a) to (c), management of the object and the income therefrom.
Article X (2) of the Protocol provides that
for the purpose of Article 13 (1) of the Convention, “speedy” in the context of obtaining relief means within such
number of working days from the date of filing of the application for relief as
is specified in a declaration made by the Contracting State in which the
application is made.
5.7 Nigeria’s
Declaration in respect of Article X
In respect of Article X of the Aircraft
Protocol, Nigeria’s declaration lodged on the 26 March 2007 and effective on
the 1 October, 2007, provides a time limit of not more than ten (10) calendar
days in respect of remedies specified in Article 13 (1)(a), (b) and (c) of the
Convention and not more than thirty (30) calendar days in respect of remedies
specified in Articles 13(1)(d) and (e) of the Convention.
5.8. Jurisdiction
Clear provisions are made in the Convention
as to the Choice of Forum and the jurisdiction of courts of Contracting States
to grant interim reliefs pending final determination of issues in Articles 42
and 43 of the Convention.
5.9. Choice of
Forum
Article 42 (1) provides that 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 the
Convention, whether or not the chosen forum has connection with the parties or
the transaction. It further provides that such jurisdiction shall be exclusive
unless otherwise agreed between the parties. Article 42 (2) requires any
agreement to vary the provision of Article 42(1) to be in writing or otherwise
concluded in accordance with the formal requirements of the law of the chosen
forum.
5.10. Jurisdiction
under Article 13
Article 43 provides that 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) and (4) in respect of the object. It further states
that a court has jurisdiction to grant interim reliefs under Article 13 even if
the final determination of the claim will or may take place in a court of
another Contracting State or arbitration.
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IS CAPE TOWN AT WORK
IN NIGERIA
Having explored fairly extensively, the
various provisions of the Convention for the recognition and protection of
interest in aircraft objects and the enforcement of aircraft securities under
the Convention, we would now examine how relevant authorities in Nigeria have
so far implemented the provisions of the Convention.
6.1 Air
Midwest Nigeria Limited Case
The Air Midwest case provides a good case
study of the working of Cape Convention in Nigeria as relevant provisions of
the Convention and Protocol were put to test in the bid of the creditor to
deregister, repossess and export its aircraft from Nigeria.
Air Midwest, a Nigerian operator contracted a
lease of a Boeing 737-500 from Celestial Aviation Trading 21 Limited, a company
registered in Ireland. Pursuant to the Cape Town Convention, the Lessor had
lodged an IDERA duly executed in it’s favour by the Lessee at the NCAA. The
Lessee was in default and the Lessor sought to de-register and repossess the
aircraft. The events that ensued were as follows:
(i) The NCAA was duly notified of the
termination of the Lease and requested to de-register the aircraft and grant
authorisation for it’s export form Nigeria. Under Article X(6) of the Protocol,
it is mandatory for deregistration, repossession and export to be accomplished
within five (5) working days but in this case, the aircraft was deregistered
two (2) clear months after the request was served on the NCAA;
(ii) The creditor commenced action for the
repossession of the aircraft in the Queen’s Bench Division of the High Court in
London (Forum of Choice);
(iii) Whereas, the Forum of Choice in the
lease was the English Courts which had exclusive jurisdiction over the matter,
the debtor brought a suit in the Federal High Court of Nigeria;
(iv) Whereas, interim preservative orders are
only available to the creditor under the Convention, the lessee (debtor) filed
an ex-parte application at the
Federal High Court and was granted orders for the arrest and detention of the
aircraft;
(v) The
creditor filed a preliminary objection to the jurisdiction of the Federal High
Court of Nigeria and a Motion for the discharge of the warrant of arrest,
repossession and export of the aircraft pending the hearing on jurisdiction. Contrary
to the stipulation in Article 43 of the Convention, the Court ruled that it
would first dispose of the issue of jurisdiction.
(vi) Whereas, Article X stipulates a time
limit of ten (10) calendar days for the granting of interim relief to the
creditor, it took approximately six (6) months for the Court to order the
discharge of the warrant of arrest and repossession of the aircraft on the
grounds, inter alia, of lack jurisdiction.
(vii) Notwithstanding the court order for
repossession, two directors of the debtor company invaded the tarmac and
physically obstructed the aircraft to prevent it’s being towed to the hanger
for inspection preparatory to exportation. In view of the severity of threats
posed by the debtor (one director indeed threatened to blow up the aircraft),
the airport police with men of the bomb disposal unit were invited.
(viii) Preliminary investigation revealed
that the aircraft had been robbed of several vital components and the debtor
refused to release the operational manuals and other record in its possession.
(ix) The English court granted judgment in
favour of the creditor together with orders as to damages which were duly
registered as a judgment of the Federal High Court of Nigeria for necessary
enforcement.
(x) A motion by the debtor for extension of
time to apply for the setting aside of the registration was recently adjourned
to September, 2012, for hearing, approximately nine (9) months from the date it
was filed.
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CONCLUSION
Now,
in the light of the foregoing, what are the current trends relating to aircraft
financing and enforcement of aircraft security in Nigeria? Has Cape Town come
to Nigeria?
Essien E.
Udom
UDOM AND
UDOM
Zenon
House,
2 Ajose
Adeogun Street,
Victoria
Island,
Lagos,
Nigeria.
Tel. 234
8023075120
Email: essien@udomandudom.com
Website: www.udomandudom.com