The Cape Town Convention & The Geneva Convention

Aviation

The Geneva Convention

Before the Cape Town Convention, many nations had adopted the Geneva Convention, which opened for signature in 1948. The Geneva Convention is, in essence, a choice of law treaty. Its working method is displacing existing conflict of law rules and allowing aircraft to carry with them the legal attributes of their registration country. It provides that parties to it will recognize “rights in aircraft” that are “regularly recorded” in the national registration jurisdiction of the aircraft, provided that the rights are constituted in accordance with such country’s laws. As a result, the regime created by this convention did not require any Contracting State to change its own laws in proprietary rights. On the other hand, the regime created by the Geneva Convention brought a requirement for signatory countries to accept that any aircraft arriving on its territory under another country’s flag (another signatory country) carries with it the legal rights and proprietary interests validly prepared and registered under the law of that country.

The Geneva Convention provides international recognition of the inappropriateness of the lex situs as a source of law for determining the validity and efficacy of security interests in mobile equipment. The main focus of the Geneva Convention is to identify a stable source of law in order for the finance organizations involved in secured financing of aircraft have a greatly reduced risk of loss of their security as a result of refusal on the part of forum courts to recognize the validity and enforceability of their security interests. So, it can be said that iflex situs were applied universally and consistently, it would achieve the same sort of result as the Geneva Convention.

However, the situs rule does not always solve the problem of movable assets such as the equipment as the Cape Town Convention deals with. Some countries only apply the law of the first situs (where the aircraft was located at the time of creation of the security) if the security interest is alike to that found in the second situs(place of enforcement). If this place of enforcement is a civil law country with a specifically defined (exhaustive,numerous clausus) list of security interests which can also be created in its territory, a foreign security interest created in a common law country and not corresponding to any security interest known in the place of enforcement may be held to be invalid. It may be treated as if it were a local security interest with results quite different from of those the parties intended. As a main principle, civil law does not accept security interests in mobile equipment where the debtor remains in possession, although this principle is modified to different degrees in civil law countries.

Furthermore, during its implementation certain other problems came into existence for the signatory states of the Geneva Convention. The signatory countries were obliged to accept the effects of property rights, particularly security interests as designated thereunder, of a type which is not possible to create under their own legal system. What is more to that, these states would be obliged to accept rules of priority of security interests which significantly reduce the rights of government agencies to charge an aircraft for unpaid taxes, landing charges, etc. Last but not the least, the Geneva Convention does not have any provision in the way in which a domestic insolvency proceeding is to be balanced against “rights,” like leases and mortgages, recorded against an aircraft.

In short, the Geneva Convention does not offer a benchmark for organizing what is a confusing array of laws, rules, and customs that come into play when aircraft perform as expected (i.e. when they travel inter-continentally in the pursuit of revenue for their operators) and when businesses act as businesses do (i.e.they fail at times). One of the purposes of the Geneva Convention is to provide a conflict of law rule for determining validity and place of registration of security interests in aircraft. Therefore, it could be said that while the Geneva Convention is useful in some ways, it is generally (and correctly) seen as a choice of law tool.

The Cape Town Convention

The Cape Town Convention goes beyond the Geneva Convention, in determining the law applicable to securities for aircraft. The Cape Town Convention addresses the “widely differing approaches of legal systems to security and title reservation rights” which creates “uncertainty among intending financiers as to the efficacy of their rights“. Such uncertainty inhibits “the extension of finance, particularly to developing countries” and increases borrowing costs. In this sense, the Cape Town Convention was necessary to create a more predictable and secure, substantive legal environment to address these concerns and solve them, rather than just determining procedurally which legal system would apply should a protectable security interest existed.

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