Istat Mini Case - Cape Town convention Rights in rem PDF

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Cape Town convention
Air Foyle Ltd v Center Capital Ltd...

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Address the following: 1. 2. 3. 4. 5.

Summarize the case (feel free to research what really happened with the leases described in the case). State the problem described in the case. Discuss the consequences of the court decision. Provide an analysis of the applicability of the Geneva Convention to the situation described in the case. Provide an analysis of the applicability of the Cape Town Convention to the situation described in the case.

[2009] EWHC 3314 (Comm) and [2010] EWHC 631 (Comm) In a nutshell, the judgment provided that one has to look at the domestic law of the lex situs of the aircraft (excluding its conflict of law rules) at the time the mortgage is created to determine if the mortgage is valid rather than the contractually agreed governing law. Although the case will be familiar to most readers, for those whom it is not, the court held that although the parties had contractually agreed that the governing law of the aircraft mortgage was English law, because the aircraft was physically situated in the Netherlands at the time the mortgage in question was created, it was Dutch domestic law that determined whether the mortgage was valid. Unfortunately for the mortgagee, Dutch domestic law did not recognize the mortgage.  Location of the aircraft when the mortgage is created > contractually agreed governing law Dicey, Morris & Collins – The Conflicts of Law, 14th ed (2006) ‐ Rule 120, Exception 2 that a civil aircraft may be deemed to be situate in its country of registration if the aircraft is “either over the high seas or over or on territory which is not under the sovereignty of any State” at the time the mortgage is created (the “Dicey Morris exception”).  When the aircraft is either over the high seas or located on a piece of land governed by nobody, the law of the country where the vehicle is registered will apply. 1. have the mortgage governed by English law and have the aircraft in English airspace at the time the mortgage is created; 2. have the mortgage governed by Bermuda or Cayman law (as the case may be) and have the aircraft in English airspace at the time the mortgage is created; 3. where the aircraft is registered on the Bermuda register, have the mortgage governed by Bermuda law and have the aircraft in international airspace at the time the mortgage is created (thus relying on the Dicey Morris exception); 4. where the aircraft is registered on the Cayman Islands register, have the mortgage governed by Cayman Islands law and have the aircraft in international airspace at the time the mortgage is created (thus relying on the Dicey Morris exception).

Lex Situs: A conflict of law rule that selects the applicable law based on the venue or location of something. https://www.conyersdill.com/wpcontent/uploads/2018/06/229_11_04_26_A_year_later_the_practical_consequences_of_blue_sky _one_limited.pdf the English high court confirmed that the validity of an English law aircraft mortgage is to be determined by the law of the place where the aircraft is situated (the lex situs) on the date that the English law aircraft mortgage is executed. Section 4 of the Cape town act provides that the Cape Town convention and the Aircraft Protocol have force of law in Ireland in relation to the matters to which they apply. http://www.iflr.com/Article/2713004/The-Blue-Sky-Case.html 1. U.S. prohibits the sale or lease of US aircraft and aircraft containing significant components (e.g., engine) manufactured in the US to Iranian individuals or companies. 2. Three Boeing 747-422 were leased to Blue airways LLC, an American company, entered on the American Civil Aviation Registry, and chartered to Mahan, an Iranian company. Two of the 747s were subsequently mortgaged to PK Airfinance US Inc. 3. Iranian companies made an attempt to acquire three additional 747-200s 4. 22 FEB 2008, the US Dept. of Commerce, Bureau of Industry and Security ordered the Iranian companies to redeliver the additional aircrafts to the US. 5. 17 MAR 2007, the US Dept. of Commerce, Bureau of Industry and Security issued a temporary denial order (TDO) prohibiting the Iranian companies and Blue Airways LLC. from participating in any transaction involving any item subject to the Export Administration Regulations. 6. 16 OCT 2008, Mahan FZE, an Ajman company owned or controlled by Mahan, deregistered the first three 747-200s from the Armenian aviation registry and registered them in Iran. 7. 21 DEC 2008, two of the first three 747-200s were mortgaged to PK Airfinance US Inc. 8. 18 DEC 2006, PK approved the loan facility. The financial documents, including the mortgages of the second and third aircraft, were signed on 21 DEC 2006.

9. On 21 DEC 2006, the second aircraft (MSN 24383) was registered in Armenia and the third aircraft (MSN 26879) in the United Kingdom. The third aircraft was still at Schiphol. The location of the second aircraft on that date is disputed. 10. The loan to PK was due to be paid on 23 June 2008. The Balli parties did not pay it and on 24 JUN 2008 PK Airfinance issued notices of default and, after obtaining permission from the BIS to make an agreement with Balli for the repossession of the aircraft, on 3 JUL 2008 took possession of the fourth to sixth aircraft. 11. Mahan and FZE's de-registration of the Package 1 aircraft from the Armenian register on 16 OCT 2008 and re-registration in Iran thereafter. PK learned of this on about 17 NOV 2008. It did not find out that Mahan claimed it was the beneficial owner of the aircraft until much later. In JAN 2009 Mahan stated it was operating the aircraft under a lease, had no knowledge of mortgages and would not deliver the aircraft to PK. On 05 MAR 2009, at a meeting between PK, Mahan and their legal advisors in D'sseldorf, the Mahan parties did not claim to own the aircraft. On 6 APR 2009 PK gave notice to Balli and Mahan asserting a right to the possession of the second and third aircraft. 12. Mr. Sabi, Hamid was disbarred by a revolutionary court Iran had not ratified Geneva convention The loan to PK was due to be paid on 23 June 2008. In 2008, Mahan Blue Airways LLC PK Airfinance US Inc https://www.casemine.com/judgement/uk/5a8ff7c460d03e7f57eb1f6d

Cape Town convention The Cape Town Convention is an international treaty designed to facilitate the cross-border financing and leasing of aviation (and other mobile) equipment, by reducing creditor risk and enhancing legal predictability. International registry system Rights in rem: Property rights in assets are sometimes referred to as rights in rem. The advantage of a right in rem in an aircraft is that it gives the holder recourse to the asset if there is a default by the grantor. A valid security interest in an aircraft is a right in rem, normally granted by the owner of the aircraft to another party, to secure a debt or other obligation. Under English law, a secu- rity right in rem is particularly valuable in an insolvency of the owner grantor. It gives the holder, that is, the secured party, the right to obtain payment of the debt (or performance of any other secured obligation) out of the appropriated property, in priority to other creditors of the owner.

Under English law, a mortgage is usually considered the most appropriate means of taking security over a tangible movable. It involves a transfer of title to the asset by the owner, as mortgagor, to the secured party, as mortgagee, subject to an obligation to re-transfer owner- ship upon satisfaction of the secured debt or other obligation (known as the ‘equity of redemption’). English law characterizes aircraft as movables. (*NOT consistent among other nations, hence, at the outset of a cross-border property dispute, there may be a conflict of laws issue of characterization). When considering whether an aircraft is a movable or an immovable, English private international law looks to the law of the place where the aircraft is situate (the lex situs) at the relevant time. The leading authority for the application of the lex situs is Cammell v Sewell, and the English Courts have since been consistent in their application of the rule. More recent case law involving transfers of aircraft has also given effect to the lex situs. In Kuwait Airways Corp v Iraqi Airways Co (No 6), Lord Nicholls applied the lex situs rule to a foreign confiscatory sale of ten aircraft. Air Foyle Ltd v Center Capital Ltd the Court determined that the lex situs rule was applicable to the transfer of ownership of an aircraft. The case concerned an action to determine title to an aircraft, registered in Russia, which the claimant had bought at an auction in Holland, following orders for sale by the Dutch courts. Following the principles established in Cammell v Sewell, the Court ruled that the situs of the aircraft was to be determined by the English conflict of laws rules, as it was situate in England. Dornoch Ltd v Westminster International BV (No 1) a case concerning various issues arising out of a contract of marine insurance, it was agreed between the parties that the lex situs applied to the transfer of a ship which was not registered at the relevant time. Dornoch Ltd v Westminster International BV (No 2) a subsequent case concerning the same litigation relating to a contract of marine insur- ance, the application of the doctrine of renvoi was rejected. The Blue Sky litigation arose out of transactions entered into in 2006 against the backdrop of sanctions imposed by the US which prevented the sale or lease of US aircraft and aircraft containing significant components manufactured in the US to Iranian individuals or companies. Problem(s) Mahan purported to effect a transfer of title to the Package 1 air- craft to Blue Sky Aviation Co. FZE (‘FZE’), an Ajman company controlled by Mahan (under an option agreement with Balli) and subsequently de-registered the aircraft from the Armenian register, re-registering them on the Iranian register.  Mortgage over each aircraft effective to create a security interest? 1st aircraft

The Court confirmed that in the case of a transfer of title to tangible movables,the English choice of law rule is that the effectiveness of the transfer is to be determined by the lex situs, that is, the law of the place where the aircraft was physically located at the time the mortgage took effect. Accordingly, the mortgage was held to be invalid as a matter of property law. This was the case notwithstanding that the Court accepted that a Dutch court would apply English law as the lex registri (in accord- ance with its own choice of law rules), which would have led to the conclusion that the mortgage was valid as a matter of property law. 2nd aircraft no evidence to suggest where the vehicle was located at the time of mortgage formation  in the absence of proof of any other law, English law applies. The mortgage therefore created a valid security interest. Convention on the International Recognition of Rights in Aircraft (Geneva Convention) The Geneva Convention is a treaty that was established shortly after World War II.  the first attempt to address jurisdictional differences regarding aircraft security interests (aircraft manufacturing nations became concerned about the reluctance of financial institutions to invest in aircraft without assurance that their interests were secure).  signed on June 19, 1948 and went into effect on September 17, 1953.  facilitate financing and to recognize property basis and conditions for aircraft sales. Specifically, Article I of the agreement recognizes the following rights: 1. Rights of property in aircraft; 2. Rights to acquire aircraft by purchase coupled with possession of the aircraft; 3. Rights to possession of aircraft under leases of 6 months or more; 4. Mortgages and similar rights in aircraft which are contractually created a security for payment of an indebtedness; Provided that such rights a. have been 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 b. are regularly recorded in a public record of the Contracting State in which the aircraft is registered as to nationality. 

Primarily concerned with “who” has control over an aircraft’s domestic and international operation. Essentially allows for the international choice of law regarding ownership.

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According to Article II, any effects of the rights mentioned above are to be determined and governed by the laws of the state where the aircraft is currently registered, not necessarily where the aircraft is physically located.

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In general, rights of the Geneva Convention should have priority over the rights recognized by any contracting state.

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Any proceedings during the sale of an aircraft must be undertaken according to the laws of the contracting nation where these proceedings are brought.

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Also, no change in registration may occur unless all holders of recorded rights have been satisfied or consent to the transfer, thereby protecting other financiers who may have recorded interests.

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*it only applies if both the registry country and the location country are participating members. Signers are also allowed to select nations (member and nonmember) with whom they wish to refuse the recognition of the treaty.

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Iran had signed but never ratified

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Armenia never signed

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UK signed never ratified

Convention on International Interests in Mobile Equipment (Cape Town Convention, 2001) it serves to standardize the process for sales contracts, security interests, leases, and defaults involving moveable property (rail, air, and space). apply exclusively to “aircraft objects,” that are referenced by referenced by manufacturer, the manufacturer’s serial number, and the equipment’s model number.  Airframes that are type certified to transport at least eight persons.  Engines having at least 1750 lbs of thrust in the case of jet propulsion and the in case of turbine-powered or piston-powered aircraft engines having at least 550 rated takeoff shaft horsepower.  Helicopters that are type certified to transport at least five persons. web-based international registry for aircraft objects. Once an asset is recorded, the registered owner can exercise his/her interest in any contracting state or under any jurisdiction that applies the treaty. Given priority over local laws when it comes to recognizing international interests. Qualifications:  an interest must be associated with the actual aircraft object  granted by a chargor under a security agreement  vested in a person who is the conditional seller under a title reservation agreement  or vested in a person who is the lessor under a leasing agreement.  In addition, according to convention Article 7 and protocol Article V o the transaction must be in writing o the charger, conditional seller, lessor, or seller must have power (not just the right) to dispose of the aircraft object o the aircraft object must be referenced by the manufacturer’s name, serial number, and model number.

leasing agreement is a contract whereby a lessor grants a lessee the right to possess and control an aircraft object in return for rental payments. security agreement refers to a contract by which a chargor (lender/lessor) grants or agrees to grant to the chargee (lessee/debtor) an interest in an aircraft object for the purpose of securing the performance of an existing or future obligation If an aircraft is sold, the agreement must be in the form of an official contract for the outright sale of the object. As such, ownership immediately passes from the seller to the buyer, subject to deregistration. The buyer also assumes all associated rights, including payments from a debtor, as well as all international interests and priorities of the assignor. The Cape Town Convention does not initially account for the location of the asset, so a “contract of sale” prevents the issue of lex situs, which is the legal doctrine stating that title transfers are dependent upon the location of the property. The Cape Town Convention also allows parties to choose which laws will govern their lease contract and any future disputes 24383    

Registered in Armenia on 21 DEC 2006 Flew from Fujairah (UAE) to Mehrabad (Iran) on 17 DEC 2006 Flew from Mehrabad (Iran) to Kerman (Iran) on 27 DEC 2006 Located in Tehran (Iran) on 03 JAN 2010

26879  Registered in UK on 21 DEC 2006...