28 February 2020

Carey Olsen Aviation Bulletin 2019/2020: Implementation of the Cape Town Convention in Bermuda

In this briefing we revisit key points in relation to the implementation of the Convention on International Interests in Mobile Equipment in Bermuda and describe the declarations that have been made in connection with that implementation and the effect of those declarations.

The Convention on International Interests in Mobile Equipment concluded in Cape Town, South Africa on 16 November 2001, commonly known as the Cape Town Convention (the Convention), came into force in the United Kingdom on 1 November 2015. Following ratification, the United Kingdom made a declaration under Article 52 of the Convention extending its application to Bermuda, with the Convention consequently coming into force in Bermuda on 1 January 2018.

In the two years since the Convention came into force leasing companies, owners, lenders and other parties that deal with Bermudian entities participating in aircraft transactions and/or aircraft registered in Bermuda have generally opted to take the additional steps necessary to obtain the protections conferred by the Convention.

Implementing Legislation 

The Bermuda International Interests in Mobile Equipment (Cape Town Convention) Act 2016 (the Cape Town Convention Act) gives effect to the Convention in Bermuda and came into force along with the Convention itself on 1 January 2018.

As well as giving the force of law in Bermuda to the entire Cape Town treaty (i.e. the Convention along with the protocol and the declarations made by the United Kingdom thereunder) and recognising the international interest provided for by the Convention, the Cape Town Convention Act provides that the Convention prevails over any other Act or statutory instrument of Bermuda that conflicts with, or is inconsistent with, the Convention.

Bermuda’s constitutional status means that it is not itself a contracting state within the meaning of the Convention and is instead considered a “territorial unit” of the United Kingdom, which is a contracting state. Article 52(5) of the Convention and Article XXIX(5) of the Protocol provide that a “debtor” (such as a lessee under a lease or the chargor under a security agreement) incorporated in a territorial unit such as Bermuda is considered to be situated in a contracting state for all purposes of the Convention.

Declarations

Article 52 of the Convention provides that a Contracting State may make declarations in respect of its territorial units that are different from the declarations made regarding that Contracting State itself and/or the declarations made regarding any other territorial unit of that state.

The United Kingdom has made a series of declarations with respect to Bermuda including the following: Article 39: as a matter of Bermuda law all categories of non-consensual rights or interests which, under the laws of Bermuda, have priority over an interest in an aircraft object equivalent to that of the holder of a registered international interest shall, to that extent, have priority over a registered international interest, whether in or outside insolvency proceedings.

A right or interest of a category covered by the declaration made under Article 39(1)(a) of the Convention shall have priority over an international interest registered prior to the date of deposit of the United Kingdom’s instrument of ratification.

Article 53: the “relevant court” for the purposes of any claim brought under the Convention is the Supreme Court of Bermuda.

Article 54(2): any remedy available to the creditor under any provision of the Convention, which is not expressed in the Convention to require application to the court, may be exercised without court action and without leave of the court.

Article XXX(3) of the Aircraft Protocol: Alternative A under Article XI of the Protocol applies to Bermuda in its entirety to all types of all insolvency proceedings. The waiting period for the purposes of Article XI(3) of that alternative is sixty (60) calendar days.

As at the time of writing, the United Kingdom has not made any declarations applicable to Bermuda under, among others, the following provisions:

Article 40: as no declaration has been made under Article 40 (Registrable non-consensual rights or interests) there are no categories of registrable non-consensual rights or interests.

Article 50: as no declaration has been made under Article 50 (Internal transactions) the Convention will apply to internal transactions.

Article 54(1): as no declaration has been made under Article 54(1) (Declarations regarding remedies) a chargee may grant a lease of an aircraft in the circumstances contemplated in that Article, notwithstanding that aircraft is subject to a mortgaged or other security interest.

Article 55: as no declaration has been made under Article 55 (Declaration regarding relief pending final determination) the provisions of Articles 13 (Relief pending final determination) and 43 (Jurisdiction under Article 13) wholly apply in Bermuda.

Article 60: as no declaration has been made under Article 60(1) (Transitional provisions) means the Convention does not apply to a pre-existing right or interest, which retains the priority it enjoyed under applicable Bermuda law before 1 November 2015.

Conclusion

The extension of the Convention to Bermuda means that a Bermuda special purpose vehicle can now be used for transactions where the parties require the Convention to have the force of law in the SPV’s jurisdiction of incorporation. This has undoubtedly provided greater comfort to aircraft financiers and provided an additional reason for Bermuda being a jurisdiction of choice for the registration and financing of aircraft.

Please note that this article is part of the Carey Olsen Aviation Bulletin 2019/2020 series.

 

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