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Give and take: Turbulence continues in Cape Town Convention interpretation

In a not altogether unsurprising blow for aircraft lessors and financiers, an appeal against the earlier decision of the Federal Court of Australia on the interpretation of the phrase ‘give possession of the aircraft object to the creditor’ as used in Article XI of the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment (the Aircraft Protocol) in the context of an insolvency has been allowed by the Full Court and various original orders set aside.

Examining the content of the obligation imposed on the insolvency administrators by the Aircraft Protocol to ‘give possession’, the Court noted that ‘“giving possession” under Art XI(2) is not to be understood to include redelivery’ and clarified as follows:

To the extent that the existence of the insolvent administration means that the creditor cannot exercise that self-help remedy, the insolvency administrator must give possession. It is an obligation that arises in circumstances where the creditor wishes to take up the opportunity to take possession. It is for that reason that Art XI imposes obligations upon the insolvency administrator that are expressed to apply unless and until “the creditor is given the opportunity to take possession” under Art XI(5). Once that opportunity is afforded those obligations come to an end, unless the creditor seeks to take up the opportunity, in which case they continue until the obligation to give possession (which is of the character already described) must be performed by the insolvency administrator.

This will be helpful clarification (subject to any further appeals), as lessors and financiers continue to navigate the effects of the Covid-19 pandemic, and as the aircraft finance industry looks to the Cape Town Convention to protect international interests subject to insolvency proceedings in a range of jurisdictions. It of course remains to be seen how parties to airline insolvencies reconcile this in practice to find acceptable paths forward, in the individual circumstances of each insolvency and piece of equipment.

You can read our note on the earlier decision here, and find the latest judgment here.

However, the extent of those affirmative obligations is confined by what is needed to overcome any barrier to taking possession that is a consequence of the insolvent administration, and does not extend to affording to the creditor any form of possession of the relevant aircraft objects that the creditor would be unable to take in the exercise of the remedy conferred by the Convention (and applied to aircraft objects by the opening words of Art IX of the Protocol) in circumstances where there was no insolvent administration.

Tags

transportation, aviation, cape town convention

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