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The Remedies Available Under the Cape Town Convention

The creditor under the Cape Town Convention is entitled to a variety of remedies in case of default of the debtor. A chargee is entitled to: (a) take possession or control of any object charged to it; (b) sell or grant a lease of any such object; or (c) collect or receive any income or profits arising from the management or use of any such object.[1] Thus, besides selling the object and applying the collected, the creditor can grant a lease of the object to a third party and apply the income collected. It is also possible to satisfy the secured obligation by vesting the ownership of the object in the chargee, upon agreement of the chargee and other interested parties or by the court order.[2] Further, if the international interest is a title reserved by the conditional seller or a lessor’s right (as opposed to a security interest under a security agreement), there is no need for the creditor to pay the balance to the debtor even when the amount of the balance is larger than the amount of the secured obliga- tion.[3] It is important to note that the distinction of a security interest and an interest of a conditional seller or lessor shall be made according to the applicable law.[4]

The Aircraft Protocol adds an aircraft-specific remedy to the list of available remedies, namely to (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.[5] To facilitate these types of remedy, the Aircraft Protocol introduces the system of irrevocable de-registering and export request authorisation (IDERA). It is an option that a Contracting State may opt in by making a declaration. Because it is usually the debtor as current user of the aircraft that must apply for de-registration of the aircraft and permission to export it to another state, the creditor wishing to exercise these two remedies could face difficulties if the debtor does not voluntarily cooperate. An IDERA is a letter of attorney authorising the creditor or its designee to make these applications on behalf of the debtor. Holding an IDERA in advance, the creditor can take necessary steps by itself, once the event of default occurs. Because the IDERA is not revocable, the creditor may trust in the authority that it has. If a Contracting State opts in this provision, an IDERA made pursuant to the Annex of the Aircraft Protocol shall be recorded by the registry authority (the office maintaining the aircraft register in accordance with the Chicago Convention).[6] The registry authority and other authorities of the Contracting States must affirm the validity of the recorded IDERA and enable the creditor to exercise the remedies.[7]

The Luxembourg Rail Protocol also provides, as the additional type of remedy, that the creditor may procure the export and physical transfer of railway rolling stock from the territory in which it is situated.[8] However, it has no provision on an IDERA equivalent to that in the Aircraft Protocol. The difference may due to the fact that there is no universal system of registering railway rolling stock, as opposed to the aircraft register based on the Chicago Convention.

The Space Protocol provides for no additional type of remedies. However, because of the technical difficulty of repossessing a space asset in the orbit, two special mechanisms are introduced. For one, when a space asset is in orbit, physical repossession is possible only through transfer of control from the earth, which may be exercised by changing the command code to an alternative one escrowed in advance. To make sure that such an arrangement is permissible, the Space Protocol provides that the creditor and debtor may agree for the placement of command codes and related data and materials with another person.[9] For another, the creditor may wish to collect the secured debt by applying the payments that the user of the space asset makes to the debtor, since the economic value of the space asset is, after all, realised in such revenue stream, which is assigned to the creditor as additional collateral.[10] To enable it, the Space Protocol introduces “rights assignment”, by which a debtor agrees with the creditor to grant an interest in or over the whole or part of existing or future debtor’s rights.[11] The rights assignment can be recorded with the International Registry, but only at the same time as the registration of an international interest.[12] This is because the assignment of receivables as such is not the subject of the Cape Town Convention.[13]

  • [1] Article 8(1) of the Base Convention.
  • [2] Article 9(1) and (2) of the Base Convention.
  • [3] Compare art.10 with art.8 (6) of the Convention. Sir Roy Goode, Convention on InternationalInterests in Mobile Equipment and Protocol Thereto on Matters Specific to Aircraft Equipment:Official Commentary, Third Edition, para.4.101 (Unidroit, 2013).
  • [4] Article 2(4) of the Base Convention.
  • [5] Article IX (1) of the Aircraft Protocol.
  • [6] Article XIII (2) of the Aircraft Protocol.
  • [7] Article XIII (4) of the Aircraft Protocol.
  • [8] Article VII (1) of the Luxembourg Rail Protocol.
  • [9] Article XIX of the Space Protocol. See Chap. 23.
  • [10] MJ Stanford, The availability of a new form of financing for commercial space activities: theextension of the Cape Town Convention to space assets, The Cape Town Convention Journal,Issuel, p.109, at p.121 (2012).
  • [11] Article I (2)(h) of the Space Protocol.
  • [12] Article XII (1) of the Space Protocol.
  • [13] Sir Roy Goode, Convention on International Interests in Mobile Equipment and Protocol Theretoon Matters Specific to Space Assets: Official Commentary, para.5.49 (Unidroit 2013).
 
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