The Solution Provided by the Cape Town Convention
While the domestic laws on security interests have a wide variety, the Cape Town Convention provides a simple solution. Independently from any domestic law, it introduces a set of rules on the creation and registration of security interests as sui generis rights and establishes a registry specific to each type of equipment for which a Protocol exists. Then it determines priorities according to the registration with the International Registry, which rule overrides the domestic law. In this respect, the Cape Town Convention is a uniform law. For aircraft, the Cape Town Convention and the International Registry established by the Aircraft Protocol override (but do not replace) the domestic law on registration and the national registry, which exists in most jurisdictions. As regards space assets and, in many jurisdictions railway rolling stock as well, the International Registry is a novel scheme enabling the asset based registration of security interests in such mobile equipment.
An important implication from the priority rules of the Cape Town Convention is that a registered international interest prevails over a creditor that has a priority under the domestic law. This is of particular importance in those countries where railway rolling stock cannot be separately financed once the whole railway facility is mortgaged. For example, in Switzerland the gage over the whole railway facility enterprise has existed under the law of 1917 (la Loi federate concernant la constitution de gages sur les entreprises de chemins de fer et de navigation et la liquidation forcee de ces entreprises, du 25 septembre 1917). Japan also has the Railway Mortgage Act, according to which the whole set of assets of the railway company constitutes an estate and can be mortgaged, in which case the mortgage can be registered in a special registry. Also in some states of Germany, there are statutes that treat all the properties of railway operator as one unit (Bahneinheit) for the purpose of mortgaging. Under these laws, the mortgagee of the whole facility, if registered, may claim priority over the financier of railway rolling stock. Under the Cape Town Convention, the outcome would be different, as a mortgage over the whole facility cannot be registered with the International Registry. Recognising this point, the Swiss government recently excluded the rolling stock from the subject of gage on the railway business in preparation for the entry into force of Rail Protocol. In some other jurisdictions, such as England and Malaysia, a floating charge can be created over a fund of assets and be registered in a companies register. Again, such a floating charge is not covered by the Cape Town Convention, because the International Registry is asset-based and registration with it is only available to uniquely identifiable assets. As a result, a registered international interest will have a priority.
A similar observation may be made with regards to international interests in space assets. The space operator seldom creates a floating charge on its assets, but several cases of leveraged buy outs (LBO) targeted satellite operators in the first few years of the twenty-first Century. A leveraged buy out has some common elements with a floating charge, as its finance is based on the value of the whole corporation. Now that the rush of LBOs in the space sector seems to have become an anecdote in the past, assuring the right of a creditor of asset based financing by the Space Protocol might have merits in space financing.
-  Article 16(2) of the Base Convention.
-  See Chap. 20.
-  See Chap. 17.
-  Benjamin von Bodungen, Mobiliarsicherungsrechte an Luftfahrzeugen undEisenbahnrollmaterialim nationalen und internationalen Rechtsverkehr, S.173 ff (Lit Verlag, 2009).
-  Recueil officiel du droit federal 2009 pp. 5622 et 5628.
-  See Chaps. 4 and 6.
-  Souichirou Kozuka & Fuki Taniguchi, An Economic Assessment of the Space Protocol to theCape Town Convention,  Uniform Law Review p.927.