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Compatibility with the Treaty Regimes: Cape Town Convention and Aircraft Protocol

The civil aviation regulations discussed above fall within the terms of an “internal transaction” as set out in Article 1(n) of the Convention and under the Aircraft Protocol. “Internal transaction” means a transaction of a type listed in Article 2(2) (a) to (c) where the centre of the main interests of all parties to such transaction is situated, and the relevant object located (as specified in the Protocol), in the same Contracting State at the time of the conclusion of the contract and where the interest created by the transaction has been registered in a national registry in that Contracting State which has made a declaration under Article 50(1).”

In the preceding discussion on the Civil Aviation Regulations, the place of transaction is Malaysia and the interest in the aircraft object was registered in the national registry. Hence, the civil aviation regulations are compatible with the Convention. But Malaysia has not made an opt-out declaration under Article 50 of the Convention which regulates internal transactions. Under this article the Contracting State may declare that the Cape Town Convention shall not apply to internal transactions. Paragraph 2 of Article 50 provides that certain other provisions continue to apply to internal transactions. These are the provisions of Articles 8(4) dealing with remedies of chargees, 9(1) dealing with vesting of property in satisfaction/redemption, 16 on validity of registration in the international register, Chapter V- other matters relating to registration as set out in Articles 18 to 26, Article 29 on priority of competing interests, and any provisions of this Convention relating to registered interests. The Relevant Contracting State here is the “State in which center of the main interests of all parties to a transaction is located, where the aircraft object is located, and where interest arising under that transaction has been registered in a national registry, as set out in Article 1(n) of the Convention.” The Civil Aviation Regulations do not cross-refer to these Articles, namely: 8(4), 9(1), 16, Chapter V, Article 29 and any other provision relating to registered interests. Therefore, the present status of Article 50 is that Malaysia has not made a statement on internal transactions even though it seems on the basis of the foregoing analyses that Malaysia deems the preceding civil aviation regulations as internal transactions within the meaning of Article 50(1) of the Convention.

The priority of competing interests in Malaysia might therefore be along the following lines before the adoption of the Convention and Protocol:

  • (a) Legal or equitable mortgage that is registered in the national registry followed by a statutory lien that is likewise registered.
  • (b) Equitable liens and leases that are recognised at equity.
  • (c) Floating charges could have a place in aircraft mortgage unless expressly ruled out but fixed charges as in debenture holder rights must prevail as in company law under Section 108 of the Companies Act.
  • (d) Article 4(3) of the Civil Law Act 1956 on legal and equitable assignments of various rights would still be preserved.
  • (e) The Bill of Sales Act 1950 would not apply.

Last but not the least, equitable maxims such as “where the equities are equal, the first in time prevails” might continue to apply to internal transactions.

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