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Act 659

This Act is published by the Commissioner for Law Revision, Malaysia under the Authority of the Revision of Laws Act 1968, 2012. The date of the Royal Assent is 30 August 2006 and the date of publication in the Gazette is 31 August 2006 and subsidiary legislation is made under P.U. (B) 281/2006. The Act incorporates the Convention and Protocol through two Schedules, First Schedule and Second Schedule. Experts point out that the Malaysian approach was not to rewrite the national aviation laws but to attach the Protocol and Convention and incorporate priority over inconsistent laws (Paul NG, Global Head of Aviation, Stephenson Harwood Outline who has entered a disclaimer that he is not Malaysian qualified but his work is based on the recollection of those persons who attended the event.) Malaysia’s ratification brought the convention into force.

Structure of Act 659

This Act has seven sections and two schedules.

The Preamble to the Act states that it is “An Act to implement the Convention on the International Interests in Mobile Equipment, and the Protocol to that Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment and to provide for matters connected therewith. The Preamble acknowledges that the Convention on International Interests in Mobile Equipment and the Protocol to the Convention on International Interests in Mobile Equipment on

Matters Specific to Aircraft Equipment were opened for signature at Cape Town on 16 November 2001. Malaysia deposited her instruments of accession on 2 November 2005 and in accordance with Article 49 of the Convention and Article XXVIII of the Protocol, the said Convention and Protocol entered into force for Malaysia on 1 March 2006.

Act 659 is cited as the International Interests in Mobile Equipment (Aircraft) Act 2006.

Section 2(1) provides that the Convention on International Interests in Mobile Equipment as set out in the First Schedule and the Protocol set out in the Second Schedule, shall have the force of law in Malaysia and shall be construed in accordance with the provisions of this Act. Section 2(2) provides that notwithstanding Article 2 of the Convention on International Interests in Mobile Equipment, this Act shall apply to aircraft objects only.

Section 3 offers several Interpretations to the Act. Act 659 also includes any subsidiary legislation made under it unless the context otherwise requires,, according to section 3. “Cape Town Convention” means the Convention on International Interests in Mobile Equipment. “Aircraft objects” are defined in section 3(3) as “any frame, aircraft engine and helicopter as defined under Article 1(2) of the Aircraft Protocol. The national agency responsible for the convention is the Department of Civil Aviation, Ministry of Transport and “Minister” refers to the Minister charged with the responsibility for civil aviation. “Aircraft Protocol” means the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment.

Following on from Article 53 of the Cape Town Convention, “Relevant courts” under the Act refer to all courts with competent jurisdiction under the laws of Malaysia for purposes stated in Article 1 and Chapter XII of the Cape Town Convention, under section 4.

Section 5 empowers the Minister to make such regulations which are effective or necessary to (1) better implement the Act’s provisions; (2) generally regulate and carry out the Cape Town Convention and the Aircraft Protocol; and (3) make any amendments to such Convention or Protocol.

The mandatory non-application of other local legislation (Acts) are stated in section 6. Under section 6(1), it is clearly stated that subsection 108(3) of the Companies Act 1965 (Act 125) shall not apply to a charge on any aircraft objects falling within the scope of the Cape Town Convention and the Aircraft Protocol. This is a significant departure as section 108 of the Companies Act requires a charge to be lodged with the Companies Commission of Malaysia: Writing in the context of immoveable property under the National Land Code, Lorraine Cheah and Grace CG Yeoh of Shearn Delamore & Co, pointed out: “If the provisions of section 108 of the Companies Act are not complied with, the undertaking purportedly secured by the charge shall be void against the liquidator and any creditor of the company.”[1]

The position with regard to movable property such as aircraft in Malaysia is summarized by Lee Tat Boon of Skrine, Malaysia as: “Any mortgage of a Malaysian aircraft may be entered in the aircraft register which is maintained by the Director- General of Civil Aviation Malaysia. Such application must be made to the Director- General by or on behalf of the mortgagee in the prescribed form and accompanied by a copy of the mortgage certified true copy by the applicant. “Mortgage of an aircraft” is defined under the Civil Aviation regulations 1996 to include a mortgage or charge which extends to any store or space parts for the aircraft but does not otherwise include a mortgage created as a floating charge.... The mortgagee’s security in the aircraft under the mortgage may be enforced through a sale of the mortgaged aircraft under the provisions of either the Civil Aviation regulations 1996 or the Rules of the High Court 1980.”[2]

Under the Cape Town Agreement, Article 1(a), an “agreement” refers to a security agreement, a title reservation agreement or a leasing agreement. Subsection 108 (3) of the Companies Act provides for the registration of charges including (i) a charge on a ship or aircraft or any share in a ship or aircraft.

This is followed by clause 2 which states that subsection 4(3) (on a right to sue under an assignment) of the Civil Law Act 1956 [Act 67] shall not apply to any assignment falling within the scope of the Cape Town Convention and the Aircraft Protocol. Under Article 1(b) of the Cape Town Convention, an “assignment” means a contract which, whether by way of security or otherwise, confers on the assignee associated rights with or without a transfer of the related international interest and Article 1.c defines “associated rights” as all rights to payment or other performance by a debtor under an agreement which are secured by or associated with the object. In Malaysia, an assignor is a person who transfers his interest or property to another called the assignee and the transaction is called an assignment. An assignment may also involve the transfer of obligations. The significance of subsection 4 (3) and a right to sue under an assignment has been considered elsewhere.[3]

The prevailing laws clause of the Act in section 7(1) states that subject to section 6, the provisions of Act 659 are additions and not derogations, to the prevailing written laws on the financing and leasing of aircraft object, creation of international interests in aircraft object and their registration. Subsection 7(2) also provides for resolution of conflict of laws where there is a conflict between Act 659 and other written laws. It states that Act 659 shall prevail in such cases where the matter is governed by the Cape Town Convention and the Aircraft Protocol. The fate of the other inconsistent or conflicting laws is that to the extent of the conflict or inconsistency they are deemed to be superseded.

This is then followed by the First Schedule under subsection 2 (1) which sets out the provisions of the Convention on International Interests in Mobile Equipment and a Second Schedule under subsection 2 (1) setting out the provisions of the Protocol to the Convention on International Interests in Mobile Equipment on Matters specific to Aircraft Equipment.

Upon ratification of the Convention and Protocol, the priority of competing claims for internal transactions would now be as follows:

  • 1. Legal or equitable mortgage that is registered in the national registry followed by a statutory lien that is likewise registered.
  • 2. Perhaps, equitable liens and leases that are recognised at equity.
  • 3. Floating charges do not have a place in aircraft mortgage. Fixed charges as in debenture holder rights also do not prevail due to the express ouster clause of Section 108 of the Companies Act by the local legislation: International Interests in Mobile Equipment (Aircraft) Act 2006, Act 659. Similarly, neither the Bill of Sales Act 1950 nor Article 4 (3) of the Civil Law Act 1956 apply to any assignment falling within the scope of the Convention and Protocol. The exclusion of Article 4 (3) of the Civil Law Act 1956 signifies that legal and equitable assignments of various rights will not be preserved.
  • 4. 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.

  • [1] Lorraine Cheah and Grace C G Yeoh, “Getting the Deal Through - Restructuring and Insolvency:Malaysia” (2009), http://www.shearndelamore.com/assets/templates/images/pdf/paper_publica-tions/Restructuring_and_Insolvency_2009.pdf accessed on 22 March 2014.
  • [2] Lee Tat Boon, “Security over Collateral” http://www.lexmundi.com/Document.asp7DocIDM027accessed on 22 March 2014 on the forms of security that may be created in Malaysia include acharge, pledge, lien, legal assignment, set-off, hypothecation, guarantee and indemnity.
  • [3] Roger Tan, “Rights of Assignors and Assignees to sue under an Absolute Assignment andAssignment by way of Charge Used as a Security for Loan” (2003), http://www.malaysianbar.org.my/index2.php?option=com_content&do_pdf=1&id=97, accessed on 26 December 2013. Uponreceipt of the notice, the debtor must make all payments of the debt to the assignee and not theassignor and if he pays the assignor without the consent of the assignee, he may have to pay theassignee all over again. (Malayawata Steel Berhad v Government of Malaysia & Anor [1980] 2MLJ 103, even though it involved an equitable assignment. See also Malaysian InternationalMerchant Bankers Bhd v Malaysian Airlines Sytem Bhd [1982] 2 MLJ 59.)
 
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