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Comparison with Some Aspects of the Cape Town Convention System

Traditional Security v. Title-Based Devices

Cape Town Convention The Cape Town Convention provides for an ‘international interest’ which is autonomous from any national counterpart. The term covers not only traditional (limited) rights in rem (an agreement granting - or transferring - a property right to secure a loan), but also acquisition finance devices based on retention of title, such as a conditional sale and a lease. The three categories are subjected to the ‘same basic framework’[1]: in particular, the creation, registration and priorities rules apply generally. The characterization of an agreement as security, conditional sale or lease essentially only affects their enforcement. If the creditor is a chargee, it will be satisfied out of the value of the collateral up to the amount of the secured sum, with an obligation to account for the remaining proceeds, and the exercise of its remedies will be subject to notice requirements and some other restrictions depending on the contracting State’s declarations in this respect.[2] The conditional seller and the lessor, being the “owners” of the equipment, are allowed to simply terminate the agreement and take possession.[3] The qualification of the agreement as a security or a title-retention device depends on the applicable domestic law. Thus, if under Italian law, as specified below, conditional sales and financial leases are not characterized as security rights, they will be treated accordingly. Where, on the other hand, the applicable domestic law, differently than Italian law, re-characterized such devices, the corresponding rules for security rights will come into play.[4]

Italian Law Within the limits set forth above (paras 2 and 3), Italian law recognizes all three types of security devices covered by the Cape Town Convention. In practice, the most commonly used among them for high value equipment is finance lease (to allow both acquisition and manufacturing of the asset).

Retention of title and finance lease are not classified as (non-possessory) security rights and are usually treated in different parts of commentaries and general treatises. A tendency seems to be developing, however, especially among comparative law scholars, to consider them alongside the more traditional devices when addressing secured financing, whilst by no means always implying that the same legal regime should apply.[5] Their functional role is therefore increasingly taken into account, though their regulation - especially as regards creation, opposability in insolvency proceedings and enforcement - has not been affected so far.

  • [1] See Deschamps, M, The perfection and priority rules of the Cape Town Convention and theAircraft Protocol- A comparative law analysis, (2013) Cape Town Convention Journal, 51, at 53,available at
  • [2] Arts 8 and 9 Conv.; Art. IX Aircraft Prot. See also below, para. 4.3.
  • [3] Art. 10 Conv. The Aircraft Protocol extends the obligation to exercise any remedy in a commercially reasonable manner to sellers and lessors. See below, para. 4.3.
  • [4] Goode, R, Convention on International Interests in Mobile Equipment and Protocol Thereto onMatters Specific to Aircraft Equipment, Official Commentary (3rd ed., Rome, Unidroit, 2013) 45.
  • [5] See above, fn. 14.
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