Home Law Implementing the Cape Town Convention and the Domestic Laws on Secured Transactions
By the time the delegates from 42 different countries assembled in Luxembourg to review the draft Protocol for railway rolling stock, the Base Convention and the Aircraft Protocol had already been in place for over 5 years. Compromises made at the Diplomatic Conference in Cape Town could be re-evaluated and, whilst the general principle followed by delegates was not to make changes to the core  
concepts contained both in the Base Convention and the Aircraft Protocol, there were areas where there were necessary divergences.
One obvious difference has been the treatment of the creditor rights on the insolvency of the debtor. Article IX of the Rail Protocol broadly follows the approach of Article XI of the Aircraft Protocol, but with one significant exception. Whilst there was a consensus that Alternative B would create some significant difficulties for creditors, the “self-help” provisions in Alternative A troubled lawyers from the civil law jurisdictions. And then there was a lingering concern that the absence of recourse to the courts for the debtor could even be considered unconstitutional in certain jurisdictions. Accordingly, Article IX of the Rail Protocol also contains an Alternative C, which is designed to provide essentially the same remedies to the creditors as Alternative A save that it preserves, in certain circumstances, the rights of a debtor or the insolvency administrator to apply to the court to suspend repossession as long as the creditor is essentially placed in the same position as what it had originally expected to be in at the inception of the transaction.
In the European Union there is a further legal gloss in that the Cape Town Convention is seen as a split competence instrument where some competences are with the EU, as a Regional Economic Integration Organisation, and some with the Member States. Under a compromise agreed between the EU and EU Member States, the EU claims “competence” on this matter  but declines from making any declaration and the Member States accept that they cannot make declarations under Article IX but can introduce parallel rules under domestic law.
In each case the move to a regime designed to be supportive of the creditor in the case of insolvency will often result in substantial changes to domestic insolvency law. Aside from the legal policy issue, there can be practical implications where certain states will wish to adopt the changes as part of general reform of domestic insolvency law - and this can in turn involve a lengthy consultation process. Accordingly bearing in mind the other benefits delivered by the Rail Protocol the rail industry, by contrast to the aviation industry, is, in such a case, encouraging states to ratify without a declaration under Article IX (or corresponding domestic law implementation) and then revisits the issue later.
A conceptually similar approach was taken in relation to the public service aspects of the rail industry. The railways can be lifelines for communities and it was understood that a creditor’s repossession of financed rolling stock could cause disproportionate damage to the community as a whole (for example, commuters no longer being able to travel into a city on a working morning) compared to the loss being incurred by the creditor when not exercising its repossession rights. Some countries currently constrain repossession in these circumstances. So the public service exemption contained in Article XXV sets out to create a mechanism whereby, in certain circumstances, the drastic action of a creditor repossessing “Public Service Railway Rolling Stock” could be restrained against, usually, the creditor continuing to receive the benefit of its original bargain. But this could only apply to continue current restraints, not to invent new ones. Moreover, any person (including a governmental or other public authority), other than the creditor, exercising a local law right to take possession of the public service railway rolling stock is placed under a duty to preserve and maintain the rolling stock until it is handed over to the creditor.
A third policy change manifested itself in Article XXVI of the Rail Protocol, in turn modifying Article 60(3) of the Base Convention for the purposes of the Luxembourg Protocol. This deals with the difficult issue of pre-existing interests. Railway rolling stock can operate for many decades and certain items have been known to operate for more than 60 years. Accordingly, financings or leases can easily last 15 years. So consideration has to be given to dealing with claims of creditors arising in relation to railway rolling stock under agreements in place prior to the date the Rail Protocol has come into force in the jurisdiction where the debtor has its principal domicile?
Financiers need to know where they stand with some certainty and Article XXVI was designed to facilitate a clear cut-off point from which date the registry would accurately reflect both the security interests and their respective priorities in relation to a specific item of railway rolling stock. On balance, it was decided that it was best to create a definite fixed period, to be decided by the contracting state but to be no shorter than 3 years, and no longer than 10 years, after ratification, during which period the pre-existing security interests retained their priority rights.
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