First steps towards the 2001 Cape Town Convention and its Protocol ratification

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Anna Masutti

Professor of Air Law at the University of Bologna

R&P Legal, Bologna

anna.masutti@replegal.it

On 21 July 2020, the Italian Senate adopted Motion No. 1-00133 on the ratification of the Cape Town Convention on International Interests in Mobile Equipment (CTC) and the Protocol on International Interests in Mobile Equipment for Aircraft Equipment Matters (‘the Protocol’) which was signed in 2001. By means of the adoption of the Motion, the Italian Government committed itself to submit to the Parliament the draft law necessary for ratification. Subsequently, the Parliament will review the draft law presented by the Government in order to conclude the legislative process for ratification.

The CTC and its Protocol are intended to facilitate the financing of aircraft equipment by creating a particularly strong international guarantee for creditors, giving them priority over these assets in an international register. As the EU Commission remarked, “such instruments, to which many of the Community's main trading parties are party, are likely to be of great benefit to the European aerospace industry by encouraging the provision of financing for the purchase of assets. Before the Community can benefit from them, however, it must ratify them”.^[1]

Air carriers of State parties of CTC and its Protocol may aim to obtain more favorable conditionsin aircraft financing operations, while creditors can trust in a set of rules allowing them to recover their credits in the event of customer insolvency or bankruptcy.

On the 1 August 2009, the European Union concluded the accession procedure to the CTC and its Protocol.

Since the EU has jurisdiction over certain matters which are governed by the CTC and its Protocol and which affect Regulation (EC) No. 44/2001,^[2]repealed by Regulation (EU) No. 1215/2012,^[3]and Regulation (EC) No. 1346/2000,^[4]repealed by Regulation (EU) No. 848/2015,^[5]Member States cannot ratify these instruments independently[1] .

Under Article 48 CTC and Article XXVII of the Protocol, ‘Regional Economic Integration Organisations’ may become party to these instruments. For the purposes of the CTC and its Protocol, a ‘Regional Economic Integration Organisation’ means an organisation which has competence over certain matters governed by the CTC or the Protocol and may sign, approve, accept or accede to them. This definition allowed the European Union to become a party to these two instruments since it obtained the necessary approval of the EU institutions [2] .

Italy signed both the CTC and the Protocol on the 6 December 2001 but it has not ratified them yet. The reluctance to ratify them is due to the fact that they foresee some mechanisms which may depart from principles traditionally applied in Italy for the enforcement of security interests. Indeed, self-help remedies (used in other civil law jurisdictions) are not allowed under Italian law (divieto di autotutela, which could be sanctioned under criminal law Article 392 Criminal Code). Consequently, the lessor cannot enforce the right to repossess by taking physical possession of the aircraft without the cooperation of the lessee.

Any action aimed at enforcing the right of repossession must be brought before the Court since the parties cannot agree to automatically transfer title to the aircraft to the mortgagee if the mortgagor is in default. Any such arrangement would be null and void because of the prohibition established in Article 2744 Italian Civil Code (divieto di patto commissorio) aiming at safeguarding the principle of 'par conditio creditorum'. Consequently, the mortgagee must seek an order of sale of the aircraft by public auction, then seek the assignment of sale proceeds.

The CTC already contains rules to deal with such limits which can help Italy in the ratification process. In parallel, it will be necessary to amend the Italian Navigation Code(INC), which provides a long period of 60 days for the deregistration from the Italian National Aircraft Registry (Article 760).

Since Italy has not yet ratified the CTC and Protocol, lessors and financiers to air carriers operating in Italy cannot currently register international interests for title and security in the electronic International Registry and, if explicitly requested by the lessor, operators are forced to register the aircraft in States that have made the ratification. In addition, Italy's failure to transpose Article XI of the Protocol is one of the major obstacles that lessors, financiers and aircraft and engine manufacturers face in order to allow an airline with an Italian aircraft operator licence to register the aircraft with the RAN.

For these reasons, it is possible to understand the importance of the Motion, which calls for a commitment from the Italian Government to submit to the Parliament the draft law ratifying the CTC and the Protocol; to transpose the rules on insolvency remedies referred to in Article XI of the Protocol by means of a specific declaration pursuant to Article XXX(3) of the Protocol; and to reorganise and adapt the provisions contained in the INC on the procedures for the registration and deregistration of aircraft from the RAN[3] .

The conclusion of this legislative process will allow the ratification of the CTC and its Protocol, as well as the enforceability in Italy of the rights introduced by these two instruments.

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