Cape Town Convention

Cape Town Convention

AWG was a central participant in the development of the Cape Town Convention (CTC).

CTC is a treaty designed to facilitate asset-based financing and leasing of aviation equipment, expand financing opportunities, and reduce costs – thereby providing substantial economic benefits.

CTC does so by reducing a creditor’s risk and by enhancing legal predictability in these transactions, including in the case of a debtor’s insolvency or other default. 

CTC entered into force in 2006, and the final texts of the Convention and Protocol can be viewed on UNIDROIT’S website. CTC applies in countries (contracting states) that have ratified or acceded to it. 

AWG’s major work on the Cape Town Convention can be organized as follows: 

Ratification and implementation

Status of ratification

The status of those countries that have ratified the Cape Town Convention and its Aircraft Protocol is maintained by UNIDROIT, the legal depositary of these instruments.

AWG work on ratification

AWG is committed to the global ratification of the Cape Town Convention. It consults with governments around the world on ratification, including on the declarations to be made and the relationship between the Cape Town Convention and national law.

For complete and official information relating to ratification and declarations, see materials published by UNIDROIT.

AWG work on implementation

For ratification of the treaty to have meaningful legal and economic effect, its terms, together with the declarations made, must prevail over conflicting law in contracting states. 

AWG consults with governments on ensuring that, in theory and practice, the treaty so prevail. We refer to this as the ‘primacy’ of the Cape Town Convention.

Primacy is required by international law: article 27 of the Vienna Convention on Treaties prevents the assertion of national law reason for treaty non-compliance.

Declarations under the Cape Town Convention

The Cape Town Convention (CTC) is not a treaty that a country simply decides to ratify or not. Rather, a number of choices need to be made at the time of ratification. These choices – declarations – are an integral part of the treaty system. 

Most importantly, certain declarations are specifically designed to reduce transaction risk, and, thus, produce economic benefits. These declarations have been identified in the OECD Aircraft Sector Understanding (ASU) as qualifying declarations.

AWG also encourages all countries to ensure that any declaration under Convention Article 39 restricts preferred non-consensual liens / rights to those that are customary. In no event (as prevented by the treaty) may such a declaration purport to expand such liens / rights beyond those under current law. See Goode, Official Commentary, 4th  Edition at paras 2.263-2.264, 2.269, and 4.279.   

Making the qualifying declarations

In order to have the full economic benefits, a country must: 

  1. make the qualifying declarations under the OECD Aircraft Sector Understanding, 
  2. assure the Cape Town Convention has the force of law, and, 
  3. to the extent of any conflict, prevails over other law in such country. 

The qualifying declarations can be found under the OECD Aircraft Sector Understanding at the OECD’s website. 

Ratification materials developed by AWG

AWG prepared a document relating to the ratification and implementation of the Cape Town Convention. 

This includes a short-form of model legislation relating to the ratification and accession implementation of CTC.  

This short-form legislation includes: 

  • an implementation
  • the form and substance of declarations 
  • regulations of the corresponding aviation authority, including the short form of IDERA regulations contained under annexure 4. 

AWG has produced the stand-alone short-form model of IDERA regulation annotated version where a contracting state has made a declaration applying article XIII of the protocol. This document includes an annotated version of the model form with explanatory comments. 

European Member States and the EU

Competence between the EU and Member States is divided as regards the Cape Town Convention. Therefore, special care is required when EU Member States make declarations. EU Member States would need to give effect to this article through national law. 

UNIDROIT has issued a seminar report on that matter. Annex III of the report summarizes the key conclusions regarding declarations within the competence of Member States and the EU respectively. These conclusions are consistent with a special clause, article 4, in the ASU qualifying declarations.

AWG representatives have written a paper, ‘‘Cape Town Treaty in the European Context: the Case for Alternative A, Article XI of the Aircraft Protocol‘. In line with the above-mentioned competence rules, EU Member States would need to give effect to this article through national law.

Cross-border application of article XI of the Aircraft Protocol where airline’s centre of main interest is in an EU member state

On 11 May 2021, the Cape Town Convention Academic Project published an exchange of letters with Sir Roy Goode on the cross border application of Article XI of the Aircraft Protocol where the airline’s centre of main interest is in a Member State of the European Union.

Compliance with the Cape Town Convention

Effective compliance

Compliance with CTC means that a contacting state:

  • takes all action to ensure that CTC has the force of national law with priority over any conflicting law (effective implementation)
  • fully and accurately applies the operative terms of CTC to actions and disputes within its scope, whether administratively or judicially

In other words, a contracting state complies with CTC when the treaty legally applies, and is fully and accurately applied, to matters within its scope. 

AWG work on compliance

AWG works on state compliance with CTC in three ways: 

  • promoting incentives to comply (though index scoring and eligibility for export credit discounts)
  • preventing non-compliance (through education and information)
  • acting to address non-compliance (for AWG members only)

For incentives, see corresponding section.

For prevention, see corresponding section.

For action, AWG consults with governments and intervenes in administrative and legal proceedings on behalf of its members when so requested by its members.

AWG also establishes coordinated compliance action groups to seek compliance in large scale insolvency or insolvency type events to which the cape town convention applies and which involve our members.

The following chart depicts our approach to compliance:

Incentive: Cape Town Convention compliance index

AWG released the inaugural edition of the CTC compliance index on 29 February 2020. The first semi-annual update was released on 7 September 2020.

On 31 August 2021, AWG released its semi-annual 2021 update for the Cape Town Compliance Index.

The Cape Town Convention Compliance Index (CTC compliance index)  monitors and assesses compliance by contracting states with their undertakings under CTC. 

The CTC compliance index is hosted on a separate platform, which can be found here. Visit the CTC compliance index platform for all information on the CTC compliance index.

Subscription information on the CTC compliance index can be found here.

Several of AWG’s historical projects reporting on implementation have merged into this project, including its past work on summaries of national implementation for contracting states.  A parallel and equally significant goal of the CTC compliance index is to incentivize future compliance by providing accurate, timely information to stakeholders, including the OECD, and communicating concrete proposals for improving compliance in the applicable contracting state.

AWG works with over 200 law firms worldwide, including our established network of national contact groups, to obtain all compliance-related data and experience.  Such data and experience are then analyzed by the AWG secretariat.  AWG’s legal advisory panel reviews proposed scoring, and a final determination on scoring based on legal facts is made by the AWG secretariat without regard to political or economic considerations. 

The CTC compliance index materials include a version tailored for use by the OECD as a source of information in assessment of contracting states’ eligibility for the Aircraft Sector Understanding’s Cape Town Discount (the ASU index).  The ASU index focuses on the CTC-specific factors of legal implementation and practical application, and will be available exclusively to the OECD. The OECD (ASU Participants) have agreed to work with and assess the ASU index for an initial period of 18 months (after the release of the index) in connection with its discretionary consideration of eligibility for the ASU’s Cape Town Discount.  There is a general intention to formalize the foregoing after that period, subject to final making by the ASU Participants and taking into account experience, without affecting the exclusive discretionary decision-making by the ASU Participants, and with any needed modifications.

This cooperation and information sharing between AWG and the ASU Participants will greatly aid in providing a data-based approach to aligning risk and pricing in asset-based financing transactions in aviation financing, reducing transactional risk, and encouraging commercial market financing.

CTC compliance index watchlist notices

CTC compliance watchlist notices (‘watchlist notices) are issued to indicate that AWG has become aware of material developments in a contracting state that may affect the score but has not yet completed its assessment of the impact of such material developments.  Watchlist notices provide an outlook on scoring with reference to the contracting state’s existing score rather than CTC compliance per se.  For example, where the affected variable is low in a contracting state, a further non-compliant development will be assigned a ‘confirmatory’ outlook.  Once a contracting state is placed on the CTC Compliance Watchlist, AWG will closely monitor ongoing developments and issue reports on a regular basis with fact-based, events-driven updates.

AWG has issued watch-list notices for covid-19 related action, and in connection with insolvencies proceedings, in each case, for purposes of the CTC compliance index.

A chart tracking the watch-list notices by type and jurisdiction can be found here.

Visit the CTC compliance index website for more information.

Coordinated compliance action groups

AWG creates coordinated compliance action groups (CCAG) when faced with an actual or anticipated airline insolvency or other non-performance in a contracting state. 

A CCAG supports AWG submissions and interventions, serves as an information center, assists in contacting local government officials, and helps develop timely updates on the CTC compliance index.

Interventions

AWG may, depending on facts and circumstances, seek to intervene, as a friend of the court in legal proceedings or with insolvency administrators or administrative authorities seeking compliance with CTC.  We only do so for our members. We limit our interventions to seeking compliance with the requirements of the treaty.

AWG has recently submitted compliance-related papers in Australia, Brazil, Colombia, Ireland, India, Luxembourg, Malaysia, Mexico, Norway, Nigeria, Russia, Singapore, South Africa, Sweden, Turkey, United Kingdom, and the United States.

Working relations

AWG has long-standing working relations and formal status with a wide range of governments, intergovernmental bodies, industry groups, and academic institutions, and policy groups.

Prevention of non-compliance: educational materials, educational outreach and events

AWG actively engages and interacts with contracting states, seeking compliance, through educational resources and informational events. AWG provides state of the art educational materials on CTC topics and holds regional events worldwide. 

Assessment of CTC and schemes of arrangements in the insolvency context

An expert opinion has been issued on CTC and restructuring plans and schemes of arrangements in the insolvency context.

It concludes that schemes of arrangement proceedings in the insolvency context are ‘insolvency proceedings’ for purposes of the Cape Town Convention.  Thus, modification of a CTC creditor’s rights without its consent is not permitted in such proceedings – where the debtor’s main place of business is in a CTC state which declared or incorporated Alternative A (remedies on insolvency). The foregoing is without prejudice to actions taken in connection with a CTC compliant scheme, which includes providing each CTC creditor with a termination option. The expert opinion may only be used in full, as its must be read as a whole.

Educational materials

Self-instructional materials

AWG with the support of the panel, has prepared comprehensive self-instructional materials for individuals needing information about the Cape Town Convention (CTC). 

These “self-instructional materials” have been assembled in the context of the Cape Town Convention academic project (CTCAP), and seek to assist scholars, students, practicing lawyers, judges and other government officials, as well as the industry at large, by providing information on and education about the CTC.

These self-instructional materials have been translated by the panel into: 

Judges manual handbook

AWG with the support of the legal advisory will develop a judge’s handbook to assist judges, government officials, and litigation lawyers by setting out the requirements of the treaty in contested cases. Subject to needed approvals, it is planned to have the handbook issued, and kept current, as a document issued by the CTC academic project.

The practitioner’s guide

Building on prior publications, AWG with the support of the panel has published on October 2020, the 2020 edition of the Practitioner’s Guide. It is designed to provide practical assistance to practitioners in working with the Cape Town Convention (CTC).

Cape Town Convention Academic Project

A pillar of AWG’s education work on the cape town convention, including compliance, is through the Cape Town Convention Academic Project. (CTCAP). 

The CTCAP is undertaken under the joint auspices with the University of Cambridge and UNIDROIT. 

The CTCAP operates within the Cambridge Faculty of Law through the Centre for Corporate and Commercial Law.

The CTCAP provides for academic study and assessment of the Cape Town Convention, seeking to advance the understanding and effective implementation of, and compliance with, the treaty.

The CTCAP will be strengthened by the inclusion of related joint projects on:

(1) economic assessment of international commercial law reform, and

(2) best practices in the design and operation of electronic registries.

AWG is the founding sponsor of CTCAP.  Its secretary general, acting in his academic capacity, co-directs the project with, professor Louise Gullifer, Cambridge, and Ignacio Tirado, secretary general of UNIDROIT. Sir Roy Goode (emeritus professor, Oxford) and Rob Cowan (managing director, Aviareto) are senior advisers to the CTCAP.

The project advances its purpose by reporting on and providing analysis of cases and administrative actions designed to assist in the proper interpretation and compliance with CTC.  It develops academic and educational materials.

The project holds a major yearly academic conference. It is widely considered the leading cape town convention related event. Its hosts a mix of leading academics, professions, government officials, and industry leaders in detailed assessment of treaty issues.

The project publishes the CTC journal, linked to the above conferences.  It is open access, available on-line and at no cost.

The CTCAP website can be viewed at www.ctcap.org.

CTCAP conferences:

The tenth CTC academic conference was held on 29 – 30 September 2021 at Cambridge University in hybrid format.

The final program can be found here.

The tenth Annual Cape Cape Town Convention Academic Project took place at Robinson College, University of Cambridge, on 29-30 September 2021. The Conference was organized by the Cape Town Convention Academic Project, with a partnership between UNIDROIT and the University of Cambridge Faculty of Law, under the auspices of the Centre for Corporate and Commercial Law (3CL). The Aviation Working Group is the founding sponsor of the project.

The program may be found here.

A picture of the event may be found here.

The 5th Workshop for the project on Best Practices in the Field of Electronic Registry Design and Operation (BPER) was organized by the Cape Town Convention Academic Project at the Cavonius Centre, Gonville & Caius College, University of Cambridge, on Zoom on 28 September 2021.

The program may be found here.

A picture of the event may be found here.

The fourth workshop on best practices in the field of electronic registry design and operation took place in Rome at the headquarters of UNIDROIT on 9  September 2020.

The sixth workshop on economic assessment of international commercial law took place in Rome at the headquarters of UNIDROIT on 8 September 2020.

Recent developments

Voluntary reorganizations and the Cape Town Convention

Clarity has been provided on the relationship between voluntary reorganizations and Cape Town Convention through annotation 1 to the Official Commentary issued by the CTC academic project.

Clarity has been provided on apects of cross-border insolvencies and its relationship with the Cape Town Convention through annotation 2 to the Official Commentary issued by the CTC academic project.

Events

Events

Over the last few years, AWG has organized and co-hosted a series of regional events on CTC. They focus on the treaty in practice, and seek to enhance treaty compliance.

Each of these events has been co-sponsored by a leading government (see below), and has the express support of ICAO and UNIDROIT: 

CTC economics

Economic assessment of the Cape Town Convention

AWG makes significant efforts, including through its commissioning of third-party experts, to assess and quantify the economic benefits of CTC. 

AWG continues to work closely with governments around the world in assessing the economic benefits of CTC. 

Historic documents

In 1988, a first economic impact assessment was prepared under the joint auspices of New York University and INSEAD (Paris). That document was commissioned by AWG, IATA, and ICAO, and helped guide the development of the treaty. 

In 2009, AWG commissioned an updated independent study addressing the economic benefits of the Cape Town Convention. The new study was narrower in scope. It focused exclusively on airline benefits and strictly assumed application of the insolvency rule found in Protocol, Art. XI, Alternative A. 

In December 2010, AWG commissioned an independent study assessing the economic benefits of the ratification of the Cape Town Convention in the United Kingdom.

These studies have confirmed the substantial and widely shared economic benefits of ratification and effective implementation of the Cape Town Convention. Such benefits are predicated on a Contracting State making a specific set of economically-oriented declarations, that is, the ASU qualifying declarations, and ensuring that the Cape Town Convention prevails over inconsistent national law.

AWG has submitted, or materially contributed to submissions of, several other economic assessment for individual governments, but has elected not to make these public, given commercial information.

Academic work on economic assessment

AWG’s work on assessing the economic benefits of CTC is strengthen by academic work that assesses the economics of broader context of international commercial law reform. 

This project is undertaken under the joint auspices with the University of Cambridge and UNIDROIT. These institutions carry the project forward from, and further develop the pioneering work by, the Universities of Oxford and Washington.  AWG’s secretary general, acting in his academic capacity, directs the project. 

The fourth workshop on best practices in the field of electronic registry design and operation took place in Rome at the headquarters of UNIDROIT on 9  September 2020.

The sixth workshop on economic assessment of international commercial law took place in Rome at the headquarters of UNIDROIT on 8 September 2020.

The official website of the project and its details can be consulted at https://www.law.ox.ac.uk/research-subject-groups/economic-assessment-international-commercial-law-reform

Export credit and the Cape Town Convention

The OECD Aircraft Sector Understanding (ASU) establishes the basic rules for the provision of export credit.

On 1 February 2011, the current ASU (the 2011 ASU) entered into force. The 2011 ASU, like its predecessor 2007 version, permits a reduced fee or interest rate (as applicable) where CTC applies to a transaction. Under the 2011 ASU, the maximum Cape Town discount is 10% off the otherwise applicable upfront fee or per annum spread. 

The Cape Town discount endorses the long-standing view of AWG that application of CTC reduces transaction risk, and, thus, should be reflected in the terms of credit. 

The 2011 ASU permits a Cape Town discount provided that a set of qualifying declarations has been made and CTC is effectively implemented in national law. The OECD maintains a list of countries that have been determined through OECD procedures to meet the foregoing standard. 

Assessing eligibility to the ASU CTC discount

AWG provides data-driven, technical views to the OECD on eligibility for the Cape Town discount under the 2011 ASU. 

AWG held productive consultations with the OECD in November 2018 and 2019. The purpose of such consultations was introducing the CTC compliance index.

A main objective is to explore possible relations between the CTC compliance index and OECD decision-making on eligibility for the CTC discount.

For an 18-month period (after the release of the index), the OECD (ASU Participants) will work with and assess AWG’s CTC compliance index as a source of information in connection with its discretionary consideration of eligibility for the ASU’s CTC discount.

The International Registry

The Cape Town Convention (CTC) established an electronic registry (International Registry) which facilitates the online registration of interests in airframes, engines and helicopters. The International Registry is an integral part of CTC. Aviareto was appointed to run the International Registry by ICAO in 2006. 

AWG chairs the International Registry Advisory Board (IRAB) which provides advice to the registrar on matters relating to the needs of users, in connection with the operations of the International Registry. AWG also serves as an observer to the Commission of Experts of the Supervisory Authority of the International Registry (CESAIR), that provides advice to ICAO, the supervisory authority. 

Supplementing the terms of the CTC, use of the International Registry is subject to regulations and procedures issued by the supervisory authority. The current edition of the regulations and procedures can be found here. 

The most recent annual report issued by Aviareto can be viewed here. General educational videos prepared by Aviareto relating to the International Registry are linked here.

Many changes have been made to the International Registry since 2006 to streamline the functionality for making registrations. Development is currently taking place on generation 3 of the International Registry.

In January 2019, the International Registry celebrated a significant milestone when it reached 1 million registrations. 

Academic work on electronic registry best practices

AWG’s work on best practices relating to the registrations with the International Registry is strengthen by academic work that assesses the best practices in the broader context of electronic registries. 

This project is undertaken under the joint auspices with the University of Cambridge and UNIDROIT. These institutions carry the project forward from, and further develop the pioneering work by, the Universities of Oxford and Washington.  AWG’s secretary general, acting in his academic capacity, directs the project. 

The third workshop of the best practices in the field of electronic registry design and operation project was held on 8-9 April 2019 at the headquarters of UNIDROIT in Rome, Italy. 

The fourth workshop on best practices in the field of electronic registry design and operation took place in Rome at the headquarters of UNIDROIT on 9 September 2020.

More information on the project may be found here.

Technical note: We use the phrase ‘cape town convention’ to mean the convention on international interests in mobile equipment and its aircraft protocol.  Where needed, the ‘convention’ and ‘protocol’ are referred to individually.