The Convention on International Interests in Mobile Equipment and its Protocol on Aircraft Equipment - Predictability and enforcement of international security agreements

Abstract: The difference between the laws of different countries and their legal systems when it comes to restrictiveness in the approach to non-possessory securities have bedevilled the financing and leasing of highly valuable assets such as aircraft equipment, for many years. Furthermore, the law in some countries does not give adequate protection to creditors in the event of default by debtors. Because an interest created in the country of origin may prove invalid or unenforceable abroad, the rights and interests of lenders and lessors have been unstable when an item of equipment regularly crosses national borders. The 2001 Convention on International Interests in Mobile Equipment is an international commercial law instrument with the purpose of providing a stable international legal regime for the protection of secured creditors, conditional sellers and lessors of highly valuable assets, defined in three additional protocols as aircraft, railway rolling stock and satellites. The protocols have been formed in cooperation with actors on the markets of the specific types of objects. Hence, the protocols shall prevail over the Convention: they provide a way to modify the Convention’s provisions to meet the specific requests and with solutions on problems significant for the specific markets. The Conventions and its Protocols contain material provisions typical for the area of property law in addition to provisions on jurisdiction and choice of law, which are to various extents left to the applicable law. The material provisions themselves are quite simple and few in number. The core of the Convention is the electronic International Registry that has been set up in Dublin. A valid interest duly registered in the International Registry will obtain strong priority over most other interests. The complexity of the Convention lies in its flexibility. The Convention does not contain “soft law”-provisions but outright “hard law”-provisions, intended to harmonize the international property law regarding valuable assets. As a consequence, a number of compromises were made not to risk the Instruments failure due to low acceptance. Hence, it is possible for the Contracting state to vary the provisions, or dismiss them wholly or in part. An inducement for the contracting state to do “the right” declarations are the economic benefits achieved through the hard provisions. Examples for such hard provisions are priority in insolvency proceedings and timely enforceable remedies in case of debtors default. By giving foreign investors the ability to enforce effective and speedy remedies, the Contracting States make investment in their own territory safe and thereby attractive. However, to create a valid and foreseeable contract, the parties to the agreement are required to have great knowledge about the interaction between the Convention and national law.