6 key points

  • Cape Town Convention offers 3 main advantages:
    • financiers will have more confidence in enforcing transactions;
    • airlines will be entitled to fee discounts and cost reductions; and
    • it will lead to harmonisation of Australia’s aviation securities laws with those that apply internationally.
  • Personal Property Securities Act 2009 (PPSA) will be replaced by the Cape Town Convention for large aircraft.
  • PPSA will still apply to smaller aircraft.
  • No significant restructuring of the PPSA will be required.
  • Minimal amendment is required to other relevant legislation that will enable the Government to ratify the Cape Town Convention.
  • Accession is consistent with the Council of Australian Governments’ National Reform Agenda to harmonise laws between Australia and New Zealand.

What should aviation financiers and aviation related businesses do now?

Aviation financiers and aviation related businesses should start to review their current agreements to ensure they are compliant and refer to the correct legislative framework.

Norton Rose will also be providing educational seminars and workshops to interested parties to acquaint them with the challenging legal environment as a result of the proposed changes to the aviation industry’s securities laws.

Australian Government agrees to accede to Cape Town Convention

On 12 October 2012 the Minister for Infrastructure and Transport, Mr Albanese, announced that the Australian Government will accede to the Cape Town Convention1. Details on the Australian Government’s decision to accede can be found at Legal Flyer (December 2010) and Australian government announces it will accede to the Cape Town Convention – major development in aviation finance for Australia.

Shortly after publishing its media release, the office of the Minister tabled the Cape Town Convention2 at the Joint Standing Committee on Treaties. Once the treaty examination process has been completed, it will report to Parliament on the implementing legislation. It is expected that the Joint Standing Committee’s report will be tabled in Parliament on or by 19 June 2013.

Will the Cape Town Convention cover the field?

The Cape Town Convention is envisaged to complement the PPSA, not replace it entirely.  The PPSA will only apply in accordance with the terms of the Cape Town Convention as it relates to aircraft objects that fall outside of the definitions3 of ‘aircraft’ and ‘airframe’ under the Cape Town Convention.

While this may leave financiers, owners and lessors with the obligation to comply with both the PPSA and the Cape Town Convention, most commercial aircraft will fall outside of the operation of the PPSA.

How will accession impact on the Personal Property Securities Act and other legislation?

No significant restructuring of the PPSA will be required. The Personal Property Securities Regulations 2010 were drafted to include provisions that recognise the role of the Cape Town Convention as they relate to aircraft and their inclusion has given the government the opportunity to accede without the need to undertake a fundamental overhaul of the PPSA.  The only significant amendment will be to insert a provision that makes it clear that the Cape Town Convention prevails over the PPSA to the extent of any inconsistency with the PPSA.  This same provision is likely to be required to be added to the Civil Aviation Act 1988 which will require amendments to allow for the recording of IDERAs and to direct CASA to de-register an aircraft from the aircraft register in prescribed circumstances. The Civil Aviation Safety Regulations 1988 will also require amendment to reflect the requirements of the Aircraft Protocol, in particular Article XIII (recording of IDERAs) and Article XI (insolvency remedies).

Minimal amendment will be required to other legislation such as the Corporations Act 2001 to allow for implementation of the Cape Town Convention.

Harmonising laws between Australia and New Zealand

It has been one of the objectives of the Council of Australian Governments to harmonise the laws between Australia and New Zealand through its National Reform Agenda.  New Zealand introduced implementing legislation to enable its government to accede to the Cape Town Convention on 31 May 20104.  The bill received royal assent on 30 June 2010 and the 12 declarations made by the New Zealand government came into effect on 1 August 2010.

Once Australia passes its own implementing legislation it will be closer to satisfying this objective.

Next steps

There are several steps to be completed before accession can take place; the treaty examination process must be completed, implementing legislation needs to be drafted and the relevant bills passed by both houses of parliament. Once that has happened it is likely that the commencement of the bill to implement the Cape Town Convention will come into force on royal assent with the declarations coming into force at a later date, the usual period being within 3 months of royal assent.

Final thoughts

The decision to register an international interest under the Cape Town Convention will be optional;5 however failure to register that interest on the International Registry6 can be fatal to the interests of a financier, owner, lessor and lessee.  This is primarily driven by the priority rules contained in the Cape Town Convention that provide simply that the first party to have a registered and “searchable” interest has priority.

Like the PPSA, if a secured party has a registrable interest in an aircraft object that is covered by the Cape Town Convention, the interest must be perfected in the manner required under the Cape Town Convention.  Failure to do so may result in the extinguishment of the interest or at a minimum, loss of priority to competing creditors or a subsequent purchaser, even where that party has actual knowledge of the interest.

In light of the significant changes to the substantive and procedural laws relating to perfection of an interest in aircraft objects that have occurred because of the introduction of the PPSA and in the near future, the Cape Town Convention, Norton Rose will be providing an educational program on best practices when dealing with the Cape Town Convention and the conducting of aircraft closings.