What can owners of an aircraft do when someone registers a non-consensual right or interest on the International Registry for International Interests in Mobile Equipment (Aircraft Equipment) and then refuses to discharge it? In a landmark decision, the Irish Commercial Court has today clarified the position and upheld the integrity of the International Registry.
The Convention on International Interests in Mobile Equipment as supplemented by the Aircraft Protocol (the "Cape Town Convention") which came into effect in 2006 is generally viewed as one of the most successful international treaties to date. Its purpose is to facilitate the ownership, financing and leasing of aircraft by creating a set of rights and remedies applicable to aircraft where the aircraft and/or the mortgagor, lessee or conditional purchaser are located in a Contracting State.
As the Cape Town Convention is, in an international context, relatively new, its provisions are largely untested in the courts. That said, there have been some recent groundbreaking cases brought before the Irish Courts by parties seeking to enforce their rights against those who fraudulently or otherwise register interests on the International Registry without an entitlement to do so under the Cape Town Convention. The refusal to discharge an interest on the International Registry places a cloud on title, potentially reduces the value of the asset, protracts already complex contract negotiations, delays sale and gives rise to significant additional costs to the owner. Accordingly, the aviation world is watching with great interest to ascertain whether the Cape Town Convention in practice works to resolve issues in an effective, cost efficient and speedy manner. Today's decision of the Irish Commercial Court has answered this question in the affirmative.
TransFin-M, Ltd, a Russian company ("TransFin") and registered owner of a Gulfstream G-550 brought an action in the Irish Courts against Stream Aero Investments S.A., a Panamanian company ("Stream Aero"), seeking an order to direct Stream Aero to discharge its registration of a purported "registrable non-consensual interest" against the aircraft and, in default, directing the Registrar of the International Registry under the Cape Town Convention (the "Registrar") to register the discharge. The Registrar was joined to the proceedings.
The Irish commercial court granted the following orders in these proceedings, having been satisfied that neither Panama nor the Russian Federation had provided for the registration of non-consensual rights or interests:
An order requiring Stream Aero, to procure the discharge of the Registration within 7 days of the service of the Order.
An order restraining Stream Aero from making any further registration in respect of the aircraft.
An order under Article 44.2 and Article 44.3 of the Cape Town Convention that the Registrar discharge the registration if, after 21 days from the perfection of the Order, Stream Aero had failed to do so.
An order prescribing the means of service of the court Order on Stream Aero by various means including email and post.
An order that both Transfin and the Registrar be entitled to recover their costs of the proceedings from Stream Aero, to be taxed in default of agreement between the parties.
The court also stood over the proceedings for mention to a date 5 weeks hence to allow Transfin to address the Court on whether it wished to proceed with its claim for damages for Slander of Title and Misrepresentation against Stream Aero in respect of the registration and how it would propose to adduce evidence of the losses it sustained as a result of that registration. The Registrar was excused from any further court attendance in the proceedings.
In September 2012, TransFin and Stream Aero signed a letter of intent regarding the potential sale of the aircraft. Unbeknownst to TransFin at the time, Stream Aero was not the intended end purchaser of the aircraft but was instead acting as a broker who had entered into simultaneous negotiations to sell the aircraft on to Star Jet (Hong Kong) Limited, a Hong Kong registered company ("Star Jet"). The negotiations of the various documents by TransFin and Stream Aero were unsuccessful and, in early November 2012, they quit negotiations causing the deal to fall through. Shortly thereafter, TransFin entered into new negotiations with Star Jet which were ultimately successful and an agreement was reached for the sale of the aircraft by TransFin to Star Jet.
Stream Aero claimed that it was entitled to an agency fee/commission (being a percentage of the total sale price of the aircraft) and demanded payment of monies allegedly owed to it. It was on this basis that Stream Aero proceeded to register a non-consensual right or interest (also known as a non-consensual lien claim) against the aircraft on the International Registry. Stream Aero also commenced proceedings in the District Court of Oklahoma County in the USA seeking payment of the supposed agency fee/commission. However, the Oklahoma proceedings related solely to the validity of Stream Aero's contractual claim and did not in any way confer on Stream Aero a registrable non-contractual right or interest in the aircraft. In accordance with Article 25(4) of the Cape Town Convention, TransFin wrote to Stream Aero making a written demand that it procure the discharge of the registration. Despite this demand, Stream Aero failed to procure the discharge of the registration causing completion of the sale of the aircraft between TransFin and Star Jet to be delayed.
TransFin sought an Order from the Irish Commercial Court pursuant to Articles 20, 25(4), 40 and 44(3) of the Convention, and in accordance with the International Interests in Mobile Equipment (Cape Town Convention) Act 2005 (the 2005 Act), requiring Stream Aero to procure the discharge of the registration on the International Registry of the "registrable non-consensual interest". On a fall-back basis, TransFin also sought an Order pursuant to Article 44(1) and/or Article 43(3) of the Convention and the 2005 Act against the Registrar, to take such steps necessary to discharge the registration in the event that Stream Aero failed to comply with an Irish Court Order, to itself discharge the registration.
Articles 1(dd), 23 and 40 of the Cape Town Convention provide a framework for registrable non-consensual rights or interests whereby Contracting States can deposit declarations with the Depository of the Protocol listing the categories of non-consensual rights or interests which shall be registrable under the Convention as if the rights or interests were "international interests". The Registrar maintains a list of such declarations which can be found here. In this case, the Declarations of any potentially relevant Contracting State did not contain any declaration authorised under Article 40 and, accordingly, it was held that Stream Aero had absolutely no basis to assert that it had a registrable non-consensual right or interest – irrespective of the merits of its underlying claim for commission.
The International Registry is maintained online and in accordance with regulations and procedures adopted by the ICAO as the Supervisory Authority. Importantly, an approved user/approved administrator user of the International Registry may make (and remove) registrations without the interest of the registrant being required to be verified by the Registrar. Therefore, the registration system depends to a significant extent on the good faith of the approved administrator users of the International Registry. Article 25(4) of the Cape Town Convention provides that where a registration ought not to have been made or is incorrect, the person in whose favour the registration has been made must without delay procure its discharge or amendment after written demand. However, if such a written demand is ignored, aircraft owners can seek to have the International Registry amended pursuant to Article 44 by issuing proceedings in Ireland against the offending party and the Registrar.
Article 44 of the Convention provides that only the Irish High Court has exclusive jurisdiction to grant an order against the Registrar of the International Registry under the Cape Town Convention and in accordance with the 2005 Act (as Ireland is where the Registrar has its centre of administration). Even where an interest is not governed by the Cape Town Convention but has nevertheless been registered on the International Registry, the Irish Courts have exclusive jurisdiction to make orders against the Registrar to amend the Registry. In such proceedings, the Registrar is not involved in the determination of the merits of the substantive dispute and its role is limited to implementing the court order to, for example, discharge a registration where the defendant has refused to do so within a certain timeframe. The Registrar will only intervene in such a manner on foot of a binding court order from the Irish High Court.
A&L Goodbody are currently advising in a number of potential cases where parties are seeking an order from the Irish High Court in circumstances where the holder of the registered right on the International Registry is refusing to co-operate to discharge such registration.
In the cases which have been decided to date the Irish High Court has upheld its jurisdiction to make the order and has granted an order requiring that the defendant discharge the relevant registration within a certain timeframe (usually 21 days) and, if the interest is not discharged within the required time, that the Registrar effect the discharge.
The Irish Courts have the procedural ability to make ex parte orders for leave to serve proceedings on parties outside Ireland (as in this case) and the entire application was processed through the Irish Courts in a matter of weeks).
The special Irish Commercial Court procedure for cases brought pursuant to the Cape Town Convention and the 2005 Act and the approach by the Irish Commercial Court is to be welcomed as it allows an owner of an aircraft object to enforce its rights quickly and efficiently which not only helps to maintain the value of the aircraft object and uphold the integrity of the International Registry system but also should act as a deterrent to others who would seek to mis-use the International Registry system in this way.
Ireland plays a vital role in the aircraft finance and leasing industry and it is therefore appropriate that Ireland is at the centre of this development relating to the Cape Town Convention.