Text of the Aircraft Protocol and the Convention
75 At the outset it is important to note that the Aircraft Protocol is just one of a number of protocols introduced, including others dealing with railway and space objects, although these are not in force. Each protocol (and the Aircraft Protocol) provide remedies tailored to the specific types of mobile equipment and are exercisable by all creditors to the case of the debtor's default or insolvency.
76 Then it is important to note that the Convention in Chapter III deals generally with "Default remedies", the meaning of default defined in Art 11 of the Convention. These are general remedies, not relating to insolvency. In the context of these remedies, it is clear that an available remedy is to "take possession or control" of any object (see eg Arts 8 and 10 of the Convention).
77 Then the Aircraft Protocol sets out specific Articles dealing with aircraft objects in Chapter II, including a specific Article (Art XI) dealing with remedies on insolvency. It is necessary not to conflate the requirements and the nature and content of the remedies available generally and these available in the context of insolvency.
78 It is to be observed that the remedies provided to a chargee (Art 8 of the Convention) and in relation to relief pending final determination (Art 13 of the Convention) (namely the remedies of the secured creditor) are to be exercised in a commercially reasonable manner (see Art 8(3) of the Convention). However, in relation to the Aircraft Protocol, all remedies given by the Convention and Aircraft Protocol should be exercised in accordance with this requirement, which is deemed to be in conformity with the underlying agreement unless a relevant provision is manifestly unreasonable (see Art IX(3) of the Aircraft Protocol). This provision is mandatory and cannot be derogated from by the parties (see Art IV(3) of the Aircraft Protocol).
79 Article IX - titled "Modification of default remedies provisions" - of the Aircraft Protocol (found in Chapter II headed "Default remedies, priorities and assignments") provides in paragraph 3:
Article 8(3) of the Convention shall not apply to aircraft objects. Any remedy given by the Convention in relation to an aircraft object shall be exercised in a commercially reasonable manner. A remedy shall be deemed to be exercised in a commercially reasonable manner where it is exercised in conformity with a provision of the agreement except where such a provision is manifestly unreasonable.
80 Article XI - titled "Remedies on insolvency" - of the Aircraft Protocol (to the extent acceded to by Australia in adopting "Alternative A") is (as far as relevant) in the following form:
Article XI - Remedies on insolvency
1. This Article applies only where a Contracting State that is the primary insolvency jurisdiction has made a declaration pursuant to Article XXX(3).
Alternative A
2. Upon the occurrence of an insolvency-related event, the insolvency administrator or the debtor, as applicable, shall, subject to paragraph 7, give possession of the aircraft object to the creditor no later than the earlier of:
(a) the end of the waiting period; and
(b) the date on which the creditor would be entitled to possession of the aircraft object if this Article did not apply.
3. For the purposes of this Article, the "waiting period" shall be the period specified in a declaration of the Contracting State which is the primary insolvency jurisdiction.
4. References in this Article to the "insolvency administrator" shall be to that person in its official, not in its personal, capacity.
5. Unless and until the creditor is given the opportunity to take possession under paragraph 2:
(a) the insolvency administrator or the debtor, as applicable, shall preserve the aircraft object and maintain it and its value in accordance with the agreement; and
(b) the creditor shall be entitled to apply for any other forms of interim relief available under the applicable law.
6. Sub-paragraph (a) of the preceding paragraph shall not preclude the use of the aircraft object under arrangements designed to preserve the aircraft object and maintain it and its value.
7. The insolvency administrator or the debtor, as applicable, may retain possession of the aircraft object where, by the time specified in paragraph 2, it has cured all defaults other than a default constituted by the opening of insolvency proceedings and has agreed to perform all future obligations under the agreement. A second waiting period shall not apply in respect of a default in the performance of such future obligations.
8. …
9. No exercise of remedies permitted by the Convention or this Protocol may be prevented or delayed after the date specified in paragraph 2.
10. No obligations of the debtor under the agreement may be modified without the consent of the creditor.
11. Nothing in the preceding paragraph shall be construed to affect the authority, if any, of the insolvency administrator under the applicable law to terminate the agreement.
12. …
13. The Convention as modified by Article IX of this Protocol shall apply to the exercise of any remedies under this Article. (Italicised text in the original.)
81 The effect of Alternative A is to give insolvency administrators a prescribed "waiting period" (namely, 60 days) during which the insolvency administrators must either:
(1) cure all defaults under the applicable agreement (other than a default constituted by the opening of insolvency proceedings) and agree to perform all future obligations under the agreement; or
(2) "give possession" of the relevant aircraft object to the applicable creditor/lessor.
82 The concept of a stay limitation, or "waiting period", in respect of an aircraft as appears in Alternative A, is drawn from s 1110 of the United States Bankruptcy Code: see Professor Sir Roy Goode CBE, QC, Official Commentary on the Convention on International Interests in Mobile Equipment and Protocol thereto on Matters Specific to Aircraft Equipment (4th ed, May 2019) ('Official Commentary') at [3.1]. I will return to this provision later in these reasons but will set it now for convenience.
83 Section 1110(c)(1) relevantly provides:
In any case under this chapter, the trustee shall immediately surrender and return to a secured party, lessor, or conditional vendor, described in subsection (a)(1), equipment described in subsection (a)(3), if at any time after the date of the order for relief under this chapter such secured party, lessor, or conditional vendor is entitled pursuant to subsection (a)(1) to take possession of such equipment and makes a written demand for such possession to the trustee.
84 The scheme prescribed by Alternative A is relatively straightforward. The primary obligation upon an insolvency administrator, arising on the occurrence of an insolvency-related event, is to "give possession" of the aircraft object to the creditor no later than the specified date. Then "unless" (which equates to 'if') and "until" (which relates to time) the creditor is given the opportunity to "take" the possession given to the creditor pursuant to the primary obligation on the administrators, the administrator shall preserve and maintain the aircraft object. However, if the administrator cures the relevant default and agrees to perform future obligations by the specified date whereby possession is to be given, the administrator "may retain" possession of the aircraft object pursuant to Art XI(7). Obviously, at this stage, possession would not have "been given" nor the opportunity to take possession availed of: the administrator would still be in possession of the aircraft objects as the administrator is to "retain possession", being the possession granted under the lease agreements. Further, it must be recalled that the lessor (for one reason or another) may not be ready and willing to "take" possession of the aircraft objects. So Art XI(5) will operate to relieve the insolvency administrator from still preserving the aircraft objects after giving the opportunity to the lessor to take possession. Until the lessor takes possession, the lessor could still apply for other forms of interim relief available under the applicable law.
85 Then, significantly, the primary obligation on the Administrators to give possession (and, here, the corresponding remedy for the Applicants in the insolvency situation as provided for in Art XI) is provided with content by the requirement that this remedy is to be exercised in a commercially reasonable manner. In this case the remedy is to be exercised in conformity with the relevant redelivery provisions of the lease agreements.
86 This obligation on the Administrators arises because Art XI(13) and IX(3) of the Aircraft Protocol require that the remedy available to the Applicants (ie their right to be in possession) must be exercised in a manner that is "commercially reasonable". Article IX(3) operates so that the manner of giving of possession will be "deemed" commercially reasonable if "it is exercised in conformity with a provision of the agreement except where such provision is manifestly unreasonable".
87 Therefore, the Applicants' entitlement to relief, namely obtaining possession in the present case requires redelivery in accordance with the existing lease agreement terms between the parties in clause 18.3 of the GTA. The location in Florida is expressly stated in Art III of the Aircraft Engine Lease Agreements for each Engine. There has been no suggestion that the provision is manifestly unreasonable.
88 On this point, the Respondents argued that the lease agreements were irrelevant to the operation of Art XI. Senior Counsel for the Respondents put it this way:
Can I turn, then, your Honour, to the protocol and the point that my learned friend raised about article 9? And if your Honour has that, your Honour sees that article 9 falls within chapter 2, which is Default Remedies, Priorities and Assignments. And article 9 is then the modification of the default remedies provisions, and it's important, your Honour, to have regard to the architecture of the protocol and the different circumstances in which it is affording remedies. Article 9 modifies the default remedy provisions. My learned friend went to article 9(3). Your Honour and my learned friend discussed the opening sentence concerning article 8(3). It then states:
Any remedy given by the Convention in relation to an aircraft object shall be exercised in a commercially reasonable manner.
Now that, plainly enough, is an obligation imposed on the lessor and not the lessee. There was then a deeming provision in effect that commercial reasonableness will be engaged where a remedy is exercised in accordance with the provision of an agreement, unless that provision itself is manifestly unreasonable. Now, so much is apparent and so much, we submit, is irrelevant. Because the critical question is the anterior question of: are the terms of an underlying agreement in any way relevant to the remedy sought in this application, which is a remedy under article 11(2) of the protocol? So it's really about an anterior question of: is an underlying agreement relevant to this at all that must be answered? And with that, can your Honour turn to article 11?
89 The difficulty with this approach is to ignore the fact that Art IX(3) refers to any remedies given by (relevantly) the Aircraft Protocol, which will include the Applicants' right to and remedy of obtaining possession of the aircraft objects. This remedy available to the lessor (specific to insolvency and aircraft objects) must then be exercised, as an obligation on the lessor, in a commercially reasonable manner, which will be in accordance with the lease agreements. This view of the operation of Art XI is reinforced when one keeps in mind Art XI(10) (where no obligation of the debtor may be modified without the consent of the creditor).
90 Whilst obviously not directly applicable, provisions for redelivery are not unknown in the context of commercial arrangements. For instance, such provisions are usually included in a charterparty and are subject to principles of maritime law. Here, redelivery usually includes the requirement to keep the vessel in good order until it is delivered by the charterer at a specified place and time. Obviously, the requirements and form of redelivery will be in accordance with the bargain entered into between the parties, and are of fundamental importance: see generally Professor Stephen Girvin, Carriage of Goods By Sea (Oxford University Press, 2nd ed, 2007) at 683-685; Professor John F Wilson, Carriage of Goods by Sea (Pearson, 7th ed, 2010) at 88 and 111-112 and Michael White, Australian Maritime Law (Federation Press, 3rd ed, 2014) at 151-152.
91 I now turn to a further analysis of the text of Art XI itself to cover the relevant submissions of the parties.
92 The ordinary natural meaning of the word "give" connotes positive action. It is an active verb primarily meaning, in the context we are dealing with, "to deliver, hand over", "to deliver or hand (something) to a person; to put (food and drink) before a person": see Oxford English Dictionary Online (Oxford University Press, June 2020). The use of the verb "give" in combination with the word "possession" means to deliver or hand over, and in context means to give back, in the sense of restoring a thing to the lessor. Another meaning of the word "give" is "to present, to hold out to be taken" (The Shorter Oxford English Dictionary (Clarendon Press, 3rd ed, 1972)) or "[t]o present or expose to the action of a person or thing; to hold out (one's hand) to be taken" (Oxford English Dictionary Online (Oxford University Press, June 2020)). However, that meaning is simply not apposite to the giving possession of the aircraft objects and the context and structure of the Aircraft Protocol. It is again important to remember that we are concerned with complex machinery and moveable property, capable of being relocated in the ordinary course of the aircraft's work to almost any location. To hold that the obligation to "giv[e] possession" is satisfied where the debtor or insolvency administrator merely abandoned or relinquished possession would be to transform that positive obligation into an ability to abandon the creditor's property wherever it happens to be and in whatever condition.
93 The phrase "give possession … to the creditor" can be contrasted with the phrase "given the opportunity to take possession under paragraph 2" used in Art XI(5). This contrast in context supports the interpretation that "give possession" is the positive act of giving, and not merely giving an opportunity to take possession. The opportunity to "take" arises only after the debtor has "given" possession. That is consistent with the ordinary meaning of the phrase "give possession" and the notion of passive receipt by the taker.
94 Then, in my view, Art XI(7), in referring to "retain possession", does not detract from the meaning to be ascribed to "give possession" in Art XI(2) but supports the operation of Art XI. The phrase "retain possession" in Art XI(7) is being used in a different context to the phrase "give possession" in Art XI(2), and, as I have alluded to, arises where the relevant default has been cured and there is an agreement to perform all future obligations under the relevant lease.
95 I should mention one specific argument put by the Respondents in support of their argument that any compliance with the underlying agreement is precisely what Art XI does not provide for, similarly to the position said to pertain in the United States in relation to the operation of s 1110 of the Bankruptcy Code (see In Re Republic Airways Holding Inc, (2016) 547 B.R. 578).
96 It was argued that under Alternative A, an insolvency administrator and debtor are given two options: either "give possession of the aircraft object to the creditor" or "perform all the obligations under the agreement" (see Arts XI (2) and (7)) so it was contended that it was clear that Art XI(2) contemplates "giving possession" as something other than complying with the agreement, such a course being an alternative to such compliance.
97 Whilst I agree that there are the two options, there is no reason to suppose that where the insolvency administrator does not agree to perform all future obligations under the lease agreement, this precludes the specific contractual obligations of redelivery as being deemed those necessary to be exercised by the lessor in a commercially reasonable manner in being given possession of the aircraft objects.
98 Predictability is achieved by applying the Aircraft Protocol rights in a manner consistent with the terms of the parties' underlying agreement. Imposing an obligation on a creditor of retrieving aircraft objects from numerous jurisdictions does not create predictability. From the point of view of the parties, the Aircraft Protocol can be applied with both uniformity and predictability by upholding the terms of the underlying lease agreement in insolvency. The lessor is entitled to insist on a predictable result to the effect that, regardless of where the debtor has flown the assets, they will be redelivered to the contractually determined location with complete operator records being provided. The facts of the present case demonstrate the hurdles which would be created for lessors if the Respondents' interpretation was adopted - in circumstances where, for example, records are perceived to be of minimal value to an administrator, and a creditor/lessor is left chasing those essential details.
99 The overall objective of predictability would be undermined by an interpretation which simply allowed debtors to leave aircraft objects on an "as is, where is" basis. Whilst I accept an engine lessor could ascertain where in the world its equipment may be, it puts an engine lessor in a position where it has no way of knowing the equipment's condition, whether it will have access to an aircraft (perhaps owned by another third party creditor), or whether facilities will be available to remove the relevant engine.
100 The Respondents submitted that the object of the Convention is, relevantly, to improve the position of creditors, as compared to their prior position. The prior position was regulated by the Convention on the International Recognition of Rights in Aircraft, done in Geneva, on 19 June 1948 (the 'Geneva Aircraft Convention'). The Geneva Aircraft Convention offered no unified notion of a security right that is eligible for international protection. It served instead as a choice of law treaty, "aiming only to deflect automatic application of the law of the location of the aircraft (the lex situs) and imposed a choice of law on the court of the situs": Brian F Havel and Gabriel S Sanchez, The Principles and Practice of International Aviation Law (Cambridge University Press, 2014), 348. It has for this reason been described as a "conflict of laws treaty that deals with recognition of rights, not a substantive treaty that creates rights" (ibid).
101 A further difficulty presented by the Geneva Aircraft Convention is that it involved an open-ended determination of which state's laws apply in the event of an insolvency. A creditor or lessor's position is improved vis-à-vis the prior state of the law by the Convention through a number of means, including through the introduction of an international registration system and the clarification on laws applicable in the event of insolvency.
102 On this basis, it was then contended by the Respondents that there is nothing in the preamble of the Convention that would support the conclusion that the Convention (or the Aircraft Protocol) is intended to improve the position of creditors at the expense of the position of debtors.
103 I should say that whether this be correct or not at a general level, in my view the issues to be determined in these proceedings cannot simply be determined by reference to the relative position of creditors and debtors generally. It is important to look at the relevant operative provisions and context of the Aircraft Protocol in the way it provides a remedy to a lessor in the event of an insolvency.
104 The Respondents then argued that the benefits of this regime have recently been identified by Dr Sanam Saidova in a manner supportive of the Respondents' construction generally. Dr Saidova has stated the following in her article 'The Cape Town Convention: Repossession and Sale of Charged Aircraft Objects in a Commercially Reasonable Manner' (2013) Lloyd's Maritime and Commercial Law Quarterly 180, 185:
The disadvantages associated with aircraft repossession may mean that the secured creditor will not always be ready and willing to proceed with it. But if moving the object to a different jurisdiction may help the secured creditor to avoid lengthy insolvency stays and delayed court proceedings, and to increase the likelihood of better sale proceeds, the secured creditor may decide to repossess. Another reason why the secured creditor may repossess the aircraft is to manage the object where the debtor has ceased trading or to keep it in operation so that profit from its use may still be eamed. By taking possession, the secured creditor may also intercept any rental payments which may be due under the leases provided that they do not terminate once the security interest is enforced. Most importantly, the secured creditor may need to repossess the aircraft object in order to sell it. Taking possession is a powerful remedy because the debtor loses control of its most valuable asset. The loss or unavailability of even one aircraft may cause serious disruption to the debtor's flight schedule and, in some cases, a mere threat of repossession may induce the debtor to cure the default. Since the Convention permits self-help repossession, the secured creditor may be able to seize the object without applying for a court order saving time and cost. Such availability of the remedy of repossession may serve to reassure the secured creditor that, if the debtor defaults, it can take the object and realise it to obtain repayment of the debt. This may reduce the risk of non-repayment and give the debtor access to credit at lower cost.
105 Whilst the above passage is supportive of the Respondents' construction at a very general level, it is not at all focusing on the issue before the Court, nor the circumstances of the terms of lease agreements themselves, nor dealing with the specific scope of Art XI (dealing with insolvency not just repossession following a default other than insolvency). Upon reading the whole article, its focus is on the scope of the requirement to act in a commercially reasonable manner, and then in the context of the remedies of repossession and sale of aircraft objects.
106 In my view, it is apparent that some greater protections are given to creditors by the Aircraft Protocol in the insolvency context. The position of creditors is improved under the Aircraft Protocol vis-à-vis the debtor company and other creditors (who hold something less than an "international interest"). The obligation imposed on an insolvency administrator under Art XI(2) is necessarily more onerous than would be required under any domestic law.
107 As pointed out by the Applicants, the creditor's enhanced position under the Aircraft Protocol is obvious from the text of document, and its heavy reliance on the parties' contractual bargain. By way of example:
(1) Article IX(3) provides a safe-harbour to ensure that a creditor who exercises its remedies "in conformity with a provision of the agreement" will be deemed to be acting in a "commercially reasonable manner". As a result, it imposes an onus on the debtor to demonstrate why any provision is "manifestly unreasonable".
(2) Article XI(5) imposes an obligation on an administrator to "preserve the aircraft object and maintain it and its value in accordance with the agreement". As Professor Goode has explained, that may require expenditure out of the insolvent estate (see Official Commentary, [5.70], "Illustration 71"): "… [i]n the meantime, obligations under the security agreement may not be modified and the aircraft engine must be preserved, and [a hypothetical airline] will be required to maintain the aircraft engine and its value in accordance with the terms of the security agreement, even if that requires expenditure from general assets of the estate". That is an obligation beyond the administrator's right of disclaimer in section 443B of the Corporations Act.
(3) Article XI(7) imposes upon an administrator or debtor, as a condition of retaining the aircraft object, the obligation to cure "all defaults" and agree "to perform all future obligations under the agreement" (which may otherwise have been stayed or compromised by a domestic insolvency regime).
(4) Article XI(9) makes clear that the creditors' exercise of remedies may not be "prevented or delayed" after the "waiting period" referred to in Art XI(2).
(5) Article XI(10) preserves intact the contractual obligations by stating that "[n]o obligations of the debtor under the agreement may be modified without the consent of the creditor".
(6) Article XI(12) ensures that the creditor's international interest has primacy over all other interests: "[n]o rights or interests … shall have priority in insolvency proceedings over registered interests", save for specific non-consensual liens imposed.
108 It is consistent with the text and context of Art XI of the Aircraft Protocol for the Applicants to ask this Court to give effect to remedies that are in accordance with the terms of the parties' agreements, even if that comes at the cost of other creditors.
109 I should interpolate that, if any terms of the relevant agreement between the parties do not specifically cover the eventualities that may occur on the obligation arising to give possession, then normal principles of contract may apply to fill in the gaps - either by the implication of terms (eg by custom) or overriding responsibilities of acting in good faith, according to the law governing the agreement (see Art 5 of the Convention). If there are simply no terms of the agreement dealing with the obligation to give possession, then they may need to be implied on a case by case basis, presumably by reference to custom. Otherwise, the meaning of the concept of commercial reasonableness will need to be determined in accordance with the Convention's general principles. This is not a matter that needs to be further elaborated in these proceedings.
110 As I have alluded to already, and as both parties recognised, the content of the obligation of either of the parties' competing constructions needs to be determined. The remedy must be exercised from all parties point of view in a "commercially reasonable manner". On one analysis, if the giving of possession is to be done in accordance with the lease agreements between the parties, then the debate as to the ordinary meaning of the phrase "shall … give" is, in isolation, arid. It is the content of the requirement which will be informed by the lease agreement redelivery terms. Therefore, when it is concluded that the requirement is to give possession in accordance with the lease agreement, this is not adding any words to the phrase in contention: it is merely explaining what is meant by that phrase in circumstances before the Court in these proceedings. In other words, the Respondents are to be given possession (by redelivery) in a manner consistent with the bargain between the parties. The remedy is exercised under Art XI by the Applicants requiring delivery in a commercially reasonable manner, which is the only requirement they can insist upon in exercising their remedy.