Secured Lending in Aircraft Objects – Framework Overview of the International Registry of Mobile Assets

Lenders or creditors taking security in assets relating to Aircraft Objects (described further below) need to understand the framework of the International Registry of Mobile Assets (the “Registry”). Below is a brief outline of this framework and the security a lender may expect to receive in Aircraft Objects.

International Registry of Mobile Assets

The Registry is an asset-based international registry system that allows individuals and organizations to register and search financial interest in Aircraft Objects by their serial number. The IR operates under the legal framework of the November 16, 2001 Cape Town Convention and Protocol (the “Convention”). The Convention was adopted by Canada and a number its provinces, including Saskatchewan, and came into effect on April 1, 2013.  It is important to note that not all countries have signed onto the Convention and information contained in the Registry may be incomplete or non-existent when dealing with Aircraft Objects in a non-signatory state.

The main objective of the Convention is to facilitate the efficient financing and leasing of Aircraft Objects by creating a single international registry system whereby parties (current owners, perspective buyers, lenders, etc.) may confidently rely on the security interests registered against such Aircraft Objects. The international interests created by the IR are recognized by signatory states with respect to priority matters and such registrations in the Registry will have priority over similar registrations made in provincial registries, such as the Saskatchewan Personal Property Registry, even if such provincial registrations pre-date the date of registration in the Registry.  The Convention further provides secured lenders with a range of basic default remedies and speedy interim relief options in an effort to facilitate orderly and efficient enforcement of security.

Given the specific remedies offered by the Convention, lenders should consider tailoring security agreements, and potentially other security documents, to account for these enforcement remedies along with other matters specific to Aircraft Objects. It can also be helpful to explicitly provide for the Convention’s remedies in other agreements as well, such as a lease of Aircraft Objects, when such agreements may form part of the security to be granted by a debtor.

Not all assets used in the aviation industries are captured by the Convention. Aircraft Objects must meet certain size or power minimums. The following Aircraft Objects are captured by the Convention:

    1. Airframe means airframes (other than those used in military, customs or police services) that, when appropriate aircraft engines are installed thereon, are type certified by the competent aviation authority to transport:
    1. at least eight (8) persons including crew; or
    2. goods in excess of 2750 kilograms, together with all installed, incorporated or attached accessories, parts and equipment (other than aircraft engines), and all data, manuals and records relating thereto,
    1. Helicopters means heavier-than-air machines (other than those used in military, customs or police services) supported in flight chiefly by the reactions of the air on one or more power-driven rotors on substantially vertical axes and which are type certified by the competent aviation authority to transport:
    1. at least five (5) persons including crew; or
    2. goods in excess of 450 kilograms, together with all installed, incorporated or attached accessories, parts and equipment (including rotors), and all data, manuals and records relating thereto,
    1. Aircraft Engines means aircraft engines (other than those used in military, customs or police services) powered by jet propulsion or turbine or piston technology and:
    1. in the case of jet propulsion aircraft engines, have at least 1750 lb of thrust or its equivalent, and
    2. in the case of turbine-powered or piston-powered aircraft engines, have at least 550 rated take-off shaft horsepower or its equivalent, together with all modules and other installed, incorporated or attached accessories, parts and equipment and all data, manuals and records relating thereto.

    Individuals or organizations that wish to perform registrations, including lenders taking security against Aircraft Objects, in the IR will need to become Transaction User Entities (“TUE”). The TUE will need to further appoint an administrator that will be authorized to perform registrations on behalf of the TUE. While all registrations on behalf of the TUE will need to be performed by the administrator, an administrator can provide one-off authorizations to allow another entity to perform registrations on behalf of the TUE. This may be convenient in a transaction involving an owner of the Aircraft Objects, perspective purchaser of such objects and lender that are all represented by a different administrator.

    Personal Property Security Registries

    As stated above, registration in the Registry will defeat or have priority over registrations in provincial personal property registries where the Convention applies. However, it is common for lenders to continue to register security interests against debtors, including serial numbered goods such as Aircraft Objects, in provincial registries. While it can be somewhat cumbersome for a seller or vendor to deal with multiple jurisdictions for the same Aircraft Object, it is important to search all provincial registries in which these Aircrafts Objects are operating in as provincial registrations will govern priority in the absence of an international registration in the Registry.

    IDERAs

    An IDERA (Irrevocable De-Registration and Export Request Authorization) is another Convention based security mechanism that can provide additional security to a lender.  An IDERA can be filed with Transport Canada which will prevent anyone but the authorized holder (typically a lender) from deregistering the Aircraft (Airframes and Helicopters) with Transport Canada.  It provides lenders with the assurance that Transport Canada will cooperate with the holder if it requests the deregistration of the Aircraft.  In order the revoke the IDERA, the holder must provide written notice to Transport Canada of such revocation. To note, multiple IDERAs cannot be filed with Transport Canada on the same Aircraft.

    Conclusion

    The above is a very brief explanation on the framework of International Registry of Mobile Assets and the security a lender may expect to receive when taking a security interest in Aircraft Objects. Our legal team at Robertson Stromberg LLP would be happy to discuss these matters in further detail or any questions you may have with respect to secured lending involving Aircraft Objects.

    Marinko Jelovich is a partner with Robertson Stromberg. His areas of practice include Indigenous Law; Commercial Transactions and Real Estate; Natural Resources; Residential Real Estate; Small Business; and Wills, Estates, Trusts, Healthcare Directives and Powers of Attorney. Contact Marinko Jelovic at 1-306-933-1322 or m.jelovic@rslaw.com. The above is for general information only. Parties should always seek legal advice prior to taking action in specific situations. 

    Marinko Jelovic joins board of directors of Big Brothers Big Sisters Saskatoon

    Congratulations to Marinko Jelovic, who joins the board of directors of Big Brothers Big Sisters Saskatoon.

    Big Brothers Big Sisters of Canada is a Federation comprised of 108 member agencies servicing more than 1,100 communities across the country. Together they mobilize over 21,300 volunteers who, in turn, mentor 41,700+ children and young people across Canada.

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    Force Majeure Doctrine of Frustration – COVID-19

    Introduction

    The novel coronavirus (COVID-19) continues to impact the lives of millions of Canadians and millions more around the world. Governments and communities worldwide have responded to this global health emergency by restricting travel and large public gatherings. Schools, restaurants and other businesses have been shutting their doors in response to contain the spread of the virus. In an effort to further curb the spread of COVID-19, many employees have been asked to work from home, further compounding the operations of businesses worldwide. Businesses and contractors may find themselves in a position where their ability to fulfill or perform a contract is hindered or rendered out right impossible due to the growing concerns and instability caused by COVID-19.

    Force Majeure

    In these uncertain economic times, it is important that business owners and contractors understand their contractual rights and obligations especially if they find themselves in a situation where fulfilling a contract becomes difficult or impossible. Business owners and contractors should carefully review their contracts to determine whether any relief is available under the contract, such as relying on a force majeure clause, or whether any other relief from the performance of their contractual obligations is available.   

    A force majeure clause is often included in a contract to excuse performance by one or more parties to that contract on the occurrence of an event that is outside the contracting party’s control. Invoking the force majeure clause can potentially absolve a party from liability from performance of at least some of its contractual obligations under the agreement. A force majeure event typically refers to a circumstance beyond the control of one or more parties to a contract that causes performance of the contract to be frustrated or impossible to perform.  Such clauses can specify any number of these types of events and can include acts of God, riots, civil strife, acts of terrorism, labour strikes, natural disasters and epidemics.

    Whether a party can claim relief from contractual performance will depend on the wording of the force majeure clause as courts are known to interpret these clauses narrowly. A force majeure clause may not expressly cover the events unfolding due to COVID-19, and it is important that the wording of the provision be carefully reviewed. Additionally, a party cannot rely on a force majeure clause to excuse its own conduct and may have an obligation to find alternative means to fulfill its contractual obligations even if it would cause delays or economic hardship to do so.

    The Doctrine of Frustration

    While it goes without saying that a party cannot rely on a force majeure clause if the contract does not contain one, this does not mean that a contracting party is without options in the event they find themselves unable to fulfill their contractual obligations and a force majeure clause is absent from the contract. A party to a contract may be relieved of its obligations and corresponding liability by relying on the common law doctrine of frustration. In order to rely on the doctrine of frustration, a party must show that an unforeseen event occurred that caused a material or radical change in performance of a party’s ability to fulfill its contractual obligations through no fault of either party to the contract. As with a force majeure event, the material or radical change is generally one that makes performance under existing circumstances impossible, impractical or frustrates the original purpose of the contract.

    In Saskatchewan, the doctrine of frustration has been codified under The Frustrated Contracts Act.  In order to invoke the legislation a party must either show that the common law doctrine of frustration applies or the contract is one for the sale of specific goods and the goods under the sales contract have perished through no fault of the buyer or seller prior to risk being transferred to the buyer. In these circumstances parties may be relived from fulfilling their obligations under the contract.

    The Frustrated Contracts Act will not apply to all types of contracts. Contracts of insurance, certain contracts for the carriage of goods by sea, and contracts entered into prior to March 28, 1994 are not covered under The Frustrated Contracts Act. These excluded contracts may be covered under separate legislation or the general principles surrounding the doctrine of frustration.  

    Conclusion

    The reliance on force majeure clauses or the doctrine of frustration will become much more prevalent while we navigate our way through the effects the global health emergency caused by COVID-19 will bear on our lives, our communities and the world. Each situation will need to be independently reviewed to assess whether a force majeure provision can be relied upon, provided the contract contains such a provision, or if a party can claim a remedy under the more general doctrine of frustration. It is important to note that not all situations will arise to a level where a contract has been frustrated or impossible to perform. Lengthy delays or incurring unforeseen economic hardships may not be a cause to claim frustration or rely on a force majeure provision. It is strongly encouraged that you seek legal advice to assess whether invoking a force majeure clause or the doctrine of frustration is an available remedy in the event you find yourself in a situation where you are unable to complete or perform a contract due to events outside of your control, including the impact COVID-19 is having on the global economy.

    For more information, please contact:

     

    Marinko J. Jelovic

    Direct: 306.933.1322

    Email: m.jelovic@rslaw.com

    Marinko Jelovic Joins Robertson Stromberg Partnership

    Congratulations to Marinko Jelovic who became Robertson Stromberg’s newest partner on January 1, 2019.  Marinko joined Robertson Stromberg as an articling student and, since his call to the bar in  2012, has been an important member of the corporate/commercial law team.

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