Does the shipping industry need a maritime protocol to the Cape Town Convention?

  • Does the shipping industry need a maritime protocol to the Cape Town Convention?

    Author: Dr. Juan Pablo Rodriguez

    Key words:  security interests, Cape Town Convention, Maritime Protocol, ship finance, mortgages and hypothecation, secured creditors, liens, leasing

    The UNIDROIT Convention on International interests in mobile equipment, signed on 16 November 2001 (commonly known as Cape Town Convention –CTC-), along with the Protocols about particular assets encumbered with consensual security interests (airframes, aircraft engines and helicopters; railway rolling stock; and space assets, so far), has revealed as one of most successful international instrument in the international scene of the uniform private law. The difficulties that such a topic involves (not only those arising from to the elaboration of an international text, but also specifically the ones related to the attempt to unify principles between very different legal systems in the topic of security interest and property law) have been overcome by the wide consensus that the Convention is obtaining. Currently, it counts with more than 72 Contracting States; a considerable part of them are developing countries (evident sign of the sensibility that this text has shown to certain jurisdictions).

    Given this huge success (especially the one shown by the Aircraft Protocol, even though the same fortune is foreseen for the rest), a scholar of Maritime Law cannot stop asking himself the following questions: Would a Maritime Protocol be a good idea? Does the shipping industry need a maritime protocol to the Cape Town Convention? Despite the particularities of the sector (vid. one ship’s companies, flags of convenience or open registers, Bareboat or demise charter and the registration of the vessel in other for the duration of a bareboat, among others), the huge value of the asset (ship), the constant need of financing for its acquisition or construction, the international mobility of the ships or the necessary protection of the secured creditor, do not differ excessively from the reasons why its adoption for the aircraft sector has been a solid success.

    In the beginning of its elaboration, the drafters of the Cape Town Convention wondered if the ship would be a susceptible asset of being associated to the Convention. The answer of the shipping-related international Institutions (IMO, CMI and UNCTAD) was categorical: No, thank you. The arguments for such rejection were short: [a] it was feared lest the inclusion of registered ships in an international Convention of a general nature might prove to be source of conflict with the newly drafted Maritime Liens and Mortgages Convention (adopted by the 1993 Geneva Conference) and cause confusion and uncertainty (an answer of certain strength); [b] the preparation of international rules governing ships and shipping was described as an issue that was traditionally the preserve of specific international organizations with full participation of shipping circles. To sum up, quoting Professor Roy Goode, ships were excluded because of a perception (probably a misconception) that these were already catered for by existing Conventions, though in respect of consensual security interests all of these were confined to rules of recognition and none of them has been very successful.

    More than 20 years later, and especially before the low acceptance that the Convention on Maritime Liens and Mortgages (1993) has had (with only 17 Contracting States), maybe now it is time to ask ourselves the same question: Is a Shipping Protocol possible?

    The purpose of this presentation has the following objectives [a] to examine the main problems, both legal and practical that this new instrument would face in the field of Maritime Law, (e.g. particularities of the shipping industry and its financial counterpart –the financial institutions-, relationship and conflicts with other Conventions, international maritime liens v. non-consensual rights or interests); [b] to analyze the problems that it would have to overcome in the field of consensual security interests (especially in concerning to the creation, validity, priority rules, recognition and enforcement, all of these issues of a marked domestic legal nature); [c] if the dual structure model (Convention & Protocol) and the flexibility of the text (reservations and declarations) will solve the main problems that the financial industry is facing.

    It will be interesting to make a quick review of the intent of the Convention and the proposed solutions for the aircraft sector, establishing primacy as regards matters within its scope relating to the creation, enforcement, perfection and priority of interests in aircraft (establishing a new international framework –functional approach to the security interests through the recognition of an generic International Interest-, providing for the creation of an International Registry or the regulation of default remedies, among others), to finally conclude, as far as possible, if the Convention on International interests in mobile equipment (along with a possible maritime Protocol) is the ideal mechanism to regulate the main problems that ballast the Conventions on Maritime Liens and Mortgages (both 1926 and 1993).

    As succinctly put by Professor Roy Goode, the questions to be asked when considering the drafting of a new Protocol are: Can the shipping industry be persuaded to see the prospect of shipping and shipping finance securing benefits from the Convention, with a shipping protocol, similar to those by the other sectors mentioned?  And, is the project likely to receive a substantial measure of support not only from industry but also from governments and other interested sectors?