The concept of lease as an asset based security instrument in Aviation and Maritime Law

Abstract

One of the most important phases in any finance agreement would be the creation of a security interest (and its ranking) which generally guarantees a creditor the re-payment of a debt by the debtor. It may be argued that the concept of lease as an asset based security instrument over certain valuable moveable assets has evolved differently in the aviation and maritime fields of law. Aviation law as opposed to maritime law has gone that extra mile in introducing the innovative concept of an international security interest, by means of the ‘Cape Town Convention’ and the ‘Aircraft Protocol’ . Lessors that register an international interest over certain valuable moveable assets (defined in the Cape Town Convention) in the international registry are given priority over other competing claims by other creditors. Within the field of maritime law there does not exist any international mechanism similar to that of the Cape Town Convention and because of this, national legislation seems to be the alternative route to try propose change. Currently within the Merchant Shipping Act, there exists a situation whereby the mortgagee is awarded a higher security ranking than that of a lessor that leases out a ship by means of a bareboat charter. In conclusion, while appreciating the legal differences between a loan (secured by a mortgage) and a lease, the purpose of this term paper is to shed light on the possibility of recording a bareboat charter in such a way as to grant the lessor the same status as a secured party in a ship mortgage. In this way both the lessor and mortgagee will be treated equally in the eyes of the law.