The UK government recently published revised draft legislation¹ designating the Convention on International Interests in Mobile Equipment (the Convention) and Protocol thereto on matters specific to Aircraft Equipment (the Protocol and, together with the Convention, the Treaty) as an "EU Treaty" which will allow the UK to pass legislation to implement the Treaty into national law. It also published a consultation on 16 June 2014 seeking views from stakeholders as to how the Treaty should be implemented in the UK.

The purpose of this article is three-fold: (1) to give an overview of the set-up of the European Union (the EU) and the division of competences between the EU and its member states since the UK's implementation of the Treaty will be affected by its membership of the EU, (2) to summarise the declarations made by the EU at the time that it acceded to the Treaty and the consequences of this on the declarations that the UK will be able to make when it implements the Treaty, and (3) to provide an update on the status of the UK's implementation of the Treaty.

To appreciate the context within which the UK is implementing the Treaty, it is necessary to understand the structure and some of the key guiding objectives and principles of the EU since these objectives and principles affected the declarations that the EU was able to make when it acceded to the Treaty in 2009. The EU's declarations will, in turn, affect the declarations that the UK, as a member state of the EU, is able to make when it implements the Treaty.

The EU

Overview

The EU currently comprises 28 member states² and is founded on a number of treaties which, amongst other things, set out the EU's objectives, rules for the EU institutions and their decision-making process, and governs the relationship between the member states. The key EU treaties are:

• Treaty on the Functioning of the European Union (the TFEU) – this treaty (previously referred to as the Treaty of Rome or the EC Treaty) entered into force on 1 January 1958 and established the European Economic Community (the predecessor of the EU);
• Treaty on the European Union – this treaty (also known as the Maastricht Treaty) entered into force on 1 November 1993 and established the EU; and
• Treaty of Lisbon – this treaty entered into force on 1 December 2009 (amending the TFEU and the Treaty of the European Union) and sets out the objectives of the EU.

The functions of the EU are performed by a number of institutions and, primarily, the European Commission (which is responsible for the drafting of legislative proposals), the European Parliament (which is the legislative arm of the EU), the EU Council (which is the EU's main decision-making body comprising representatives of the member states) and the Court of Justice of the EU.

The EU has separate legal personality and is therefore able to negotiate and sign international agreements on behalf of the EU and its member states and to become a member of international organisations.

Area of Freedom, Security and Justice

One of the EU's objectives which is set out in the Treaty of Lisbon is to maintain and develop an area of freedom, security and justice without internal frontiers, thereby facilitating access to justice to all. The EU seeks to achieve this by adopting measures relating to judicial co-operation in civil matters with a cross-border impact to the extent necessary for the proper functioning of the internal market. The overriding purpose of such measures is to provide harmonisation between differing legal and administrative systems between the EU's member states.

Forms of EU Legislation

EU legislation can take the following forms:

• Directives – these are binding on each member state to which they are addressed as to the result that is to be achieved but leave it to the member states to determine the form and method of implementation;
• Regulations – these have general application and are binding in their entirety and directly applicable in each member state; and
• Decisions – these are binding in their entirety but deal only with particular issues and are binding only upon the specified persons (member states, organisations or individuals) to which they are addressed.

Division of Competences Between the EU and its Member States

One of the three key principles (the other two principles being the principle of subsidiarity and the principle of proportionality) on which the EU is founded is the principle of conferral, which means that the EU is permitted to act only within the limits of the competences conferred upon it by its member states in specified areas.

The division of competences between the EU and its member states was initially set out in the TFEU and clarified by the Treaty of Lisbon (which amended the TFEU). The three areas of division are:

• exclusive competence: where the EU alone is able to legislate and adopt binding acts in these areas. The role of the member states is therefore limited to applying these acts unless authorised by the EU to adopt certain acts themselves;
• shared competence: where the EU and its member states are authorised to adopt binding acts in these areas. Member states are able to exercise their competence only in an area in which the EU has not exercised, or decided not to exercise, its own competence; and
• supporting competence: where the EU can intervene only to support, co-ordinate or complement the action of the member states; that is, the EU has no legislative power and these areas of competences are reserved for the member states.

The field of judicial co-operation in civil matters is designated as an area of shared competence. Within this category, the EU has produced a number of legislative acts aimed at unifying the rules between member states and thus facilitating access to justice, including:

• Council Regulation (EC) No. 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (the Brussels Regulation)³ – the Brussels Regulation provides a harmonised framework for determining the allocation of jurisdiction over a dispute and the recognition and reciprocal enforcement of judgments within the EU, the basic principle being that jurisdiction is to be exercised by the EU member state in which the defendant is domiciled, regardless of his nationality, subject to certain exceptions (including where the parties have made an express contractual choice);
• Council Regulation (EC) No. 1346/2000 of 29 May 2000 on insolvency proceedings (the Insolvency Regulation) – the Insolvency Regulation provides common rules for determining conflict of law issues for insolvency proceedings with respect to EU-based debtors that have operations in more than one member state. The key criterion being the determination of where the debtor has its centre of main interests (COMI), which should be the place where the insolvency proceedings over a debtor are commenced; and
• Regulation (EC) No. 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I) – Rome I sets out rules determining the applicable law of contracts in civil and commercial matters.

The Brussels Regulation, the Insolvency Regulation and Rome I are all EU regulations and therefore have direct binding legal force in each member state, including the UK. Hence, there is no need for any further legislation at member-state level to implement the regulations into national law.

The EU's Declarations Pursuant to the Treaty

It is against this backdrop that the EU acceded to the Treaty on 28 April 2009, which became effective on 1 August 2009. At the time of its accession, the EU made certain declarations, pursuant to Articles 48(2) and 55 of the Convention and Articles XXVII(2) and XXX(5) of the Protocol, as a Regional Economic Integration Organisation⁴ with regard to various matters which the member states of the EU had transferred to the exclusive competence of the EU.

These included matters which affected the following subjects:

• the Brussels Regulation;
• the Insolvency Regulation;
• Rome I;
• where the debtor is domiciled in the territory of a member state, the member states bound by the Brussels Regulation⁵ will apply Articles 13 (Relief pending final determination) and 43 (Jurisdiction under Article 13) of the Treaty for interim relief in accordance with only the Brussels Regulation as interpreted by the Court of Justice of the EU⁶; and
• Article XXI (Modification of jurisdiction provisions) of the Protocol will not apply within the EU as the Brussels Regulation will apply to this matter for the member states bound by the Brussels Regulation or by any other agreement designed to extend its effects.⁷

The EU's declarations also noted:

• member states would retain their competence concerning the rules of substantive law as regards insolvency; and
• the EU would not make a declaration pursuant to Article XXX(1) concerning the application of Article VIII⁸ nor would it make any of the declarations permitted under Articles XXX(2) and (3) concerning the application of Articles X⁹ and XI,¹⁰ respectively.

The EU also reserved its right to amend the declarations made by it, expressly stating that the EU's exercise of the competences transferred to it by its member states was a process of continuous development.

Effect of the EU's Declarations on the UK's Ability to Make Certain Declarations

Given the EU's exclusive competence over the areas in which it has already made declarations under the Treaty, the cumulative effect is that the ability of the UK to make declarations under the following articles of the Protocol is affected (although the ability of the UK to make declarations under the other provisions of the Treaty are unaffected):¹¹

• Article VIII (Choice of law): the UK is neither able to make a declaration under that Article nor able to amend its national law to the extent that it relates to that subject since Rome I will apply;
• Articles X (Modification of provisions regarding relief pending final determination) and XI (Remedies on insolvency): the UK is not able to make declarations under Articles X and XI of the Protocol but is able to amend its national law to produce the same substantive outcome as if declarations had been made under those Articles; and
• Article XXI (Modification of jurisdiction provisions): the UK is neither able to make a declaration under that Article nor able to amend its national law to the extent that it relates to that subject since the Brussels Regulation will apply.

Update on the UK's Implementation of the Treaty

As noted above, the UK government recently published revised draft legislation designating the Treaty as an EU Treaty for the purposes of Section 1(2) of the European Communities Act 1972 (the ECA). Pursuant to Section 2 of the ECA, the effect of this designation is to allow the UK Parliament to pass national legislation to implement the Treaty (to the extent within the UK's competence) in the UK.

In contrast to the position in relation to EU legislation such as the Brussels Regulation, the Insolvency Regulation and Rome I, which have direct and binding effect in the UK without the need for any further enactment by the UK Parliament, EU legislation which does not have direct and binding effect in the UK requires the passing of secondary legislation by the UK Parliament in order for it to become effective in national law and to allow the courts in the UK to interpret and apply it.

The UK government also published a consultation on 16 June 2014 to gather views as to how the UK should implement those provisions of the Treaty which fall outside the EU's competence and within the competence of the UK into national law. The consultation will close on 11 August 2014.

Next Steps

The UK government has indicated that it intends to implement the Treaty by way of a single statutory instrument during 2014 although changes to existing legislation are likely to be needed. It has committed to publishing a response to the consultation within three months of the consultation closing where the UK government will detail how it intends to implement the Treaty and the timetable for ratification.

If you have questions about this update, please contact Natalie Chung at + 44 (0)20 3667 2916.

Click below to download the complete newsletter featuring this article.