Luxembourg Rail Protocol enters into force – A landmark step for rolling stock finance changes to established contractual practice expected

The Luxembourg Rail Protocol is the second Protocol under the umbrella of the Cape Town Convention to go live. This new global treaty for the financing and leasing of railway rolling stock was established under the joint auspices of UNIDROIT, the International Institute for the Unification of Private Law, and OTIF, the Intergovernmental Organisation for International Carriage by Rail. Its older sibling, the Aircraft Protocol, entered into force in 2006 and has meanwhile transformed and simplified aircraft financing on a global level. It has attracted more than 80 Contracting States, which makes it one of the most successful private law harmonisation instruments ever.

The Luxembourg Rail Protocol is likely to enjoy similar success. It establishes a new system for recognition, priorities and enforcement of the rights of creditors and lessors in all types of railway rolling stock, from high-speed to light rail trains, from freight and passenger locomotives and wagons to trams and subways, and from people movers and cable cars to cranes running on rails. Interests in such assets can now be registered in the International Registry of Interests in Rolling Stock based in Luxembourg and operated by the newly appointed registrar, Regulis S.A. The international Registry is accessible to everyone over the internet 24/7 here. For the purposes of registration in the International Registry, the Luxembourg Rail Protocol also introduces, for the very first time, a global unique permanent identification scheme for all rolling stock. The new Unique Rail Vehicle Identification System (URVIS) provides for the so-called URVIS identifier, which is a permanent and unique 16-digit number issued by the International Registry. All of this will make it much easier and cheaper for the private sector to provide collateral in (and consequently finance) all types of railway rolling stock going forward.

So far, the European Union (in respect of its competences), Luxembourg, Gabon, Sweden and Spain have ratified the Luxembourg Rail Protocol. Several other States are currently actively pursuing ratification. Importantly, the Luxembourg Rail Protocol applies if the debtor in a financing or leasing transaction is situated in a Contracting State. Yet, even if the debtor is situated in a State that has so far not ratified or acceded to the Luxembourg Rail Protocol, creditors, lessors and purchasers of railway rolling stock may nevertheless benefit from the new registration system as it opens up the possibility of giving public notice of interests in rolling stock in order to maintain their priority under the applicable national law. The Luxembourg Rail Protocol will thus also affect customary practice and contractual arrangements in other countries, including Germany, Switzerland, Austria, France and Poland.

Bird & Bird LLP is a member of the Rail Working Group, which is the rail industry’s association focused on the implementation of the Luxembourg Rail Protocol, and has been actively involved in the development of the Luxembourg Rail Protocol right from its adoption in 2007. For any queries on the Luxembourg Rail Protocol or the Cape Town Convention system in general, specific contractual arrangements going forward and/or an analysis of how the Luxembourg Rail Protocol may affect or improve your position, please contact Benjamin von Bodungen or Matthias Winter.