Aircraft: Rights of Detention

This note deals with some of the more common detention rights (which in some cases may also give rise to a right of sale), which may affect aircraft in the UK. The rights may arise under contract or at law and will be of relevance to any owner of an aircraft or any party holding a mortgage over an aircraft. Any party lending to a company which relies heavily on the income of aircraft to repay debts will also need to be aware of the impact the exercise of the rights referred to below will have on that income stream.

STATUTORY RIGHTS OF DETENTION

Detention by the CAA

The Civil Aviation Authority (“CAA”) of the UK is able to detain and sell an aircraft under the powers given to it by the Civil Aviation Act 1982 where there are unpaid air navigation charges relating to that aircraft. Unpaid charges may include Eurocontrol charges (see below). This power to detain the aircraft will not only arise where the failure to pay is that of the owner but also (and more usually) where the lessee of the aircraft has failed to pay such charges. In the case of leased aircraft it is usual for the lease to provide that the lessee will give an indemnity where such charges arise and the lessor (rather than the lessee) has paid them to enable the aircraft to continue in revenue earning service.

Eurocontrol is a European organisation for the safety of air navigation and control of air traffic within Europe. Eurocontrol is able to charge for its services and in the UK the CAA may, if so requested by Eurocontrol, detain and sell aircraft in respect of which charges have not been paid. The charges claimed may relate to amounts due in a number of different European destinations.

In all cases, unpaid charges will relate to the aircraft rather than its owner/operator and therefore if the aircraft is sold with any charges remaining unpaid the new owner or operator of the aircraft may find that the aircraft is detained through no fault of its own. The new owner or operator will have to pay these charges to procure the release of the aircraft. In addition, any other aircraft operated by the defaulting party at the time of detention may be detained for the charges of that defaulting party.

The CAA is also able to detain an aircraft which breaches noise, fuel venting or smoke emission requirements or where that aircraft would contravene air navigation requirements or cause danger to property or persons.

Detention by Airport Authorities

Any airport owned or managed by any government department, the British Airports Authority (BAA) or a local authority and any airport designated for these purposes by the Secretary of State may under s.88 of the Civil Aviation Act 1982 detain any aircraft belonging to or operated by a person where that person has failed to pay airport charges. As with navigation charges, this is the case even if the charges relate to another aircraft owned or operated by that person. An aircraft may be detained for charges incurred in relation to it by a previous operator as the charges will follow the aircraft if not paid.

In the case of both unpaid navigation and airport charges, any lessor of an aircraft will want to ensure that the terms of the relevant lease agreement enables the lessor to terminate the lease and repossess the aircraft if charges are not paid. Once detention has commenced it is too late as the CAA or airport (as applicable) will be able to detain all aircraft operated by the defaulting party at the time detention begins - whether or not that person ceases to operate the aircraft - for all unpaid charges of that defaulting party.

Tax authorities and Customs

Where an owner has failed to pay taxes the UK tax authorities are able to seize and sell an aircraft owned by that person to meet those unpaid taxes.

Customs Officers are also able to detain an aircraft which has uncleared imported cargo on board after a stipulated period of time. The aircraft will only be released once expenses for the safeguarding and removal of the goods have been paid. In addition, where there is cargo or an item on board which is liable to forfeiture (for example illegal drugs) the aircraft used for its carriage, deposit or concealment may also be liable to forfeiture.

LIENS

Liens are common law rights to retain possession of goods as security for money owing to the person exercising that right and may therefore arise in a number of situations. It is not proposed to deal with liens in detail here but we refer below to some common liens applying to aircraft:

Repairer’s lien

Any repairer of an aircraft may exercise a lien over an aircraft for the cost of repairs made provided that the repair has improved the aircraft. It may be difficult in a particular case to decide whether a repair amounts to “improvement” or is simply maintenance. Certain other factors will also need to be present to enable the repairer to validly retain the aircraft including:

(a)the work must have been authorised by the owner and completed;

(b)the repairer must have acquired possession lawfully and without misrepresentation or wrongdoing;

(c)the aircraft must be retained immediately following the repair and not for example at some future date when the aircraft is returned for subsequent work;

(d)the amount claimed must be due and payable.

Contractual Liens

These are liens established in contract and their extent and nature will therefore depend on the contract under which they arise. The lien will usually allow retention of an aircraft and possibly sale to obtain any sums due in respect of the aircraft. Where such liens arise under contracts between the operator of an aircraft and a third party that third party will have to show that the lessor/owner of the aircraft knew that the aircraft would be delivered to it and knew of the contractual lien. Otherwise the third party will have to establish that the lessor/owner’s conduct showed an ostensible authority to allow the creation of the lien.

Seller’s Lien

A seller of an aircraft will have a lien over it until the purchase price is paid (unless otherwise agreed) and may therefore retain the aircraft until the purchase monies are received in full.

MORTGAGES

In any financing relating to an aircraft it is common for a financier to require a mortgage to be given over the aircraft in question. A mortgage will invariably set out rights of detention repossession and sale of the aircraft in favour of the mortgagee as against the owner of the aircraft. Additional benefits are available if a mortgage is properly registered against an aircraft. Set out below is the procedure in the UK for registering mortgages of aircraft.

Registration

Where an aircraft is registered in the UK a mortgage over it may be registered on the Register of Aircraft Mortgages held by the CAA. The most important reasons for registering a mortgage are:

(a)A registered mortgage will take priority over all other mortgages and charges over the aircraft (and therefore the rights of creditors holding those mortgages) except:

(i)mortgages (or priority notices in respect thereof - see below) registered earlier in time;

(ii)mortgages created prior to October 1972;

(b)All persons will be deemed to have express notice of all facts appearing on the Register.

The registered mortgage will not take priority over a repairer’s lien referred to above or any statutory right to detain the aircraft.

Any member of the public may visit or write to the offices of the CAA in London to request that a search be carried out of the Register of Aircraft Mortgages to find out whether a particular aircraft has a mortgage registered against it in the UK. The search results will indicate all mortgages and current priority notices (see below) filed against an aircraft, the date of the mortgage or notice and the mortgagor and mortgagee concerned.

Priority Notices

Where there is an intention to obtain a mortgage over an aircraft a priority notice may be filed on the Register. Provided the mortgage is filed within fourteen days of the filing of the notice that mortgage will have priority from the date of filing of the notice. If the mortgage is not filed the notice will lapse but this does not prevent further notices being filed in respect of the same mortgage.

Unlike the registration of mortgages and charges at Companies House there is no time limit within which an aircraft mortgage must be registered to gain priority. This means that existing mortgages over aircraft registered outside the UK may be registered in the UK at the same time as the aircraft is registered, for example when an aircraft formerly on lease to a non-UK operator is to be leased by a UK operator.

De-registration

The CAA will not de-register an aircraft which has a mortgage over it registered on the Register of Aircraft Mortgages without the consent of the financier benefiting from the mortgage or a signed discharge or release of the mortgage. This helps to prevent any unauthorised (by the financier) registration of the aircraft in another jurisdiction.

Summary

The above provides a summary of some of the more commonly encountered rights exercised in order to detain aircraft. Further information and advice in this area can be obtained by getting in touch with your usual contact at Cameron McKenna or any member of the asset finance team.