Practical applicability of one relief established by the Cape Town Convention in respect to aircraft

Alasdair Whyte
By Alasdair Whyte January 31, 2013 17:20
Juan Antonio Tiscareño describes some of the recent experiences that Martin Dale legal firm has acquired in litigation cases before Mexican courts, related to the applicability and effectiveness of one of the reliefs established in the Cape Town Convention.

In this article I will describe some of the recent experiences that our firm has acquired in litigation cases before Mexican courts, related to the applicability and effectiveness of one of the reliefs established in the Cape Town Convention, when attempting to immobilize an aircraft which is in possession of the lessee.

The common problem of recovery of aircraft in Mexico

It is a typical situation that when an aircraft lease agreement is breached by the lessee due to non-payment of rent and the aircraft is in possession of the lessee and at his disposition. During this default period unfortunately, the lessee can use the aircraft at will, although he is in breach of his obligations. This situation is very distressing for the lessor, because the aircraft could be misused or abandoned in an unknown location, or even cannibalized by third parties if the appropriate security measures are not being taken. In such scenario, one of our main concerns as legal advisors of the lessor, along with the payment of rents overdue, is to be aware of the exact location of the aircraft, and if possible immobilize it in order to repossess it as soon as possible.

Before the Cape Town Convention entered into force, Mexican laws didn’t provide speedy and effective measures in order to achieve immobilization of an asset owned by the creditor. The standard practice in these cases, was to initiate an ordinary commercial procedure (as stated in the Commercial Code) that ended up with a resolution of the court in favor of the lessor, which granted, among other things, an order for the recovery of the aircraft after two or maybe three years of litigation. During the process, the aircraft was exposed to a lot of dangers, and of course couldn’t be immobilized. Thus there was a long term period of risk to the detriment of the lessor. That situation has changed now; in our firm we’ve recently tried different processes with positive results, using one relief established in the Cape Town Convention, as I will explain in the following paragraphs.

The argument for obtaining the court order of immobilization of aircraft has been grounded in article 13, 1, c) of the Cape Town Convention which establishes the following:

“Article 13. Relief pending final determination

1.- Subject to any declaration that it may make under Article 55, a Contracting State shall ensure that a creditor who adduces evidence of default by the debtor may, pending final determination of its claim and to extent that the debtor has at any time so agreed, obtain from a court speedy relief in the form of such one or more of the following orders as the creditor requests:

(…)1

(c) Immobilization of the object;”

I think is convenient to highlight some aspects of this article with the purpose of understanding it correctly:

  • A creditor who adduces evidence of default by the debtor: To obtain an order of immobilization, the lessor as creditor must argue a default. In the example of an aircraft lease agreement breached due to nonpayment of rent by the lessee, the lessor only needs to adduce such default; however it is advisable to introduce as evidence the agreement. Another good example of this idea would be to introduce a document which contains an acknowledgment of debt, and is preferable to a document that only provides the formula for the calculation of the debt. In our experience we have initiated enforcement procedures with documents which contain both characteristics: a liquid amount and a formula for estimating interests or other amounts.
  • The obtaining from a court of a speedy relief, pending a final determination of a claim: The order of immobilization will be subject to a final determination of the court; the lessor may obtain the relief, but this privilege does not necessarily mean that the court will grant a final ruling in favor of lessor, therefore it is important to make a prior analysis in order to know if there are more chances of success than of failure in obtaining a final ruling in benefit of the lessor, because in case of failure it is likely that the lessee could claim compensatory damages and lost profits due to the immobilization order.
  • The debtor has accepted that such speedy relief could be used against him: In our example, this means that at some moment, previous to the request of the relief directed to the court, the lessee has accepted that the lessor could use in case of default of the aircraft lease agreement, the relief of immobilization established in the Cape Town Convention.
  • Another issue important to address is that according to the Cape Town Convention2, the order of immobilization could be preceded by the imposition of any terms that the court considers necessary to protect the debtor, in case the creditor in implementing the order of immobilization, fails to perform any of its obligations under the Convention, or fails to establish its claim, wholly or in part, on the final determination of that claim3. What we have experienced is that the court in some cases requests a guarantee as a requirement for the issuance of the order4.
  • As we can see, none of the requirements established in article 13 of the Cape Town Convention are complicated. They can be easily fulfilled by having an agreement with this provision. In my opinion, what could be more difficult is to put this relief into practice with local courts that have limited knowledge or not knowledge at all, of the Cape Town Convention. For that reason it is essential to prepare an exhaustive and precise request of relief, which explains thoroughly the legal basis of the relief of immobilization, its extent and consequences. It is also desirable that the Mexican laws somehow adopt the reliefs recognized in the Cape Town Convention, in order to facilitate their applicability in all litigation procedures.

1.- Article 13 of the Cape Town Convention contains additional reliefs such as the preservation of the object and its value or the possession, control or custody of the object, etc., although we will not study them in this analysis, they are available for any creditor that meets the requirements of the Convention.
2.- Article 13, 2, a) and b) of the Cape Town Convention.
3.- The imposition of terms by the court is only a possibility; in some cases, the order of immobilization is granted without the requirement of any terms at all. This situation depends of the special circumstances of the case.
4.- The criteria for establishing the amount and terms of the guarantee are not delimited in law. It is usual that the court determines an amount of 10% of the value of the asset as guarantee, however this in only an option, the court could determine a superior or minor amount, according to the circumstances. The guarantee is usually created in the form of a bail bond or a deposit-in-court certificate.

Alasdair Whyte
By Alasdair Whyte January 31, 2013 17:20