Aircraft Mortgages And The English Conflict Of Laws – Blue Sky One Revisited

Aircraft financiers often structure deals so they may repossess the aircraft as:

its mortgagee; chargee of the shares in the SPV they have funded to own and lease the aircraft; and assignee of the SPV's rights under a lease of the aircraft to its operator. As well as providing security, a key function of the mortgage is preventing the aircraft's deregistration from the civil aircraft register in the country from which it operates. To fulfil these functions, the mortgage should be registrable in that country and valid under the law a court enforcing the mortgage would say governs its creation. Sarah Dyke and Alexander Hewitt revisit a case that has made it easier to predict which law an English court will apply to decide whether an aircraft mortgage is valid.

Lex situs

Blue Sky One v. Mahan Air decides that, under English conflict of laws rules, the domestic law of the place where an aircraft was situated on execution of the mortgage determines whether a mortgage over that aircraft was validly created. This is the lex situs rule.

No renvoi

The French term "renvoi" means "sending back". Renvoi is a conflict of laws doctrine. It comes into play when:

the conflict of laws rules of one jurisdiction (for example, France) say an issue should be decided by reference to the laws of a second jurisdiction (for example, Germany); under those French conflict rules, that reference to German law includes Germany's own conflict of laws rules; and those German conflict of laws rules would themselves refer (or "send back") the matter to be decided under French law, or the law of another country. Blue Sky One decides that, when an English court applies the lex situs rule to an aircraft mortgage's validity:

the English court looks to the domestic law of the situs; it does not look to the conflicts rules of the situs; there is no return to sender. Example transaction

A borrower wants to borrow on the security of an aircraft mortgage. The aircraft:

is, and after completion will be, registered at the UK Civil Aviation Authority (the UK CAA); but will be in the Netherlands on completion. Dutch legal advice suggests that if the aircraft is in the Netherlands on execution:

as the Dutch conflicts rule looks to English law (as the law of the aircraft registry), Dutch law will recognise an English law mortgage over the aircraft; but an English law mortgage does not meet the requirements of a Dutch law pledge, which the Dutch lawyers advise is the only way to create...