Legalflyer

Introduction

Welcome to the April edition of Legalflyer where we once again review a series of topical issues for the aviation industry.

We start this edition with an article on liens written by Charlotte Winter, a dispute resolution of counsel based in London. The article looks at the English law approach to liens against the backdrop of more difficult financial times, when aircraft repossessions and disputes over liens become more prevalent.

You can also view a video of Charlotte Winter presenting this article.

In our second article, Andrew Wood, an associate in our London banking team, takes a look at the new Aircraft Sector Understanding on Export Credits for Civil Aircraft and how the new rules may affect the price differential between export credits and commercial lending.

In our third article, Marc Waha, a partner in the antitrust, competition and regulatory team based in Hong Kong and Clémence Perrin, a consultant in the antitrust, competition and regulatory team based in Brussels, examine two recent antitrust investigations by the European Commission into whether a particular form of codeshare agreement entered into by two groups of airlines could infringe EU antitrust laws.

For our fourth article, following the March 2011 UK budget, David Ward, a tax associate based in London, gives an update on the UK government's proposals for changes to air passenger duty.

Our fifth article looks at the topical issue of the UK Bribery Act 2010 which will impact on aviation companies operating their business (or part of their business) in the UK. Emma Humphries, a dispute resolution associate based in London, sets out the main features of the Bribery Act 2010 and the steps that aviation companies should be taking to meet its requirements.

Finally, Caroline Thomas, a senior associate in the London antitrust, competition and regulatory team, looks at the latest from the BAA inquiry, following the Competition Commission's provisional decision that BAA should proceed with the sale of Stansted and either Edinburgh or Glasgow airport.

As always, I hope that you will find our articles to be of interest and I would be delighted if readers could provide any comments on the content, or suggestions for future editions of Legalflyer, by using the comments box which can be accessed through this hyperlink. Likewise please feel free to pass on the details of colleagues who may wish to receive Legalflyer.

Liens - Is possession nine tenths of the law?

A lien is the right to retain possession of a thing until a claim is satisfied.1

Aviation, like many other industries, is affected by economic highs and lows. During times of financial crisis some of the less financially secure airlines will collapse. In those cases, lessors look to repossess their aircraft from the defaulting airline.

A collapsing airline will, however, also inevitably owe money to other creditors as well as the lessor. Where the leased aircraft, engine or part is undergoing maintenance or repair, the maintenance or repair providers (MRO) may also be a creditor.

If the airline collapses when the asset is in the MRO's possession, can the MRO assert a lien and refuse to release the asset to the owner until paid?

What law applies?

It is important first to identify which law determines this question because the MRO's rights can be different depending upon the applicable law.

As against the owner (as opposed to the lessee airline) with whom the MRO has no contractual relationship, the applicable law is likely to be the law of the place where the asset is located. However, different jurisdictions take different approaches to this question.

The English law approach to liens

There are two primary requirements for the maintenance provider to assert a lien.

The first is that the lien will only arise, at all, if a person has expended labour and skill to improve or repair (as opposed to maintain) the asset bailed to him. So in other words, mere maintenance is not enough. Where the line is drawn between maintenance, and repair or improvement, will depend on the facts of the case. However, as aircraft maintenance often involves an element of repair or improvement, it is likely that this first hurdle will be overcome.

The second is that there has to be express, implied or apparent authority on the part of the owner for the work to be done.

In Green v All Motors, Limited [1917] 1 KB 625, a hirer sent a car to a mechanic for repair and then defaulted. It was held that the owner's authority for the car to be repaired was implied as the hire purchase agreement required the hirer to "keep the car in good repair and working condition". It was implicit therefore that the hirer would have to send the car to the garage and had authority to do so. Such clauses are invariably found in an aircraft operating lease between the owner and lessee.

In Tappendem (t/a English and American Autos) v Artus [1964] 2 QB 185, it was held that the bailee of goods is deemed to have the implied authority of the owner to do all things reasonably incidental to the use of such goods. Here, the court found that giving possession of a motor vehicle to a mechanic for the purpose of effecting repairs was an act reasonably incidental to the bailee's reasonable use of the vehicle and if the owner wished to exclude the bailee's authority he must do so expressly.

Exclusion from creating a lien and apparent authority

Operating leases will invariably exclude the lessee's right to allow a lien to be created.

This however conflicts with the situation where the lessee has been given apparent (or ostensible) authority to allow a lien for work done to be created over the aircraft or part. An example of this situation arose in the case of Albemarle Supply Company v Hind and Company [1928] 1 KB 307. Here, despite the express agreement providing that the lessee could not create liens without the owner's consent, it was held that the owner had held out the lessee as having sufficient authority to create liens. As the express limit on that authority to create liens had not been communicated to the third party, that third party was not, therefore, bound by it. The fact that the third party knew that the lessee was not the owner of the chattels in question did not matter.

It may be argued that in the aviation market the MRO will know (or should know) the market practice to exclude expressly the right of the lessee to allow the creation of a lien and that this knowledge should prevent the lessee from having the authority to allow a lien for work done to be created.

However, this has not been tested in this jurisdiction and so, as the law stands, it is not clear whether the owner's or the MRO's rights will override the other.

Other jurisdictions have had different approaches to the problem and in some there is more certainty as to the outcome. In France for example, we understand that a lien for work done will usually override...