Enforcement measuresRepossession following lease termination
Outline the basic repossession procedures following lease termination. How may the lessee lawfully impede the owner’s rights to exercise default remedies?
Self-help remedies for repossession are not available in Brazil, even with the advent of the Cape Town Convention. If a lessee is in default under an aircraft lease, the lessor may seek an immediate repossession order from a Brazilian judge. Based on a High Court decision, it is usually advisable for the lessor to give the lessee written notice of the default, even in the absence of a contractual obligation to provide such notice. In prior aircraft repossession cases filed against operators and airlines that were not undergoing bankruptcy reorganisation procedures, the Brazilian courts have been fairly efficient in granting preliminary injunctions placing leased aircraft in the possession of the lessor. This proved true in late 2018 when four aircraft were repossessed from Avianca Brasil prior to that airline seeking bankruptcy restructuring protection. These orders are not the equivalent to a summary judgment since they do not always allow the lessor to export and deregister the aircraft until after the lessee has had an opportunity to present a defence. In the repossession cases filed in late 2018, however, courts did allow for immediate export and deregistration. After a lessee presents a defence the court may grant the lessor definitive possession of the aircraft. At that point such a ruling would be roughly equivalent to a summary judgment.
In short, a lessor can obtain preliminary possession in a matter of a few days. A summary judgment could be obtained in a matter of a few weeks or months, though much would depend on the lessee’s defences.
The Brazilian Code of Civil Procedure that was in force and effect until the second half of March 2016 provided many opportunities for parties to file interlocutory appeals so lessees could try to slow proceedings by appealing decisions, including decisions on non-substantive issues. A new Code of Civil Procedure, which became effective in March 2016, is supposed to reduce the number of opportunities for filing interlocutory appeals. Based on the Avianca Brasil case to date this expectation seems to have been borne out for pre-bankruptcy cases. Once an operator commences a bankruptcy procedure, however, the number of interlocutory appeals seems to be as high as with the prior Code of Civil Procedure.
The reply to this question summarises a complex area of practice, and the advice of local counsel should always be sought whenever a lessor contemplates repossession.Enforcement of security
Outline the basic measures to enforce a security interest. How may the owner lawfully impede the mortgagee’s right to enforce?
For the reasons explained in question 15, enforcement of security interests over aircraft in Brazil is rare. It will almost always be advantageous for the mortgagee to repossess an aircraft as assignee of a lessor and then to foreclose on a mortgage in an effort to force a court-supervised sale of the aircraft. Self-help remedies to repossess are illegal, and the basic remedy a mortgagee has under a Brazilian law mortgage is to cause a court to seize and auction the mortgaged asset. Arguably any holder of an international interest, including a mortgagee, should have Cape Town Convention remedies, such as taking possession, available. This has not yet been tested in Brazil, though mortgagees taking possession as assignees of lessors has been tested in the past.Priority liens and rights
Which liens and rights will have priority over aircraft ownership or an aircraft security interest? If an aircraft can be taken, seized or detained, is any form of compensation available to an owner or mortgagee?
According to the Brazilian Aeronautical Code, an aircraft mortgage will prevail over the ownership rights of the aircraft of the mortgagor and of any other third party, other than the following:
- court costs;
- employee credits;
- airport fees;
- amounts relating to emergency services to the aircraft;
- amounts paid directly by a pilot while discharging his or her duties when the same are indispensable for continuation of the flight; and
- amounts spent on maintenance.
How are judgments of foreign courts enforced? Is your jurisdiction party to the 1958 New York Convention?
Any valid judgment for a definite sum given by a competent court outside Brazil would be recognised and accepted by the Brazilian courts without retrial or examination of the merits of the case after ratification by the Brazilian Superior Court of Justice. To be ratified by the Brazilian Superior Court of Justice, a foreign judgment must meet the following requirements:
- it must comply with formalities necessary for its enforcement under the laws of the place where it was rendered;
- it must have been given by a competent court after proper service of process on the parties or after sufficient evidence of the parties’ absence has been given, as established pursuant to applicable law;
- it may not be subject to appeal;
- it may not be contrary to Brazilian sovereignty, public policy or morality;
- it must be duly apostilled pursuant to the Apostille Convention or authenticated by the competent Brazilian Consulate and be accompanied by a sworn translation into the Portuguese language; and
- it may not be a decision on any matter over which the Brazilian judiciary has exclusive jurisdiction.
Any urgent interlocutory decision given by a competent court outside Brazil would be recognised and accepted by the Brazilian courts without retrial or examination of the merits after ratification by a Federal Court with proper jurisdiction. The same requirements enumerated above, with the exception that a judgment may not be subject to appeal, would apply to the enforcement of any such urgent interlocutory decision.
Brazil is a party to the 1958 New York Convention.
Generally, in practice, when dealing with aircraft physically located in Brazil, the time and cost required to enforce foreign judgements in Brazil makes use of foreign courts impractical in aircraft finance transactions. If repossession is required it will rarely be in the interest of the lessor or owner to follow the procedures of obtaining a foreign judgment and enforcing it in Brazil. Proceeding through the Brazilian judiciary will almost always be substantially faster. The position might differ in respect of aircraft that are used on international routes and located outside Brazil from time to time or when a creditor is seeking a monetary award.