Belair Holdings Limited v Etole Holdings Limited and Aviareto Limited [26.03.15]
The High Court in Dublin ordered the discharge of a non-consensual interest that was registered against an A319 thereby removing an impediment to the sale of the asset.
A significant Cape Town Convention case came before the Irish courts earlier this year. The case concerned a dispute between companies in the Cayman Islands and British Virgin Islands over an Airbus A319 ACJ aircraft. It took just 10 weeks from the time the case first came into the High Court in Dublin on 15 January until judgment issued on 26 March. An appeal was lodged and later withdrawn upon the parties settling the case. As none of the parties had any connection with Ireland, how was it this case came into the High Court in Dublin?
The case involved Article 40 of the Cape Town Convention and its effect on the International Registry of Mobile Assets (Aircraft), commonly referred to as the IR, which was established under the Convention. Assets such as airframes, aircraft engines and helicopters are registered in the IR; for the purposes of the Convention, airframe means an aircraft with eight seats or more. Aviation industry lenders and financiers are supportive of the Convention’s international priority system and actively promote it. Countries which have signed up to the Convention are referred to as Contracting States and they must also ratify individual articles of the Convention for such articles to have effect.
Under Article 40 of the Convention, a creditor may register a non-consensual interest in the IR against any asset listed there. As the name suggests, this differs from an international interest in that the consent of the other party is not required. Registration is a matter of selecting the option from a drop down list and anyone with access to the IR website can do this. While this may be a legitimate protection measure for a creditor to take, the ease with which it can be done and the difficulties it creates are considerable. The effect can be to impede the sale of the asset and in this way, a registration under Article 40 can have a similar effect to a lis pendens (notice of litigation pending) in Land Law.
Under the Convention and the related Aircraft Protocol, a Registrar is appointed to maintain the IR and Article 44 of the Convention stipulates that any proceedings against the Registrar must issue in the courts of the country where the Registrar is situated. After a competitive tender in 2004, an Irish company, Aviareto Limited, was appointed as Registrar. Belair in its application sought an Order against Etole to discharge the registration and, if that were granted, a fall back Order against the Registrar in the event Etole didn’t comply within 21 days.
As the case involved the Registrar, pursuant to Article 44 the Irish courts had jurisdiction and indeed it was the Registrar that eventually discharged the registration. Belair also brought a claim in tort against Etole alleging slander of title. It should be noted that in submitting to the jurisdiction of the Irish courts, Belair was open to a counterclaim by Etole for specific performance and other reliefs in Ireland.
Facts of the case
The A319 at the centre of this case was owned by Belair, a Cayman Islands company. On 30 December last, a non-consensual interest was registered by Etole, a British Virgin Islands company, which contended it had a binding agreement with Belair to purchase the aircraft. Belair denied this and had entered into an agreement to sell the aircraft to a third party. Once the purported Article 40 registration appeared in the IR, the third party baulked at completing the purchase.
On 15 January of this year, Belair commenced proceedings in the High Court in Dublin with an application for liberty to serve Etole outside the jurisdiction. On 2 February, the case was admitted into the Commercial List of the High Court, which hears only cases that are commercial in nature, have a value of not less than one million euro and are urgent. After a further directions hearing on 2 March, the registration aspect of the case came on for full hearing before Ms Justice Iseult O’Malley on 24 March and judgment issued two days later.
The judgment granted Belair the Order it was seeking against Etole to discharge the registration and also a fall back Order against the Registrar. Etole lodged an appeal but following a settlement agreement, the appeal was withdrawn and the judgment now represents the law as regards Article 40 registrations.
Aspects of the judgment of significance to aircraft owners and lessors are:
- The judgment sets out the test for determining whether a purported Article 40 registration is lawful.
- For the purposes of Article 40, “debtor” can mean the owner of the aircraft.
- The Contracting State where the debtor is situated must have ratified Article 40 for the registration to be lawful.
- Ratification of Article 39 does not entitle an Article 40 registration to be filed as the two Articles are intended to be mutually exclusive.
- Registration of a non-consensual interest where the Contracting State has ratified Article 39 but not Article 40 is unlawful.
Having disposed of the registration aspect of the case, the Court then considered three further aspects:
- An application by Belair seeking to have the underlying dispute referred to the Oklahoma or New York courts.
- An application by Etole for an injunction to prevent the aircraft being sold pending a decision on the underlying dispute.
- An application also by Etole seeking specific performance and other reliefs by way of a counterclaim againstBelair.
On 22 April, the Court found in the first application that “the most appropriate forum for litigating the issues arising from the negotiations between the parties is New York” and a stay was placed on all claims in the High Court in Dublin, thereby rendering moot any meaningful consideration of the second and third applications. Because the case was ultimately settled, the underlying dispute was never ruled on.
In light of the Belair judgment, it is recommended that owners and lessors of aircraft that have a non-consensual interest registered against them seek legal advice as to whether such registrations are lawful. To determine whether they are or not, it would be necessary to apply the same series of tests as set out in the Belair judgment.
This case has been described as “truly international” and demonstrates that the Irish courts are well equipped to dispose of Cape Town Convention cases in a timely fashion regardless of where the parties are situated.