Enforcement measures

Repossession 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?

As long as the contract provides for cases where the lessor may terminate the agreement and repossess the aircraft, the lessor may enforce such right subject to the terms and conditions of the agreement and its governing law. Lithuanian law states that parties may agree on the conditions of terminating the agreement; however, if no such agreement is made, relevant provisions of Lithuanian law apply, stating that the nature of the lessee’s breach must be taken into consideration (as material or non-material) and the lessor must file a default notice requesting the lessee to comply with its respective obligations prior to terminating the lease.

Provided that the lease agreement or respective provisions of governing law provide such right for the lessor, after an event of default and subsequent termination by the lessor of the leasing of an aircraft to the lessee, the lessor would be entitled to repossess the aircraft without additional fees or duties (other than a deregistration fee).

However, the repossession must be exercised peacefully. In the event that an operator does not voluntarily surrender the aircraft, the owner or lessor would not be entitled to enforce the repossession by force. The use of self-help remedies is very limited under Lithuanian law and it is allowed only when expressly permitted by law. The owner or lessor shall be permitted to repossess the aircraft without the cooperation of an operator when it is so specifically authorised by the court. An enforceable court order shall be enforced by a bailiff (with assistance of the police if necessary).

An operator may obstruct repossession of an aircraft by refusing to surrender the aircraft, its documents or by making an application to the court for injunction. However, we are not aware of practical cases where a Lithuanian operator challenged the repossession or otherwise physically obstructed the process.

Enforcement of security

Outline the basic measures to enforce a security interest. How may the owner lawfully impede the mortgagee’s right to enforce?

In the event of default, the mortgagee may enforce its claims from the value of the mortgaged assets and proceeds received from its disposal. In practical terms, a mortgagee should apply to a public notary to receive an executive writ. The executive writ permits the mortgagee to enforce a security interest in an out-of-court procedure. The notary verifies if the information in the mortgagee’s application conforms to the information in the Register of Mortgages. After the notary makes an executive writ, it can be submitted for execution to the public bailiff. The mortgaged assets will either be sold by public auction or be given to the mortgagee to administer.

In the event that insolvency proceedings are opened against the debtor, the court shall appoint a bankruptcy administrator to manage the assets of a company, including organisation of public auctions aimed at selling the outstanding assets of the debtor.

The owner may obstruct the enforcement of a mortgage by challenging the executive writ issued by the notary in court, challenging the actions of the public notary or the bailiff, making a respective application to the court for injunction or filing any other counterclaims.

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?

Under certain circumstances, an owner or operator may be deprived of possession or use of aircraft by a government entity or any other person and such rights and liens of public law shall have priority over aircraft ownership or an aircraft security interest.

The Law on State of Emergency (6 June 2002, as amended) provides that temporary utilisation or requisition of means of transport or other property for remuneration is allowed during a state of emergency in accordance with the procedures set out by the Law on Mobilisation and Support of the Host Country and the Government of Lithuania to prevent or eliminate or to save lives or protect the health and property of the people.

The Law on Mobilisation and Support of the Host Country (19 November 1996, as amended) provides that temporary utilisation or requisition for public needs of means of transport or other property for remuneration is allowed upon announcement of mobilisation and in other cases prescribed by law in accordance with the procedures set out by the government of Lithuania.

The Criminal Code (26 September 2000, as amended) provides the possibility for the state to confiscate property that was the tool, means or result of a criminal offence. In case the owner of the property is convicted of a criminal offence and such property is subject to confiscation (ie, it was the tool, means or result of the criminal offence), such property is subject to confiscation in all cases. The property belonging to an owner may be confiscated even if the owner is not convicted of a criminal office if:

  • the owner of the property must have and could have been aware that the property would be used while committing a criminal offence;
  • the property has been transferred to the owner under a fake transaction;
  • the property has been transferred to the owner who is an offender’s family member or close relative;
  • the property has been transferred to the owner who is a legal person, and the offender, his or her family members or close relatives is or are the legal person’s manager, a member of its management body or participants holding at least 50 per cent of the legal person’s shares (member shares, contributions, etc);
  • the owner whereto the property has been transferred or the persons holding executive positions in the legal person whereto the property has been transferred and being entitled to represent it, to make decisions on behalf of the legal person or to control the activities of the legal person was or were, or ought to and could have been, aware that the property obtained had been the tool, means or result of the criminal offence.

The Criminal Code also provides the possibility for the state to confiscate property of the offender or part thereof disproportionate to the legitimate income of the offender, where there are grounds for believing that the property has been obtained by criminal means (extended confiscation).

The Code of Criminal Procedure (14 March 2002) provides for the right of the pretrial investigation judge to seize tangible objects (eg, an aircraft) that are relevant for the investigation of a criminal offence and also the right of the prosecutor to temporarily limit the property rights of the owner for the purpose of securing a civil claim in the criminal proceedings or for the purpose of likely confiscation or extended confiscation of property.

The Civil Code provides a legal basis for a lawful possessor of assets to detain assets until the claim is satisfied. This right is commonly exercised by maintenance repair organisations refusing to release an aircraft prior to payment.

The Law on Tax Administration (13 April 2004) provides that seizure of property or mortgage may be applied by the tax administrator over the property of the owner as a measure of enforcing tax obligations.

The Order of the Director of the CAA, of 10 September 2010, on the Approval of the Rules on the Prohibition to Leave and Aircraft Detention provides for a prohibition to leave Lithuanian airports to be imposed if, among other things, airport charges or air navigation fees are not discharged in respect of that aircraft or if failure to comply with safety requirements takes place.

The law allows any relevant creditor to file a request to the court to seize the aircraft under a court injunction until the dispute is resolved.

However, the party detaining the aircraft shall not have the right to sell the aircraft, unless the aircraft is confiscated or requisitioned. The mortgagee should not cease to be a super-priority creditor; however, the owner’s or mortgagee’s right to compensation will be determined according to general principles of civil law as well as in conjunction with the claim made by a third party.

Enforcement of foreign judgments and arbitral awards

How are judgments of foreign courts enforced? Is your jurisdiction party to the 1958 New York Convention?

A judgment given in EU member state, including in England, is recognised in Lithuania without any special procedure being required and without the court itself examining the case on its merits. The recognition of the judgment entered in England would be made pursuant to Regulation (EU) No. 1215/2012 of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (recast) (the Regulation), which repealed Regulation (EC) No. 44/2001 and is directly applicable in the Republic of Lithuania together with applicable rules of the Civil Procedure Code of the Republic of Lithuania.

After the Court of Appeal of Lithuania receives a request to recognise a judgment entered in another EU member state, the court merely verifies if such a request submitted by a party meets the formal requirements of form and content.

A judgment given in New York or another US state or any other non-EU third country may not be enforced in a simplified way. A respective motion needs to be filed to the Court of Appeal of Lithuania as a trial court. Generally, a judgment entered outside the European Union is recognised in accordance with the provisions of bilateral treaties. The Republic of Lithuania and the United States do not have a bilingual treaty regulating the issues of recognising and enforcing court rulings. For this reason, mandatory requirements of the Code of Civil Procedure apply and the court verifies whether the exclusive jurisdiction of the Lithuanian courts and the public policy have not been violated upon its own initiative (ex officio), while the other party concerned may argue that grounds for refusing to recognise and enforce a foreign judgment exist (eg, the party was not served information about the venue and time of the hearing, etc). Nonetheless, the court is still precluded from re-examining the case on its merits.

Lithuania is a party to the 1958 New York Convention, effective from 12 June 1995.

The Supreme Court of Lithuania recognises that article V of the New York Convention provides for an exhaustive list of possible grounds for non-recognition of an arbitration award in Lithuania, and the procedure for the recognition and enforcement of foreign arbitral awards implies verification of the existence or absence of the grounds laid down in article V of the New York Convention. The public policy within the New York Convention is interpreted by the Supreme Court of Lithuania as an international one, which encompasses fundamental legal principles of due process and mandatory rules of substantive law embedding generally accepted principles of law. Lithuanian judiciary, while interpreting the concept of public policy, generally takes a restrictive effect and so passing the message that Lithuania is a friendly jurisdiction to enforce foreign arbitral awards.