To which major air law treaties is your state a party?
Latvia is a state party to the following treaties:
- Chicago Convention (1944) (effective in Latvia as of 13 July 1992); and
- Cape Town Convention (2001) and its Aircraft Protocol (2001) (both effective in Latvia as of 1 June 2011).
What is the principal domestic legislation applicable to aviation finance and leasing?
Commercial finance and leasing matters generally are dealt with in a specific section XXI(5) of the Latvian Commercial Code (articles 463 to 467). These provisions, broadly speaking, are a rough and succinct summary of rules provided in the 1988 Ottawa UNIDROIT Convention on International Financial Leasing (Ottawa Convention (1988); Latvia is a state party to this treaty as of 1 March 1998).
Apart from these general principles, there are no specific legislative or regulatory enactments governing aviation finance and leasing matters.
Are there any restrictions on choice-of-law clauses in contracts to the transfer of interests in or creation of security over aircraft? If parties are not free to specify the applicable law, is the law of the place where the aircraft is located or where it is registered the relevant applicable law?
In terms of regulating their mutual contractual rights and obligations, the parties are free to choose whatever applicable law they prefer (article 3(1) of Regulation (EC) No. 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I)).
Yet, in terms of real rights and their effect on third parties, the matter is dealt with exclusively by the law of the state where the aircraft is located (article 18(1) in the Latvian Civil Code). When the Cape Town Convention (2001) is found to be applicable, the relevant real rights implications are determined by the rules of this treaty. When the Ottawa Convention (1988) is applicable (that is, when the Cape Town Convention (2001) is not applicable by virtue of its articles 3 or 50, as well as by virtue of article IV of the Aircraft Protocol (2001)), the new lessor’s real rights (with respect to the lessee’s estate and creditors) are determined in accordance with the rules in force in the state of the aircraft registration, without prejudice to the supervening consensual or non-consensual security rights obtained by any creditor other than through attachment or execution (articles 7(3)(b) and 7(5) in the Ottawa Convention (1988)).
Transfer of aircraft
How is title in an aircraft transferred?
The Latvian legal system follows the German model. Accordingly, the title transfer requires, in addition to the standard obligatory contract (such as a contract of sale), the real contract, that is, the one effectuating actual passage of the title - the (physical) delivery (handover) of the aircraft to the new owner or its agent or representative (see article 987 of the Latvian Civil Code).
Transfer document requirements
What are the formalities for creating an enforceable transfer document for an aircraft?
Since the title transfer requires an actual transfer of possession (see question 4), the latter is, from a purely legal standpoint, an active conduct rather than a document. Yet, in practice the actual transfer of possession is usually evidenced and confirmed by drafting a specific document (and providing the relevant wording to that effect), such as the Acceptance Certificate or the like.
Registration of aircraft ownership and lease interests
Identify and describe the aircraft registry.
The Latvian civil aircraft registry is maintained and operated by the Latvian Civil Aviation Authority (CAA). Main principles for the registry are contained in articles 7 to 13 in the Latvian Aviation Law, as well as in the ensuing 14 March 2006 Regulations of the Cabinet of Ministers #200 ‘Regarding the Procedure for Aircraft Registration’.
When the civil aircraft is being registered, the registry will depict identification data of both the owner and the operator (lessee), as well as any person holding security interests (mortgage rights) over the relevant aircraft. The registry will also store the copy of a title acquisition document (bill of sale usually suffices for these purposes and there is no need to file the extensive and confidential contracts for sale and, occasionally, related financing arrangements), as well as a copy of the lease agreement. The owner, within five days of the relevant changes occurring, is obliged to notify the Latvian CAA of any changes in the previously filed information that is maintained by the registry with regard to the particular aircraft. Registration, deregistration and the making of any changes in the registry require written consent from any person holding a security right over the aircraft (mortgagee). All applications for registration or deregistration require submission of a prescribed form completed by the owner or its designated agent on the basis of a power of attorney (which usually is contained in the lease agreement and is granted to the lessee).
To date, the Latvian CAA has concluded, on the basis of authority granted in article 13.1 of the Latvian Aviation Law, only two publicly known agreements within the confines of article 83-bis of the Chicago Convention (1944). Under both agreements (concluded with Austria and Iceland), the Latvian authority has assumed the state of registry oversight functions for two aircraft operated by Latvia-based air carriers (more information can be accessed online on DAGMAR ICAO Database of Aeronautical Agreements and Arrangements).
Publicly available information (accessible online on the website of the Latvian CAA: www.caa.lv/en/information/aircraft-ledger) depicts only the basic information for all aircraft registered in Latvia (manufacturer serial numbers, as well as nationality and registration marks at most). To gain further access to the identity of owners, lessees, and security holders, one must submit a specific application to the Latvian CAA justifying the need for the request.
In practice, the Latvian civil aircraft registry maintains entries with regard to a distinct ownership of engines apart from the host aircraft. These separate entries can be made upon a specific request from the aircraft owner. Apart from this described scheme, Latvia does not maintain an aircraft engine registry, and the certificate of registration is issued solely with regard to the aircraft rather than its engines, and the certificate, in any case, does not include mention of the engines at all.
Registrability of ownership of aircraft and lease interests
Can an ownership or lease interest in, or lease agreement over, aircraft be registered with the aircraft registry? Are there limitations on who can be recorded as owner? Can an ownership interest be registered with any other registry? Can owners’, operators’ and lessees’ interests in aircraft engines be registered?
As noted in question 6, the Latvian aircraft registry maintains information concerning the aircraft owner, operator (lessee), as well as a holder of security rights over that aircraft (a mortgagee). While separate same entries can be made in the registry books with respect to the engines, there are no distinct certificates issued by the Latvian CAA to that effect (comparable to the certificate of registration for the aircraft).
The Latvian aircraft registry is eligible for registering aircraft that are owned or operated by nationals, companies or public institutions and bodies of European Economic Area member states or Switzerland. When an aircraft is being used as collateral to secure contractual obligations of the mortgagor or any other person or entity (when private international law principles lead to application of Latvian legal rules governing real rights), such security rights are, additionally, enrolled in the commercial pledge registry, maintained and operated by another public body. The commercial pledge registry specifies identity of the aircraft owner (mortgagor), the mortgagee, the person or entity whose contractual obligations the aircraft secures as collateral, as well as the maximum claim amount for which the particular collateral is liable to the mortgagee.
Registration of ownership interests
Summarise the process to register an ownership interest.
The ownership registration is initiated by the owner through completion of the prescribed application form and its submission to the Latvian CAA. In addition to the identification of the concrete aircraft (this likewise involves specification of the installed air navigation equipment), the form requires identification of major interest holders in the aircraft owner, operator (lessee), as well as any person holding a security interest over the particular aircraft. The exact form, to be filled out, is specified in the Appendix I to the 14 March 2006 Regulations of the Cabinet of Ministers #200 ‘Regarding the Procedure for Aircraft Registration’.
The application must be supported with a copy of the document evidencing ownership (bill of sale usually suffices), as well as a copy of (the lease agreement and the agreement for establishing the security interests in the aircraft. It is not mandatory to submit an original counterpart of these supporting documents, but, upon application, the owner shall provide the relevant originals for inspection by the official of the Latvian CAA (the Latvian CAA will then retain the copies). There is no officially prescribed need to either notarise or carry out other formalistic procedural requirements for any of the required documents to be admitted and considered valid. Yet, to ensure a common-sense propriety, the Latvian CAA, with regard to foreign registered entities, requires proof of their (continued, where applicable) legal existence and the signatory’s authority to bind the relevant entity. In practice, this is usually satisfied through presenting an extract from the commercial registry of the relevant jurisdiction of incorporation (evidencing legal existence of the concrete entity), and a foreign notarised and apostilled power of attorney issued in favour of either the lessee or the local legal counsel of the owner. The application, as well as the supporting documents can be drafted in English (in light of it being the common language in the international aviation sector).
The application must also evidence, through relevant documentation attached to it, that the aircraft is deregistered from its prior jurisdiction and that the aircraft is airworthy. Written consent from any person holding a security over the aircraft is required for any ownership registration to proceed.
The aforementioned 14 March 2006 Regulations of the Cabinet of Ministers #200 provide (in section 6) that the registration application shall be processed by the Latvian CAA within 30 working days. In practice, these matters are done expeditiously and the Latvian CAA will complete the registration within roughly two weeks, and a speedier turnaround can even be expected in duly substantiated instances. If the officials need additional or clarifying information pending the registration process, a request will be immediately raised with the applicant.
The applicant shall make an advance payment corresponding to the maximum certified take-off weight of the aircraft and as further specified in the gradation table outlined in subsection 14 of Appendix 2 to 24 September 2013 Regulations of the Cabinet of Ministers #999. For a typical narrow-body commercial airliner, such as an Airbus A320 family aircraft, the registration fee would amount to €1,707.45.
Because the aircraft registration scheme in Latvia is structured on the declaratory rather than the constitutive model, the factual ownership (including, any particularities or defects) is unaffected by any entries in the aircraft registry. This is particularly emphasised by Latvia-issued certificates of registration conspicuously noting that the certificate is not to be treated as evidence of ownership. Implicitly this means that engine ownership interests are likewise unaffected by an officialised identification of the owner of the aircraft as such.
Title and third parties
What is the effect of registration of an ownership interest as to proof of title and third parties?
The Latvian civil aircraft registry system is based on a declaratory approach, rather than a constitutive one. The registered owner is not the equivalent of the lawful owner. Any title peculiarities, such as distinct ownership of engines apart from the host aircraft, or any defects (such as the registered owner having already sold the aircraft to a new owner or having unlawfully acquired the title from the previous owner, in the first place) will prevail. In other words, the lawful owner will be entitled to effect all remedies to protect, safeguard and enforce its title against all third parties (including the registered owner). Correspondingly, in practice the aircraft registry entries carry, at best, a presumptive value only.
Registration of lease interests
Summarise the process to register a lease interest.
Normally, lease interests are registered as a sub-item during the initial ownership registration (see question 8 regarding the intrinsic details of the ownership registration steps). Subsequent registration of lease interests is, still, effectuated by the owner (through submitting an application seeking supplemental entries pertaining to the lease). In the case of an aircraft being subject to a security arrangement, the written prior permission of the person holding the security interest is required. The lease interest registration itself does not carry any filing fees.
Certificate of registration
What is the regime for certification of registered aviation interests in your jurisdiction?
Certificates of registration for aircraft are issued by the Latvian CAA. The exact form for the certificate is specified in Appendix 2 to the 14 March 2006 Regulations of the Cabinet of Ministers #200 ‘Regarding the Procedure for Aircraft Registration’. In comparison with the form provided in Figure 1 in Annex 7 of the Chicago Convention (1944) Aircraft Nationality and Registration Marks, the Latvia-issued certificate additionally contains details of the operator (lessee) and a statement that the certificate shall not be treated as a proof of legal ownership.
Basically, in addition to the manufacturer’s serial number of the aircraft, the certificate reflects the details of the owner and the operator (lessee) pertaining to the aircraft as such without any mention of a potential distinct engine ownership or lease arrangements in place. The certificate likewise does not refer to the holder of the security interest in the aircraft (mortgagee) or the engine. Should one objectively need further details regarding particular aircraft, it is advisable to contact the Latvian CAA and seek inspection of the aircraft registry entries with respect to the specific aircraft.
Deregistration and export
Is an owner or mortgagee required to consent to any deregistration or export of the aircraft? Must the aviation authority give notice? Can the operator block any proposed deregistration or export by an owner or mortgagee?
Because of the Latvian aircraft registry being an owner’s system (see question 8), it is solely the owner who is entitled to deregister the aircraft (article 13(1) in the Latvian Aviation Law and article 16.1 in the 14 March 2006 Regulations of the Cabinet of Ministers #200 ‘Regarding the Procedure for Aircraft Registration’). If the aircraft is subject to a security arrangement, a prior written permission from the security interest holder is required (article 13(2) in the Latvian Aviation Law and article 16.1(3) in the 14 March 2006 Regulations of the Cabinet of Ministers #200 ‘Regarding the Procedure for Aircraft Registration’).
The operator (lessee) cannot affect the deregistration or export at all, and, if the lessor and lessee both differ in opinion as to whether the lease has been validly and properly terminated by the lessor, the lessee, to seek reinstatement of actual lease possession, shall take remedies and steps as provided in the lease agreement itself. The Latvian CAA will not entertain whether the lessor has properly complied with its obligations under the lease agreement, in particular, if the deregistration that the lessor is effectuating is in compliance with the terms and conditions of the particular lease arrangement.
Powers of attorney
What are the principal characteristics of deregistration and export powers of attorney?
In principle, to effectuate the deregistration of the aircraft, the owner is free to carry out the activity at any time without any permission from the operator (lessee). The only permission that the owner is statutorily obliged to obtain is that of the security rights holder (see question 12). In practice, the lessees are still commonly issuing an industry standard package of IDERA and Irrevocable De-Registration Power of Attorney.
The revocability of any issued power of attorney (with an express affirmation of irrevocability) is determined under private international law rules applicable to the particular contractual arrangement (article 19(1) in the Latvian Civil Code), which, basically, means that when such powers of attorney are governed by either the laws of England or the State of New York, that will not be the case and the (owner) lessor will feel duly safeguarded and protected.
Latvia will recognise powers of attorney granted to multiple agents. When a Latvian incorporated lessee undergoes insolvency proceedings, its prior granted power of attorney will, generally, be upheld (Latvian Insolvency Law does not provide for an automatic suspension or termination of all prior contractual or other obligations entered into or assumed by the entity now subject to administration). In terms of proxy registry, there is no such mechanism in Latvia.
Cape Town Convention and IDERA
If the Cape Town Convention is in effect in the jurisdiction, describe any notable features of the irrevocable deregistration and export request authorisation (IDERA) process.
While Latvia is a state party to the Cape Town Convention (2001), it has not elected the opt-in declaration under articles XIII and XXX(I) of the Aircraft Protocol (2001). Consequently, the IDERA mechanism in Latvia is inoperative. Although in practice in Latvia the lessees customarily issue such documents, the Latvian CAA will treat them simply as a reassurance of the owner (lessor) and give no purported effect as would be attributed under normal applicability of the Aircraft Protocol (2001) (as more specifically provided in its articles XIII(2) to XIII(4)).
The owner (lessor) is protected anyway, as the deregistration, under Latvian law, is its exclusive privilege with the lessee having no rights to object to that process (see question 13). As a measure of additional safeguard on behalf of the owners (lessors), the lessees are typically requested to issue separate deregistration powers of attorney (see question 13).
Security document (mortgage) form and content
What is the typical form of a security document over the aircraft and what must it contain?
When private international law rules lead to the application of Latvian real rights regarding the creation of security interest over an aircraft, the security structure must comply with mandatory requirements as enshrined in a specific piece of Latvian legislation - the Commercial Pledge Law. The security over aircraft is established through (i) conclusion of a commercial pledge agreement in writing between the mortgagor and mortgagee and (ii) perfection (against third parties) by registering the security on the Latvian commercial pledge registry maintained by the Latvian Commercial Registrar.
Because of the aircraft security documentation being subject to submission to the Latvian Commercial Registrar, the contract establishing the security shall be either drafted in a bilingual version (with Latvian as one of the languages) or must be accompanied by a translation in Latvian. There is no specified form, but each contract for establishing the security over the aircraft must specify and identify at least the following major terms:
- the exact (main and ancillary) secured obligations (of either the mortgagor or any other person or entity) that the security safeguards;
- the maximum secured amount; and
- permission to sell the aircraft directly and privately without auction, should the mortgagor and mortgagee so elect.
Apart from reasonable identification of secured obligations, the economic terms of the underlying deal should not be restated in the contract for establishing security. This is because, upon application to the Latvian Commercial Registrar for perfecting the commercial pledge, the mortgagor will need to attach the underlying contract as well.
The secured obligations may be those already matured or future obligations (termed, conditioned or prospective arising from an existing underlying contract).
Security documentary requirements and costs
What are the documentary formalities for creation of an enforceable security over an aircraft? What are the documentary costs?
There are no strict formalities provided for either the agreement establishing security or the underlying (secured) contract. The only formalities relate to the Application for Establishing the Commercial Pledge, which the mortgagor must submit to the Latvian Commercial Registrar to perfect the commercial pledge (that is, to obtain its validity against third parties). The latter shall be drafted in Latvian and either signed by the mortgagor itself with a Latvian issued e-signature (‘qualified electronic signature’ within the meaning of article 3(12) of Regulation (EU) No. 910/2014 of the European Parliament and of the Council of 23 July 2014 on electronic identification and trust services for electronic transactions in the internal market and repealing Directive 1999/93/EC) or submitted by the mortgagor’s agent (commonly, a local legal counsel) on the basis of the mortgagor’s foreign-issued notarised and apostilled power of attorney.
Pursuant to article 23 of the Latvian Commercial Pledge Law, the above-mentioned Application for Establishing the Commercial Pledge shall be accompanied by the payment of a fixed registration fee (€42,68).
Security registration requirements
Must the security document be filed with the aviation authority or any other registry as a condition to its effective creation or perfection against the debtor and third parties? Summarise the process to register a mortgagee interest.
While the perfection of the commercial pledge (governed by a system of Latvian real rights) is strictly confined to registration of the established commercial pledge by the mortgagor with the Latvian Commercial Registrar (see questions 15 and 16), the law also requires that, in parallel, the security documentation package is submitted by the owner to the Latvian CAA as well (see question 8). The verification that commercial pledge perfection conditions are satisfied will be issued by the Latvian Commercial Registrar within five working days of the Application for Establishing the Commercial Pledge and all accompanying documentation being submitted (article 15(2) in the Latvian Commercial Pledge Law). Upon registration (perfection) of the filed commercial pledge interests, the Latvian Commercial Registrar will notify the Latvian CAA of the registered security interest, which the latter will then correspondingly reflect in the civil aircraft registry as well (article 18(3) in the Latvian Commercial Pledge Law).
Various forms pertaining to the commercial pledge mechanism (registration, amendments, and so on) are approved by the Cabinet of Ministers, and these are, additionally, available online at the Latvian Commercial Registrar’s website (www.ur.gov.lv/en).
For certain other formalities, see question 16. Renewal (extension) of the registered security interest prior to its expiry is treated as its amendment, and both the mortgagor and the mortgagee must sign an Application to Register Amendments to the Existing Commercial Pledge. The relevant form is approved by the Cabinet of Ministers, and must be filed with the newly completed application for Establishing the Commercial Pledge reflecting the new arrangement and the underlying contractual arrangement providing for the renewal (extension). The renewal (extension) will result in a €14,23 filing fee.
Registration of security
How is registration of a security interest certified?
Upon the Latvian Commercial Registrar having registered the filed security interest (see to question 17), the relevant commercial pledge is considered to be lawfully established and fully binding on all third parties (articles 9(2) and 33 and in the Latvian Commercial Pledge Law) according to the terms that the mortgagor and the mortgagee have agreed. For these reasons, there is no need for certificates or other evidence to be issued by any public authority for the security interests to be considered as legally valid and effective. Any relevant entries in the commercial pledge registry will also depict the rank (priority) of each subsequent commercial pledge. According to article 33(2) of the Latvian Commercial Pledge Law, third parties acting in good faith can lawfully rely on the commercial pledge registry entries being correct and accurate.
To determine the existence of prospective commercial pledges, business and industry users are commonly utilising and subscribing to services of various specialist companies such as Lursoft or Crediweb that provide a satisfactory and accurate reflection of commercial registry entries pertaining to Latvian registered companies, including, with regard to assets of a company that are subject to security arrangements. Further inspection is then usually done at the Latvian Commercial Registrar or by requesting the operator (lessee) to disclose the details of the fleet security arrangements.
Effect of registration of a security interest
What is the effect of registration as to third parties?
See question 18. Any subsequent security arrangement can obtain a priority over prior registered interests only upon written consent from the holders (mortgagees) of the prior interests. If various security interest holders are established over one or more of the same aircraft fleet, it is common for them to arrange their mutual priorities contractually, and this contractual arrangement is accordingly then mirrored in the commercial pledge registry (through stating the rank of each registered pledge).
Security structure and alteration
How is security over aircraft and leases typically structured? What are the consequences of changes to the security or its beneficiaries?
The transaction structures commonly used in international aviation deals can be implemented in Latvia, including with the chosen security trustee being designated as the mortgagee for the purposes of Latvian commercial pledge system. In this way, the financing deal can avail of the conveniences normally accorded to such an instrument (the utilisation of security trustee): despite the list of beneficiaries being subject to fluctuation, the established security over the particular aircraft or the engine is fully valid (including against third parties), and the security trustee, at any relevant time, can have recourse to it for the benefit of relevant ultimate beneficiaries. To ensure compliance with statutory formalities, the underlying obligations that the debtor (airline) owes to the ultimate beneficiaries of the trust (lenders, sellers and so on) must be separately drafted - solely for the purpose of effectuating the filing to the Latvian Commercial Registrar - as those of the security trustee (article 6 of the Latvian Commercial Pledge Law).
The commercial pledge is perfected (as between the mortgagor and the mortgagee, as well as in relation to third parties) upon its registrationon the Latvian commercial pledge registry (articles 9(2) and 33 in the Latvian Commercial Pledge Law). If the security trustee is the designated mortgagee, there is no need to effect new or amended filings in the case of new lenders coming in (including through loan assignments or novations), unless these result in changes over the major commercial pledge agreement terms (as initially established - usually in broad and encompassing terms - between the mortgagor and the security trustee in the latter’s capacity as the mortgagee).
Security over spare engines
What form does security over spare engines typically take and how does it operate?
In Latvia, separate ownership of host aircraft and engines is permissible. It depends on the terms and conditions of each relevant aircraft collateral deal whether the parties have intended to exclude the engines from the unified concept of ‘aircraft’ as such. For more details regarding the nature of a separate ownership of engines, see questions 6 and 8.
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?
The matter is dealt with in the terms and conditions of the relevant lease arrangement. In line with common practice internationally, the owner (lessor), upon occurrence of a non-cured (or non-curable) material default of a lessee, will normally seek to deregister the aircraft and take possession of the aircraft. The first item - the deregistration - will cause no issues (it is the owner’s (lessor’s) exclusive privilege to do so without any rights of intervention on behalf of the lessee - see question 12). With regard to the repossession of the aircraft, the owners (lessors) frequently rely on the lessee’s issued deregistration and export powers of attorney; with such documentation at hand, it is the reluctant and uncooperating lessee that may find itself in a situation of allegedly having recourse to self-help remedies in hampering the owner’s (lessor’s) activity of repossession on grounds of ownership. Under article 1732 in the Latvian Civil Code, self-help remedies are, generally, prohibited.
Enforcement of security
Outline the basic measures to enforce a security interest. How may the owner lawfully impede the mortgagee’s right to enforce?
The mortgagee is entitled to take possession of the collateralised aircraft upon the obligor’s default (article 36(1) in the Latvian Commercial Pledge Law). In the case of a reluctant mortgagor, the mortgagee shall apply to a court for repossession in an expedited (summary) proceeding (article 36(2) in that Law). After implementing the repossession, the mortgagee is entitled to realise (sell) the collateralised aircraft upon giving written notice to the mortgagor and registering the realisation of the security on the Latvian commercial pledge registry (articles 42(1), 42(5) and 43(1) in the Law). The collateralised aircraft must be sold in a public auction (article 37(1) in the Law), unless the mortgagor and mortgagee have agreed that private direct sale (without auction) is permissible and such an entry has been made in the commercial pledge registry (article 38(1) in the Law).
The opening of insolvency proceedings suspends the mortgagee’s rights to seek enforcement of security for two months after the insolvency proceedings against the mortgagor have been opened by the court (article 63(1)(4) in the Latvian Insolvency Law). Upon expiry of the waiting period, the mortgagee is entitled to request the estate administrator of the mortgagor to realise (sell) the collateral at a public auction, unless the estate administrator of the mortgagor consents to a private direct sale (articles 116(1) and 116(2) of the Latvian Insolvency Law).
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?
With regard to the aircraft or engines (as tangible movable property), there are only two statutory lien types in Latvia.
The first is a merchant’s statutory right to retain the asset until the owner settles its monetary debt (the mechanism is described in articles 399 and 400 in the Latvian Commercial Code). This statutory lien is not applicable if the relevant merchant is obliged to utilise (work or service upon) the asset in a certain way. In other words, there is a repairmen’s lien in Latvia. A valid example would be an aircraft hangar service provider that implements retention rights with respect to unpaid invoices for aircraft storage. This statutory lien ranks lower in priority to a properly established security (commercial pledge) over the aircraft, that is, the one registered in the commercial pledge registry.
The second mode of a statutory lien affecting the ownership interest is a tax lien imposed by the tax authority (article 26.1(1) in the Latvian Law on Taxes and Duties). Article 26.1(1)(4) of this Law expressly authorises the tax authority to effectuate a statutory lien over an asset that is in the possession of a third party (such as the mortgagee). In practice, tax liens are, generally, considered as having priority over other security titles, yet the tax authority will normally consider the factual or financial impact of the intended tax lien on the interests of the 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?
As of 13 July 1992, Latvia is a state party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Accordingly, Latvia will recognise and enforce, according to the terms of this treaty, all relevant foreign rendered arbitral awards.
In terms of recognising and enforcing foreign judgments and decisions of courts of law, Latvia (by virtue of its membership of the European Union) will abide by the rules provided in Regulation No. 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters.
Taxes and payment restrictions
What taxes may apply to aviation-related lease payments, loan repayments and transfers of aircraft? How may tax liability be lawfully minimised?
Aircraft and engine transfer and lease payments are exempt from value added tax (more precisely, the rate is set at zero per cent; articles 48(3)(2) and 48(3)(3) in the Latvian Value Added Tax Law).
The relevant payments (irrespective of whether it is a lump-sum payment or through multiple or regular instalments) are equally exempted from corporate withholding tax (on behalf of the Latvian incorporated lessee or buyer), unless the beneficiary (owner, lessor, seller) is located in a certain no-tax or low-tax jurisdiction (in which case, the withholding tax rate is 20 per cent) (articles 5(1), 5(6) and 5(8) in the Latvian Corporate Income Tax Law). The list of concerned jurisdictions is determined and approved by the Cabinet of Ministers (the current list was set 0n 7 November 2017, Regulation #655 ‘List of low tax or no tax jurisdictions’). The jurisdictions of choice commonly elected by aircraft owners and lessors (such as Delaware, the United States, Ireland, British Virgin Islands, Singapore) are not covered by this list, meaning that, in practice, commonly structured deals will be also exempt from the withholding tax burden.
Are there any restrictions on international payments and exchange controls in effect in your jurisdiction?
There are no such restrictions.
Are there any limitations on the amount of default interest that can be charged on lease or loan payments?
When Latvian law is determined to be applicable by virtue of rules of private international law, the only limitation is set in article 1764 in the Latvian Civil Code. No interest rate will be upheld if the ultimate burden for the obligor is unreasonably excessive in light of the prevailing commercial practice from the standpoint of dealing in good faith.
Customs, import and export
Are there any costs to bring the aircraft into the jurisdiction or take it out of the jurisdiction? Does the liability attach to the owner or mortgagee?
There are no such payments to be made. See question 26 regarding imports and supply. Export operations pertaining to the aircraft or engine are equally exempt from payment of a Latvian value added tax (more precisely, it is set at the rate of zero per cent; article 43(1) in the Latvian Law on Value Added Tax).
Insurance and reinsurance
Summarise any captive insurance regime in your jurisdiction as applicable to aviation.
Insurance coverage in the Latvian commercial aviation setting is normally undertaken through insurance firms and brokers based in more mature jurisdictions, duly accounting for requirements under the relevant financing, securitisation or lease transaction documentation. Captive insurance and related fronting arrangements are still unknown in the Latvian aviation industry.
Are cut-through clauses under the insurance and reinsurance documentation legally effective?
Because of Latvian commercial aviation players having recourse to foreign based insurance firms and brokerage service providers (see question 30), the matter is ultimately resolved through analysing the applicable laws to the particular insurance and reinsurance arrangements.
Are assignments of reinsurance (by domestic or captive insurers) legally effective? Are assignments of reinsurance typically provided on aviation leasing and finance transactions?
Generally, see question 31. Assignment of reinsurance proceeds is practised occasionally upon the owner’s, financier’s or lessor’s request. These arrangements are typically governed by English law.
Can an owner, lessor or financier be liable for the operation of the aircraft or the activities of the operator?
No, it is the operator (lessee) that bears liability; see articles 97(1), 108 and 112 in the Latvian Aviation Law. The first provision is a rough and concise summary of the major principles enshrined in the 7 October 1952 Convention on Damage Caused by Foreign Aircraft to Third Parties on the Surface (Rome Convention). The second governs liability for damage caused to another aircraft (either through collision or otherwise), while the last determines an operator’s (lessee’s) liability in relation to passengers travelling without valid documentation.
Does the jurisdiction adopt a regime of strict liability for owners, lessors, financiers or others with no operational interest in the aircraft?
No; see question 33.
Third-party liability insurance
Are there minimum requirements for the amount of third-party liability cover that must be in place?
By virtue of Latvia’s membership of the European Union, the Regulation No. 785/2004 of the European Parliament and of the Council of 21 April 2004 on insurance requirements for air carriers and aircraft operators is fully applicable and has direct effect in Latvia.