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?

It is questionable to what extent repossession of an aircraft without recourse to a court or arbitration will work if the lessor does not secure at least some level of the lessee’s cooperation. Although it is not directly prohibited by Russian law, there are many practical matters where the owner’s or lessor’s actions without the cooperation of lessee or third parties (eg, maintenance facilities, airports) may not be practically possible. Most likely that in the absence of the lessee’s cooperation, repossession of the aircraft on the basis of a court decision or arbitral award will be the only way to repossess an aircraft.

Russia has made the declaration on out-of-court enforcement of the provisions of the Cape Town Convention. However, it has not yet been tested in practice.

For the purpose of repossession, the owner or lessor must comply with the provisions of the lease agreement and its governing law. Under Russian law, before terminating a lease the lessor is obliged to send a default notice requesting that the lessee comply with its respective obligations under the lease agreement.

The only lawful way for the lessee to impede the owner’s right to exercise default remedies in court is to file various counterclaims or requests to postpone or reschedule hearings on various grounds. There are no standard grounds that may be considered outside of the particular enforcement scenario.

Enforcement of security

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

Foreign security should be enforced in accordance with its governing law.

Under Russian law, the Russian law pledge or mortgage gives the pledgee or mortgagee rights of claim in case of the pledgor’s or mortgagor’s default, which shall be satisfied from the value of the pledged or mortgaged property.

The enforcement may be performed through courts or by means of an out-of-court procedure to which the parties should specifically agree.

Out-of-court enforcement of a Russian law pledge or mortgage requires notary endorsement to be made at the beginning of enforcement. Since such endorsement can be made only on the notarised agreement, the relevant pledge or mortgage agreement must be executed in the presence of a notary if an out-of-court enforcement option is required.

For certain ex parte claims that may impede a mortgage or pledge enforcement, see question 24.

If bankruptcy proceedings have commenced with respect to the lessee, and the lease agreement has not been terminated, then the rights of the lessee under the lease agreement will fall into the lessee’s bankruptcy estate. The leased aircraft itself, not being the lessee’s property, will not be included in the lessee’s bankruptcy estate.

Russia has made a declaration to the Cape Town Convention providing for the obligation of the insolvency administrator or the debtor upon the occurrence of an insolvency-related event, to give possession of the aircraft to the creditor no later than at the end of a 60-day waiting period.

At the liquidation stage (where all creditor claims are subject to satisfaction), the satisfaction of unsecured payment claims (ie, not secured by Russian law pledge or mortgage from a Russian lessee) against the insolvent company is generally subject to statutory order of priorities, with the contractual claims being satisfied last.

The only lawful way for the owner to impede the mortgagee’s right to exercise default remedies in court is to file various counterclaims or requests to postpone or reschedule hearings on various grounds. There are no standard grounds that may be considered outside the scenario of the particular enforcement. Under Russian law, a pledgor may request a court to postpone the sale of pledged property for a term not longer than one year.

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?

Lien within commercial relations

Under the general rule, a creditor has a right of retention in respect of specific property if the debtor fails to discharge in due time the obligation to effectuate payment for the property or fails to pay to the creditor the compensation owed to it for the expenses and other losses borne by the creditor in connection with the property. However, if the parties are acting as entrepreneurs, the creditor may use the right of retention as a self-defence in relation to claims not connected directly with the retained property. In fact, an airline will always be acting as an entrepreneur.

At the same time, Russian law does not expressly allow a creditor to detain an object (aircraft) leased by a third party to a debtor on account of a debtor’s outstanding obligations. Therefore, a prevailing view is that a creditor detaining an object owned by a third party shall not be entitled to satisfy its claims from the value of the detained object.

Notwithstanding the above, in our experience, certain Russian airports detained a number of aircraft owned by third-party lessors in the course of Transaero Airlines and VIM Airlines cessation of business operations.

Requisition

An aircraft may be subject to requisition in emergency events. In this case the state is obliged to pay the entire value of the aircraft to its owner. The owner may dispute such amounts paid in court. The owner may also demand that the requisitioned property be returned after the relevant events have passed.

Criminal or administrative offence

The aircraft may be arrested or confiscated as an object of a criminal or administrative offence (eg, in the case of breach of the customs procedure or non-payment of customs duties).

We are not aware of any cases of Russian authorities exercising their rights to confiscate an aircraft.

Enforcement of foreign judgments and arbitral awards

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

We are not aware of any treaty or convention providing directly for the recognition and enforcement of judgments in civil and commercial matters between the United Kingdom or the United States of America and the Russian Federation. In the absence of such a treaty, a Russian court is not obliged to recognise or enforce a judgment of the English or New York court. However, we are aware of few instances in which the Russian court recognised and enforced an English court judgment in the Russian Federation on the basis of a combination of reciprocity and the existence of a number of bilateral and multilateral treaties to which both the United Kingdom and the Russian Federation are parties. However, in the absence of established court practice, it is difficult to predict whether a Russian court would be inclined on the same grounds to recognise and enforce an English or a New York court judgment in connection with a lease agreement.

Yes, Russia is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958.