Current developmentsi Recent cases
A recent case concerns the recognition and enforceability in Brazil of a Liberian mortgage over a Liberian-flagged floating production, storage and offloading unit (FPSO). The first-instance decision in São Paulo did not recognise a Liberian law mortgage and denied the mortgagee's right of priority against a creditor arresting the FPSO on the basis of an in personam obligation (a defaulted letter of credit). The mortgagee in this particular case is a bond trustee. The trial court judge held that the mortgage should be registered with the Brazilian Maritime Tribunal to be recognised in Brazil.
In February 2016, the São Paulo Court of Appeals upheld the decision of not recognising the mortgage based, among others, on the fact that Liberia is not a party to the 1926 Brussels Convention or to the Bustamante Code, which, according to the decision, are the only pieces of legislation allowing the recognition of a foreign mortgage in Brazil.
On 16 November 2017, the Superior Court of Justice granted the Special Appeal filed by the mortgagee and recognised the effectiveness of foreign law mortgages. The Court held that: (1) the 1926 Brussels Convention and the Bustamante Code are valid and effective in Brazil with the same hierarchy of ordinary federal laws; (2) such international conventions provide for the general recognition of maritime mortgages governed by foreign laws; (3) the United Nations Convention on the Law of the Sea allows flag states to exercise their sovereign powers to set forth administrative and technical rules applicable to vessels flying their flags; and (4) the registration of the mortgage with the proper registry at the flag state is sufficient to give public notice of the lien over the vessel.
Additionally, the Court acknowledged the economic convenience for jurisdictions to recognise foreign mortgages, on the basis that shipbuilders, shipowners and financiers need a safe and predictable economic environment to invest and carry on their business. Although this precedent is not automatically binding to future disputes, it is extremely persuasive.
As well as the above case involving the recognition of a foreign mortgage, there has been a recent case concerning a mortgagee's request to arrest a ship simultaneously with the arrest of the same ship by another creditor. In the case, both the trial court and appeals court denied the pleadings of certain creditors to join an arrest proceeding under which the arrest order had already been granted to another creditor. The case illustrates that an arrest order granted in favour of a certain creditor does not benefit a mortgagee nor any other party with interests over the asset.ii Developments in policy and legislation
In terms of aviation regulation, in June 2015, the Brazilian Senate formed a commission to draft a bill to replace the Brazilian Aeronautical Code (the Code). The intention is to enact a more modern Code, as the existing one dates back to 1986. In April 2016, the commission presented the final draft and it was approved by a special commission of the Congress in November 2018. The draft now awaits voting by the plenary during the course of 2019. Although the draft bill remains subject to further discussions and possible changes in the Brazilian House of Representatives and the Brazilian Senate, there are some relevant proposals that we believe are important to consider.
The bill will include an express reference to aircraft engines in the section that deals with mortgages. At present the current Code has only a broad reference to aircraft mortgages without any express reference to engines. Additionally, engines do not have separate registration in Brazil. The change to expressly include engines will essentially reaffirm existing practice in Brazil, as the Brazilian civil aviation authority, the National Civil Aviation Agency (ANAC) does accept mortgages and other agreements (e.g., leases) in relation to engines, regardless of the lack of any express reference in the Code.
In 2018, the Brazilian federal government announced that at least 13 airports would be privatised in the first quarter of 2019. The winning bidders will have five years to make improvements in the airport structure, following the ANAC recommendations. In 2017, ANAC issued Resolution No. 400 imposing new rules for air transport contracts between airline operators and consumers, changing the rules related to the possibility of charging for luggage, ticket refunds and information to be listed in airline tickets.