paul briggs presentation - llw society of ireland.ppt

Legal Issues - Purchase of new /

used Aircraft

Paul Briggs

6 November 2012

ADMIN: 1544 6107

© Bird & Bird LLP 2011

AgendaNew Aircraft - liability

• Excusable / Non-excusable delay - Liquidated Damages• Exclusion of Liability• Unfair Contract Terms Act• OEM warranty – interface commitmentUsed Aircraft

• LOI - Good faith?• Lex situs – transfer of title / creation on mortgage on purchase• as is – where is"

- Delivery Condition- Indemnities / Disclaimer- OEM / MRO Warranties

• Title Warranty- Liens- Searches

• Closing / cash and practical issues


Who is Paul Briggs?Aircraft business since 1987•Beaumont & Son•Air 2000: both leasing companiesMcCann FitzGerald / GPA 1989 to 1991•Summers in Shannon!Hong Kong / China 1992 / 1995BAE 1995 / 2004•Hatfield – BAE Asset Management•Oasis Leasing•Airbus Asset Management•FSTATwobirds since 2004•Joint head of Aviation & Defence


MY AIMReal Law! Yes indeed

•Real cases

•Real statutes

Law is FUN •messin' about with aeroplanes

•Train set

Business practice and $*$T happensWar stories from real deals


Aircraft Security:General

Principles

Purchase of a new Aircraft from Manufacturer

Delay / Breach – Liquidated Damages


Excusable DelayManufacturer not responsible for delays beyond its

"control and not occasioned/caused by its fault or negligence"

Acts of God, war, natural disasters, slowdown or interruption o f work, labour disputes, failure of sub-contractor or supplier to furnish materials etc – Excusable Delays

Termination on Excusable Delay Total Loss

• Buyer request a replacement Aircraft; or

• Agreement terminates without liability of Buyer


Non-excusable Delay / LDs

Liquidated damages – Seller delayGenuine Pre-estimate of loss?Penalty clauses are unenforceable!Grace periodLiquidated damages usually cappedBuyer's right to terminateCommercial value of offered LDs?Buyer better off relying on law?Anticipatory BreachSpecific Performance


Washington State / Boeing

VAA / CargoluxLate delivery: breach – damages / cancellationEasier to claim – no need to prove amount of lossBoeing aggressively defends LD claims and seeks to

negotiate downReally cap of Purchaser's rightsSole remedy?Careful not to remove cancellation [email protected]


Buyer Default / PDPs

PDPs instalment of Purchase Price not "deposit"Seller right to keep on breachAppreciating market?Correct method of calculating contractual loss of Seller?

• Duty to mitigate• Sale to another customer / order book

Hadley v Baxendale (1854) party can only claim for losses arising from the other parties breach of contract is the losses are not too remote. There are two limbs to the test: • Losses which a reasonable man would have realised was a 'not

unlikely' consequence of the breach (direct losses generally fall under this limb);

• Losses which may have reasonably been in contemplation of the parties at the time they made the contract, as a probable result of the breach (consequential or special damages generally fall under this limb).

Recent example – enforceability of settlement

Exclusion of Liability


Risk AllocationAirline Protection:

• Warsaw Convention 1929

• Montreal Convention 1999

• 1st tier: 100,000 SDRs (EUR 135,000)

• Excess: presumed fault of carrier – carrier would need to prove damage not due to its negligence / caused by negligence of another

Manufacturer limits liability to express warranties and excludes all other liability

Erosion of Airline limitsErosion of Manufacturer limits


Contribution to 3rd Party DamageExcluded from exclusion to the extent of OEM's

relative % of the total fault or other legal responsibility of all persons causing such bodily injuries or damage

No standard practice – depends on negotiating position of parties

Boeing have offered above carve outEngine manufacturer: concept of joint tortfeasors


WarrantiesManufacturer: Warranted Part – manufactured to

design of OEM or having OEM part number will be free from defects in:• Material• Workmanship• Design Expiry of performance guaranteesIP Warranty

• Patent• Copyright• SoftwareEngines and BFE usually separate from OEM [ATR

issues engine warranties]Vendor warranties / Interface commitment


Exclusion of LiabilityManufacturer liability:

Contract – Sale of Goods Act 1979TortStrict liability

Unfair Contract Terms Act 1977Does UCTA apply• Consumer • Standard Terms

- Proper and meaningful negotiation?- All negotiated except exclusion clause?- International Supply Contract S.26

~ BAe V Amiri Flight ~ Trident Turboprop (Dublin) V First Flight [2009]~ Air Transworld V Bombardier [2012] High Court

If so to which provisionsReasonableness test


Purchase of second hand aircraft from leasing companies/airlines


Lex Situs – sales tax / VAT!

Structure – usually buyer risk [unless sale and lease back]

Number of jurisdictions have "friendly" sales tax regulations and "fly away" exemptions

Look through lessor?Greek ATR experienceUK Q400 experienceVAT – European Court of Justice: Re A Oy C-33/11International airspace


Lex Situs – transfer of interest Basic rule: transfer of ownership interest (sale or

mortgage) aircraft should be in UK or jurisdiction where transfer will be recognised

EvidenceMortgage taking effect at time of purchase

• International airspace?

• Hamburg

• Toulouse

Proper law not just governing lawBlue Sky

• 3 X 747

• 1 aircraft location unknown – English law applied

• 1 aircraft in Netherlands

• International airspace?


Documentation dealing with purchase (LOI/Purchase Agreement)

Letter of Intent


Good Faith – VistaJet V Shaker

LOI contained a provision that where “despite the exercise of good faith and reasonable endeavours” the parties “fail to reach agreement ... before the Cut-Off Date ... [Vistajet/the Seller] shall ... refund the deposit to [Mr Shaker/the Buyer/the Purchaser]”

No agreement was reached, despite several extensions to the cut off date

The final amendment/extension to the LOI included the following acknowledgement: “notwithstanding the exercise of good faith and reasonable endeavours by all relevant parties"

Mr Shaker sued for the refund of the deposit


Good Faith

Vistajet refused to repay on the basis that Mr Shaker had not carried out negotiations in good faith, nor had he used reasonable endeavours to complete the deal.

Mr Shaker submitted that:-

• such obligations were unenforceable (i.e. agreement to agree); and

• VJ estopped


Good Faith

Judgment:

• Agreements to use reasonable endeavours to agree or to negotiate in good faith, such as the LOI between Shaker & Vistajet, are unenforceable if “...there are no objective criteria by which the court can decide whether a party has acted unreasonably..”

• Duty to negotiate in good faith is unworkable because”... it is inherently inconsistent with the position of a negotiating party...”

• Accepted Mr Shaker’s contractual estoppel argument

• Terms governing the cut-off date and the return of the deposit were legally binding and that Vistajet was obliged to return the money to Shaker

• No leave to appeal – because of estoppel (not good faith argument) [October 2012]


LOI - enforceability

Majority of the LOI terms to be non-binding• Inspection

• Board approval

Buyer paying deposit will want comfort that the deposit can be returned in certain scenarios:• Failure to deliver Aircraft by [x];

• Non-compliance with the Delivery Condition;

• Event of Loss

Confidentiality and governing law provisions binding

Who holds cash – Jerry Starkes!

Purchase Agreement


Purchase from lessor with lease attached

No physical DeliverySecurity InterestsCPsNovation

• New obligation between A and C

• Security

CashMaintenance Reserves – reconcilliationCommercial "arm wrestle"


"as is- where is"

Different meanings – causes widespread confusion• Aircraft to meet delivery condition – then legally

accepted without warranty; or • It is what it is – buy it is you want it!Airworthy and serviceable?Definition of "Airworthiness from ACG – v – OlympicThe court could not identify any previous authority

for the meaning of the term “airworthiness” and looked to the world of shipping: "would a prudent operator of an aircraft have required that the defect should be made good before permitting the aircraft to fly, had he known of it. If he would, the aircraft was not airworthy."

Caveat – definition was provided obiter – courts need not be bound by the definition


Operational IndemnitiesWide Buyer indemnity in favour of Seller covering

losses, costs, expenses, claims etc arising out of:• the sale, purchase, manufacture, ownership, possession,

inspection, use, control etc of the Aircraft following Delivery;

• Design, article or material in the Aircraft or the operation or use of the Aircraft constituting an infringement of patent, copyright, trademark, design

• Occurrence not claims basedExceptions:

• Wilful misconduct or recklessness of Seller [gross negligence];

• Ordinary or usual operating or overhead expenses;• Act, omission, event or circumstance before Delivery


Indemnity

Buyer can request a "flip" indemnity covering losses, liabilities etc occurring before Delivery• More limited – subject to Disclaimer

• Novating lease – Seller limited warranties about lease and lessee

Tax• Buyer usually takes tax risks

• Different in sale and lease-back

• Stamp, transfer, sales, withholding, value added etc arising in connection with the sale of the Aircraft.

• Exceptions:

- Assessed on the overall income, profits or gains of Seller;

- Wilful misconduct or reckless of Seller;


Tail Insurance

Run off liability insurance2 years or next major check / structural modificationCoverage for aircraft third party, passenger,

baggage, cargo etc.Name Seller as additional insuredSeparate policyNotice of cancellation (NOC)


Assignment of Warranties

Residual OEM warranties / SLPAssignment / AgreementMRO warranties

• Paint

• Airframe Maintenance

• Engine and APU overhaul


Cape Town / Liens

Contract of sale can be registered as a "Prospective International Interest"

Seller usually objects • How to remove if sale does not complete priority search immediately before DeliveryLiens Generally

• Eurocontrol• UK Fleet Lien• N Reg search• MRO - possessory• Airports – Jordan airport!• Fuel• Title insurance


Closing

Bill of sale• possession of original• Escrow• Security Release• Solicitors UndertakingBack to BirthNY Banking HoursTechnical Acceptance / Delivery / Legal AcceptanceExecution processDeeds – consideration / settlement OpinionsFree circulation


Interesting Topics not covered

OEM: fuel burn, city pairs, maintenance costs, training, support

PBH / total careExport Control

• Blue Sky (again!)Price, Options, Slide Rights, EscalationDocumentsCertification

• NAA• EASA / FAA• CAMORegistration


About Bird & Bird

Key facts:

Awarded Global Law Firm of the Year 2009 by the International Council of Jurists

23 offices across Europe, the Middle East and Asia*

Over 1000 lawyers and legal practitioners including 229 partners


Aviation & ADS at Bird & Bird

"You can really rely on their deep, specialised aviation knowledge."

Chambers & Partners 2010

●Bird & Bird is an international commercial firm focusing on chosen technology sectors: IP, communications, IT, aviation, aerospace, defence and security (ADS)

●Over the last year over 490 fee earners have worked on Aviation & ADS projects in 16 of our 21 offices

●Core strategic sector for Bird & Bird

"This team makes a notable impression on the market, particularly in the aviation sector and is praised for providing clients with speedy accurate and no-nonsense advice."


"The Bird & Bird team has 'a more concise approach and working mentality than larger firms – it is business-based, dynamic and to the point."


"The aircraft financing group at this firm offers a strong sector focus and lawyers with experience working inside the industry."



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Emerging markets – Middle East


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Sharing your passion working your way for the longhaul across the whole

industry crossing the globe touching the metal to help

you ‘fly’ that’s Aviation with Bird

Bird

Thank you Paul Briggs

Partner

Direct tel: +44 (0)20 7905 6353

[email protected]

Bird & Bird is an international legal practice comprising Bird & Bird LLP and its affiliated businesses. www.twobirds.com

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