Understanding aircraft attachment and repossession in the UAE: Owners seek arrest when lessees fail to pay; remedies under CPC and Cape Town Convention. Challenging orders and alternative solutions available.
Bushra Abu TayehSenior Counsel,Transport & Insurance
Wael ElgouhariSenior Associate,Transport & Insurance
Ameen KimParalegal,Transport & Insurance
The UAE Airports are a busy hub for international air traffic, therefore, UAE could represent a potential arrest jurisdiction that Lessors and aircrafts Owners may seek arrest of their aircrafts. The most common scenario occurs when a lessee of an aircraft fails to pay the hire or the lease amount and the lessor subsequently pursues legal action. For example, a recent case in the UAE involved one major leasing company based in Ireland that leased an A321 Airbus aircraft to a South Asian aircraft operator who repeatedly failed to pay for the hire. This is a straightforward ground for a arrest/respossesion of an aircraft claim. While the UAE courts do not recognize self-help remedies to repossess aircrafts, there are available remedies under the relevant existing legal framework. Our aviation team has advised numerous owners and lessors for avenues to attach or repossess aircrafts under UAE law and the applicable conventions.
The procedures and requirements of an aircraft attachment are set out under the Federal UAE Civil Procedure Code Law No. 42 of 2022 (the “CPC”). Under the CPC, owners or rightful interest bearers of moveable property, such as an aircraft, may apply for prejudgment attachment on the property that is in the possession of another (Article 248) provided that an acceptable application bears sufficient description of the property is submitted to the relevant court.
For aircraft repossession applications, we are of the view that the provisions of the Cape Town Convention and its Protocol (collectively the “Convention”) provides an additional ground for the arrest. The Convention, which was ratified by the UAE in 2006, and incorporated into UAE Federal law by Federal Decree No. (32) of 2006, provides various remedies for the lessor of an aircraft in case of default by the lessee. Such remedies include, inter alia, the repossession and grounding of the aircraft. It should be noted that the understanding and implementation of the remedies outlined in the Convention have, to our knowledge, been limited in their application before the UAE courts. Therefore, it is difficult to determine how a UAE court would interpret and apply these provisions of the Convention, as well as the likelihood of achieving success in such cases.
In consideration of the aforementioned, we believe it should be acceptable for the lessor to request the repossession and grounding of the relevant aircraft by making an ex parte application to the relevant summary judge. The application may be filed independently or jointly with the attachment application. Typically, a summary judge would issue interim orders based on the presented evidence submitted by the applicant and without delving into the merits of the dispute.
However, it is important to note that the decision to grant interim orders is discretionary and subject to the summary judge’s judgment. The judge may reject the attachment and/or repossession applications citing insufficiency of evidence and/or lack of jurisdiction. An ex parte/interim order can be promptly obtained (within 24-48 hours) as long as the applicant has all of the required documentation, including a valid power of attorney, translated into Arabic, and legalized prior to filing the application.
Once the attachment application is granted and effected, the applicant will be required to produce evidence that substantive proceedings, either though litigation or arbitration, have been commenced within (8) days of the date of attachment. If the applicant fails to do so within the specified timeframe, the attachment order will become void.
Following the issuance of an attachment / repossession order, the lessee or any party of interest has the right to file a grievance before the competent court, challenging the procedural aspects of the order. This include raising issues to any deficiency of documentation, capacity issues, or forgery of the submitted documents. Typically, the judge who initially ordered the attachment will hear the grievances. In most cases, the filed grievance would be dismissed, unless a significant violation is proven to the judge.
Subsequently, the final court judgment or arbitral award would need to be submitted to the UAE Court for enforcement, subject to fulfilling the necessary steps for recognition, ratification, and enforcement of the foreign court judgment or arbitral award.
In the instance where the court rejects the attachment order, the lessor is entitled to challenge the decision by way of filing grievance. However, it is necessary for the lessor to notify the lessee of the proceedings so that the lessee is given the opportunity to attend and submit their defense.
There remains a possibility that the UAE Courts may accept the attachment application premised on the CPC provisions but reject the repossession request filed under the Convention. In such instances, the attachment remains in effect until a final decision is rendered in the substantive dispute proceedings. Subsequently, the final court judgment or arbitral award would need to be submitted to the UAE Court for enforcement, subject to fulfilling the necessary steps for recognition, ratification, and enforcement of the foreign court judgment or arbitral award. It is important to note that, as the lessor is likely required to settle any outstanding dues to the airport, crew, MRO and other such third-party expenses before the aircraft is allowed to depart, significant expenditure could potentially be incurred if the repossession request is denied by the court.
Although it is common for UAE courts, based on an ex parte application by a lessor/creditor, to issue attachment orders against defaulting debtors/lessees, rendering an order for the repossession of certain assets is relatively rare. Furthermore, as litigation is a lengthy process that involves several preparatory requirements, such the power of Attorney and the translation of the relevant documents, it became necessary for lessors and owners to pursue an unconventional alternative remedy to prevent the disputed aircraft from departing the UAE.
According to the UAE Federal Civil Aviation Law No (20) of 1991 (the “Civil Aviation Law”), it is a mandatory requirement that the Certificate of Airworthiness (the “CoA") of an aircraft be valid and issued or attested by the state in which the aircraft is registered in order for the aircraft to fly over the UAE aerospace (Articles 7, 30). Additionally, an aircraft must have a valid CoA issued or approved by the Competent Authority in the State of Registry to operate within that state's territory and airspace (Article 30). It is our aviation team’s current practice to submit the revocation of an aircraft’s CoA on behalf of the lessors to the UAE General Civil Aviation Authority (“GCAA”) to prevent the aircraft from leaving the UAE airspace. This method has been effective allowing lessors and owners sufficient time to complete their paperwork and negotiate settlements while the aircrafts remains on the ground within the UAE.
In one of the recent cases where a lessor applied for the arrest of an aircraft before a UAE court, the judge considering the application rejected to grant an arrest order on the ground that no evidentiary supplement of a statement of account signed and/or stamped by the lessee was submitted to the judge. As the lessor in this case was unable to procure such documentation, the court rejected the application for arrest although there were sufficient grounds to determine otherwise in most other jurisdictions. Following this case, it is recommend lessors for lessors to keep the channels open with the lessee and to regularly send statement of account for the up-to-date outstanding amounts while requesting a written or signed confirmation by return from the lessee. This practice will produce sufficient evidence to UAE courts to prove the outstanding debt and increase the likelihood of a successful arrest of an aircraft.
Seeking an attachment and a repossession of an aircraft in the UAE is relatively challenging due to the nature and complexity of such applications. Additionally, the UAE Courts enjoys a wide discretion in the assessment and determination of the application, which makes it more difficult to anticipate successful outcomes. Nevertheless, we has been able to successfully meet our clients needs, particularly by implying several practical methods to prohibit aircrafts from departing the UAE. We have assisted our clients in reaching a favourable settlements and avoiding the risk of lengthy and costly litigation. As such, our experienced aviation team is able to guide aircraft lessors or owners in navigating aircraft attachment applications as well as any settlement processes.
For further information,please contact Wael Elgouhari.
Published in August 2023