Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Paul Briggs presentation - lLw Society of Ireland.ppt


Published on

A presentation given by Paul Briggs at the Law Society of Ireland on the legal issues of purchasing new and used aircraft.

Published in: Economy & Finance
  • Be the first to comment

  • Be the first to like this

Paul Briggs presentation - lLw Society of Ireland.ppt

  1. 1. Legal Issues - Purchase of new / used Aircraft Paul Briggs 6 November 2012 ADMIN: 1544 6107
  2. 2. Agenda New Aircraft - liability • Excusable / Non-excusable delay - Liquidated Damages • Exclusion of Liability • Unfair Contract Terms Act • OEM warranty – interface commitment Used 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© Bird & Bird LLP 2011
  3. 3. Who is Paul Briggs? Aircraft business since 1987 • Beaumont & Son • Air 2000: both leasing companies McCann FitzGerald / GPA 1989 to 1991 • Summers in Shannon! Hong Kong / China 1992 / 1995 BAE 1995 / 2004 • Hatfield – BAE Asset Management • Oasis Leasing • Airbus Asset Management • FSTA Twobirds since 2004 • Joint head of Aviation & Defence© Bird & Bird LLP 2011
  4. 4. MY AIM Real Law! Yes indeed • Real cases • Real statutes Law is FUN • messin about with aeroplanes • Train set Business practice and $*$T happens War stories from real deals© Bird & Bird LLP 2011
  5. 5. Purchase of a new Aircraft Security: Aircraft from Manufacturer Principles General© Bird & Bird LLP 2011
  6. 6. Delay / Breach –Liquidated Damages
  7. 7. Excusable Delay Manufacturer 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© Bird & Bird LLP 2011
  8. 8. Non-excusable Delay / LDs Liquidated damages – Seller delay Genuine Pre-estimate of loss? Penalty clauses are unenforceable! Grace period Liquidated damages usually capped Buyers right to terminate Commercial value of offered LDs? Buyer better off relying on law? Anticipatory Breach Specific Performance© Bird & Bird LLP 2011
  9. 9. Washington State / Boeing VAA / Cargolux Late delivery: breach – damages / cancellation Easier to claim – no need to prove amount of loss Boeing aggressively defends LD claims and seeks to negotiate down Really cap of Purchasers rights Sole remedy? Careful not to remove cancellation right© Bird & Bird LLP 2011
  10. 10. Buyer Default / PDPs PDPs instalment of Purchase Price not "deposit" Seller right to keep on breach Appreciating 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© Bird & Bird LLP 2011
  11. 11. Exclusion of Liability
  12. 12. Risk Allocation Airline 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 limits Erosion of Manufacturer limits© Bird & Bird LLP 2011
  13. 13. Contribution to 3rd Party Damage Excluded from exclusion to the extent of OEMs 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 out Engine manufacturer: concept of joint tortfeasors© Bird & Bird LLP 2011
  14. 14. Warranties Manufacturer: Warranted Part – manufactured to design of OEM or having OEM part number will be free from defects in: • Material • Workmanship • Design Expiry of performance guarantees IP Warranty • Patent • Copyright • Software Engines and BFE usually separate from OEM [ATR issues engine warranties] Vendor warranties / Interface commitment© Bird & Bird LLP 2011
  15. 15. Exclusion of Liability Manufacturer liability: Contract – Sale of Goods Act 1979 Tort Strict liability Unfair Contract Terms Act 1977 Does 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 provisions Reasonableness test© Bird & Bird LLP 2011
  16. 16. Purchase of second hand aircraft from leasing companies/airlines© Bird & Bird LLP 2011
  17. 17. 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 experience UK Q400 experience VAT – European Court of Justice: Re A Oy C-33/11 International airspace© Bird & Bird LLP 2011
  18. 18. 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 Evidence Mortgage taking effect at time of purchase • International airspace? • Hamburg • Toulouse Proper law not just governing law Blue Sky • 3 X 747 • 1 aircraft location unknown – English law applied • 1 aircraft in Netherlands • International airspace?© Bird & Bird LLP 2011
  19. 19. Documentation dealing with purchase (LOI/Purchase Agreement)© Bird & Bird LLP 2011
  20. 20. Letter of Intent
  21. 21. 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© Bird & Bird LLP 2011
  22. 22. 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© Bird & Bird LLP 2011
  23. 23. 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]© Bird & Bird LLP 2011
  24. 24. 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!© Bird & Bird LLP 2011
  25. 25. Purchase Agreement
  26. 26. Purchase from lessor with lease attached No physical Delivery Security Interests CPs Novation • New obligation between A and C • Security Cash Maintenance Reserves – reconcilliation Commercial "arm wrestle"© Bird & Bird LLP 2011
  27. 27. "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 – Olympic The 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© Bird & Bird LLP 2011
  28. 28. Operational Indemnities Wide 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 based Exceptions: • Wilful misconduct or recklessness of Seller [gross negligence]; • Ordinary or usual operating or overhead expenses; • Act, omission, event or circumstance before Delivery© Bird & Bird LLP 2011
  29. 29. 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;© Bird & Bird LLP 2011
  30. 30. Tail Insurance Run off liability insurance 2 years or next major check / structural modification Coverage for aircraft third party, passenger, baggage, cargo etc. Name Seller as additional insured Separate policy Notice of cancellation (NOC)© Bird & Bird LLP 2011
  31. 31. Assignment of Warranties Residual OEM warranties / SLP Assignment / Agreement MRO warranties • Paint • Airframe Maintenance • Engine and APU overhaul© Bird & Bird LLP 2011
  32. 32. 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 Delivery Liens Generally • Eurocontrol • UK Fleet Lien • N Reg search • MRO - possessory • Airports – Jordan airport! • Fuel • Title insurance© Bird & Bird LLP 2011
  33. 33. Closing Bill of sale • possession of original • Escrow • Security Release • Solicitors Undertaking Back to Birth NY Banking Hours Technical Acceptance / Delivery / Legal Acceptance Execution process Deeds – consideration / settlement Opinions Free circulation© Bird & Bird LLP 2011
  34. 34. Interesting Topics not covered OEM: fuel burn, city pairs, maintenance costs, training, support PBH / total care Export Control • Blue Sky (again!) Price, Options, Slide Rights, Escalation Documents Certification • NAA • EASA / FAA • CAMO Registration© Bird & Bird LLP 2011
  35. 35. 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© Bird & Bird LLP 2011
  36. 36. Aviation & ADS at Bird & Bird ● Bird & Bird is an international "You can really rely on their deep, specialised "This team makes a notable impression commercial firm focusing on aviation knowledge." Chambers & Partners on the market, particularly in the chosen technology sectors: IP, 2010 aviation sector and is praised for providing clients communications, IT, aviation, with speedy accurate and no-nonsense aerospace, defence and security advice." Chambers & Partners (ADS) 2009 ● Over the last year over 490 fee "The Bird & Bird team has a more "The aircraft financing group at earners have worked on Aviation concise approach and working this firm offers a strong sector focus mentality than and lawyers with & ADS projects in 16 of our 21 larger firms – it is business-based, experience working inside the industry." offices dynamic and to the point." Chambers & Partners 2010 Chambers & Partners ● Core strategic sector for 2010 Bird & Bird© Bird & Bird LLP 2011
  37. 37. Airlines© Bird & Bird LLP 2011
  38. 38. Aircraft investors© Bird & Bird LLP 2011
  39. 39. Emerging markets – Middle East© Bird & Bird LLP 2011
  40. 40. Emerging markets – Far East© Bird & Bird LLP 2011
  41. 41. 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© Bird & Bird LLP 2011
  42. 42. Thank you Paul Briggs Partner Direct tel: +44 (0)20 7905 6353 Bird & Bird is an international legal practice comprising Bird & Bird LLP and its affiliated businesses.