Aircraft Operator’s Bid for a Warrant of Prohibitory Injunction to Limit the Exercise of an IDERA Fails - Court Upholds the Supremacy of an IDERA

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The exercise of rights under the Irrevocable De-registration and Export Request Authorisation (IDERA) has been accentuated in a ground-breaking decree delivered earlier this month by the First Hall, Civil Court, presided over by Hon. Justice Robert G. Mangion, when it was called to determine whether a warrant of prohibitory injunction can be issued to prohibit the holder of an IDERA registered in Malta from enforcing the IDERA and therefore from unilaterally requesting and procuring the de-registration of the aircraft from the Maltese Registry.

In its decree delivered on 8th November, 2021, in the names of Air X Charter Limited and Air X Aircraft Finance I Limited (the "Plaintiffs") vs. 1) the firm Mamo TCV Advocates as deputy curators acting on behalf of Avmax Aircraft Leasing Inc (of Alberta, Canada) ("Avmax") and Bank of Utah (of the United States of America) ("Bank of Utah"); and (2) The Malta Transport Authority, the Court confirmed that the Maltese Aircraft Registration Act, and its Schedules implementing the Cape Town Convention on International Interests in Mobile Equipment and the Aircraft Protocol thereto on Matters Specific to Aircraft Equipment are clear and leave no room for exception to the due implementation and enforcement of an IDERA.

The Court held that a creditor who is an authorised party or a certified designee in an IDERA (to which the debtor must have previously agreed) may procure the de-registration of an aircraft and the state authorities where the aircraft is registered are bound to honour such instruction and expeditiously assist the creditor in the exercise of this remedy.If such creditor abuses the powers given to him by an IDERA, this may in turn give rise to a claim for damages.However, this cannot be used as a valid reason for obstructing the creditor's instructions to de-register the aircraft in terms of the IDERA, regardless of whether such de-registration will negatively impact the operation or business of third parties.

Represented by Mamo TCV Advocates, Avmax, as owner of eight aircraft registered in Malta (the "Aircraft") and Bank of Utah (as owner trustee of the Aircraft), successfully staved off a warrant of prohibitory injunction from limiting their rights to enforce their IDERAs over the Aircraft.

The Aircraft had been leased by Avmax to Air X Aircraft Finance I Limited, which sub-leased the Aircraft to Air X Charter Limited, the latter operating the Aircraft in terms of a number of aircraft lease agreements. As a result of the Covid-19 pandemic and its adverse effects on the aviation sector, the Plaintiffs failed to make a number of payments to Avmax in terms of the lease agreements.Consequently, the parties discussed repayment terms reflected in a Memorandum of Understanding (the "MOU").Upon failure of the Plaintiffs to honour even the new terms of the MOU, Avmax and the Bank of Utah declared that there had been an event of default in relation to each aircraft, notified the Plaintiffs of such event of default and Bank of Utah, as certified designee on the IDERAs, requested the de-registration of all the Aircraft from the Maltese Registry, in terms of the IDERAs.

The Plaintiffs, in turn, requested the Maltese courts to issue a warrant of prohibitory injunction to prevent the de-registration of the Aircraft from Malta, arguing that (i) the implementation of the IDERAs lacked a valid reason; (ii) that the Canadian courts had granted an interim measure to prevent this; and (iii) that the enforcement of the IDERAs would harmfully effect its business and endanger the employment of its 350 employees.

The Court categorically refused all of the Plaintiff's requests and denied the issuance of a warrant of prohibitory injunction to prevent the exercise of the rights under the IDERAs, stating that the Plaintiffs failed to prove, at least prima facie, that they had indeed adhered to the terms of the MOU and upheld their obligations thereunder.Furthermore, the Court held that it is not obliged to enforce an interim measure granted by a court of a non-EU member state, such as Canada.Thirdly, the court held that it is not enough for the Plaintiffs to allege that the enforcement of the IDERAs will cause them damages.Instead, they would have needed to prove that they were entitled (under the aircraft lease agreements) to prevent Avmax and Bank of Utah from exercising their rights under the IDERAs.

The Court emphasised that, when giving the IDERAs, the Plaintiffs were aware that they were irrevocably giving to Avmax (as authorised party), through Bank of Utah (as certified designee) the right to give instructions to the Maltese Registry to de-register the Aircraft.The granting of such irrevocable right was not contested by the Plaintiffs, who failed to satisfactorily prove to the Court that they enjoy any rights which would limit the enforcement of the irrevocable authority they had granted earlier to the Bank of Utah by the IDERAs.

In view of the above, the Court rejected the Plaintiff's demand for a warrant of prohibitory injunction, given that none of the requirements at law were satisfied (being that such warrant must be necessary in order to preserve the rights of the Plaintiff and that, prima facie, the Plaintiff appears to possess such rights) and upheld the rights of Avmax and Bank of Utah under the IDERAs.

It is notable that, in arriving at its conclusions, the Court gave a comprehensive overview of the history of the Cape Town Convention and the incorporation of its terms into Maltese law, confirming and emphasizing the special nature of the remedies granted to parties in the context of aviation law.


Disclaimer

This document does not purport to give legal, financial or tax advice. Should you require further information or legal assistance, please do not hesitate to contact Dr. Ingrid Fenech

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