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The Blue Sky Case

Liam CarneyDavid Maughan
In the recent case of Blue Sky One Limited and Others v Mahan Air and Another (the Blue Sky Case), the English High Court confirmed that the validity of an English law aircraft mortgage is to be determined by the law of the place where the aircraft is situated (the lex situs) on the date that the English law aircraft mortgage is executed.

The High Court explained that the reference to the lex situs is to the domestic law of the place where the aircraft is situated, and not to its entire law including its choice of law rules, so that the doctrine of renvoi does not apply.

Therefore, it seems that the English courts will only treat an English law aircraft mortgage as creating a valid security interest if, when the English law aircraft mortgage is executed, the aircraft is located either in England or in another jurisdiction that will give effect to an English law aircraft mortgage.

The position under the laws of Ireland is different where the International Interests in Mobile Equipment (Cape Town Convention) Act 2005 (the Cape Town Act) applies. Section 4 of the Cape Town Act provides that the Cape Town Convention and the Aircraft Protocol have force of law in Ireland in relation to the matters to which they apply.

As a result, under the laws of Ireland:

(i) the Cape Town Act applies when a debtor is situated in Ireland at the time that that debtor enters into a security agreement creating an international interest in mobile equipment (Article 3 of the Cape Town Convention);

(ii) in order to be situated in Ireland, a debtor must either:

a. be incorporated in Ireland;
b. have its registered office or statutory seat in Ireland;
c. have its centre of administration in Ireland;
d. have its place of business in Ireland or, if it has more than one place of business, its principal place of business in Ireland; or
e. if it does not have a place of business, have its habitual residence in Ireland (Article 4 of the Cape Town Act).

(iii) "mobile equipment" means objects in the following categories:

a. airframes, aircraft engines and helicopters;
b. railway rolling stock; and
c. space assets (Article 2 of the Cape Town Act);

(iv) an interest is constituted as an international interest where the security agreement creating it:

a. is in writing;
b. relates to mobile equipment of which the debtor has power to dispose;
c. enables the mobile equipment to be identified in conformity with the Aircraft Protocol; and
d. enables the secured obligations to be determined (Article 7 of the Cape Town Act).

In addition, the Irish government has exercised its authority under Section 5(1) of the Cape Town Act to declare that Article VIII of the Aircraft Protocol applies to Ireland. Article VIII provides that the parties to a security agreement are free to choose the governing law of that security agreement and the governing law should be limited to the domestic rules of the jurisdiction selected.

Therefore, when an Irish law aircraft mortgage is created by a debtor situated in Ireland, an international interest will be created if the requirements of Article 7 of the Cape Town Act (set out in paragraph (d)) are satisfied and that international interest will be capable of registration with the International Registry.

As the parties to the Irish law aircraft mortgage will have chosen the laws of Ireland as its governing law, the Irish courts will not have regard to any rule of law other than the domestic rules of Ireland when determining the contractual rights and obligations arising under the Irish law aircraft mortgage.

The international interest created under the Irish law aircraft mortgage will exist under the laws of Ireland even if the Irish law aircraft mortgage is not considered effective security under the laws of the place where the aircraft is located when the Irish law aircraft mortgage is executed.

Liam Carney and David Maughan

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