Judgements and arbitration

Have there been any recent legislative changes or significant cases or policy changes that owners or financiers should be aware of?

The US Department of Commerce’s Bureau of Industry and Security (BIS) promotes US national security, foreign policy, and economic objectives by ensuring an effective export control and treaty compliance system. BIS, and the US Census Bureau (Census), administer the Export Administration Regulations (EAR) and Foreign Trade Regulations governing the export of aircraft. Customs and Border Protection (CBP) is a US law enforcement agency tasked to enforce the US export and import laws. In the past, parties engaged in cross-border aircraft transactions have often overlooked or misunderstood the requirements for US imports and exports. A common area of confusion is the applicability of Electronic Export Information (EEI) filings for aircraft that are sold and subsequently based outside the US, even though the aircraft remain on the N-Registry. Another misconception is that obtaining a US Export Certificate of Airworthiness satisfies a requirement to make an EEI filing.

BIS, CBP and Census have increased their focus, and enforcement activity, on the aircraft industry’s compliance with applicable import and export regulations. It is important that parties involved in a cross-border aircraft transaction engage competent legal counsel and customs broker prior to (i) bringing an aircraft into the US for purposes such as a sale, lease, or refurbishment or to permanently base the aircraft in the US (for example, aircraft being brought to the US with the intent of being sold should be imported for consumption or sale) or (ii) removing an aircraft from the US to a foreign jurisdiction for sale, lease or to base the aircraft outside the US for a period of one year or longer. Further, the parties to a transaction need to understand that the US Principal Party in Interest (USPPI) is the party responsible for making the EEI filing, although it may appoint a customs broker to complete the filing on its behalf. The USPPI will often be the seller as a foreign buyer would not typically be ‘physically in the US’. A seller may want to consider steps that could be taken to qualify a foreign buyer as the USPPI, such as the buyer being physically in the US prior to the sale. A foreign buyer, however, would often be considered the Foreign Principal Party in Interest (FPPI) and while the parties could arrange for the FPPI (or its agent) to complete the EEI filing, the USPPI still bears responsibility to ensure the EEI filings are completed and must provide the FPPI (or its agent) the necessary information to complete the filing.

As of December 2022, the FAA Aircraft Registry began restricting public access to certain ancillary documents maintained by it, such as trust agreements, powers of attorney, documentation evidencing name changes and mergers, etc. Since that time, the FAA Aircraft Registry has implemented a new procedure to obtain these documents, but those receiving the documents are generally prohibited from sharing them with other third parties. As such, while the information could still be considered publicly available, the recipient must agree not to share the information with other parties.

In the past, parties could seek a review of documents and request a legal opinion from the Aeronautical Center – Central Regional Counsel (Regional Counsel) on such questions as registration of aircraft using NCTs, US citizenship questions, recordation of instruments, etc. As of 15th May 2023, the Office of the Chief Counsel for the FAA issued a memorandum stating that such legal opinions will no longer be provided; however, the memorandum stated that if a party encounters a “novel” registration issue, a party may contact them to discuss and receive guidance. This change does not necessarily alter any registration procedures, rather parties must rely on prior opinions and past practices and procedures of the FAA Aircraft Registry, and stay current on any newly issued procedures or policies. Often, however, registration issues, particularly those dealing with (i) US citizenship, (ii) registration in the name of an owner trust agreement where the form of agreement was not previously reviewed by Regional Counsel, and (iii) whether the lessee should be the registered owner under a lease agreement, can be complicated and parties should seek advice from competent FAA registration counsel.

Is there a mechanism to adjudicate rights in aircraft particularly as they may relate to old or stray liens found in the FAA records?

Yes, this is done through a quiet title action. Quiet title actions are formal court proceedings intended to obtain a court order that adjudicates certain rights in and to aircraft. They are commonly used to terminate various rights asserted in and to aircraft arising from mechanic’s liens, tax liens, security agreements, leases and conditional sale contracts. They are also effective in adjudicating ownership rights with respect to title disputes or otherwise arising in instances of abandoned property. The process typically takes approximately 2.5 - 3 months to complete.

Practically, many insurance companies will require clear title prior to paying on any claims asserted. In other words, if an aircraft has an otherwise insurable incident and the insured makes a claim, the insurance company will review the title records to ensure the claimant has clear title in and to the aircraft prior to making any insurance payment. If the lien search discovers a stray lien, the insurance company will withhold payment until such lien is cleared. Further, lenders will typically not finance an aircraft that contains a stray lien in the chain of title. Most often, this is applicable where a party has purchased an older aircraft without obtaining a proper title search. Before the sale is to occur, the lender has a title search completed, and at this time, the old or stray lien is discovered. The lender thereafter requires the lien to be cleared as a condition precedent to its loan, and if no party is available to sign a release, a quiet title action may be an option to clear title.

Will a court in this country recognise and enforce a judgement rendered by a New York State Court or a US federal judge?

Yes.

Will a court in your jurisdiction recognise and enforce a judgement rendered by an English court?

Typically, a foreign judgement would need to be domesticated in the US in order to be recognised by the FAA.

Can the government of the country requisition or confiscate an aircraft without needing to pay compensation?

The US can confiscate an aircraft if the aircraft is used in furtherance of a crime (ie. civil asset forfeiture).

Are there any recent cases where the aviation authority / aircraft registry has refused to honour a request by an owner or lessor to deregister an aircraft?

Not to our knowledge.

Are any legislation or regulatory changes planned?

The 2018 FAA Reauthorization Act requires the FAA modernise and upgrade current FAA Aircraft Registry systems. The Act mandates the upgrades shall include

i) The digitisation of non-digital Registry information;

ii) The digitalisation of Registry manual and paper-based processes, business operations, and functions;

iii) Implementation of systems allowing the public to submit information and conduct any transactions electronically;

iv) Allowing more efficient, broader, and remote access to the FAA Aircraft Registry.

The DOT Inspector General released a report on 9th May 2019, detailing the FAA plan to modernise. At the conclusion of the audit, the Inspector General recommends that the FAA design and implement the Civil Aviation Registry Electronic Services (CARES) programme. The FAA has released a plan to implement the CARES programme, but the implementation has not yet been fully completed. At the moment, the FAA Aircraft Registry is offering limited online aircraft registration services (see https://cares.faa.gov/home) in connection with individuals, corporations and LLCs, with other registration services to be made available in future releases. These additional upgrades shall further enhance and streamline access to the FAA Aircraft Registry and should benefit all parties involved with the ownership, operation and financing of aircraft on the N Registry.

Further, the US Government Accountability Office issued a report that recommended the FAA implement procedures to prevent fraud and abuse with aircraft registrations (such as collecting more information about registered owners). The FAA has confirmed it will address these recommendations as part of its modernisation under the CARES programme. It is presumed these changes will be made part of future updates to the FAA registry system after the initial implementation of the CARES programme.