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08 August 2018
While Malta is effectively a creditor-friendly jurisdiction, legislation dealing with the enforcement of security or rights over aircraft gives specific and direct protection to owners of installed engines owned by third parties.
Under Maltese law, an aircraft constitutes a separate and distinct asset within the owner's estate and it is subject to the liabilities incurred in relation to transactions regarding its operation.(1) While the definition of 'aircraft' includes "airframes with aircraft engines installed thereon",(2) the provisions regulating security over aircraft afford specific protection to third-party owners of installed engines so that:
where an engine has been attached to an airframe, which is not also owned by the airframe owner, each of the owners shall retain the ownership of their thing and the engine shall not accede to the airframe.(3)
The law states that any security over the aircraft will not extend to any engine attached to the airframe when this is not also owned by the airframe owner. The Roman doctrine of accessio cedet principali (contained in Article 566 of the Maltese Civil Code) does not apply with respect to an engine attached to an airframe when these have different owners.
Similarly, the provisions regulating the enforcement of rights over aircraft – more specifically, the rules regulating the warrant of arrest of an aircraft – provide that where the engine is not owned by the aircraft owner, the effect of the warrant of arrest will apply to the engine only to the extent that the application for the warrant expressly states that it is also intended to operate in relation to the engine. In all other cases, there is a presumption that if the engine is not owned by the aircraft owner, the warrant is not deemed to extend to the engine.(4)
While the rights of third-party owners of installed engines were recognised prior to amendments introduced in 2016, the protection of those rights was subject to serious procedural limitations which came to light in Joseph J Vella nomine v Triton Aviation Ireland Limited et (2013)(5) and related cases (collectively known locally as the Wind Jet SpA cases).
In these cases, following the arrest of a number of aircraft in Malta, the owners of a number of engines installed on the aircraft filed an application in the acts of the precautionary warrants of arrest requesting the court to declare that the warrants of arrest filed against the aircraft had no effect on their engines and therefore to order their immediate release.
In its decree on the matter, the court observed that the engine owners were not party to the proceedings and acts of the precautionary warrants of arrest and therefore had no locus standi to make any requests in relation to the effects of the arrests. In other words, the law at the time did not envisage a procedure whereby a third-party owner of an installed engine could apply for an immediate remedy in the acts of the arrest itself. Instead, it would have had to institute ad hoc proceedings by filing a separate action by sworn application – a procedure that, by its nature, takes a long time to be determined and therefore affords ill relief to a third-party engine owner.
Following the decisions in the Wind Jet cases, the relevant provisions of the law were amended so that it is now provided that the court seized with the acts of a warrant of arrest of an aircraft will also be competent to hear an application by the owner of an installed engine which does not belong to the aircraft owner.(6) The owner of an engine which is attached to an aircraft owned by a different party is now entitled to intervene in any proceedings relating to the arrest of an aircraft in order to protect its interests. Further, there is now a direct obligation on the court receiving an application by the engine owner to immediately direct that it be served on the party with possession or control of the aircraft and rule on it expeditiously, within a period of no more than two working days from the date on which the application for release was served.
Consistent with Malta's creditor-friendly stance in the context of aircraft security, this right to obtain speedy relief competent to third-party owners of installed engines is extended to mortgagees or holders of any international interest or other security interest over the engines.
For further information on this topic please contact Nicolai Vella Falzon at Fenech & Fenech Advocates by telephone (+356 2124 1232) or email (email@example.com). The Fenech & Fenech website can be accessed at www.fenechlaw.com.
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