Aircraft repossession and enforcement of security in Panama
An extract from Lexology Getting the Deal Through - Aviation Leasing & Finance 2020
Author: Maria de Lourdes Marengo
Enforcement measures
Repossession following lease termination
Outline the basic repossession procedures following lease termination. How may the lessee lawfully impede the owner’s rights to exercise default remedies?
Upon an event of default under the lease, the lessor would have to initiate either ordinary or special judicial proceedings to repossess the aircraft. Panamanian law does not recognise self-help remedies.
The termination of the lease must be recorded with the Public Registry and filed with the Civil Aeronautics Authority (AAC), and the certificate of operation of the aircraft with lessee as operator must be cancelled. There are no other non-contractual procedures or requirements that apply to lease termination.
Enforcement of security
Outline the basic measures to enforce a security interest. How may the owner lawfully impede the mortgagee’s right to enforce?
The mortgage may be executed judicially or extrajudicially when the parties have agreed to the latter form of enforcement in the contract.
The mortgagee may pursue either executive or special judicial proceedings for the enforcement of its rights under the mortgage.
If the debtor has repaid at least one-half of the loan, the court will decree the sale of the aircraft in accordance with the terms of executive proceedings, save that there will only be one auction and the base amount will be the sum owed plus costs and expenses. If there is no bidder willing to pay the price, the aircraft will be adjudicated to the mortgagee. The obligations arising under the mortgage are extinguished by the judicial sale.
If the debtor has paid less than one-half of the amount owed, the aircraft will be adjudicated to the mortgagee and the obligation secured will be extinguished. The debtor may, within 10 days of being notified of the sale, request the sale of the aircraft to a party other than the mortgagee, provided that it deposits with the court an amount sufficient to cover the expenses of the sale, and satisfies the court that it will pay the balance owed in the event that the sale price does not cover the amount owed. If the mortgage allows the mortgagee to take possession and administer the aircraft, the court may allow the mortgagee to take over the administration of the aircraft pending its judicial sale.
When the parties agree in the contract to an extrajudicial execution, they must appoint a legal representative who must take the necessary steps to notify the execution to the mortgagor. Once the mortgagor receives the notice of execution, he or she may deliver the aircraft to the mortgagee or file an opposition to the execution process.
In the case of extrajudicial execution, the value of the aircraft will be fixed by an expert appraiser appointed jointly by both parties in the contract or in a later agreement.
The aircraft may be detained by way of an ex parte application.
According to the Aeronautical Law the following claims have priority over all other claims:
national taxes over the aircraft;aircraft mortgage;the salaries and other social benefits due to the crew; andthe amounts owed to the air transport sector on account of the operations of the aircraft in its last flight.
The priority among several mortgages on the aircraft will be determined by the date of registration at the Public Registry.
Priority liens and rights
Which liens and rights will have priority over aircraft ownership or an aircraft security interest? If an aircraft can be taken, seized or detained, is any form of compensation available to an owner or mortgagee?
According to the Aeronautical Law the following claims have priority over all other claims:
national taxes over the aircraft;
aircraft mortgage;
the salaries and other social benefits due to the crew; and
the amounts owed to the air transport sector on account of the operations of the aircraft in its last flight.
The priority among several mortgages on the aircraft will be determined by the date of registration at the Public Registry.
Furthermore, Panama has made the following declaration in respect of article 39 of the Cape Town Convention:
In respect of article 39 of the Convention, the following non-consensual rights and interests shall prevail over an international interest registered in accordance with the Convention:
a) any sums due from or capable of being demanded from the debtor by way of salaries, pensions and other social security benefits and employment allowances owed in respect of employees of that debtor;
b) any sums due from or capable of being levied from the debtor by way of fiscal and parafiscal contributions owed in respect of employees of that debtor;
c) any sums due or capable of being levied from the debtor, by way of taxes, duties or contributions payable to the Panamanian state or to the decentralised bodies that collect such revenue, in accordance with Panama’s internal laws;
d) the right of Panama to arrest, attach or confiscate mobile equipment and aircraft equipment in the event of breach of the customs or criminal laws of Panama; and
e) courts’ costs in connection with the foreclosure of the mortgage, and national taxes over the aircraft.
These different priorities may create a conflict of laws that would have to be resolved by the Panamanian Judicial Branch once a case of this nature is presented.
Executive interference concerning expropriation or requisition of aircraft (or other property) is rare in Panama. The Panamanian Constitution expressly provides for the confiscation, or expropriation, of private property in the event of war, national catastrophe or suspension of constitutional rights. The government could decree the requisition of an aircraft upon payment of compensation.
In the event that an aircraft is mortgaged or attached, the amount of compensation for the expropriation thereof would be deposited with the National Bank and creditors would be notified of the proper action to be taken in respect thereof.
Enforcement of foreign judgments and arbitral awards
How are judgments of foreign courts enforced? Is your jurisdiction party to the 1958 New York Convention?
A final conclusive judgment of a foreign court of competent jurisdiction would be recognised and enforced in the courts of Panama without retrial of the originating action by instituting exequatur proceedings in the courts of Panama and upon determination by such tribunal that:
the courts of the judgment country would in similar circumstances recognise a final and conclusive judgment of the courts of the Republic of Panama;
the judgment has been issued as a consequence of an action in personam;
the judgment was rendered after personal service on the defendant (including service on a process agent of the defendant);
the cause of action upon which the judgment was based does not contravene the public policy of Panama;
the documents evidencing the judgment are in authentic form according to the law of the relevant foreign court and have been duly legalised by a Consul of Panama or pursuant to the 1961 Hague Convention on the legalisation of documents; and
a copy of the final judgment has been translated into Spanish by a licensed translator in Panama.
Panama is a signatory of the 1958 New York Convention.
A final conclusive judgment of a foreign arbitration award issued by a foreign arbitration tribunal would be recognised and enforced in the courts of Panama and may only be refused if one of the following circumstances occurs:
at the request of the party against whom it is invoked, if the said party proves before the General Business Court of the Supreme Court of Justice that:
one of the parties to the arbitration agreement was under some incapacity under the law applicable to it, or the said agreement is not valid pursuant to the law to which the parties subjected it or, if no provision was made in this regard, pursuant to the law of the country in which the award was rendered;
the party against whom the award is invoked was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was unable, for whatever reason, to present its defence;
the award refers to a dispute that was not contemplated by the arbitration agreement or that did not fall within the terms of the submission to arbitration or contains decisions that go beyond the scope of the arbitration clause or the submission to arbitration. However, if the provisions of the award that refer to the matters submitted to arbitration can be separated from those that have not been submitted to arbitration, the former may be recognised and enforced;
the constitution of the arbitral tribunal or the arbitral proceedings did not conform to the agreement entered into between the parties or, if there is none, it did not conform to the law of the country in which the arbitration was held; or
the award has not yet become binding on the parties or has been set aside or stayed by a court of the country in which it was made or pursuant to whose law it was made. If a court has been asked to set aside the award pursuant to the applicable law, the competent court to whom the application for recognition and enforcement is addressed may, if it considers it appropriate to do so, defer its decision and at the request of the party seeking recognition and enforcement it may also order the other party to provide appropriate and adequate guarantees.
If the court finds:
that pursuant to the Arbitration Law the subject matter of the dispute may not be resolved through arbitration; and
that the recognition or enforcement of the award would be contrary to Panamanian international public policy.
If the following documents are not provided with the enforcement petition:
duly authenticated original or certified copy of the arbitration award;
duly authenticated original or certified copy of the arbitration agreement; and
official translation to Spanish if the language of the arbitration proceedings is other than Spanish.
First published in Lexology