Category Archives: Transport

Property Rights, Airspace and Drones from an Irish perspective

The Irish Aviation Authority (IAA) estimated that as at 21 December 2015 there were circa 4,000-5,000 drones in use in Ireland[1].  Since then,  the Irish Aviation Authority Small Unmanned Aircraft (Drones) and Rockets Order 2015[2] has made registration for drones over 1kg compulsory.  As of 29 June 2016 the IAA confirm there are 5,346 Small Unmanned Aircraft (which includes ‘drones’ and ‘model aircraft’) registered with the IAA.  Drones are being used commercially[3] in the construction industry for site selection, surveying and real time work inspections, while estate agents are also exploiting the benefits drones have to offer in providing video aerial scapes of properties on their websites.  In 2013 Amazon announced its intention to use drones to deliver products to customers and in December 2015 released a video showing a prototype of one of its Prime Air delivery drones.  DHL have been the first parcel service provider worldwide to integrate a parcelcopter logistically into its delivery chain.  The Irish start up, GolfBirdie uses drone technology to give golfers a free “hole to hole” flyover guide of golfcourses worldwide.  Media companies are testing drones for filming reports, news coverage and in the film industry for shots that generally would have been taken from planes and helicopters.  Local Authorities could utilise drone technology to monitor traffic conditions and capture planning and environmental breaches.  Drones could also be used to provide armchair sports enthusiasts with court and pitch side views of tennis, rugby and football games.  The versatility and use to which drones can be put to is far reaching and has led to U.S government agencies using drones to fight fires, for search and rescue missions, catastrophic events and for monitoring volcanic eruptions and tornadoes.

Along with drones, jet packs are also making an appearance.  On 9 March 2016 Nick Macomber (also known as Jet Pack Man) took to the skies of Dublin as he flew along the river Liffey with a jet pack strapped to his back as part of a marketing campaign.  While the unusual sight intrigued many and garnered the publicity the public relations campaign anticipated,  issues of aerial/property trespass and invasion of privacy may have arisen had he flown over Áras an Uachtaráin (the President of Ireland’s official residence), Dáil Éireann (the Irish Parliament) or Mountjoy Prison.

The increase in the number and use of drones and rockets has raised the legal question as to the ownership of airspace, property rights and a landowners right to sue for trespass.

So what is the law in Ireland in relation to the ownership of airspace and property rights?  While higher altitude airspace is considered as public “navigable” air space, the ownership of lower altitude airspace over private property is more opaque.

Epochs ago before the Wright brothers conceived of flying, the Latin maxim of “cujus est solum ejus usque ad coelom et ad infernos”, literally translated as “he who owns the soil owns everything above and below from heaven to hell”, was promoted.  However, a landowner will never enjoy such wide ranging rights as the maxim suggests.

Kevin Gray author of “Property in Thin Air”(1991) 50 Cambridge LJ 252-307 notes “fee simple ownership cannot confer on the modern landowner a limitless dominion over the vertical column of airspace grounded within the territorial boundaries of his or her realty”.

According to Yehunda Abramovitch[4] the ad coelum maxim has been “grievously misunderstood and misapplied so far as the upward limit of air is concerned”.  In England the maxim has no authority and is in fact widely criticised in case law.  In Star Energy UK Onshore Ltd. v. Bocardo, [2009] EWCA Civ 579, Justice Aitkens of the Supreme Court of Judicature, Court of Appeal, Civil Division in England was very outspoken in his criticism of the Latin maxim in so far as it relates to ownership of the subsoil stating:

“The owner can only claim title for so far beneath the surface as is reasonable to enjoy his ownership of the surface land.  The 13th century Latin maxim cuius est solum, eius est usque ad coelum et ad inferos is not and never has been a rule of English law. It is  so sweeping, unscientific and unpractical a doctrine as is unlikely to appeal to the common law mind and it has not done so.”

Case law in common law jurisdictions indicates that a landowner can claim ownership only to so much of the airspace above or substratum below the surface as is physically or commercially exploitable.  In Breakfast Investments PTY Ltd v PCH Melbourne PTY Ltd [2007] VSCA 311 the appellant appealed[5] against the decision of a judge of the trial division to grant a mandatory injunction to remove cladding which encroached 3-6 centimetres into the airspace of the respondent’s adjoining property.  The Supreme Court of Victoria dismissed the appeal.  In a leasehold context the case of H Waites Ltd v Hambledon Court Ltd [2014] EWHC 651 CH a block of flats with garages were let on a 999 year lease.  The landlord wanted to build above the garages and the tenants objected claiming their lease included the air space above the garages.  The lease did not exclude the air space and the English High Court concluded that the tenants owned the air space.  One factor in the tenants favour was the length of their 999 year lease which was seen as equivalent to owning a freehold.  In the Australian case of Bendal Pty Ltd v Mirvac Project Pty Ltd (1991) 23 NSWLR 464 which involved the construction of a multi storey building, screens were used to protect the works and prevent building material falling from the building.  The screens moved upwards as the building was constructed and the plaintiff claimed the screens encroached his building’s airspace.  The Court granted the injunction and said any hardship caused to the defendant was their own doing due to the construction method they decided to use.

Accepting that land includes a right to a certain portion of the airspace above, it follows that intrusions into an owner’s airspace require the agreement of the landowner.  In Anchor Developments Ltd v Berkeley House (Docklands Developments) Ltd [1987] 38 BLR 82, the court in England granted an injunction to prevent Berkeley’s crane from oversailing Anchor Brewhouse’s land.  The Court reasoned “If an adjoining owner places a structure on his (the adjoining owner’s) land that overhangs his neighbour’s land, he thereby takes into his possession airspace to which his neighbour is entitled. That, in my judgment, is trespass.”[6] This case established the need for permission to oversail adjoining property.  Oversail agreements for wind turbines placed on the edge of a windfarm where the rotor diameter of the turbine (being, the swept area of the turbine blades) extend beyond the wind farm boundary are an example of a now common place acceptance that landowners have rights in respect of the airspace above their land, which third parties are not entitled to infringe.

Consequently, any unauthorised intrusion into that airspace is therefore a trespass and any owner of land whose airspace rights are infringed, can seek damages and/or an injunction to restrain the trespass.

In the English case of Baron Bernstein of Leigh v Skyviews & General Ltd [1978] Q.B 479 at 485 the plaintiff sued the defendant for trespass where the defendant had taken an aerial photo of the plaintiff’s property which he then attempted to sell to the plaintiff.  The case was influential in clarifying that a landowner does not own all air space above his property and that there was “a need to balance the rights of an owner to enjoy the use of his land against the right of the general public to take advantage with all that science has to offer in the use of air space”.

In Ireland the Irish Courts in Keating & Co Ltd v Jervis Shopping Centre Ltd [1997] 1 IR 512 also treated an airspace intrusion as trespass and awarded the plaintiff damages.  The decision established the principles that an invasion of lower stratum air space is prima facie actionable in trespass and often in nuisance.


Case law therefore indicates that land normally includes such airspace above it as is necessary for the ordinary use and enjoyment of the land and buildings on it and that a landowner can claim ownership only to so much of the airspace above or substratum below the surface as is physically or commercially exploitable.

This is also supported in Ireland by legislation as The Land and Conveyancing Law Reform Act 2009 defines “land” as including “the airspace above the surface of land or above any building or structure on land which is capable of being or was previously occupied by a building or structure and any part of such air space whether the division is made horizontally, vertically or in any other way”.  However the question which the 2009 Act fails to address is the actual extent of airspace rights and ownership over private property.  It makes no attempt to frame the “balance” spoken of in Baron Bernstein of Leigh v Skyviews & General Ltd.

The borders between the lower and upper strata of airspace has never been quantified due to the hesitancy of the Courts to define the scope of airspace within a landowners domain.  In most cases the Courts have held that the lower stratum is unlikely to reach an altitude of more than 200 metres above roof level as otherwise satellites and air crafts could be accused of trespass.  Legal immunity has been granted to overflying aircraft engaged in “innocent passage” in the upper stratum of airspace.  However, Courts have refused to treat industrial surveillance and invasive photographs of celebrities homes as “innocent passage”.  The UK Independent Press Standards Organisation upheld a breach of privacy complaint from the Duke of York after a certain tabloid sent a helicopter over the grounds of his property on 19 June 2015 to take pictures of Princess Eugenie’s 25th birthday preparations.

In the United States, federal legislation clarified the upper stratum airspace by defining “navigable airspace” as being 500 feet above ground level.  In the case of United States v Causby (1946) 328 U.S 256 at 260 which involved a low flight path of U.S bombers over Mr. Causby’s chicken farm, the intensity of the noise and vibrations led to the death of his chickens and mental distress for Mr. Causby.  The Court noted that the ad coelum maxim had “no place in the modern world” however a landowner has a claim to low altitude airspace and invasions of it are similar to invasions of the surface.  This decision confirmed the existence of landowner rights in the lower stratum of airspace over private property.

As drone ownership becomes more popular, so too will the legal issues surrounding their use and operation and an individuals privacy and property rights.  A perfect example of this is a recent Kentucky action taken by John Boggs against William Merideth.  Boggs a drone aficionado was using his drone to take aerial landscape photographs when it was shot out of the air by William Merideth.  Merideth argued in Court that he believed the drone was taking videos of his daughter and he acted to safeguard his family and property.  A Kentucky district court dismissed the criminal charges that were levelled against Merideth and held he had a right to shoot the drone.  Boggs has since brought a federal court action seeking clarification around the rights of property owners and aircraft operators.  Interestingly, under Kentucky law property owners can “respond” to a trespasser using physical force unfortunately the definition of a trespasser only relates to a “person who enters or goes upon the real estate of another without any right”.

The position is not any better in Ireland.  In principle, on the basis of the case law any unauthorised intrusion into airspace used and enjoyed by the land and buildings on it is capable of being an actionable trespass so that any owner of land whose airspace rights are infringed, can seek damages and/or an injunction to restrain the trespass.  Applied to drone use, this should mean that while a landowner does not have an absolute right in the airspace above his property, he does have the right to use his land uninterrupted by flights which could reduce the owner’s real enjoyment of his land. Or does it?

Under the Occupier’s Liability Act 1995 a “trespasser is defined as an entrant other than a recreational user or visitor.  While an “entrant”, in relation to a danger existing on premises, means a person who enters on the premises and is not the sole occupier.  Further, Section 55 of the Air Navigation and Transport Act 1936 provides that no action for trespass or nuisance shall lie by reason of the flight of aircraft (defined as kites, balloons, gliders or airships) over property at a height which is reasonable taking into consideration wind, weather and all reasonable circumstances.  The Order mentioned at the outset as introduced in Ireland in 2015 stipulates (among other conditions) that a person who has charge of the operation of a small unmanned aircraft with a mass of less than 25kg shall not allow it to be flown unless otherwise permitted by the IAA at a height of more than 120metres above the ground or water and at a distance of less than 30m from a person, vessel, vehicle or structure not under the direct control of the operator.  The Order does not apply to drones and small unmanned aircraft of less than 1kg maximum mass less fuel constructed of wood, paper or frangible plastic operated below 15m above ground or water.

Dr. Kathryn O’Sullivan[7] of the University of Limerick is of the view that policing and proving a breach of lower altitude air space will be difficult.  To overcome these challenges, Dr. O’Sullivan suggests a requirement for commercial drones to maintain altitude and co-ordinate tracking logs.  For recreational users, it may not be practical to maintain such logs.  Similarly, identifying the drone owner could also prove problematic unless as Dr. O’Sullivan suggests there is a requirement for all drones to have an exclusive registered number similar to a chassis number printed on the undercarriage of the drone.

People, especially in densely populated urban areas, will seek to prevent or at least minimise drone access to their properties not only from a safety perspective, but also to ensure their property and privacy rights are protected.  With the introduction of new drone technology comes the need for legislative reform to clarify the ownership of lower altitude air space.  Dr. O’Sullivan advocates adopting a “bright line” approach.  Utilising objective factors, would leave little or no scope for varying interpretations as to the extent of property rights over private property.  This would give drone users and property owners clear guidance as to potential infringements thus avoiding potential lawsuits.

Finally, it would seem prudent for Irish legislators to review and amend (if necessary) real estate, civil liability, data protection, product liability, health and safety and insurance legislation so that the legal framework is in place to deal with the unique legal issues that widespread use of drones will introduce.


[1] This estimate was based on information provided to the IAA by some retailers ahead of their Christmas sales and would have included drones of all sizes including very small hobby/toy drones.

[2] S.I no 563 of 2015

[3] The IAA confirm the number of Aerial Work Permissions (old) and Specific Operation Permissions (new) issued to organisations and currently active in Ireland is 124.

[4] LL.B, Tel-Aviv University, Israel and second year graduate student in the Institute of Air and Space, McGill University

[5] The appellant appealed only in relation to the trial judge’s refusal to award damages in lieu of a mandatory injunction to remove the cladding.

[6] See also Woolerton and Wilson Ltd v Richard Costain Ltd [1970] W.L.R 411 where an injunction was awarded against the defendant builder whose crane jib crossed the airspace of the plaintiff’s adjoining property albeit the injunction was postponed for 12 months to give the defendants an opportunity to finish the job.

[7] Low flying drones and ownership of airspace in Ireland (2016) 21(1) Conveyancing and Property Law Journal Vol 21 No. 1

Seabed Mining and the application of Maritime Law Concepts


Seabed mining (SBM) is an emerging industrial activity involving the recovery of mineral resources from the ocean floor. As a form of resource extraction or mining, SBM is a predominantly industrial activity. Yet, as one which occurs in the marine environment, SBM may also be characterized as a maritime activity.

This hybrid character creates uncertainty concerning which legal regime will govern SBM activities and for what purposes? This article engages with that uncertainty by asking to what extent is SBM a maritime activity subject to maritime law’s application? The authors suggest that as SBM evolves as a maritime industrial activity, clarity surrounding the applicable legal regime will not only be a necessary pre-condition for commercial certainty and investment, it will also be necessary to safeguard the values at the core of maritime law: protecting life, property and the environment at sea.

Seabed Mining

Rising prices for non-energy mineral resources coupled with depleting mineral reserves on land, has prompted mining companies to look seawards to satisfy the world’s persistent demand for minerals.[1]  On the ocean floor, minerals occur in the form of polymetallic nodules, sulphides and ferromanganese crusts, containing manganese, copper, zinc, lead, iron, silver, gold, cobalt, platinum and rare earth metals in concentrations far richer than those available from scarce land-based sources.

Presently, the International Seabed Authority (ISA), the intergovernmental body established by the 1982 United Nations Law of the Sea Convention (UNCLOS) to regulate seabed activities in areas beyond national jurisdiction, has issued exploration licenses to member states to explore defined parcels of the Pacific, Indian and Atlantic Oceans.

A Canadian company Nautilus Minerals Inc. (“Nautilus”) is poised to commence commercial extraction of copper and gold from seafloor sulphide systems in the Solwara-1 concession approximately 1600 metres beneath the territorial waters of Papua New Guinea.[2] To fulfil this task, Nautilus intends to rely on technologies derived from the shipping, offshore oil and gas, land-based mining and sediment dredging industries, including:

  1. Production Support Vessel (PSV): a ship featuring capabilities to navigate to and from the extraction site, equipped with the facilities necessary to process, store and transfer mineral resources recovered from the seabed;
  1. Riser and Lifting System (RALS):  a flexible pipe through which the materials recovered from the seabed are pumped to the PSV for processing; and
  1. Sea-floor Production Tools: consisting of submersible remotely operated machines which prepare the sea floor, gather the excavated materials, and pump those materials through the RALS to the PSV for processing.

Although SBM remains in its infancy as an industry, sustained exploration and future production activities suggest that the industry is technically feasible and commercially lucrative, confirming  the need for owners, operators, insurers, financiers and governments to turn their mind to the legal framework governing this evolving industry.

The Current Legal Framework

The technology and operations involved in SBM depict the complex issues which an effective legal framework must address, including: the ownership, financing, classification and insurance of SBM vessels, equipment and activities; SBM’s marine spatial footprint and interactions with other maritime uses; occupational health and safety; pollution and environment; and civil liability. Currently, those laws which do apply to the industry derive from a patchwork of legal sources: national and international; private and public.

Part XI of the UNCLOS authorizes the ISA to regulate SBM activities in the seabed Area beyond the continental shelves of coastal States.[3] Presently, the ISA has adopted regulations on the exploration for and is developing regulations on the exploitation of seabed minerals. Once developed, however, ISA instruments will only apply the seabed Area beyond coastal State jurisdiction. ISA instruments will only apply to State parties to the UNCLOS. ISA instruments are not anticipated to cover subject matter within the scope of traditional maritime law, such as the ownership, financing and insurance of SBM equipment and technologies. Finally, because certain technologies involved in SBM perform essentially maritime activities, such as the PSV navigating to or between production sites, those activities will be subject to the concurrent application of maritime law.

SBM activities carried out in maritime zones subject to coastal State jurisdiction, including the territorial sea, exclusive economic zone or continental shelf, will be governed by national laws, subject to relevant international obligations. In these circumstances, coastal States will be required to either craft new regulatory frameworks governing SBM activities or adapt existing ones.

The above discussion highlights the complexities inherent in regulating SBM activities, resulting from the fragmented application of present and future regulations across international and national jurisdictional boundaries, the exclusive application of maritime law for select aspects of SBM activities, and the concurrent application of maritime law for others.

The Application of Maritime Law Concepts

In gauging maritime law’s application to the SBM industry, an orienting question is what qualifies as a ship, for what purposes and with what consequences? Although an ostensibly simple question, characterizing whether a vessel or an installation is a ship has and continues to generate controversy given the far-reaching legal consequences attending that designation.

The first step in this analysis is considering the definition of “ship” and evaluating whether SBM vessels, installations and submersibles fall within that definition. As a starting point, section 313 of the U.K. Merchant Shipping Act 1995 defines “ship” to include “every description of vessel used in navigation”.[4] Canada’s Federal Courts Act defines ship more expansively as “any vessel or craft designed, used or capable of being used solely or partly for navigation, without regard to method or lack of propulsion, and includes a ship in the process of construction from the time that it is capable of floating, and a ship that has been stranded, wrecked or sunk and any part of a ship that has broken up.”[5] Case law interpreting what constitutes a ship is voluminous. However, a cursory survey of legislation and case law suggests that meeting the definition of “ship” requires an object to satisfy at least some of the following elements:

  • Partial navigational use;
  • Navigational capabilities;
  • Navigation through or above water;
  • Vessel under construction; and
  • Mode of propulsion irrelevant.

Applying the above elements to the vessels, installations and equipment employed in current and proposed SBM activities suggests those vessels may meet the definition of “ship” for select purposes. Nautilus’ proposed PSV satisfies many of the common elements of “ships”, especially when independently navigating between extraction sites. This characterization aligns with case law from the offshore oil and gas industry characterizing MODUs, drill ships and FPSO’s as ships or vessels while in transit between production sites.[6] However, when PSVs are permanently moored or positioned to engage in SBM activities for an extended period of time, their status as ships becomes more tenuous.

Whether Nautilus’s proposed submersible SPTs constitute ships, for what purposes, and with what consequences is a more ambiguous. Canadian case law has characterized a remotely-operated submersible tree harvester tethered to and operated from a barge as a “ship”, albeit for purposes of grounding admiralty jurisdiction.[7] Whether such an argument is compelling or indeed relevant for the remotely operated submersible equipment employed in the SBM context and operating largely on the seafloor is an open question.

Fundamentally, characterizing an object as a “ship” triggers the application of the law of the flag and obligation to register that ship in a national registry as a pre-condition to the ship receiving the nationality and right to fly the registering State’s flag. Significantly, possession of nationality is a pre-condition for ships to exercise the rights and freedoms under international law, such as freedom of navigation and rights of innocent passage. Applying this consideration to the vessels employed in SBM activities suggests that such vessels will be characterized as ships for purposes of ship registration, following the practice in the offshore oil and gas industry of registering a wide variety of offshore installations. Indeed, applying flag State jurisdiction to the SBM vessels through registration may be the only option consistent with maintaining legal order on the ocean – the objective at the heart of flag State jurisdiction as articulated by the PCIJ in the 1927 S.S. Lotus Case.[8]

Once a vessel is characterized as a ship for purposes of vessel registration, it follows that such vessels may also be classed, mortgaged, insured (both hull insurance and protection and indemnity) and chartered in a manner akin to ships.[9] However, substantive differences in SBM vessels, equipment and activities and their use will likely render the blanket application of maritime law concepts inappropriate.

By way of example, marine mortgages enable shipowners to finance the costs to build, operate and decommission a vessel. If the shipowner defaults, the lender forecloses on the mortgage and takes possession of and sells the mortgaged property through an in rem action and forced judicial sale. Financing an SBM vessel through a maritime mortgage, however, poses unique enforcement challenges for lenders. First, unlike ships, which may be intercepted or arrested in ports or territorial waters, SBM vessels may be moored outside territorial waters for extended periods of time making the practical enforcement of a mortgage difficult. Second, the primary value of SBM vessels resides in their capacity to produce. Accordingly, lenders may be reluctant to enforce a mortgage through taking possession of SBM vessels where it impairs the vessel’s ability to generate revenue. Third, the secondary market for SBM vessels will be smaller than that for ships, creating valuation difficulties and compounding challenges faced by lenders in determining whether to enforce the mortgage.

Similar questions may be posed regarding the application of marine insurance – hull and machinery; protection and indemnity – to SBM vessels, equipment and activities. Many risks and liabilities present in the evolving SBM industry will be shared with the commercial shipping and offshore oil and gas industries, specifically those relating to operating in a hostile marine environment. Equally, however, the SBM industry’s development will reveal new risks and liabilities which insurers and P&I clubs must respond to in determining the application of and indemnity available under traditional marine insurance, such as:

  • long term exposure of SBM vessels to hostile environmental conditions distant from commercial repair facilities;
  • stresses induced by SBM submersible production tools associated with operating in estimated water depths of 6000 m;
  • collision risks with collection and support vessels;
  • pollution risks associated with the transfer of the recovered ore to collection vessels; and,
  • pollution risks associated with the disturbance of marine benthic communities.

Further, characterizing an object as a “ship” may trigger the application of the constellation of maritime law instruments regulating areas ranging from collision avoidance to marine environmental protection to maritime labour to the limitation of liability. Ultimately, the application of many of these instruments will depend on the precise definition of “ship” provided within each and their underlying functional rationale.


Notwithstanding the SBM industry’s novel characteristics, marine classification, financing and insurance professionals are extrapolating from experiences in the shipping, offshore oil and gas, land-based mining and sediment dredging industries to develop new standards to apply to the vessels, equipments and activities engaged in SBM activities. Governments, independently and in concert with inter-governmental organizations such as the ISA, are in the process of crafting new regulatory frameworks and adapting existing ones to respond to and anticipate the unique challenges posed by the industry in areas such as accommodating SBM activities with other maritime uses, safeguarding occupational health and safety, protecting the environment, and addressing civil liability for pollution.

This article suggests that many concepts of maritime law are applicable to and indeed necessary for the emerging SBM activity. As vessel owners, operators, insurers, financiers and governments navigate the emerging SBM industry, practical and functional legal guidance will be essential to understand maritime law’s application and adaptation to the next generation of vessels equipment and activities. Such guidance will not only be a necessary condition for commercial certainty and responsible investment – it will also be necessary to safeguard the values at the core of maritime law: protecting life, property and the environment at sea.


[1] European Commission, “Blue Growth: Opportunities for Marine and Maritime Sustainable Growth”, Brussels, 13.9.2012, COM (2012) 494, online:

[2] Nautilus Minerals Website, “About Nautilus”, online:

[3] UNCLOS, 1982, arts. 147–47.

[4] Merchant Shipping Act 1995, c 21, s 313 (UK).

[5] Federal Courts Act, RSC 1985, c F-7 (Canada).

[6] See Bow Valley Husky (Bermuda) Ltd. v Saint John Shipbuilding Ltd, [1997] 3 SCR 2010 at para 85; see also Perks v Clark, [2001] 2 lloyd’s Rep 431 (Eng QB).

[7] Cyber Sea Technologies Inc v Underwater Harvester Remotely Operated Vehicle, Serial No. UHROV-101, [2003] 1 FC 569 at para 14.

[8] The SS Lotus Case (France v Turkey), [1927] Permanent Court of International Justice, Ser. A, No. 9, p 53 (dissenting opinion by Lord Finlay).

[9] Canadian Maritime Law, supra at 281.

Can the law adapt to driverless cars?

With technology advancing at an unrelenting rate, vehicles that were once confined to the sci-fi world are fast becoming a reality. Questions may then be asked as to whether the current legislation that governs this country adequately deals with the potential legal nuances that will inevitably develop once driverless cars are on the road.

Over recent years, we have seen the introduction of vehicles, such as the segway and hoverboard, that have provided an initial period of doubt as to their legality. This is followed by the utilisation of provisions from aged legislation, which were clearly produced with no consideration of these vehicles.

In the case of segways, this was the Highways Act 1835 that prevents the use of footpaths to “lead or drive any horse, ass, sheep, mule, swine, or cattle or carriage of any description”. I very much doubt that Parliament in 1835 was particularly mindful of segways and hoverboards, and yet we now interpret “carriage of any description” to include these modern vehicles.

As we move towards a future where the possibility of autonomous vehicles is becoming a reality, there are already cars on the road that can park themselves and react to the presence of cars or pedestrians around them. Many manufacturers are pushing this to the next step and images are conjured of a world akin to those seen in films like ‘I, Robot’ and ‘Minority Report’.

Defining what driving means

There are multiple Acts of Parliament governing drivers and how they can behave on the roads. Autonomous vehicles raise questions as to whether an occupant of such a vehicle would be considered a driver or a passenger.

Driving, in a legal context, is not easily classified and is usually subjectively considered. The primary test is whether a motorist is “in a substantial sense, controlling the movement and direction of the vehicle”. However, this test is not exhaustive as we must then consider whether the activity in question could fall within the ordinary meaning of the word ‘driving’ in the English language.

Given the subjective interpretations, it is not impossible to conceive that a person could be ‘driving’ simply by setting the navigation system and making the vehicle go because, in essence, you are controlling the movement and direction as required by law.

It would also be necessary to consider whether the ‘driver’ retains any secondary control over the vehicle. Arguably, if there is ever the possibility that a person can take over the controls should they need to, maybe switch it from automatic to manual mode, they would likely be considered at very least ‘in charge’ of the vehicle at any given time.

Can a driverless user be convicted?

If a person was to be considered ‘in charge’ then this could affect criminality in a number of ways. It would mean that a person may not be guilty of a driving offence unless it was one where, by its very nature, being in charge could make them culpable. An example of this would be alcohol and drug-related motoring offences. It is an offence to be drunk or under the influence of drugs in charge of a vehicle, so a person in an autonomous vehicle could still be guilty of this offence, despite the fact that they are not driving.

Practitioners in this area, such as myself, will often argue statutory defence to this particular allegation. This is where a person should not be convicted of an offence if the court accepts that they would not have driven the vehicle until such a time as they were no longer over the limit. This approach is often currently utilised in arguments for motorists who are sleeping in their car whilst intoxicated. The scope of this defence could arguably cover autonomous vehicles, but may be heavily influenced by political and social pressures.

For many, the attraction of an autonomous vehicle would be the possibility of a chauffeur-like service. People could go out with friends, have a drink and get home without the need for expensive taxis or public transport. The allure would disappear, however, if legislation was to be considered in a way that still perceives an occupant of an autonomous vehicle to be a driver or even ‘in charge’ of it. For many, technological advancements can only ever be a good thing but the reaction from a legal perspective, in considering the above examples, seems somewhat draconian.

In other motoring offences, such as speeding, careless driving and dangerous driving, it is pivotal to the offence that the individual is actually driving. If the person was not considered to be actively driving, then there would be arguments to say that they would not be guilty of the offence. This is of course assuming that they have not pre-set the vehicle to drive in a manner capable of amounting to such an offence. This again opens up an avenue to explore legally. If a motorist sets their vehicle to drive in excess of the speed limit, can they be said to be speeding?

Can the law cater for the future?

One suggestion would be to bring allegations for ‘causing’ or ‘aiding and abetting’, which is a substantive offence. This is only one way that could possibly be used to deal with that point, and it would undoubtedly take an already technical area of law to new extremes and overly burden the prosecution to prove positive acts by the individuals.

Another inevitable question may then emerge as to whether a person should remain in such a position to be able to take over and control an autonomous vehicle should it malfunction in any way. An example of a present legal position synonymous to this is where a driving instructor is on a lesson with a student. While it is common knowledge that it would be a criminal offence for the student to be using a mobile phone while driving, it is also an offence if the instructor, during the lesson were to use their mobile phone. This is because it the instructor is expected to pay sufficient attention while instructing and take over if necessary.

If we were then to propose that a malfunction should occur and cause a collision, there would then be questions as to where any fingers of blame should point. Arguably, if it is a technical malfunction, the manufacturer of the vehicle or indeed the relevant software engineer could be culpable. From a civil perspective, this could create duties of care and new insurable risks to such parties.

I, for one, look forward to the development of autonomous vehicles and I am as interested to see how the government propose that they should be regulated. However, it is my hope that a proactive approach is taken to developing legislation as the reactive approach evidenced in recent years could stifle the advancement of these vehicles, having negative impacts on the UK’s development when compared to other major countries.

Aviation Industry in Myanmar

While the initial rush of foreign investment into Myanmar tapered off in 2015, likely due to the November elections, 2016 is predicted to be a year of rapid growth.  The almost complete transition of power to Aung San Suu Kyi’s National League for Democracy (the “NLD”), formerly the opposition party, represents an impressive step towards increased stability and further opening up to the international community.  As a result, along with numerous other industries, the aviation industry in Myanmar is taking off.


On 15 March 2016, the NLD announced their Presidential candidate, U Htin Kyaw, a long time trusted associate of Aung San Suu Kyi.  Steeped in controversy, Article 59 (f) of the 2008 Constitution bars Aung San Suu Kyi from serving as President as her sons do not hold Myanmar passports.

On 17 March 2016, the Union Parliament voted in favor of U Htin Kyaw as Myanmar’s next President (albeit a proxy to Aung San Suu Kyi).  He is set to become Myanmar’s first truly democratically elected President (and from a civilian background) in more than five decades.  At the direction of Aung San Suu Kyi, the new government will take power with the formation of U Htin Kyaw’s Cabinet.  On 23 March 2016, the NLD announced that Aung San Suu Kyi will be the minister of multiple ministries, thus helping her maintain direct control over the new government.

Also on 17 March 2016, the Union Parliament approved U Myint Swe as Vice President.  The Constitution allows the military to select the Vice President, an important position in the Myanmar government system.  U Myint Swe is associated with the more conservative elements in the military and some may argue that he isn’t the best choice of candidate given his association with the military crackdown on monks protesting for democracy back in 2007.

It is too early to tell how well the new government and military will work together.  An early test will be the new government’s plans to reduce the number of ministries from 36 to 21.  Many would agree that it is logical to reduce their number and that reorganization would make the executive more efficient, however it could also be suggested that it appears to further consolidate the new government’s authority.  And while it appears that the Ministry of Transport (“MoT”) and the Ministry of Communications and Information Technology will be combined into a new Ministry of Transportation and Communications, it is yet to be seen how and if such a merger will affect the Department of Civil Aviation in Myanmar (“DCA”), which is now under the MoT.

The Laws

In general, the legal environment is in the early stages of reform and modernization, the former government under the military civilian government party had made significant progress in drafting laws encouraging foreign investment. Further laws promoting foreign investment are also expected to be approved by the new government.  These include laws relating to investments in the Myanmar aviation industry, such as the upcoming Airport Authority Law, the Rules Relating to International Interest in Mobile Equipment, and the Rules to the Law Relating to International Interests in Aircraft Equipment of 2014.

New laws in Myanmar co-exist with old British colonial laws, which have not been repealed and provide much of the fundamental legal framework still in place today, and which exist along with the laws and regulations issued by the various military governments over the last fifty years. This mixture of a common law heritage with laws more akin to an abridged civil law approach has been further complicated by the liberal application over the last few decades of “policies and practices”, which are not actually detailed in any law or regulation and are often unpublished.  The result is a legal landscape that requires patience and, most importantly, a deep understanding of the old laws and practices, and finally the recent laws aimed to promote foreign investment.  With careful legal and tax structuring and an appetite for risk, early mover foreign investors proceed with a “high risk/high reward” expectation.

The Myanmar Aircraft Act of 1934 (“Aircraft Act 1934”), Aircraft Rules of 1920, 1937 and 1946, and the Carriage by Air Act of 1934 regulate most aspects of the aviation industry in Myanmar.  Still, lots of gaps in the laws remain and most deals are accomplished with an element of direct negotiation with the DCA.

The Aircraft Act 1934 provides the legal framework regarding the manufacture, possession, use, operation, sale, import and export of aircraft and applies to citizens of Myanmar and any person who is listed as an owner of an aircraft registered in Myanmar.  The Aircraft Rules cover aerodromes, aircraft and public health-related matters, and contain practical details relating to aviation operations in Myanmar.  The Air Carriage Act represents the domestic implementation of the 1929 Convention for the Unification of Certain Rules Relating to International Carriage by Air.  In addition, notifications, orders, directives and circulars issued by the DCA regarding various aspects of the aviation industry must be followed by investors carrying out business in Myanmar.

On 3 December 2012, Myanmar acceded to the Cape Town Convention on International Interests in Mobile Equipment  and the Protocol to the Convention on International Interest in Mobile Equipment on Matters Specific to Aircraft Equipment (together, the “Treaty”).  On 1 August 2014, in order to give effect to the provisions of the Treaty, the Law Relating to International Interests in Aircraft Equipment (“Aircraft Act 2014”) was enacted. However, the detailed implementing regulations have not yet been promulgated.

The key pillars for foreign investment in Myanmar are the Foreign Investment Law passed on 2 November 2012 (“FIL”) and Notification 49 of August 2014 issued by the Myanmar Investment Commission (“MIC”), the body also overseeing the FIL.  The FIL and the notification implement a substantial policy shift that encourages and opens more sectors to foreign investment, including the aviation industry.  Under the FIL, domestic and international air transport services can be conducted via a joint venture operation with a Myanmar private entity or government agency. There must be a corporate presence in Myanmar and it requires a permit from the MIC. The investors can operate transport services with owned or leased aircraft, which may be registered in Myanmar.

The Market

The opportunities for all types of carriers in the market are vast as it is currently the most underserved region in ASEAN and perhaps all of Asia.  Yangon, the financial hub of Myanmar, was a major trading center for Southeast Asia in the 1950s; however civil aviation entered a long decline after the military seized power in 1962.  In more recent years, the aviation authorities have recognized the need to rapidly redevelop the sector.  They aim to make Myanmar a major aviation hub in Asia and have developed a four point strategy to do so: liberalizing economic regulations, establish new air links to international destinations, promoting national airlines and improving infrastructure.

The Infrastructure

As part of this strategy, the aviation authorities have announced the privatization of airports and the upgrade of major international airports in the country.  In 2014, a US$150 million upgrade to Yangon International Airport was awarded to Pioneer Aerodrome Co., Ltd, a consortium led by an affiliate of Asia World Co., Ltd.  The first phase opened on 12 March 2016.  Yangon’s existing international terminal, which is also managed by Asia World, will be rebranded as Terminal 2.

In November 2014, MC Jalux Airport Service Co., Ltd, a Japanese company, also signed a concession agreement with the DCA to upgrade the Mandalay International Airport in the northern logistic hub at a cost of US$100 million.

In 2015, a consortium comprising of Changi Airport International, JGC Corporation and Yangon Holdings Limited won the bid to develop a new Yangon airport, the Hanthawaddy International Airport with construction set to begin in 2016, for completion in 2020.  The first phase is estimated to cost US$1.5 billion and will include a terminal complex that can handle 12 million passengers per year. Under the second phase, the capacity will increase to 30 million.  It has been reported that the project is strongly supported by the military however potentially not supported universally within the government as a whole.  Regardless, it is currently widely anticipated to become the main port for international arrivals and departures for the country.

The Airlines

There are a number of national carriers in Myanmar and many are placing volume orders for new aircraft, paving the way for new routes.  Myanmar National Airlines (“MNA”), for instance, is leasing ten new Boeing 737-800 planes – so far three have been delivered – and has ordered six ATR 72-600 passengers airplanes to be delivered by 2017. MNA flies to Singapore, Hong Kong and Bangkok, and will use its new aircraft for routes to Shanghai and Chengdu to start later in 2016.

Myanmar Airways International (“MAI”) uses Airbus 320 aircraft and is likely to add new planes later this year to its existing fleet of seven.  It is considering new routes to Bangkok and Penang, Malaysia.  FMI Air is also evaluating the addition of three new domestic destinations and is expected to have a fleet of five aircraft by 2017.

Weekly international flights from Yangon between 2010 and 2015 increased 3.88 times.  There are 28 international airlines now flying into Yangon and several more have confirmed new routes, including Emirates Airlines, which will use Boeing 777-300ER aircraft for daily flights to Dubai from August 2016, and Hong Kong Express which will launch flights later this year.

As of March 2016, Japan’s ANA Holdings and the Shwe Thanlwin-owned Golden Sky World have formed a joint venture and have applied to set up a new international airline based in Myanmar.  The application is currently awaiting approval from the MIC.  The proposed airline is “tentatively” named Asian Blue and will only service international routes.

Aircraft Leasing

There are no specific regulatory requirements with respect to the leasing of aircraft. The most relevant law is the Myanmar Contract Act 1872.  The relevant lease and related agreements can be governed by foreign law.  The relevant lease must be registered in Myanmar and stamp duty fees must be paid, which are subject to the value amount of the lease.

Under the Cape Town Convention and the Aircraft Act 2014, an international security interest created and registered in accordance with the Treaty will be recognized and enforceable in Myanmar.  Under the Aircraft Act 2014, the Supervisory Authority to implement the provisions of the law shall be formed jointly by the government and the DCA to conduct the registration as provided for in the Treaty.  The provisions of the Aircraft Act 2014 shall prevail over any existing law which is not consistent with the provisions therein.

According to the Aircraft Act 2014, if there is an insolvency-related event with respect to an airline, the relevant insolvency administrator or the debtor must give possession of any aircraft to the creditor no later than 30 calendar days from the date in which the creditor would be entitled to possession of the aircraft.  The DCA is required to promptly co-operate with and assist a creditor exercising its rights under an Irrevocable De-Registration and Export Request Authorization (“IDERA”) and the DCA must provide the details for the IDERA and the form of a Certified Designee Confirmation Letter.

Although Myanmar had no practical experience regarding the enforcement of international interests in aircraft equipment, implementation of the Treaty and enacting the domestic legislation are positive steps in creating a strong framework for aircraft leasing and financing.

Thus, the aviation industry in Myanmar is ready for lift off.  These changes in policy, law and rapid infrastructure development, coupled with the industry’s eagerness to expand, is leading to a new golden age for the aviation industry in Myanmar.  All that is left is to see if the new government and the military are able to work together effectively as a team.  Most indications at this stage are for a bright future.

What Makes A Port Unsafe?

Charterparties often contain warranties and clauses that charterers will only order the vessel to safe berths, ports or anchorages. The charterer may agree to provide a safe haven for the vessel away from the dangers of extreme weather, war, ice and other dangers. Surprisingly, claims relating to unsafe berths are not uncommon, despite the fact that there has been a vast body of clear case law handed down on the issue from the English courts.

The Starting Position

The classic definition of a safe port or berth was given in “The Eastern City” [1958 ]2 Lloyd’s Rep 127:

“A port will not be safe unless, in the relevant period of time, a particular ship can reach it, use it and return from it without, in the absence of some abnormal occurrence, being exposed to danger which cannot be avoided by good navigation and seamanship.”

It is usual that a charterers’ obligation is to nominate a berth or port which is prospectively safe at the time of the order, subject to some abnormal occurrence.

What constitutes “unsafety”?

The meaning of safety has been subject to numerous interpretations which have each been argued and ruled upon in arbitrations and in courts. The physical make-up of the port is the most obvious consideration for what makes a port safe or unsafe; however, there are also some other, less obvious factors that may render a port unsafe. For example, the port systems that are in place, political unsafety (eg. a state of war) or meteorological unsafety – relating to wind and swell and the protection afforded by the port to the vessel against such dangers.

“Abnormal Occurrence”

The English courts have previously given judgment on what constitutes an abnormal occurrence. For example, in the “Saga Cob”, the port’s power supply was cut and its lights failed – rendering the port unsafe. The court held that this was an abnormal occurrence.

The definition of abnormal occurrence was considered by the Court of Appeal in “The Ocean Victory” [2015] EWCA Civ 16.

The Ocean Victory was ordered to Kashima, Japan which was observed as being “one of the largest ports in Japan” and was said to be, and largely accepted to be safe. On this occasion, “long waves” and very high winds threatened the vessel’s moorings. The vessel left the port amid these concerns and, upon leaving, went aground and later broke apart. The Court of Appeal Judge commented that the “evidence showed that long waves affected the Raw Materials Berths at Kashima two to three times a year”. Storms producing “gale force winds from the northerly/north-easterly quadrant which made the Kashima Fairway unnavigable by Capesize vessels” occurred about once a year. There was no relationship between the two events. A combination of the two events was very rare and there was seemingly no evidence of a history of these events occurring together.

The Commercial Court found that the port was often exposed to long waves and to gale force winds in the channel approach. It further stated that there was a real risk that both might occur at the same time. The Commercial Court Judge held the port to be unsafe.

The case was appealed to the Court of Appeal, which took a different view. The Court of Appeal reversed the ruling, concluding that the Commercial Court Judge had been wrong to consider the long waves and the high winds as separate events. The correct question to be asked was whether the simultaneous coincidence of the two events was an abnormal occurrence. The Court held that a combination of the long waves and the high winds was very rare, and could not be regarded as a normal characteristic of the port. The Court did not therefore consider the port to be unsafe. The Court of Appeal considered the totality of events combined together, which ultimately were very rare and therefore the Court could not conclude that the charterers had ordered the vessel to an unsafe port on this occasion.

“Good Navigation and Seamanship”

The final consideration of the classic definition is whether danger can be avoided by good navigation and seamanship. The Court in the Eastern City commented that all navigable waters have some element of danger which is more often than not minimised by the use of buoys, warnings and other aids, supplemented by good navigation and seamanship. However, if more than the ordinary skill would be required to avoid danger then the waters are unlikely to be safe. Assessing good navigation and seamanship will depend on the facts in question. One judge observed that it doesn’t necessarily follow that if there is damage to a vessel and good navigation and seamanship has been exercised that the port is unsafe. A third possibility may simply be that the incident and resulting damage was purely bad luck “The Apiliotis” [1985] 1 Lloyd’s Rep 225.

It is also within the Master’s rights to refuse improper orders from the charterers who may order the vessel to a prospectively unsafe port. The owners of vessels are well within their rights to refuse to sail to a port that is unsafe, despite the orders of the charterers. In fact, if a shipowner obeys a charterers’ directions knowing that a port is unsafe and will clearly endanger the vessel, the owners may be prohibited from relying upon their safe berth clause and other protective clauses under the Charterparty. Their actions will arguably amount to an intervening act and may break “the chain of causation”.

Assessing whether or not a port is safe can be a tricky question and is likely to depend on the facts. As illustrated above, there can be numerous factors to consider in making an assessment of whether a port is safe. The case law on this particular area of law is vast and often complicated and is still developing in the modern day as evidenced by “The Ocean Victory”. Charterers’ obligations on nominating ports are also likely to vary depending on what they have agreed in the relevant charterparty and the extent of their warranty could also vary.

Malta – foremost safe harbour in today’s stormy seas of maritime finance

International finance of ocean-going vessels and other maritime assets such as off-shore oil and gas equipment is currently experiencing what could be described as a perfect storm: Many owners looking to refinance newer assets in their fleet ordered their construction and locked into efficient funding before the global financial crisis of 2007/8. And according to the World Shipping Council, the global container fleet peaked in 2013 at around 34.5 million TEU. At the same time, along with transoceanic freight rates which are widely recognised as a bellwether of international trade flows, residual container ship values in US$ per dead weight tonnage slumped dramatically from the end of 2008 onwards, with ship brokers reporting declines of up to 40% from previous high water marks. What followed in the maritime finance sector, according to the world’s largest shipping lender HSH Nordbank AG, was a “monstrous wave” of loan loss provisions, peaking in 2013. So, when the need of ship owners for new funding was greatest, they found funding taps turned off – at least when investigating traditional sources.

The aircraft finance market had steered its way out of similar storms in the past by heading away from traditional bank lenders and towards increasingly global capital markets. Investors could consider the apotheosis of aviation capital markets financing to be the enhanced equipment trust certificate or “EETC”. EETCs are now a dominant force in aircraft financing, particularly in the United States, with fleet transactions of up to US$ 4.5 billion. In essence, an EETC transaction finances the acquisition and leasing of aircraft and other large equipment through the issuance of a type of asset-backed security by a special purpose vehicle held by a pass-through trust for institutional investors that buy and can potentially trade the relevant trust certificates. The trust certificate securities are said to be “enhanced”, because the special purpose vehicle as registered owner of the aircraft and issuer of the equipment notes backing the certificates is remote from the potential bankruptcy of the plane’s registered owner, typically, an aircraft leasing company. Equity injected for example by the owner / lessee of the aircraft, is thus regarded as credit enhancement for the EETCs, since the trustee for investors is empowered to enforce its security over the plane without getting mixed up in or delayed by corporate bankruptcy or reconstruction proceedings. Similarly, EETCs are so called because they will typically benefit from liquidity support in the form of a standby revolving credit facility from a highly rated financial institution to cover lease payment shortfalls against debt payments due for a period of months in order to avoid an immediate default on the securities.

Nevertheless, the EETC market has possibly been the victim of its own rapid success: Many investors are now facing concentration risk issues in their respective portfolios, with significant relative exposure to certain airlines, lessors, regions, aircraft types and manufacturers. EETC buyers also represent a relatively small part of the investor universe, being in the large part insurance companies and specialist investment funds buying in the U.S. private placement market.

This said, it should be easy to understand the excitement around 2015’s epoch in the development of Malta’s international capital markets sector as well as in ship finance worldwide, as EETC technology was applied for the first time to find a safe harbour for maritime finance deals. In September, the enhanced equipment trust certificate (“EMTC”) financing of MV Al Qibla, a 13,500 TEU ultra-large container vessel owned by United Arab Shipping Company (S.A.G.) (“UASC”) was completed in Malta. Closing in relation to Al Qibla’s sister ship, MV Malik Al Ashtar, was settled in August. The EETCs were privately placed with institutions in the United States of America qualifying as accredited investors under U.S. securities laws and similarly qualified investors in the European Economic Area.

The Equipment Notes cross-collateralizing the EMTCs in this deal were issued by two Malta incorporated special purpose vehicles, one for each vessel, established both as shipping organisations and securitisation vehicles under local legislation. Malta is also the flag of Malik Al Ashtar and Al Qibla. Malta’s Securitisation Act and related statutory instruments establish special regulatory, insolvency and tax regimes that make the jurisdiction uniquely equipped for the establishment of issuers in EMTC transactions. Special purpose vehicles with their centre of main interest in Malta enjoy the highest levels of protection under statute from being brought into the insolvency of a shipping company parent that is also charter party in an EMTC deal. In this deal, further comfort was given to capital markets investors by establishing a purpose foundation, the Tabuk EMTC Foundation, to own “golden shares” in the SPV Equipment Note issuers with rights to veto actions that could be prejudicial to investors, including placing the SPVs into bankruptcy proceedings. In the exercise of those golden share veto rights, the Maltese administrator of the Tabuk EMTC Foundation, Equity Wealth Solutions Limited, follows the instructions of the Subordination Agent in respect of the SPVs it has established. The Subordination Agent appointed for the Al Qibla and Malik Al Ashtar Equipment Notes was Wells Fargo Bank Northwest, N.A.

A particular feature of UASC’s debut EMTC transaction was that it wished as originator to maintain a substantial equity interest in the Equipment Note issuing SPVs and therefore ownership of the vessels. Originator ownership of the asset holding vehicle would ordinarily be anathema to a structured finance transaction – the norm is to “orphan” the vehicle through a charitable trust or purpose foundation. Here, UASC’s continuing ownership of the Vessels by holding ordinary voting shares in the SPVs was requisite. The ultimate concern of investors in relation to the legal structure of an EETC or EMTC transaction is that the assets and liabilities of an SPV will be consolidated with those of the originator on its subsequent insolvency, having been deemed by a court to be substantially those of the originator all along. This doctrine of substantive consolidation exists in policy or statute in many jurisdictions, but it is particularly prevalent as applied by the federal courts under the U.S. Bankruptcy Code. At the same time, a number of foreign ship owners have successfully placed themselves in U.S. bankruptcy proceedings, arguably to the detriment of their long term secured creditors. It was vital therefore to be able to demonstrate to the satisfaction of the investors and credit rating agencies that any bankruptcy or reorganization proceedings in which UASC might possibly be caught up would not affect the SPVs and in particular, the right of investors to enforce their security over the Vessels immediately following an event of default without stay or hindrance. An important element of this bankruptcy remoteness was the “true sale” of the Vessels to the SPVs, i.e., that the alienation from UASC’s estate could not be set aside by the court or an insolvency official recharacterising it as a secured financing, a transaction at undervalue or fraudulent preference. Likewise, the SPVs would be entitled to terminate the charter party agreements with UASC and repossess the Vessels on UASC’s default (including bankruptcy) under the arrangement as a “true lease” rather than a secured financing under the U.S. Federal Bankruptcy Code.

It was essential therefore to rely on the specific provisions of the Malta Securitisation Act that preclude an application by on behalf of an originator engaged in insolvency or restructuring proceedings affecting a securitisation vehicle established under the Act. Similarly, absent fraud on the part of the securitisation vehicle, statute prevents the Maltese courts from accepting an application from an insolvency official to reverse or amend the terms of a sale of securitisation assets by the originator effected prior to its insolvency. The statutory bankruptcy remoteness of the SPVs allows UASC to extract excess spread from charter party payments left after debt service by way of nothing more complicated than payment of a dividend. Bolstering this, the Merchant Shipping Act as it applies to shipping organizations such as the SPVs, allows for the enforcement of a Malta registered mortgage outside of any insolvency proceedings. The application of these and related provisions in the Malta Securitisation Act and Merchant Shipping Act were the subject of legal opinions addressed to investors and shown to rating agencies for the purpose of awarding the desired credit rating to the UASC EMTCs.

However, an originator holding an equity stake in a securitistion vehicle is not only problematic from a bankruptcy remoteness perspective:- profits building up in the issuing vehicle and profit extraction by way of dividend payments could obviously threaten the vehicle’s tax neutrality. By the same token, liability of the SPVs to account to the tax authorities in Malta for unpaid tax could threaten the exclusive right of securitisation creditors to manage the Equipment Note issuers’ indebtedness. Broadly speaking, an ordinary Maltese company issuer would be liable to 35% corporation income tax on taxable profits. And whilst interest payments on debt would be deductible, repayments of principal and dividends on shares would not. Hence it was particularly important that unlike in other onshore SPV issuer jurisdictions, the Securitisation Transactions (Deductions) Rules in Malta allow a securitisation vehicle issuer to make a deduction for residual income that would otherwise be taxable, provided that the originator gives its irrevocable consent to this treatment in the SPV’s tax return.

From an investor’s perspective, apart from bankruptcy remoteness and ease and speed of enforcement of security, it is important that shipping securitisation companies are not considered alternative investment funds, particularly if they are investing from Europe. Many European pension funds and insurance companies are limited by their investment policies and / or regulation in their holdings of units in non-UCITS collective investment schemes. Again, legislation in Malta makes it clear that securitisation vehicles are not collective investment schemes and therefore are unable to be considered AIFs as a matter of Maltese law. It is also helpful that all of the SPVs’ voting share capital is issued to UASC and the Tabuk Foundation, whereas the Equipment Notes are clearly debt securities. Similarly, private securitisation vehicles, namely those that do not, as the UASC SPVs do not, issue securities to the public on a continuous basis, are generally not required to be licensed by the competent authority in Malta. The issuers in the UASC transaction were however required to notify the Central Bank of Malta of their existence as financial vehicle corporations under Regulation ECB 2013/40 for collection by the European Central bank of data on FVCs’ activities in the Eurozone.

In short, Malta uniquely allows for originator owned unregulated onshore bankruptcy remote SPVs with profit extraction by way of distributions on equity. For this reason, GANADO Advocates is predicting that as maritime capital markets grow, EMTCs backed by equipment notes issued in Malta should emerge as the classic form of investment security. UASC has itself indicated interest in undertaking further EMTC transactions in the near future and it would be surprising if it remains alone in a large constituency of potential issuers. Moreover, the success of this EMTC transaction could be the harbinger of Maltese EETC issuing vehicles for aircraft deals where European investors or lessors dictate the deal structure. From constituting a fulcrum for Phoenician trade routes in the fourth century BC to becoming the Mediterranean’s first transhipment hub in 1988 with an annual trade volume in 2012 of over 2.5 million TEUs, Malta has been recognized as the region’s pre-eminent freeport. It has now developed the legal, tax and regulatory infrastructure to become the leading safe harbour for maritime capital markets issues.

Lawyers in the London and New York offices of White & Case LLP lead by the firm’s Global Head of Asset Finance, Chris Frampton, acted as Transaction Counsel to UASC and Morgan Lewis Bockius LLP as Investor Counsel. GANADO Advocates acted as Malta Counsel to UASC. The GANADO Advocates’ deal team was lead by capital markets Partner, Richard Ambery together with Max Ganado on Maltese corporate and finance law, Stephen Attard on taxation and Karl Grech Orr on shipping. The team also included Associates Nicholas Curmi, Matthew Attard and Amanda Attard, respectively on capital markets, shipping and tax matters.

The Madeira International Ship Register (“MAR”)


Portugal is a country of sea and seamen. We are known for that. Our credentials go back hundreds of years and to Portuguese sailors like Vasco da Gama, the first to sail from Europe across the West African coast, through the cape of Good Hope so named by the Portuguese, and then to India in 1498 or Fernão de Magalhães the first to circumvent the world in the XVI century.

Over the last few years the Portuguese Government decided to focus a lot of its attention in the development of our sea resources, both regarding the economic exclusive area and our economic rights of the Exclusive Economic Zone, which limits Portugal is seeking to adjust.

It is a colossal area of sea spanning from continental Portugal to the Azores in the middle of the ocean between Europe and the US and almost to the Madeira islands. Portugal will take over a tremendous responsibility of managing and developing those resources.

One of the angles of that strategy has been the development of the Madeira International Business Centre (Centro Internacional de Negócios da Madeira – CINM) and, within that scope, of the Madeira International Ship Register (Registo Internacional de Navios da Madeira, known and referred to here as “MAR”), set up by Decree-Law no. 96/89 of 28 March. It is now the second Portuguese ship register alongside the one known as the classic or conventional register.

MAR was created when other second ship registers were proliferating in a number of European States such as France, Norway, Denmark and Germany. The considerable increase in “flags of convenience” and the widespread decline in merchant navies, led a number of European countries, above all those with a greater maritime tradition, to feel the need to create their own second ship registers that were more modern, secure and efficient than the conventional, traditionally more bureaucratic ones.

The objectives of these States were, on the one hand, to recover the levels of national tonnage that had existed previously and, on the other, to offer national and international ship owners more attractive economic and operational conditions (without, however, ignoring such important matters as work, environmental and navigational safety).

In Portugal specifically, MAR was set up to combat the process of flagging out, to capture foreign fleets, investment and know-how, and to recover and rebuild a Portuguese merchant navy. Naturally, it was also set up to create a new source of revenue and jobs for Portugal via activities related to sea transport.

In 2014, as a result of a naturally competitive approach (as we will see below), MAR was the European ship register with the highest growth, being today the third largest international register in the European Union in terms of ships registered (after Malta and Cyprus)[1].


MAR is characterised as an open, selective and double register:

  1. Open because it allows the registration of ships owned by Portuguese or foreigners, individuals or legal entities. Under the legal framework established, any non-resident entity, in a legal position to do so, may register its ships with MAR, as long as such entity maintains a form of representation in the Autonomous Region of Madeira with all necessary powers. It must also ensure its full representation before the state and regional public and private bodies and authorities;
  2. Selective to the extent that it excludes fishing vessels from its scope. Note that the notion of “ship” established for the purposes of applying MAR rules covers “all commercial or leisure vessels that operate on the sea, including fixed or floating platforms, auxiliary vessels and tugs”. It therefore leaves out fishing vessels;
  3. Double because it implies two levels of registration and the involvement, in this context, of two distinct entities: MAR (through its Technical Committee) and the private Commercial Registry Office of the Free Zone of Madeira.

MAR offers specific operational advantages as well as attractive tax rules that apply both to the ships registered and to the companies licensed at the Madeira International Business Centre (CINM). We highlight some of these advantages below.

  1. Sale and Purchase and Mortgages of Ships Registered with MAR

When it comes to the transfer of title or ownership, Portuguese law provides that the sale and purchase of ships registered with MAR is not subject to any state authorisation. It also establishes that any sale and purchase can be made simply by a bill of sale. The Seller’s signature must be certified and an apostille or some other form of certificate if it is executed outside Portugal (Decree-Law no. 96/89 of 28 March 1989) may also be needed.

When it comes to mortgages, MAR has a truly innovative system. Firstly, when it comes to their creation, it is sufficient for the document to be signed by the owner of the ship, again the signature has to be certified, to be able to create, amend or discharge a mortgage or any right equivalent to it. Secondly, the MAR system allows the parties to designate the law applicable to the mortgage or equivalent right, without prejudice to the application of the rules of international conventions that bind the Portuguese State. As such, non-portuguese ship owners and financing banks may elect another applicable law to the mortgage over a ship registered with MAR other than Portuguese. This is a special, innovative rule with no equivalent in the Portuguese legal system, and it is an example of the competitiveness and modernity of MAR.

  1. Crews

 As far as crews are concerned, the rules establish that the captain and at least 50% of the crews of ships registered with MAR 50% must have (i) Portuguese nationality or (ii) the nationality of an EU Member State or (iii) the nationality of a Portuguese speaking country. However, the legal framework allows for an exception to this rule upon express authorisation of the member of the Government responsible for the area of sea transport, in properly justified cases.

  1. Tax Framework

Ships registered with MAR enjoy a broad set of tax benefits, essentially established in Decree-Law no. 96/89 of 28 March and in the Tax Benefits Statute (Estatuto dos Benefícios Fiscais – EBF).

There are also tax benefits available to companies that carry on sea transport activities in the Free Zone of Madeira and to crew members registered with MAR.

As far as the benefits granted to companies are concerned, the rules establish that income from licenced activity – except income from the transport of passengers or cargo between Portuguese ports – can benefit from a reduced rate of corporate income tax (IRC) of 5% up to 31 December 2027, subject to compliance with certain requirements. Firstly, the company must begin its activity within one year of the date it is licensed. It must also create between one and five jobs in the first six months of activity. Finally, it must make a minimum investment in the acquisition of fixed tangible or intangible assets of EUR 75,000, in the first two years of activity. This final requirement can be waived if more than six jobs are created in the first six months of activity.

The benefits to be granted are subject to ceilings for the maximum tax base that can benefit from the reduced rate. The ceilings or caps depend on the number of jobs created and range between EUR €2.73 million for the creation of up to two jobs and EUR 205.5 million for the creation of more than 100 jobs.

These companies also enjoy other benefits including exemption from withholding tax on interest paid to non-residents, exemption from stamp duty and exemption from municipal property tax (IMI), when the properties or part of the properties are directly used for carrying on the activity of the company.

Besides having these special tax benefits, companies that carry on commercial activity on the high seas also benefit from an exemption from value added tax (VAT).

Double taxation agreements ratified by the Portuguese State may also apply.

The crews of ships registered with MAR are exempt from personal income tax (IRS) in relation to the income earned in this capacity, without prejudice to the fact that exempt income is aggregated for the purposes of determining the rate to be applied.

The MAR rules also provide that crews and companies that own ships registered with MAR are not required to discount social security contributions. However, this is without prejudice any social security systems provided for by international conventions in the Portuguese legal system.

Finally, commercial registry acts, for both companies that carry on sea transport activity in the Free Zone of Madeira and for ships registered with MAR, are exempt from any registration taxes or fees.


As we have already mentioned, MAR is an important factor in bringing dynamism and competitiveness to Portugal.

Essentially, MAR has been achieving the objectives it targeted initially. Today, it is internationally recognised as a solid, credible and high quality register, and this statement is corroborated by the fact that MAR was the European ship register that achieved greatest growth in 2014 and is already the third largest international register in the European Union[2].

The operational advantages and, above all, the tax benefits associated with MAR have contributed a great deal to this growth.

The future prospects associated with this registration system are, naturally, of growth, and it is hoped that MAR can contribute to consolidating Portugal’s position as a leading maritime player on a global level.


[1] For this purpose, we do not consider the international ship register of Gibraltar, due to the particularity of this territory (and of its status) within the European Union.

[2] Please refer to the footnote above.

Real World Challenges: Practical Maritime Arrest Considerations

There are numerous practical challenges encountered during the custody period of arrested commercial ships — particularly when the vessel is detained for a considerable time period. Generally, arrest actions are intended for the claimant to obtain immediate payment or security, and last only a few days. However, with the uncertain global economy, lack of available credit, volatile charter rates and overall diminished ship values, the potential for long-term arrests has increased; ship owners are having difficulty raising the funds necessary to obtain a timely vessel release.

The arrest period can also become prolonged if additional parties intervene in the action, complicating the circumstances and the related court proceedings. Claimants and their respective advisors must consider the risk associated with a subject vessel remaining under arrest for a significant period of time, by assessing the potential costs before executing against a ship and considering how they will react to various scenarios as the custody period unfolds.

Initial Arrest and Evaluation

Claimants can easily over-value target vessels or underestimate the likelihood of an arrest going long-term. This is particularly dangerous, as the arresting party is most-often responsible for the costs of keeping an arrested ship. Arrest actions can potentially extend beyond a year’s time with costs exceeding US$1 million. It is critical that claimants make a proper assessment of the risks and likelihoods in advance of effecting the arrest action because some actions do not warrant the financial exposure.

In relation to the ship’s value, a potential arresting party must consider their claim amount, the likelihood of additional intervening claims and whether those claims have priority over the evaluator’s claim. The combined value of priming claims may exceed the ship’s value, eliminating any potential recovery. Complications associated with multiple claimants generally reduce the likelihood of negotiated resolutions, and may also cause court delays and increasing costs.

Claimants should contemplate the effect of the arrest, both negative and positive, on its reputation. The action might adversely-impact other relationships by causing harm to strategic partners or customers. Alternatively, the arrest may benefit cash flow, as the market acknowledges the claimant’s hard line approach to collection of delinquent accounts.

Long-term vs. Short-term Arrest

Generally, the minimal claims for ship necessaries or crew wages are resolved quickly. On the other hand, high-value claims, such as mortgage foreclosures, unpaid bunkers and charter disputes, represent a substantial percentage of ship value. Consider the ship owner’s likely action (or inaction). The following scenarios depict the ends of the spectrum for both short-term and long-term arrests:

  • The vessel is enrolled with an International Group P&I Club, this type of claim is routinely covered, and a letter of undertaking is presented immediately — resulting in a timely vessel release.
  • The owner (or charter) has experienced substantial financial difficulties, hasn’t funded your claim, there are other unpaid creditors (such as crew or fuel suppliers), the owner is behind on mortgage payments and has put off critical maintenance. If the ship has no equity, the owner may simply choose to walk away, forcing the arresting parties to pay for significant custodial expenses such as wharfage, maintenance, bunkers, crew wages and repatriation.

Economic & Regulatory Climate

Consider the effect of fluctuations in the global economy and volatility in cargo values (such as petroleum-based products). Significant new ship builds (in relation to retiring ships) has resulted in world-wide excess tonnage, depressed charter rates and declining values. The owner may be experiencing negative cash flow from operations; as revenue is eclipsed by operational expenses and debt service. The market value of a distressed ship may be far less than the sum of its liabilities. These particular owners may view the arrest ship as taking a problem off their hands and placing the burden on the claimant(s), and are unlikely to bond their ship out of arrest, preferring to see it sold at a court sale.

The current financial regulatory environment requires banks to build capital and exit non-performing relationships. Current vessel financings require significant cash equity; it is nearly-impossible for distressed owners to refinance their way out of trouble. Some mortgagees ultimately take possession of a defaulted ship and return it to active service, rather than going to immediate sale. The revenue generated by operating the ship — although generally insufficient to cover the debt service — will likely exceed operating charges, and in turn allow the lender to speculate that the ship’s value will increase in time. Due to regulatory pressure, troubled lenders may not have this flexibility. They are forced to proceed to sale, despite lackluster financial returns.


Maritime arrest rules and procedures vary dramatically between international jurisdictions, affecting such factors as the speed at which actions are resolved, the priority of various claims, and the overall predictability of the outcome. In legally-unsophisticated parts of the world, custody periods can linger several years as otherwise-routine decisions become prolonged. Partiality may favor local parties and inexperienced jurists can cause costly delays or unpredictable decisions.

Certain jurisdictions have onerous counter-security requirements, which must be posted at time of arrest and may be difficult or time-consuming to have released. Jurisdictional differences in “wrongful arrest” exposure should be considered.

Finally, consider the availability of required services. Confirm that critical items such as inexpensive moorage, fresh water and reliable local security are available at the arrest location.

Use of a ship custodian

Many jurisdictions allow for the naming of an independent ship custodian or keeper during the arrest period. The custodian ensures crew and vessel safety, controls costs and preserves value. This requires them to possess expertise in ship operations and a practical understanding of the strategic and legal aspects of vessel arrest. Generally, the utilization of an independent custodian will ensure transparency and commonality of custody assignment goals, resulting in an efficient outcome for all parties.

On-board licensed watchman

National Maritime Services utilizes an on-board watchman during its crewed arrest assignments; a professional, licensed ship captain who possesses operational experience in the custody environment. The watchman serves as the custodian’s eyes and ears, providing frequent reports from the ship and communicating with master and crew; living amongst them and interacting on their level. Utilization of a watchman provides better decision making and significant cost savings in comparison to security guard services (which require routine shift changes and have minimal shipboard experience). While a watchman remains on-board the vessel at all times, security guards require routine launches or port security escorts to and from the vessel during each shift change.

Crew assessment, pay, immigration, reduction and medical concerns

Upon taking custody of a crewed vessel, several vital assessments are made. It is most effective to retain the existing crew during the custody period as they are most-familiar with the vessel. Immediately meet with the vessel’s master, describe the arrest implications and procedural protocol, the role of the ship custodian, and assess whether the captain will be a positive on-board influence.

The majority of senior officers are qualified and committed men of the sea, possessing both good communication skills and a commitment to both vessel and crew. While there may eventually be potential conflicts with the vessel owner, operator or charterer of the vessel, it is important to get the point across that the court is ultimately in control of the vessel. Communicating with and taking instructions from an experienced watchman as the court/custodian representative also helps solidify the relationship.

Compile payroll records and crew contracts as they are vital tools in determining repatriation strategies during the custody period. Because crew compensation scales are stratified into different categories, proper documentation ensures that unnecessary compensation is not paid.

Immediately confirm the immigration status of each foreign crewmember (as applicable). If the arrest is executed upon arrival in port, the crew may not have been cleared by immigration authorities. If the crew has been cleared, confirm the physical location of their passports/visas with the local boarding agent. For potential crew leave during a long-term arrest, ascertain that the documentation is in accordance with immigration requirements.

Since crew pay generally represents a significant portion of the custodial expenses, repatriate unnecessary, underutilized crew. Repatriation also reduces potential financial exposure to both injury and illness. Review safe manning and insurance documents to determine the appropriate number of crew personnel necessary to safely keep the ship.

Identify and treat any existing medical issues pertaining to crew. This will avoid major cost and P&I coverage issues at a later date. Crew medical issues, including expensive maintenance and cure requirements which last throughout the term of the illness, may arise during the arrest period and could become administrative costs of the arrest.


In order to minimize claimant risk and to preserve the value of the collateral, hull & machinery, port risk, P&I, crew and pollution coverages should be in effect during the pendency of the arrest. Arresting parties should refer to legal counsel, experienced in marine insurance, so as to understand the status of specific coverages. Immediately after taking possession of an arrested ship, it is important to evaluate which coverages are in place and the effect the arrest has on coverage. Unfortunately, this may prove challenging in that the insurer has no obligation to provide this information. The arrest could have an adverse-impact because many policies contain provisions that suspend coverage if the owner no longer controls the vessel. Attempting to name the vessel custodian as an additional insured will ultimately serve to confirm underwriter’s knowledge of the arrest and determine whether owner’s coverage is affected.

In some jurisdictions, the courts or local authorities may require and charge for insurance coverages. These charges may not provide coverage for hull and machinery, port risk, P&I, crew or pollution claims. Identify the specific coverage details so as to avoid uninsured risks or duplicate coverage.

Lapses in coverage often force claimants to scramble for last minute insurance coverage at less-favorable terms. National Maritime Services provides the parties with access to fixed premium, limited term policies suited for custodial scenarios, in comparison to annual policies or P&I club cover. Due to shorter time frame and discontinued vessel trading operations, rates are substantially discounted.

Vessel berths & shifting, cargo operations, provisions and bunkers

These items are all significant cost components of a ship custody assignment. So as to avoid unnecessary delay, initial arrest filings should contain provisions permitting vessel shifting, cargo discharge, and vessel release conditions. Court orders should clearly define the financially-responsibility of each of the parties.

Many complications can occur when a ship is arrested in an active berth. Other ships may require its utilization for loading or discharge. Should the arrested ship causes delays, it could be subject to a cause of action or fines. Accordingly, it is common for the ship to be shifted to a lay berth or to anchorage, which generally requires tugs, pilots and line handlers.

Cargo unloading must typically be accommodated when the cargo was originally scheduled for discharge at the port of arrest. Contingency plans for time-sensitive, perishable or volatile cargo or paying passengers must be made in advance.

For obvious reasons, on-board cruise ship passengers tend to be uncooperative. Avoid arresting vessels containing a large number of passengers aboard. Removing passengers is particularly-challenging, involving return of luggage, providing meals, attending to medical issues and return transportation.

When arresting a crewed vessel, an immediate count of provisions and bunkers is undertaken. Because of the owner’s potentially-ominous financial situation, it is common that provisions are scarce or the crew has not been paid or cared for. Immediately providing satisfactory provisions helps ensure the crew’s cooperation and reduces potential for the global media to take an (unreasonable and sensational) interest in the arrest

In the long-term custody scenario, adequate planning includes consideration of consumption factors. Older, inefficient vessels consume as much as $10,000 per day in bunkers while dockside, significantly more at anchorage. Utilization of a shore side generator may result in reduced fuel costs and a reduction in crew (if the engine room does not require manning). Alternatively, shifting to anchorage reduces berthing charges.

Making arrangements for most of the above-described services requires an established relationship with a local port agent. Under normal (non-arrest) circumstances, the owner’s agent would have sufficient instructions and funds to accomplish required services. However, the arrest action has likely ended that relationship and a new agent must be utilized. The custodian should possess established agency relationships necessary to provide required services safely and efficiently.

Interaction with authorities

During the arrest period, a myriad of governmental authorities may become interested in ship activities. For example, customs and immigration authorities may perform reviews of crew entry-related matters, while the Coast Guard may require comfort pertaining to manning and safety, necessitating written crew security procedures or heavy weather plans. The arrest team should have experience dealing with the idiosyncrasies of government agencies and possess a track record of communicating on their terms.


The decision to affect an arrest requires careful analysis and deliberation. Consideration should be given to the likely and extraordinary outcomes and related costs. In the event that the custody period covers an extended period of time, utilization of a professional custodian will help to achieve both cost reduction and preservation of collateral value — resulting in a better financial return.

The European Court Of Justice On Italian Minimum Haulage Tariffs

The current Italian legislation which states that the cost of road haulage services on behalf of third parties cannot be less that ‘minimum costs’ established by a body composed mainly of representatives of interested business operators, goes against European competition legislation and therefore should no longer be applied.

This is the conclusion which the fifth session of the European Court of Justice came to on 4th September 2014 (unified cases from C 184/13 to C 187/13, C 194/13, C 195/13 and C 208/13), as a result of the request for preliminary ruling set out by the Italian Administrative Court in January 2013.

The case originated from a series of complaints lodged before the Italian administrative judge calling for the annulment of acts by which the Osservatorio determined the minimum costs for road haulage activities according to Article 83-bis of Law Decree no. 112/2008. At the material time, in fact, the Osservatorio sulle attività di autotrasporto (a body composed of representatives of the State, haulage associations and associations of customers of transport services) was charged with fixing minimum costs in the event that no agreement was concluded.

After the initial opening up to a competitive system, the Italian supervision of road haulage services, which came under scrutiny from the Luxembourg judges, has become more rigid in recent years.

First, the legislative decree n. 286/2005, with a view to a regulated liberalization of the sector, had accepted the principle of unrestrained negotiation of prices, while also providing, to protect road safety, the invalidity of clauses in contracts of carriage that would lead to the terms and conditions in carrying out services contrary to the rules of road safety.

Following this, the legislative decree n. 112/2008, with the clear intention of increasing road safety, introduced a system of regulated prices, establishing that payment of road haulage services could not be less than the minimum costs set out by the Osservatorio, the body which for the majority is made up of representatives from the road haulage associations and customers.

The EU Court of Justice held that, given the composition of the Osservatorio and its lack of sufficiently-detailed legislative provisions necessary to guarantee actions in line with general public interests, the Osservatorio’s decisions regarding ‘minimum costs’ equate to price-fixing between companies whose objective is to establish a minimum price, such as to restrict market competition.

The Luxembourg judges noted that the system devised by the Italian legislature in fact gave ‘free rein’ to the economic operators represented in the Osservatorio. Therefore, the decisions on prices adopted by the said body could not be regarded as an expression of public power, but amounted to decisions made by private parties (specifically, by an association of companies according to Article 101 TFEU, since the Osservatorio must be considered precisely that).

To this regard, the Court finds that the Osservatorio, composed for the most part of representatives of professional organizations and empowered to act in the exclusive interest of the profession, must be regarded as an association of undertakings subject directly to the rules of competition. In light of the above the Court observes that the fixing of minimum operating costs prevents undertakings from setting tariffs lower than those costs. Thus, by limiting market operators’ freedom to determine the price of haulage services, the Italian legislation is capable of restricting competition in the internal market.

Another interesting aspect of the judgment is devoted to verifying the correct balance between the value of competition and that of road safety.

The Court called on the general principle that the pursuit of a legitimate public objective, such as road safety, may justify competitive restrictions only if the measures taken are appropriate and proportionate to achieving that purpose.

Also in this respect, the Court expressed a negative opinion on Italian law, which had not passed the proportionality test.

The Court, in fact, found that the minimum cost mechanism can be said to be only loosely related to the need to uphold road safety, as there is no connection between imposing a minimum price for the service and increased safety. In addition, according to the Court, it cannot be excluded that an operator complies with road safety also offering lower prices than those determined by the Observatory.

Finally, it was observed that both European legislation and national legislation already provide for specific measures, which are more effective and less restrictive, aimed at ensuring road safety, so that the minimum cost mechanism of the operation is unnecessary in any case, and is therefore a disproportionate measure.

Hence, the “rejection” of the system devised by art. 83-bis of Law Decree no. 112/2008

It should be noted that even before the intervention of the Court of Justice, the Italian antitrust authorities had, on several occasions, also raised concerns to parliament and government about the regulations relating to road transport activities, which were deemed detrimental to the principles of competition.

The Court’s ruling does not only require an adjustment of the regulatory framework in the future, but is also likely to have an impact on the validity and effectiveness of road transport contracts concluded in the past, and on legal relationships that have ensued, where prices fixed by the Osservatorio have been applied, and not prices freely negotiated by the parties involved.

The Financing Of Corporate And Private Aircraft – Some Cayman Islands Considerations

The Cayman Islands has long been a leading jurisdiction for aviation finance transactions in both the commercial and business jet sectors. Among the reasons for this are the Cayman Islands’ tax neutral status, its political stability, the developed, English-based legal system, supporting infrastructure and high-quality service providers, the flexible and commercial nature of its legislation and its adherence to international standards of compliance.

In addition, in relation to locally-registered aircraft for private use (note that Cayman also has a Bis83 arrangement in place with Saudi Arabia), the Cayman Islands Aircraft Register maintained by the Civil Aviation Authority of the Cayman Islands (the “CAACI”), has earned a reputation as one of the most highly respected, user-friendly and recognized aircraft registers across the aviation industry.

In the corporate and private jet sphere, whilst many such aircraft are (and will continue to be) cash purchases, in recent years an increasing number of such aircraft have been financed with bank finance – whether with respect to new or used aircraft and/or pre-delivery payments. Such financings are very frequently structured using a Cayman Islands exempted company as the vehicle which finances, acquires title to, and then operates the aircraft.

This article, therefore, explores some of the features and issues which may arise in corporate and private jet financing transactions involving the Cayman Islands.


Typically, the structure will involve the establishment of a new company, a special purpose vehicle (“SPV”), the sole activities of which will be to finance, own and operate the aircraft. Unlike in a commercial aircraft transaction, the acquisition of the aircraft is mostly for the operator’s private use and, consequently, there will not generally be a leasing arrangement to a lessee/airline but there may instead be an operator/management agreement with a professional operator/MRO.

Additionally, again unlike in many commercial deals which often involve a bankruptcy-remote orphan trust structure, the SPV will generally be within the direct ownership of the principal behind the transaction, whether a large multi-national corporate or a high net worth individual.

Some features of a Cayman Islands exempted company:

  • the establishment and maintenance of a Cayman exempted company is straightforward, quick and cost-competitive. The company is incorporated on a same day basis and the certificate of incorporation may be obtained overnight;
  • the Cayman Islands is a tax neutral jurisdiction and, as such, there are no direct taxes or withholdings applicable to the SPV under Cayman Islands law. In addition, the SPV, as a Cayman exempted company, may obtain an undertaking as to tax concessions issued by the Governor-in-Council of the Cayman Islands, which guarantees an exemption from any changes to the zero tax regime in the Cayman Islands for a period of 20 years from the date of the undertaking;
  • there are no minimum capital requirements for a Cayman exempted company under the laws of the Cayman Islands (save in the case of certain regulated entities), although there must be at least one share in issue at all times;
  • there is no Cayman law requirement to have locally resident directors or other officers or to hold shareholder or director meetings physically in Cayman. A Cayman exempted company must, though, maintain a registered office in the Cayman Islands and keep certain corporate records and registers at such registered office;
  • there is no statutory requirement to prepare annual accounts or to file accounts in the Cayman Islands. The SPV will be required to keep such books of account that give a true and correct view of its affairs; and
  • the Cayman AML/KYC regime complies with international standards and will, therefore, be familiar to most transaction parties.

Financing and Security Documentation

The SPV will enter into certain documentation providing for the financing of the aircraft, including, typically, an aircraft sale and purchase agreement, a loan facility agreement and security documentation.

Title to the aircraft will be transferred to the SPV by way of a bill of sale. If the aircraft is new, this will come from the manufacturer; if used, title will be derived through the chain of ownership effected via bills of sale back to the manufacturer.

The security package would normally include an aircraft mortgage between the aircraft owner (and, if, for example, a US foreign owner trust structure, also the beneficial owner) and the lender and one multi-party agreement or separate security assignment/s of the SPV’s/operator’s rights under the various contracts relating to the maintenance and operation of the aircraft – for example, the operating/management agreement, maintenance programmes and policies of insurance over the aircraft and assignments of manufacturers’ warranties.

Additionally, the lender may take a charge over the shares of the SPV. As part of the share charge, the lender will also receive and retain certain ancillary “deliverables”, all designed to facilitate and allow the lender to take control of and potentially sell, the SPV and, thereby, the underlying aircraft on an enforcement. These may consist of some or all of the following – (i) the original share certificate (if any) with respect to the charged shares, (ii) an executed, undated blank share transfer form, (iii) executed but undated resignation letters from the SPV’s directors and accompanying letters of authority to date the same on an enforcement, (iv) an irrevocable proxy in favour of the lender permitting it to vote the shares in the SPV on an enforcement, and (v) an undertaking from the SPV (and, potentially also from its registered office provider), inter alia, to co-operate with and take instructions directly from the lender on an enforcement. The SPV’s articles of association may also be amended to include certain share charge-related provisions. As a further protection for the lender in this context, it is also possible in Cayman to have a “stop-notice” recorded with the Cayman courts and served upon the registered office of the SPV, which will have the effect of preventing the registered office from registering a transfer of the relevant shares until 14 days after sending notice thereof to the lender.

Usually, the security package will include a deregistration power of attorney/irrevocable deregistration and export request authorization (IDERA). Where the aircraft is registered on the Cayman Aircraft Register, it is possible to file a copy of such deregistration power of attorney/IDERA with the CAACI and obtain their acknowledgement thereof. Additionally, where the Cayman Cape Town Convention Law applies (see below), that Law provides that the CAACI will in general terms honour a request for deregistration and export in accordance with the relevant provisions of the Cape Town Convention.

Further, it is typical in a corporate/private jet financing for the principal/the ultimate beneficial owner of the SPV (in many transactions, the “true credit”) to provide a guarantee.

In a PDP financing, the security package may consist of the aforementioned guarantee, a security assignment of the purchase contract for the aircraft (or of the SPV’s assignment thereof) and often also a share charge.

All of the principal transaction documents – save for the charge over shares, which will commonly be Cayman law-governed – will be written under laws other than Cayman Islands law, for example English law/New York law/Hong Kong law.

Almost invariably, Cayman counsel will render a Cayman Islands law corporate and enforceability opinion addressed to the lender/other interested parties as to the SPV and its entry into and performance of the transaction documents. Where the aircraft is registered on the Cayman Aircraft Register, and additionally where a mortgage over that aircraft is registered on the Aircraft Mortgage Register, such opinion will also include confirmations as to such registrations.

Security Filings etc.

Save as described below, there is no security register in Cayman and, accordingly, no Cayman concept of “perfection” by security filing. As an internal administrative matter, the SPV is required to maintain at its registered office in Cayman, a register containing details of all mortgages and charges specifically affecting its property. This is not a perfection matter and does not go to the effectiveness of the security created nor to priority. It is, however, in the lender’s interest that this register is properly updated at the time of closing and a certified copy of such updated register is customarily, therefore, a closing deliverable. Further, in the context of a share charge, the lender may also require that the SPV’s register of members be annotated to record the details of the relevant security over the SPV’s shares. (Of course, if the chargor is also a Cayman company, its own register of mortgages and charges will need to be similarly updated.)

With respect to aircraft registered on the Cayman Islands Aircraft Register, it is possible to register a mortgage over such aircraft on the Cayman Islands Aircraft Mortgage Register maintained by the CAACI. Such registration will go to priority but not validity. There is no prescribed form of mortgage that may qualify for registration and it can be, and most often is, governed by a foreign law. A registered mortgage is given statutory priority over subsequently registered mortgages and unregistered mortgages, although possessory liens for work done to the aircraft (whether before or after the mortgage was created) or over persons lawfully entitled to possession of the aircraft, or with a right to detain the aircraft, will have priority over a registered mortgage. It is also possible to file one (or successive) 14-day priority notice/s with the CAACI to preserve the mortgagee’s priority position pending a mortgage registration.

Cayman Cape Town Convention Law

It should be noted that, whilst the Convention on International Interests is Mobile Equipment and the corresponding Protocol on matters specific to Aircraft Equipment have not yet been adopted by the Cayman Islands, Cayman has enacted its own legislation in the Cape Town Convention Law, 2009. This provides for a regime for the constitution, recognition and registration of statutory “international interests” which reflects the principles and framework for the constitution, recognition and registration of international interests found in the Convention itself and allows, inter alia, for an SPV to opt to make an election that the provisions of such Law shall apply to it.


The Cayman courts will commonly recognize and enforce foreign law contractual and security arrangements, provided such matters are validly created under such other laws. They will also customarily recognize self-help remedies, which will, thus, allow a lender to take possession of the SPV or the aircraft via the security granted in its favour without the requirement for a Cayman court order.

The lender will not be deemed to be resident, domiciled or carrying on business in the Cayman Islands as a result solely of the entry into/performance and/or enforcement of the relevant transaction documents, nor is it the case that the lender must necessarily be licenced, qualified or otherwise entitled to carry on business in the Cayman Islands in order to enforce its rights under such transaction documents.

In the event of the insolvency of the SPV, as a matter of Cayman Islands law, the lender’s position and priority as a secured creditor would in general terms be preserved.


When selecting a jurisdiction for an aircraft transaction and/or to provide aircraft and aircraft mortgage registration services, the parties will require consistency of application of laws and procedures, a safe and stable political environment with no unnecessary jurisdictional risks, a lack of additional tax consequences, certainty as to how security and contractual rights may be enforced, a universally recognized aircraft registry, and high-quality professional support. Cayman meets all of these needs.

Originally published in Corporate Jet Investor in September 2014.