Aircraft finance and leasing in Hungary

  1. PROPOSED TRANSACTION STRUCTURE
    1. Is this is the usual structure for transactions of this nature in the Relevant Jurisdiction?
  2. SEARCHES
    1. Are there any public registers in the Relevant Jurisdiction where a search can be carried out to determine whether an order or resolution for any bankruptcy, bankruptcy protection or similar insolvency proceedings has been registered in relation to the Airline?
    2. If so, specify which public registers, how long such searches typically take and if the fees are more than USD 100, approximately what fees apply.
  3. RIGHTS AND EVIDENCE OF OWNERSHIP
    1. In the case of th e transfer of title to an aircraft registered in the Relevant Jurisdiction:
    2. Other than Insolvency laws (see section 9) are there any laws which may have the effect of defeating the Owner’s right in the aircraft – for example, Government requisition? Do the laws of the Relevant Jurisdiction provide for any compensation in such circumstances?
  4. THE AIRCRAFT REGISTER – NATIONALITY OF AIRCRAFT
    1. Has the Relevant Jurisdiction ratified any of:
    2. If the Relevant Jurisdiction has ratified the Cape Town, see the Cape Town Convention Annex.
    3. If the Relevant Jurisdiction has not ratified the Cape Town Convention, has the Relevant Jurisdiction started official proceedings or given any other official indication that it will accede to or ratify the Cape Town Convention in the near future?
    4. Is there an Aircraft Register in the Relevant Jurisdiction and if so, what is it called and who operates it?
    5. If so, in relation to registration:
    6. What documents and/or consents are required to obtain registration on the Aircraft Register and will these require any formalities (for example, notarisation, legalisation or application of apostille)?
    7. Are there any restrictions on the legal status and/or nationality/domicile of parties seeking to register an aircraft on the Aircraft Register?
    8. In respect of aircraft transactions connected with the Relevant Jurisdiction generally, are there any foreign Aircraft Registers that are commonly used, or should be considered, as alternatives to or in addition to registration with the Relevant Jurisdiction’s Aircraft Register? If so, what is benefit of such registration?
    9. Are there any other filings or registrations necessary or desirable (other than the registrations already mentioned and Lease Registration – see section 6) in the Relevant Jurisdiction in order to ensure the validity, priority or enforceability of the transaction documents, or to perfect the interests of the Owner in the Aircraft or the transaction documents?
  5. LEASES
    1. Will the Relevant Jurisdiction recognise the concept of a lease over an aircraft?
    2. Would the choice of English law to govern the Lease be upheld as a valid choice of law in any action in the Relevant Jurisdiction?
    3. Must the Lease be in a particular form if it is to be valid and enforceable in the Relevant Jurisdiction (for example, must it be in the language of the Relevant Jurisdiction or be notarised, legalised or have the apostille applied)?
    4. If the Lease must be in the language of the Relevant Jurisdiction, is it possible under the Relevant Law also to have an English version, and to provide that the English version should prevail in case of conflict with the Relevant Jurisdiction language version?
    5. Are there any special terms that the Lease must contain or that it is advisable for the Lease to contain?
    6. Are there any circumstances under which the Lease might be re-characterised under the laws of the Relevant Jurisdiction as:
  6. LEASE REGISTRATION
    1. Is there a separate register for aircraft leases in the Relevant Jurisdiction?
    2. If yes, then:
  7. ENFORCEMENT OF LEASES (ASSUMING AIRLINE IS NOT IN A FORM OF INSOLVENCY PROTECTION)
    1. On the occurrence of an event of default under the Lease, assuming that the Owner is permitted to do so under the terms of the Lease, can the Owner terminate the Leasing of the Aircraft under the Lease and enforce the Lease by taking physical possession of the Aircraft?
    2. If so, can the Owner take physical possession of the Aircraft without the need for judicial proceedings in the Relevant Jurisdiction?
    3. Where judicial proceedings in the Relevant Jurisdiction are necessary, please provide details of the proceedings, in particular:
    4. Where judicial proceedings are not necessary, please comment on the time limits relevant to taking possession of the Aircraft, in particular:
    5. Apart from the judicial proceedings described above and ignoring deregistration (see section 8), is the permission of any other party (including any official body) in the Relevant Jurisdiction required to take possession of the Aircraft?
    6. Is there any history of actual repossession of aircraft by Owners in the Relevant Jurisdiction? If so, please provide details of any matters or issues of which an Owner should be aware.
    7. Are there any circumstances in which the sums expressed to be payable under the Lease or obligations expressed to be assumed by the Airline in the Lease are or will be unrecoverable or unenforceable in the Relevant Jurisdiction?
    8. Are there any restrictions on the ability of the Owner to sell the Aircraft in the Relevant Jurisdiction during the term of the Lease or, following an event of default, on termination of the leasing or pending judicial enforcement of the Lease?
    9. Are there any export restrictions on export of a repossessed aircraft?
  8. DEREGISTRATION POWER OF ATTORNEY/EXPORTATION
    1. Can the Owner apply for deregistration of the Aircraft either at the end of the lease term or following successful repossession (with or without judicial proceedings) and is there any time period within which such application should be made?
    2. Is the consent of the Airline required to deregister the Aircraft either by law or as a matter of custom or practice?
    3. How long does deregistration take, both where there is co-operation from the Airline and where this is no co-operation from the Airline?
    4. Is it possible to obtain an export licence or export permit in advance?
    5. Approximately how long does it take to obtain an export licence or export permit? What are the costs involved?
    6. Is it possible to obtain a certificate of deregistration in advance?
    7. Will a power of attorney empowering the Owner to deregister and export the Aircraft from the Relevant Jurisdiction, either at the end of the lease term or following successful repossession (with or without judicial proceedings), be enforceable in the Relevant Jurisdiction? Will the courts recognise a power of attorney in the form of an IDERA and governed by English law?
    8. If the power of attorney was stated to be irrevocable would this be enforceable against the Airline or can the Airline revoke such power of attorney?
    9. Upon the occurrence of a bankruptcy or insolvency of the Airline is the power of attorney still effective?
  9. INSOLVENCY
    1. In the event that the Airline were to become insolvent either on a balance sheet basis (assets less than liabilities) or unable to pay debts as fall due:
  10. TAXATION
    1. The decision to lease to an airline in the Relevant Jurisdiction assumes that the Owner will not be taxed on receipt of rentals or other payments (including maintenance reserves) under the Lease except by way of tax on its general income, profits or gains payable by the Owner in its place of incorporation or place of main business (if different). Will there be a requirement for the Owner to pay tax in the Relevant Jurisdiction on lease payments on basis that either the Owner is subject to taxation in the Relevant Jurisdiction by reason only of the leasing of the Aircraft under the Lease and is required to make payment itself; or payment of such tax is by way of the airline being required to withhold and account for tax from lease payments, where:
    2. If there is a requirement in the Relevant Jurisdiction for the airline to withhold tax on lease payments, will the courts of the Relevant Jurisdiction recognise and permit enforcement of a “gross up” clause in the Lease requiring the payment by the Airline of an additional sum to ensure the Owner receives and is entitled to retain the same net amount as would have been received in the absence of the withholding, taking account of any further withholding on account of tax required in relation to such additional sum.
    3. VAT: European Union country: under Article 148(f) of the VAT Directive, an exemption from VAT is applied to “supplies” consisting of chartering or hiring of aircraft which are used by airlines operating for reward chiefly on international routes. Therefore:
    4. Is any stamp duty, notarial or other fee or equivalent payable in respect of the execution of the Lease, a deregistration power of attorney or any other lease related document concerning the aircraft? Will such stamp duty or fee still be payable if the relevant documents are executed and held outside the Relevant Jurisdiction? If any such amount is payable how much is it approximately?
    5. Can any form of consent, authorisation or licence be obtained exempting the payments referred to in this Section from such tax or duty? If so, how would it be obtained?
    6. Ignoring any taxation consequence already mentioned and any potential taxation issues if the Owner has any other connection to the Relevant Jurisdiction, is there any other Relevant Jurisdiction taxation consequence of the Owner:
  11. EXCHANGE CONTROLS
    1. Are payments to foreign owners by companies incorporated or registered in the Relevant Jurisdiction subject to any form of exchange or similar control?
    2. If yes, can any consents, authorisations or licences be obtained to exempt payments from any such control? How would these be obtained? Are such consents, authorisations or licences transferable?
  12. INSURANCE
    1. Is it a legal requirement to insure the Aircraft within the Relevant Jurisdiction?
    2. If so, is there any restriction on reinsurance of the primary insurance outside the Relevant Jurisdiction?
    3. Is there a minimum percentage of cover which a local insurer is obliged to retain, and if so, what is it?
    4. Is it possible for local insurers to assign contracts of reinsurance? If not, is a cut-through clause enforceable?
  13. LIABILITY FOR DAMAGE
  14. DETENTION/CONFISCATION
    1. Are there any rights to detain or sell the Aircraft pursuant to drug trafficking, tax or other laws or pursuant to rights of airport or air navigation authorities if the Airline fails to pay when due?
    2. If so, can the Aircraft be forfeited and sold without the Owner being made aware?
  15. SOVEREIGN IMMUNITY
    1. Is any Airline based in the Relevant Jurisdiction entitled to any form of sovereign or other immunity from suit which might restrict the Owner’s rights under the Lease?
    2. Can such immunity be validly waived in advance by contract?
  16. DISPUTE RESOLUTION AND RECIPROCAL ENFORCEMENT
    1. Do the laws of the Relevant Jurisdiction permit and recognise an “asymmetric” submission to jurisdiction clause under which the lessee submits to the exclusive jurisdiction of the Courts of England but the Owner has discretion to choose a jurisdiction other than the Courts of England?
    2. If the Lease is governed by English Law and a judgment is obtained by the Owner in the English courts, can that judgment be automatically enforced in the Relevant Jurisdiction or will the case have to be re-examined on its merits? If so what procedures must be complied with to enforce such a judgment?
    3. Is the Relevant Jurisdiction party to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) or the 1965 Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (the Washington Convention)? Will the courts of the Relevant Jurisdiction recognise and enforce a decision of an arbitrator?
    4. What is the usual choice of dispute resolution in international supply contracts involving a lessor or buyer incorporated in or with its main place of business in the Relevant Jurisdiction?
  17. AIRCRAFT ENGINES
    1. If the equipment being leased to the Airline in the Relevant Jurisdiction was an Aircraft Engine either unattached to an airframe or attached to an airframe belonging to a party other than the Aircraft Engine Owner and being leased to the Airline under a separate engine lease agreement, would there be any significant changes to the responses set out above?
    2. In particular, does the Relevant Jurisdiction recognise the separate ownership of the Aircraft Engine by the Aircraft Engine Owner when the Aircraft Engine is attached to an airframe belonging to a person other than the Aircraft Engine Owner?
    3. Is there a register of Aircraft Engines and is the information given above in relation to registration of Aircraft and the ownership and leasing of Aircraft the same for registration of an Aircraft Engine and the ownership and leasing of such Aircraft Engine at the Aircraft Engine register?
  18. ADDITIONAL INFORMATION – IS THERE ANYTHING ELSE WE SHOULD HAVE ASKED?
Information current as of February 2020

1. PROPOSED TRANSACTION STRUCTURE

The Aircraft will be purchased by the Owner and leased on an operating lease basis to the Airline pursuant to the Lease.

Is this is the usual structure for transactions of this nature in the Relevant Jurisdiction?

Yes.

Usually the Owner is an SPV established in a tax favoured jurisdiction (e.g. Ireland) who will lease the aircraft to the Hungarian Airline.


2. SEARCHES

2.1 Are there any public registers in the Relevant Jurisdiction where a search can be carried out to determine whether an order or resolution for any bankruptcy, bankruptcy protection or similar insolvency proceedings has been registered in relation to the Airline?

Yes, a free search can be made at the company register and the online version of the Company Gazette (the latter is always up-to-date). However, such a register is capable of disclosing insolvency proceedings (bankruptcy and liquidation, including the appointment of the insolvency administrator) which have been commenced with final and binding decision of the court. If the procedure has not yet come to this phase, only the debtor company can submit a request to the Judicial Office to certify whether or not any insolvency request (i.e. which has not yet been decided with a final and binding decision) has been filed with the court.

2.2 If so, specify which public registers, how long such searches typically take and if the fees are more than USD 100, approximately what fees apply.

Online Company Gazette (http://www.e-cegkozlony.gov.hu/) – free of charge and immediate result (content: court decisions and certain publications of the company).

Online company register (https://www.e-cegjegyzek.hu/index.html) – free of charge and immediate result (company data).

Database of Judicial Office – currently free of charge and usually takes 3-4 business days – request can be submitted only by the debtor company (content: status of insolvency proceedings), paper based but can ebe submitted and received by email.


3. RIGHTS AND EVIDENCE OF OWNERSHIP

3.1 In the case of th e transfer of title to an aircraft registered in the Relevant Jurisdiction:

3.1.1 Is any particular form of transfer required for the transfer to be legally recognised?

No particular form is mandatorily required. Usually, an English law Bill of Sale is used.

3.1.2 Must any particular conditions be satisfied for the transfer to be recognised?

No particular conditions are to be satisfied. An aircraft is registered into the Hungarian aircraft register if documentation is submitted to the aviation agency which evidences that the Owner has acquired the ownership title over the aircraft.

Hungarian aviation agency (in Hungarian: Nemzeti Közlekedési Hatóság Légügyi Hivatala; hereinafter “HAA”) has no competence to examine the validity of the ownership title prior to registration of the owner of the aircraft into the register. An administrative requirement is that the Owner shall submit the registration request to the HAA within 30 days from acquisition of such ownership title.

3.1.3 Will such a transfer still be recognised by the courts of the Relevant Jurisdiction as legally valid where the relevant aircraft is located in another jurisdiction at the time of the transfer?

If the country where the relevant aircraft is located will recognise a transfer of title in the form proposed for the transaction under Hungarian or any other law as a valid method of title transfer under its domestic law, yes; if not, then no and local law advice should be taken.

3.1.4 Are any duties, taxes or fees levied on such transfer of ownership?

No duties, taxes or fees are levied on the transfer of ownership, however, in order to operate an Aircraft in Hungary, registration fees will be incurred. For further details, please refer to our answer under 6.2.2.

3.2 Other than Insolvency laws (see section 9) are there any laws which may have the effect of defeating the Owner’s right in the aircraft – for example, Government requisition? Do the laws of the Relevant Jurisdiction provide for any compensation in such circumstances?

There are certain statutory rights which could, in certain circumstances, defeat the Owner’s rights in the Aircraft:

3.2.1 An Aircraft may be detained in relation to various crimes including actual or suspected acts of terrorism or where it has been acquired from the proceeds of crime. Right of detention would authorise the court to decide on sale of the Aircraft unless the owner of such Aircraft requests the court to deliver up the Aircraft to the owner.
3.2.2 The Hungarian tax authorities may seize goods (which can include an Aircraft) for unpaid taxes. If the unpaid taxes are not then paid within a three months’ period, the goods may be auctioned. The tax authorities may not seize and sell goods (including an Aircraft) which belong to another person so a leased Aircraft should not be seized and sold for the lessee Airline’s unpaid taxes.
3.2.3 In relation to the EU ETS scheme and the unpaid charges which the Hungarian aviation authority may levy (e.g. in case of no certificate of airworthiness), the Hungarian tax authority has the right to detain Aircraft under the same rules specified above in point.
3.2.4 Customs officers (custom office has been integrated into the tax authorities) have power to detain an Aircraft where the Aircraft has been used to carry items which have not cleared customs. Right of detention would not lead to sale since the leased Aircraft should not be sold.
3.2.5 Certain liens can arise as a matter of contract or law including a repairer’s lien for unpaid amounts related to labour to improve the Aircraft and liens for salvage. These liens are dependent on the lien holder having and maintaining possession of the Aircraft. A lien holder does not have the right of sale.

4. THE AIRCRAFT REGISTER – NATIONALITY OF AIRCRAFT

4.1 Has the Relevant Jurisdiction ratified any of:

4.1.1 The Chicago Convention of 1944 on International Civil Aviation?

Yes.

4.1.2 The 1948 Geneva Convention on the International Recognition of Rights in Aircraft?

Yes.

4.1.3 The 1933 Convention for the Unification of Certain Rules Relating to the Precautionary Arrest of Aircraft?

Yes.

4.1.4 The 2001 Cape Town Convention on International Interests in Mobile Equipment and the associated Protocol on Matters Specific to Aircraft Equipment (the Cape Town Convention)?

No.

4.2 If the Relevant Jurisdiction has ratified the Cape Town, see the Cape Town Convention Annex.

N/A

4.3 If the Relevant Jurisdiction has not ratified the Cape Town Convention, has the Relevant Jurisdiction started official proceedings or given any other official indication that it will accede to or ratify the Cape Town Convention in the near future?

Notwithstanding that Hungary has not ratified the Cape Town Convention, it is deemed to be directly applicable in Hungary (as one of the Member States of the European Union) upon the accession to the Cape Town Convention by the European Union. We also note that it is arguable whether or not the European Union had exclusive competence to accede to the Cape Town Convention. Until local law expressly governs, it cannot be declared that all rights and obligations (including the effect of the registration of the international interests) arising or which could arise from the Cape Town Convention will be effective against third parties in Hungary.

We are not aware of any official proceedings or other official indication that Hungary will accept laws to enable third parties to refer to the Cape Town Convention as applicable regulation in Hungary.

4.4 Is there an Aircraft Register in the Relevant Jurisdiction and if so, what is it called and who operates it?

Yes. The name of the register is the aircraft register, in Hungarian: “légi jármű lajstrom” (the “Aircraft Register”) which is operated by the HAA.

4.5 If so, in relation to registration:

4.5.1 Who is responsible for registering the Aircraft – is it an owner registry or an operator registry?

The interested persons are free to agree on whom will become responsible for the registration of the aircraft; it could be the owner, the operator or any other person with legitimate interest. From a practical perspective, in case of a lease agreement, it is generally the lessee who is responsible for the registration.

Registration request must be submitted within 30 days from the acquisition of the ownership title over the aircraft.

4.5.2 What details would normally be recorded on the Aircraft Register upon registration of an aircraft in the Relevant Jurisdiction? If not normally recorded, is it possible to record the Lease and/or an Aircraft Mortgage on the Aircraft Register?

The following data are recorded in the Aircraft Register and disclosed when registration certificates and the extract from the Aircraft Register are requested to issue by the HAA: registration mark; type of the aircraft; manufacturer serial number, year of manufacture; manufacturer of the aircraft; type of the engine; owner of the aircraft and its address; operator of the aircraft and its address; operating base (e.g. Liszt Ferenc Airport, Budapest). However, this data is less than information which need to be submitted to the HAA in the registration procedure (see point 4.6).

The Lease is not registered with the Aircraft Register notwithstanding that the lease documentation is to be filed with the HAA. However, the Airline will be registered as operator of the Aircraft.
The Aircraft Mortgage is required to be registered with the aircraft register for perfection of this security. The Aircraft Register records the following about the Aircraft Mortgage: identification details of the Aircraft (such as registration mark; type of the aircraft; type of the engine; manufacturers serial number, year of manufacture); name and other identification details of the mortgagor; name and other identification details of the mortgagee; secured amount; document on which basis the registration was made; ranking and type of the mortgage (i.e. mortgage over a movable asset) and date of registration.

4.5.3 If the Aircraft Register is an operator register, is it possible to record the details of the aircraft owner/lessor and any financier with an Aircraft Mortgage?

Yes.

4.5.4 If the Aircraft Register is an owner register, is registration on the Aircraft Register definitive to determine ownership of the Aircraft?

Yes.

4.5.5 Are any distinctions made between aircraft employed on international routes and those used purely for domestic flights?

No.

The operating base (see point 4.5.2) is to be recorded in the Aircraft Register. This airport (from which the Aircraft is operated or the operation is organised) is required to be in Hungary irrespective of whether the Aircraft is employed on international routes or it is used for domestic flights.

If the Aircraft is permanently operated outside Hungary and the supervision of the HAA is not possible, the HAA ex officio will deregister the Aircraft from the Aircraft Register.

4.6 What documents and/or consents are required to obtain registration on the Aircraft Register and will these require any formalities (for example, notarisation, legalisation or application of apostille)?

The following documents are required to be submitted for registration:

  • (a.) registration request which must list the following data: type of the aircraft; country of the manufacturer; name of the engine; purpose of operation of aircraft; manufacturer serial number; year of manufacture; maximum taking off weight of the aircraft; type and number of the engines; registration mark which has been determined in advance (if any); the name of owner of the aircraft and its address and the name of the operator and its address;
  • (b.) document evidencing the ownership title over the Aircraft;
  •  (c.) consent of the owner or the operator (depending who submits the request to the HAA)
  •  (d.) clearance certificate of the custom office
  • (e.) document evidencing the total flight time of the aircraft and total number of take-offs

These documents require certain formalities; usually notarisation, legalisation or apostille depending on the place of execution.

In case the Aircraft is already registered in another country but it is intended to be registered in Hungary, the following documents are required in addition to the documents listed above:

  • (i.) export certificate of airworthiness or individual certificate of airworthiness;
  • (ii.) acknowledgment of the technical-commercial takeover of the Aircraft;
  •  (iii.) Aircraft type certificate; and
  •  (iv.) deregistration certificate from the aviation authority of the country where the Aircraft is currently registered.

No.

4.8 In respect of aircraft transactions connected with the Relevant Jurisdiction generally, are there any foreign Aircraft Registers that are commonly used, or should be considered, as alternatives to or in addition to registration with the Relevant Jurisdiction’s Aircraft Register? If so, what is benefit of such registration?

We are not aware of such alternative registration.

4.9 Are there any other filings or registrations necessary or desirable (other than the registrations already mentioned and Lease Registration – see section 6) in the Relevant Jurisdiction in order to ensure the validity, priority or enforceability of the transaction documents, or to perfect the interests of the Owner in the Aircraft or the transaction documents?

No.


5. LEASES

5.1 Will the Relevant Jurisdiction recognise the concept of a lease over an aircraft?

Yes.

5.2 Would the choice of English law to govern the Lease be upheld as a valid choice of law in any action in the Relevant Jurisdiction?

Yes.

5.3 Must the Lease be in a particular form if it is to be valid and enforceable in the Relevant Jurisdiction (for example, must it be in the language of the Relevant Jurisdiction or be notarised, legalised or have the apostille applied)?

No such requirements apply.

Notwithstanding that, lease documentation to be submitted to the HAA must be in the Hungarian language or certified Hungarian translation must be filed with the HAA. The HAA might accept English language lease documentation without any translation but it must be check with the HAA in advance since officially they are entitled to reject such documents.

In order to avoid the complete translation of documents (if necessary), the HAA accepts the official translation of an excerpt of the document which contains the relevant clauses from the documents. It is also possible to submit bilingual documents to the HAA.

5.4 If the Lease must be in the language of the Relevant Jurisdiction, is it possible under the Relevant Law also to have an English version, and to provide that the English version should prevail in case of conflict with the Relevant Jurisdiction language version?

Yes.

5.5 Are there any special terms that the Lease must contain or that it is advisable for the Lease to contain?

Identification of the parties and the leased asset(s) in question is necessary. Otherwise, there is no other requirement of the HAA to be included into the lease documentation.
Regulation of the following in the Lease is advisable: agreement in the Lease, obligation of the parties, leasing fees, obligation of submission of the lease document with the HAA, taxation and possibility of a sub-lease.

5.6 Are there any circumstances under which the Lease might be re-characterised under the laws of the Relevant Jurisdiction as:

5.6.1 a secured loan?

No.

5.6.2 a finance (or capital) lease?

Yes.

The HAA has no competence to re-characterise the Lease.

Notwithstanding that, if the Hungarian financial supervisory authority (which is the National Bank of Hungary) when monitoring the financial sector in Hungary, detects that a service provider is offering finance leasing to/in Hungary as a business line, it has the power to examine such activity.

Under Hungarian financial law, if a finance lease (as defined below) is provided to or in Hungary as a business line (i.e. not on an individual basis), it will be subject to the licence of the National Bank of Hungary or if providing such service on a cross-border basis (from any member state of OECD or EEA) is permitted, to the licence of the home country of the lessor.


6. LEASE REGISTRATION

6.1 Is there a separate register for aircraft leases in the Relevant Jurisdiction?

No.

6.2 If yes, then:

6.2.1 What documentation and/or consents are required for the registration of the Lease?

The same requirements shall apply which are detailed in connection with the registration of the Aircraft in point 4.6.

6.2.2 What registration fees are payable (if any)?

Registration fee is to be paid to the HAA in the amount of HUF 69,000 (approx. EUR 220).

6.2.3 What information is recorded on the register? How is the eventual discharge of the Lease recorded? 

Operation of the Aircraft by the operator is recorded whereas the Lease as such cannot be registered with the Aircraft Register (no separate register for the Lease). In this respect, the name of the operator/lessee and its address is registered. Additionally, the operating licence of the Airline shall list the respective Aircraft.

At the end of the term of the Lease, either the owner of the Aircraft or the lessee are entitled to request deregistration of the Aircraft from the Aircraft Register. Also, the record of reference to the Aircraft will be deleted from the operating licence of the Airline.

6.2.4 Does any registration in respect of the Lease remain valid throughout the tenure of the Lease or does such a registration require periodic renewal? If renewal is required when must this be done and what is the approximate cost of renewal?

No renewal is required.


7. ENFORCEMENT OF LEASES (ASSUMING AIRLINE IS NOT IN A FORM OF INSOLVENCY PROTECTION)

7.1 On the occurrence of an event of default under the Lease, assuming that the Owner is permitted to do so under the terms of the Lease, can the Owner terminate the Leasing of the Aircraft under the Lease and enforce the Lease by taking physical possession of the Aircraft?

Yes.

If the lessee prevents the Owner from repossession of the Aircraft, the Owner may request the court to order an interim measure first in order for the Owner to be able to repossess the Aircraft prior to any court decision on the unlawful action of the lessee in refusing to deliver up the Aircraft to the Owner. Such interim measure will be ordered if it is likely that the legal interests of the Owner could be jeopardized. The Owner would be entitled to request the competent notary public to provide the Owner with the legal protection of possession. However, if the lessee refuses to deliver up the Aircraft upon receipt of the notice of the notary public, the notary public will not have competence to make any decision but must refer the case to the court.

If the lessee had any claim against the lessor (e.g. compensation or warranty claims) arising from the Lease, the lessee would be entitled to refuse to hand over the Aircraft to the Owner until due payment of such claims.

7.2 If so, can the Owner take physical possession of the Aircraft without the need for judicial proceedings in the Relevant Jurisdiction?

Yes.

7.3 Where judicial proceedings in the Relevant Jurisdiction are necessary, please provide details of the proceedings, in particular:

7.3.1 What documents would the Owner as lessor need to present in order to obtain possession of the Aircraft, both before and subsequent to judgment? Can documents be copies?

The Owner needs to present the lease documentation and the documents certifying that the Lease has been terminated or that it has expired (unless the lease agreement is sufficient for this purpose). Registration certificate to be obtained from the HAA related to the ownership title over the Aircraft is also to be presented to the court.

Each document needs to be presented in original or certified copies and together with its official Hungarian language translation (if applicable).

7.3.2 What is the approximate cost of issuing proceedings?

If the lawsuit is initiated before the ordinary Hungarian court, the court fee will be 6 % of the amount of the claim which cannot exceed HUF 1.5 million (approx. EUR 4.800).

7.3.3 Would the Owner be required to provide a bond, guarantee or other security in order to issue proceedings?

If the lawsuit is initiated before the ordinary Hungarian court by a non-Hungarian claimant, at the request of the respondent, such claimant will have to give security to cover the procedural costs except for certain cases (e.g. the claim of the claimant acknowledged by the respondent). Unless otherwise is agreed by the parties, the security shall be delivered by way of cash deposit.

7.3.4 What is an estimate of the normal duration of possession proceedings from time at which all required documentation is made available – if uncontested?

About six months if the governing law of the contract is Hungarian law. However, if the governing law of any of the documents in the lawsuit is not Hungarian law, the court will contact the competent authorities to obtain a legal opinion about such governing law. This may significantly prolong the procedure.

Since lease agreements are generally governed by English law or the laws of State of New York, a Hungarian enforcement court will contact the competent authorities to obtain a legal opinion about such governing law. This may significantly (one year can be estimated) prolong the procedure in addition to the six months that would apply in case of a Hungarian law governed lease agreement.

7.3.5 What is an estimate of the normal duration of possession proceedings from time at which all required documentation is made available – if contested?

About 12 or 18 months if only Hungarian law governs the underlying documents and between two and 2.5 years if the governing law is not Hungarian.

7.4 Where judicial proceedings are not necessary, please comment on the time limits relevant to taking possession of the Aircraft, in particular:

7.4.1 Is there a waiting period before action may be taken?

No.

7.4.2 Is there a long stop date by which action must be taken?

No (except statue of limitation)

7.4.3 Is a Public Auction of the aircraft required?

No.

7.5 Apart from the judicial proceedings described above and ignoring deregistration (see section 8), is the permission of any other party (including any official body) in the Relevant Jurisdiction required to take possession of the Aircraft?

No.

7.6 Is there any history of actual repossession of aircraft by Owners in the Relevant Jurisdiction? If so, please provide details of any matters or issues of which an Owner should be aware.

No.

7.7 Are there any circumstances in which the sums expressed to be payable under the Lease or obligations expressed to be assumed by the Airline in the Lease are or will be unrecoverable or unenforceable in the Relevant Jurisdiction?

There are no such circumstances, except for the Insolvency Proceedings where a strict ranking of satisfaction of creditors’ claims applies.

7.8 Are there any restrictions on the ability of the Owner to sell the Aircraft in the Relevant Jurisdiction during the term of the Lease or, following an event of default, on termination of the leasing or pending judicial enforcement of the Lease?

If court enforcement procedure has been already commenced in Hungary and the Aircraft is subject of such enforcement (i.e. the Aircraft is seized by the bailiff), the Aircraft can be sold only by the bailiff. Otherwise, the Owner is not restricted to sell the Aircraft as long as the Aircraft is in the ownership of the Owner. If any financier or other thrid party takes security over the Aircraft (which is registered in Hungary), agrees with the Owner in a Hungarian security agreement on an out-of-court enforcement procedure and an event of default occurs, such security beneficiary will be entitled to sell the Aircraft (usually in an auction).

7.9 Are there any export restrictions on export of a repossessed aircraft?

No.


8. DEREGISTRATION POWER OF ATTORNEY/EXPORTATION

8.1 Can the Owner apply for deregistration of the Aircraft either at the end of the lease term or following successful repossession (with or without judicial proceedings) and is there any time period within which such application should be made?

Yes, the Owner can apply for deregistration of the Aircraft without any restriction in time.

Yes.

8.3 How long does deregistration take, both where there is co-operation from the Airline and where this is no co-operation from the Airline?

The HAA shall close the procedure within maximum 60 days from receipt of the deregistration request.
Consent of the lessee is to be filed with the HAA since the Airline is registered in the Aircraft Register as the operator of the Aircraft.

8.4 Is it possible to obtain an export licence or export permit in advance?

No export licence is required for exporting an aircraft from Hungary.

8.5 Approximately how long does it take to obtain an export licence or export permit? What are the costs involved?

N/A

8.6 Is it possible to obtain a certificate of deregistration in advance?

No. Deregistration certificate will be issued if no claim is outstanding in connection with the Aircraft (claims of any creditor who are beneficiary of a right registered in the aircraft register (e.g. pledge right)), unless this beneficiary gives its consent to the deregistration irrespective of its outstanding claims having not yet been paid.

8.7 Will a power of attorney empowering the Owner to deregister and export the Aircraft from the Relevant Jurisdiction, either at the end of the lease term or following successful repossession (with or without judicial proceedings), be enforceable in the Relevant Jurisdiction? Will the courts recognise a power of attorney in the form of an IDERA and governed by English law?

Yes.

8.8 If the power of attorney was stated to be irrevocable would this be enforceable against the Airline or can the Airline revoke such power of attorney?

Power of attorney under Hungarian law cannot be irrevocable (Section 6:15 (4) of the Civil Code). 
However, since deregistration powers of attorney are usually governed by foreign law (mostly by English law) which is acceptable by the HAA, the above cannot be a risk in such deregistration procedures. 

8.9 Upon the occurrence of a bankruptcy or insolvency of the Airline is the power of attorney still effective?

Deregistration powers of attorney should remain effective upon the occurrence of the insolvency of the Airline However, if liquidation proceedings (one type of the Hungarian insolvency proceedings) are commenced against the Airline, the insolvency officer (liquidator) will have the right to revoke such power of attorney even though it is irrevocably given under any other foreign law. Notwithstanding the above, the revocation of such a power of attorney would not adversely affect the registration procedure in a sense that the Owner is also entitled to request for deregistration.


9. INSOLVENCY

9.1 In the event that the Airline were to become insolvent either on a balance sheet basis (assets less than liabilities) or unable to pay debts as fall due:

9.1.1 Would the airline be required to file for insolvency protection?

No, the airline is not obliged to file for insolvency protection. However, if the Airline decides to terminate in a voluntary solvent winding-up procedure (in Hungarian: végelszámolás) and the administrator appointed by the Airline becomes aware of the airline being unable to pay its debts, the administrator will be obliged to file for insolvency protection.

9.1.2 Do the available forms of insolvency protection in the Relevant Jurisdiction involve the appointment of either an officer of the court or a specifically court appointed official to take control of the Airline (an Insolvency Official) while in insolvency protection?

Yes.

9.1.3 Does the Insolvency Official have authority to negotiate and reach agreement with the Owner in relation to matters such as the payment of unpaid rent, continuation or termination of the Lease and repossession of the Aircraft without the need for court approval?

The Insolvency Official has no authority to negotiate and reach agreement with the Owner about the payment of unpaid rent irrespective of whether the Owner is a creditor in the Insolvency Proceedings. Creditors’ claims must be satisfied in accordance with the relevant law which regulates the ranking of recovery of such claims.

As regards the continuation or termination of the Lease, the Insolvency Official can negotiate and reach agreement with the Owner unless such negotiation would cover any payment obligation of the Airline (which is subject to the mandatory insolvency regime).

Since the Aircraft does not form part of the liquidation assets, the Insolvency Official would be obliged to allow repossession of the Aircraft.

Re-negotiation of the Lease is possible only if the management of the Airline (i.e. not the Insolvency Official) initiates to reach a settlement with each creditor in order for the Airline to be able to survive this liquidation.

9.1.4 Does the commencement of insolvency protection involving the appointment of an Insolvency Official in the Relevant Jurisdiction have the effect of prohibiting the Owner from taking the following actions to enforce the lease after commencement of such protection:
  • applying any security deposit held by the Owner against any unpaid amounts due under the Lease? Yes. However, (1) in bankruptcy proceedings, enforcement of security deposit would be prohibited by the Owner unless the Owner is a specified financial institution, and (2) in liquidation proceedings, enforcement of security deposit must occur within three months from the commencement of the liquidation proceedings (two months in case of those debtors which are designated by the Hungarian Government as a company with increased strategic importance).
  • accepting payment of rent or other lease payments from:
    • (i.) the Airline? After commencement of liquidation proceedings rent can only be accepted from or with consent of the Liquidator since any rent paid by the insolvent company is part of the pool of funds available to all creditors from which such rental would be paid by the Liquidator as an expense of the Liquidation.
    • (ii.) a guarantor? Assuming the Guarantor is not itself in liquidation proceedings then there is no limitation on accepting payments under the guarantee from the Guarantor.
    •  (iii.) a shareholder? Assuming the shareholder is not itself in liquidation proceedings then there is no limitation on accepting payments from the shareholder. Such payments may be vulnerable to being set aside if the shareholder is threatened with insolvency at the time of payment and within a defined period is subject to formal liquidation proceedings.
  • giving notice of default under the lease? No. However, please note that any payment obligation of the Airline which are not yet due and payable until the commencement date of the liquidation proceedings, will become due simultaneously with the commencement of the liquidation.
  • obtaining a judgment or arbitral award for unpaid lease payments? Yes.
  • giving notice to terminate the leasing of the Aircraft? No. Also, please note in point (c) above.
  • exercising rights to repossess the Aircraft? No.
9.1.5 Can the commencement of Insolvency Proceedings have retrospective effect in relation to any such actions taken before commencement? If so, for what period can there be a look back?

Yes, the liquidator is entitled to terminate any agreement or declaration made by the debtor company prior to the commencement of the liquidation proceedings. Additionally, the liquidator is entitled to challenge certain pre-insolvency transactions. The legal consequence of a successful challenge can be the restoration of the original status. The above are N/A to the bankruptcy proceedings (which are the other Insolvency Proceedings).

9.1.6 Is there, either under law or as a matter of practice in the Relevant Jurisdiction, a period of time within which the Insolvency Official will either “adopt” the lease and pay rent and other lease payments as an expense of the insolvency or “reject” the lease and permit the Owner to enforce such rights as it may have under the lease?

It is subject to the discretion of the Insolvency Official to decide for or against the continuation of the Lease during the liquidation proceedings. Decision is to be made in the interest of the creditors of the Airline. In case of the other Insolvency Proceedings (bankruptcy), the operation of the Airline should neither be terminated nor suspended (the management will not change).

If continuation of operation is decided for, lease payment during the liquidation will be deemed to be a liquidation cost to be paid when they will become due.

9.1.7 If the lease is “adopted” will the Insolvency Official also pay any unpaid lease payments due as at commencement of the insolvency protection?

No. The Insolvency Official is required to register the unpaid (pre-insolvency) lease payments as a creditor’s claim.

9.1.8 If not or if the lease is “rejected”, would the Owner’s claim for any outstanding sums rank equally with other ordinary unsecured creditors of the Airline?

Yes.

9.1.9 Are there certain types of preferred creditors whose claims will rank above claims of the Owner?

Yes. Those creditors who have claims secured with pledge are entitled to seek recovery first from the purchase price which is to be collected by the liquidator from the sale of the pledged assets. Such secured claims are followed in the order of priority of creditors’ claims by liquidation costs which include both pre- and post-commencement employee salary payments and other employee arrears, those pre-commencement social security payments (including pension claims) and related taxes, annuity and similar costs, claims of private individuals (e.g. damages), excluding those in respect of unsecured bonds and other social security payments (including pre-commencement pension claims and other social security payments).

9.1.10 If the Aircraft is in the possession of a person other than the Airline at the commencement of Insolvency Protection of the Airline, for example an independent maintenance facility, will such person be entitled, under the laws of the Relevant Jurisdiction, to assert a lien arising under law or contract over the Aircraft in respect of amounts then due and unpaid to such person by the Airline?

Yes. This person would have the right to keep the Aircraft in its possession until the Airline pays its due and payable debts to such a person.

9.1.11 Is a person other than the Airline, for example an airport authority, entitled under the laws of the Relevant Jurisdiction to seize possession of the Aircraft after commencement of Insolvency Protection and assert a lien arising under law or contract over the Aircraft in respect of amounts then due and unpaid to such person by the Airline.

No.


10. TAXATION

10.1 The decision to lease to an airline in the Relevant Jurisdiction assumes that the Owner will not be taxed on receipt of rentals or other payments (including maintenance reserves) under the Lease except by way of tax on its general income, profits or gains payable by the Owner in its place of incorporation or place of main business (if different). Will there be a requirement for the Owner to pay tax in the Relevant Jurisdiction on lease payments on basis that either the Owner is subject to taxation in the Relevant Jurisdiction by reason only of the leasing of the Aircraft under the Lease and is required to make payment itself; or payment of such tax is by way of the airline being required to withhold and account for tax from lease payments, where:

10.1.1 the Owner is incorporated and is tax resident in Ireland?

No.

10.1.2 the Owner is incorporated and is tax resident in the United Kingdom?

No.

10.1.3 the Owner is incorporated and is tax resident in Hong Kong?

No.

10.1.4 the Owner is incorporated and is tax resident in Singapore?

No.

10.1.5 the Owner is incorporated and is tax resident in Malta?

No.

10.1.6 the Owner is incorporated and is tax resident in the Channel Islands?

No. (No DTT is available.)

10.1.7 the Owner is incorporated and is tax resident in the Isle of Man?

No. (No DTT is available.)

10.1.8 the Owner is incorporated and is tax resident in Mauritius?

No. (No DTT is available.)

10.1.9 the Owner is incorporated and is tax resident in Bermuda?

No. (No DTT is available.)

10.1.10 the Owner is incorporated and is tax resident in the Cayman Islands?

No. (No DTT is available.)

10.2 If there is a requirement in the Relevant Jurisdiction for the airline to withhold tax on lease payments, will the courts of the Relevant Jurisdiction recognise and permit enforcement of a “gross up” clause in the Lease requiring the payment by the Airline of an additional sum to ensure the Owner receives and is entitled to retain the same net amount as would have been received in the absence of the withholding, taking account of any further withholding on account of tax required in relation to such additional sum.

Yes.

10.3 VAT: European Union country: under Article 148(f) of the VAT Directive, an exemption from VAT is applied to “supplies” consisting of chartering or hiring of aircraft which are used by airlines operating for reward chiefly on international routes. Therefore:

10.3.1 New lease to airline operating for reward chiefly in domestic routes: VAT will be applied to lease rentals at current rate:

27%

10.3.2 New Lease to airline operating for reward chiefly on international routes: VAT will not be applied to lease rentals by reason of application of exemption:

Correct.

10.3.3 Sale of aircraft by an aircraft lessor to another aircraft lessor of an aircraft subject to a lease to an airline operating for reward chiefly in domestic routes: VAT will be applied to the purchase price. If the seller and the purchaser are both EU entities and the purchaser supplies its EU VAT Number to the seller then the VAT charge will be a reverse charge. Otherwise VAT will be applied to purchase price at current rate:

27%

10.3.4 Sale of aircraft by an aircraft lessor to another aircraft lessor of an aircraft subject to a lease to an airline operating for reward chiefly on international routes: VAT will be applied to purchase price:

No.

10.3.4.1 If no, is this because of application of the exemption under Article 148(f) to the airline following the decision in ECJ Case C-33/2011?

Yes

10.3.4.2 If yes, is this because the Relevant Jurisdiction does not apply the decision in ECJ Case C-33/2011?

N/A

10.3.5 If the transaction involves the first importation of the aircraft into the EU (and assuming the aircraft is intended for use as a civil and not military aircraft) what rate of Customs Duty will apply?

0%

No stamp duty is applicable. Notarial fees could apply if the Lease is executed in front of a Hungarian notary public in form of a notarial deed.

No.

10.6 Ignoring any taxation consequence already mentioned and any potential taxation issues if the Owner has any other connection to the Relevant Jurisdiction, is there any other Relevant Jurisdiction taxation consequence of the Owner:

10.6.1 being owner and lessor of an aircraft registered in the Relevant Jurisdiction and operated/leased by a company incorporated or registered in the Relevant Jurisdiction?

No.

10.6.2 making available a lease facility to a company incorporated or regulated in the Relevant Jurisdiction?

No.

10.6.3 receiving rent and other lease payments under the Lease from the lessee incorporated or registered in the Relevant Jurisdiction?

No.

10.6.4 repossessing the aircraft and exporting the aircraft from the Relevant Jurisdiction?

No.

10.6.5 selling the aircraft at a profit, whether such sale is after repossession or is subject to the Lease and the lessee’s rights?

No Hungarian corporate income tax will arise provided that the owner does not have a Hungarian permanent establishment. The sale of aircraft itself will not create a permanent establishment for corporate income tax purposes. The sale of Aircraft would be VATable transaction in Hungary unless the Aircraft is to be used by an international airline.


11. EXCHANGE CONTROLS

11.1 Are payments to foreign owners by companies incorporated or registered in the Relevant Jurisdiction subject to any form of exchange or similar control?

No.

11.2 If yes, can any consents, authorisations or licences be obtained to exempt payments from any such control? How would these be obtained? Are such consents, authorisations or licences transferable?

N/A


12. INSURANCE

No. The Aircraft can be insured for aviation liability in different ways: either by a domestic insurer (locally seated), or by a local branch of an EU based insurer (FOE passport) or directly by an EU based insurer through cross border service (FOS passport). The applicable Hungarian insurance regulations are based on 785/2004 EC Regulation of the European Parliament and of the Council of 21 April 2004 on insurance requirements for air carriers and aircraft operators (as amended by the 285/2010 EC regulation). Air carriers and aircraft operators shall be insured in line with the regulation regards to their aviation liability in respect of passengers, baggage, cargo and third parties. The insured risks shall include acts of war, terrorism, hijacking, acts of sabotage, unlawful seizure of aircraft and civil commotion. The regulation addresses the liability exposure and does not require property insurance with regard to the Aircraft itself.

12.2 If so, is there any restriction on reinsurance of the primary insurance outside the Relevant Jurisdiction?

Certain restrictions apply to reinsurances if the primary insurance is provided by a domestic insurer (ceding company). According to Hungarian laws, the primary insurance can be reinsured outside of Hungary only if (i) the reinsurer is an EU based company having the appropriate reinsurance license in its home county; or (ii) the reinsurer is a third country reinsurer which provides its service in Hungary through its Hungarian branch or on the basis of an international treaty.

12.3 Is there a minimum percentage of cover which a local insurer is obliged to retain, and if so, what is it?

No.

12.4 Is it possible for local insurers to assign contracts of reinsurance? If not, is a cut-through clause enforceable?

The local insurers (ceding company) have liberty to assign the reinsurance agreements unless the agreement itself restricts such an assignment. Also, under the Hungarian laws, the cut-through clause appears to be enforceable since this manifests a subrogation which is fully admitted and does not require the beneficiary third party for being involved in the privity (i.e. to be a signatory to subrogation). Otherwise, the local laws only allow direct claims againts the reinsurer if the insurer is under liquidation procedure and the policyholders/insureds take the creditors’ position. In this case the reinsurer can also be litigated before the local courts.


13. LIABILITY FOR DAMAGE

13.1 Can the Owner be strictly liable – liable without a requirement to prove fault or negligence – for any damage or loss caused by the Aircraft assuming Owner is an innocent owner with no operational control of the Aircraft?

No.


14. DETENTION/CONFISCATION

14.1 Are there any rights to detain or sell the Aircraft pursuant to drug trafficking, tax or other laws or pursuant to rights of airport or air navigation authorities if the Airline fails to pay when due?

No. Should the Airline fail to fulfil any of its payment obligations, an enforcement procedure can be initiated by its creditor. If the tax authority enforces its claims against the Airline, the tax authority will be entitled to take protective measures (e.g. seizure). However, only those assets of the Airline would be subject to such protective measures (and the enforcement procedure as well) which are in the ownership of the Airline. If the Aircraft Register records the Owner’s ownership title over the Aircraft, neither the tax authority nor any bailiff can assume that the Aircraft which is in the possession of the Airline, belongs to the assets of the Airline.

Notwithstanding the above, the Aircraft can be seized in a criminal procedure for investigation purpose (e.g. if it is assumed by the criminal authorities that the Aircraft was used as an instrument to prepretrate a criminal offence). In addition, if it is established in a final and binding judgement by a criminal court that the Aircraft was indeed used as an instrument to perpetrate a criminal offence (in particular if the Aircraft was used for drug trafficing purposes), the Aircraft is subject to confiscation as a result of which the ownership title of same devolves upon the Hungarian State.. The Hungarian Criminal Code also provides, however, that confiscation shall not be ordered if the Aircraft is not owned by the perpetrator, provided that the Owner was unaware of the perpetration of the criminal act, unless the confiscation is prescribed mandatory under international legal commitments.

14.2 If so, can the Aircraft be forfeited and sold without the Owner being made aware?

No.


15. SOVEREIGN IMMUNITY

15.1 Is any Airline based in the Relevant Jurisdiction entitled to any form of sovereign or other immunity from suit which might restrict the Owner’s rights under the Lease?

Generally, the Airline is not entitled to any immunity from suit, execution or other similar legal procedure under Hungarian law.

Should the Hungarian State become majority shareholder of the Airline, the Hungarian State could not waive any immunity with respect of: (i) present or future “premises of the mission” as defined in the Vienna Convention on Diplomatic Relations signed in 1961, (ii) “consular premises” as defined in the Vienna Convention on Consular Relations signed in 1963, (iii) any other property or assets used solely for official state purposes in Hungary or elsewhere, or (iv) military property or military assets of Hungary related thereto.

In addition to the above carve-out, it is also important to note that if the Hungarian Government designated the Airline as a company with enhanced strategic importance, special laws would apply to the Insolvency Proceedings. Although no immunity would be applicable in this case either, the rights of the Owner, if it is deemed to be a lessor as well, would be restricted. Such companies with enhanced strategic importance are entitled to benefit from an extraordinary moratorium regarding the Insolvency Proceedings. During the term of this moratorium, no creditor may terminate or rescind any agreement entered into with this company (e.g. Lease), nor can such agreements be automatically terminated due to insolvency. The licenses and permits of such companies may not be revoked during the moratorium and the management is obliged to establish a reserve for payments which are expected to be made during the course of this moratorium (and which payments pertain to the continuation of the activities, if so decided by the liquidator).

15.2 Can such immunity be validly waived in advance by contract?

No.


16. DISPUTE RESOLUTION AND RECIPROCAL ENFORCEMENT

16.1 Do the laws of the Relevant Jurisdiction permit and recognise an “asymmetric” submission to jurisdiction clause under which the lessee submits to the exclusive jurisdiction of the Courts of England but the Owner has discretion to choose a jurisdiction other than the Courts of England?

Yes.

However, the lessee’s agreement to submit to the exclusive jurisdiction of the Court’s of England will be limited by the exclusive jurisdiction of the Hungarian courts under Article 24(3) of the Council Regulation (EC) No 1215/2012 of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters („Brussels I Recast”) in proceedings which have as their object the validity of entries in public registers (such as the Aircraft Register).

16.2 If the Lease is governed by English Law and a judgment is obtained by the Owner in the English courts, can that judgment be automatically enforced in the Relevant Jurisdiction or will the case have to be re-examined on its merits? If so what procedures must be complied with to enforce such a judgment?

The case will not be re-examined on its merits since a final and non-appealable English court decision must be recognised in Hungary according to the Brussels I Recast, except for the below cases:

  •  such recognition is manifestly contrary to public policy in Hungary;
  • it was given in default of appearance, if the defendant was not served with the document which instituted the proceedings or with an equivalent document in sufficient time and such a way as to enable him to arrange for his defence, unless the defendant failed to commence proceedings to challenge the judgment when it was possible for him so to do;
  • it is irreconcilable with the judgment given in a dispute between the same parties in Hungary;
  • it is irreconcilable with an earlier judgment given in another Member State of the European Union or in a third State involving the same cause of action and between the same parties, provided that the earlier judgment fulfils the conditions necessary for its recognition in Hungary; or
  • the judgment conflicts with the provisions of the Brussels I Recast dealing with jurisdiction in matters relating to insurance, jurisdiction over consumer contracts and exclusive jurisdiction.

The judgment cannot be automatically enforced since the enforcement is subject to this judgement being declared an enforceable document by the competent Hungarian court (exequatur). Since this pre-enforcement court procedure cannot mean the re-examination of the judgement, this court procedure is for the purpose of checking whether the judgement can be recognised under the Brussels I Recastand excluding the existence of any of the above exceptions.

16.3 Is the Relevant Jurisdiction party to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) or the 1965 Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (the Washington Convention)? Will the courts of the Relevant Jurisdiction recognise and enforce a decision of an arbitrator?

Yes. Hungary has ratified both of the New York Convention and the Washington Convention. The Decision of an arbitrator will be recognised and enforced in Hungary in accordance with the New York Convention. With regards to the Washington Convention, following the decision of 6 March 2018 of the European Court of Justice in Case C-284/16 Achmea v Slovak Republic, the Hungarian Government issued a Declaration on 16 January 2019 in which it stated that it request the courts not to enforce any Award rendered on the basis of an intra-EU bilateral investment treaty. It is unclear whether the courts will adhere to the Government’s request or enforce such an Award as there is no precedent for the enforcement of ICSID Awards in Hungary. 

16.4 What is the usual choice of dispute resolution in international supply contracts involving a lessor or buyer incorporated in or with its main place of business in the Relevant Jurisdiction?

A lessor or buyer incorporated within or having its main place of business in Hungary will usually seek for the arbtitration agreement to submit any dispute to the Permanant Court of Arbitration attached to the Hungarian Chamber of Commerce and Industry, where the costs of arbitration are significantly lower than at more reputable international insitutions and the enforcement of interim measures and preliminary orders within Hungary is easier. In international supply contracts where the state is a party or that may attract state attention it is generally preferred to choose one of the main international arbitration institutions (ICC, LCIA or VIAC) as the dispute resolution forum. However, in our experience having due regard to the particularities of the aviation sector and the difficulty of obtaining Hungarian arbitrators who are learned in English law, if the agreement is governed by English law then the usual choice of dispute resolution forum will be ordinary English courts.


17. AIRCRAFT ENGINES

17.1 If the equipment being leased to the Airline in the Relevant Jurisdiction was an Aircraft Engine either unattached to an airframe or attached to an airframe belonging to a party other than the Aircraft Engine Owner and being leased to the Airline under a separate engine lease agreement, would there be any significant changes to the responses set out above?

From the perspective of registration, no, since the Aviation Authority is of the view that the Aircraft has to be considered a single asset (any and all components of the Aircraft belong to the Aircraft and cannot be separately treated from legal point of view) notwithstanding that the Aircraft consists of the airframe and the engine which can be under separate ownership. Accordingly, if the Aircraft Engine Owner is different from the Owner of the Aircraft (airframe), the Aircraft Engine Owner cannot be registered with the aircraft register. Neither can any mortgage be established over only the Aircraft Engine and registered with the aircraft register. This latter does not prevent creation of a mortgage over the Aircraft Engine only and registering it with the general register of mortgages over as a mortgage over a movable asset. In summary, ownership and other contractual rights of an Aircraft Engine owner can be protected on a contractual basis which can be further strengthened with registration of a mortgage over the engines created separately from any aircraft mortgage.

17.2 In particular, does the Relevant Jurisdiction recognise the separate ownership of the Aircraft Engine by the Aircraft Engine Owner when the Aircraft Engine is attached to an airframe belonging to a person other than the Aircraft Engine Owner?

No, in the context of the registration of the Aircraft Engine Owner and the Aircraft Owner separately. However, it is not excluded to establish a mortgage over the Aircraft Engine (as an usual movable asset) separately from the airframe.

17.3 Is there a register of Aircraft Engines and is the information given above in relation to registration of Aircraft and the ownership and leasing of Aircraft the same for registration of an Aircraft Engine and the ownership and leasing of such Aircraft Engine at the Aircraft Engine register?

No.


18. ADDITIONAL INFORMATION – IS THERE ANYTHING ELSE WE SHOULD HAVE ASKED?

Are there any other matters, issues, recommended courses of action or steps which can be taken to protect and/or perfect the Owner’s interests, as owner and lessor of the Aircraft in the Relevant Jurisdiction or of which the Owner should be aware when contemplating leasing an aircraft to a company incorporated and operating in the Relevant Jurisdiction?

N/A