1 . AIR CRAFT AND ENGINE PURCHASE AND SALE
1.1 Sales Agreements
1.1.1 Taxes/Duties Payable Upon Execution of the Sales Agreement
The Cayman Islands currently have no form of income, corporate or capital gains tax and no estate duty, inheritance tax or gift tax. Stamp duty may be payable on documents executed in, or brought to, the Cayman Islands or put before the Grand Court of the Cayman Islands (the Cayman Court).
1.1.2 Enforceability Against Domestic Parties
There is no formal legal requirement under Cayman Islands law that a sale agreement must be translated, certified, notarised or legalised to be valid or enforceable.
1.2 Transfer of Ownership
1.2.1 Transferring Title
Title is invariably transferred by way of bill of sale, and there are no specific formalities under Cayman Islands law.
If, following the sale of the relevant ownership interest, the entity owning legal title remains the same, no sale of the physical asset would occur. It should be noted that if the aircraft is registered with the Civil Aviation Authority of the Cayman Islands (CAACI), any change in the particulars of the aircraft (including any change in beneficial or legal ownership) furnished to the CAACI at the time of first registration should be notified to the CAACI within 28 days of such a change, in accordance with the Air Navigation (Overseas Territory) Order 2013 (as amended) (ANOTO).
1.2.2 Sales Governed by English or New York Law
There is no formal legal requirement under Cayman Islands law that a sale agreement must be translated, certified, notarised or legalised to be valid or enforceable.
1.2 Transfer of Ownership
1.2.1 Transferring Title
Title is invariably transferred by way of bill of sale, and there are no specific formalities under Cayman Islands law
If, following the sale of the relevant ownership interest, the entity owning legal title remains the same, no sale of the physical asset would occur. It should be noted that if the aircraft is registered with the Civil Aviation Authority of the Cayman Islands (CAACI), any change in the particulars of the aircraft (including any change in beneficial or legal ownership) furnished to the CAACI at the time of first registration should be notified to the CAACI within 28 days of such a change, in accordance with the Air Navigation (Overseas Territory) Order 2013 (as amended) (ANOTO).
1.2.2 Sales Governed by English or New York Law
There is no formal legal requirement under Cayman Islands law that a bill of sale needs to be governed by Cayman Islands law for the Cayman Court to recognise the title transfer. In the absence of public policy restrictions, the parties are free to choose the governing law of the bill of sale.
There are no known specific requirements other than the general requirements for any contract to be substantively valid as a contract.
1.2.3 Enforceability Against Domestic Parties
There is no formal legal requirement under Cayman Islands law that a bill of sale must be translated, certified, notarised or legalised to be valid or enforceable.
1.2.4 Registration, Filing and/or Consent From Government Entities
There is no formal legal requirement under Cayman Islands law for a bill of sale to be registered, filed, or subject to any consent from any government entity, except that a copy of the bill of sale should be provided to the CAACI in respect of aircraft which are or will be registered on the Cayman Islands Aircraft Register maintained by the CAACI (the Aircraft Register).
For a new registration, all relevant application forms may be submitted via the CAACI's online registration portal for approval by the Director General of Civil Aviation. The application should include a copy of the bill of sale for the aircraft in favour of the registering owner.
For a change in ownership, if there is a change in ownership of a Cayman Islands-registered aircraft, that change must be notified to the CAACI within 28 days in accordance with the ANOTO, and a copy of the bill of sale for the aircraft may be provided as evidence of that change in ownership. The CAACI will also require certain due diligence on the new owner and that all outstanding fees in respect of the aircraft are settled prior to updating the Aircraft Register.
In each case, once all the information has been provided to the CAACI, the Aircraft Register is often updated on the same day.
No government applications or consents are a prerequisite to executing and delivering a bill of sale in relation to an aircraft or engine registered in the Cayman Islands
Assuming the bill of sale satisfies the requirements for registration as an "international interest" under the Cape Town Convention (as defined in 2.10 Cape Town Convention and Others), such filings can be made on the International Registry (IR).
1.2.5 Taxes/Duties Payable Upon Execution of a Bill of Sale
See 1.1.1 Taxes/Duties Payable upon Execution of the Sales Agreement.
2 . A I R C R A F T A N D E N G I N E LEASING
2.1 Overview
2.1.1 Non-permissible Leases
Subject to the general requirements for any contract to be substantively valid as a contract, there are no known types of leases that are not permissible or recognised under Cayman Islands law.
2.1.2 Application of Foreign Laws
In principle, the Cayman Court will recognise and enforce an aircraft lease governed by the laws of a jurisdiction other than the Cayman Islands, provided that:
- the choice of governing law was made in good faith by the parties and would be regarded as a valid and binding selection and upheld in the courts of that foreign jurisdiction and all other relevant jurisdictions; and
- the lease has been duly executed and delivered and, as a matter of the laws of all relevant jurisdictions, constitutes the legal, valid and binding obligations of each of the parties thereto, enforceable under its terms.
Subject to the provisos above and general qualifications, one would expect the Cayman Court to give effect to English law or New York lawgoverned lease in customary form and on customary market terms.
The term "enforceable" and its cognates, as used in this analysis, means that the obligations assumed by any party under any document are of a type that the Cayman Court would enforce. This does not mean that those obligations will necessarily be enforced in all circumstances in accordance with their terms
2.1.3 Restrictions Concerning Payments in US Dollars
There are currently no foreign exchange controls or foreign exchange regulations under Cayman Islands law.
2.1.4 Exchange Controls
See 2.1.3 Restrictions Concerning Payments in US Dollars.
2.1.5 Taxes/Duties Payable for Physical Execution of a Lease
See 1.1.1 Taxes/Duties Payable upon Execution of the Sales Agreement.
2.1.6 Licensing/Qualification of Lessors
There are no formal legal requirements under Cayman Islands law for lessors to be licensed or otherwise qualified in the Cayman Islands to do business with a domestic lessee.
2.2 Lease Terms
2.2.1 Mandatory Terms for Leases Governed by English or New York Law
There are no mandatory terms that a lease (or ancillary documents thereto) is required to contain under Cayman Islands law other than the general requirements for any contract to be substantively valid.
Assuming the lease is effective to create, within the meaning of the Cape Town Convention, "international interests" vested in the lessor with respect to the airframe and engines, IR filings can be made in respect of those interests. See 2.10 Cape Town Convention and Others.
2.2.2 Tax and Withholding Gross-Up Provisions
Tax and other withholding gross-up provisions are permissible and enforceable in the Cayman Islands, provided such provisions are permissible and enforceable pursuant to the governing law of the lease. See 2.1.2 Application of Foreign Laws with respect to the enforceability of a lease governed by foreign law.
2.2.3 Parts Installed or Replaced After a Lease's Execution
A lease can cover parts installed or replaced on an aircraft or engine after its execution, and any steps to be taken would be a matter of the governing law of the lease.
2.2.4 Risk of Title Annexation
There is no known risk of title annexation under Cayman Islands law. However, it is common market practice for relevant parties to enter into contractual "recognition of rights" agreements with other interested parties when engines are installed on different airframes.
2.2.5 Recognition of the Concepts of Trust/ Trustee
Cayman Islands law recognises trusts, although the concept of a trust under the laws of the Cayman Islands may differ from other jurisdictions; eg, a trust constituted under the laws of the Cayman Islands does not have a legal personality.
2.3 Lease Registration
2.3.1 Notation of Owner's/Lessor's Interests on Aircraft Register
The Aircraft Register is primarily a private-use category register, and any aircraft registered in the Cayman Islands must not be used for commercial operations unless the operator holds an Air Operator's Certificate. The Aircraft Register is a register of registered owners and aircraft only, and the recording of details on the Aircraft Register does not determine priority between competing interests in the aircraft.
It is possible to register the aircraft in the name of:
- the owner of the aircraft; or
- the "charterer by demise", provided such a party is qualified to be the registered owner pursuant to the ANOTO.
A qualified person under the ANOTO includes:
"a. the Crown in right of Her Majesty's government in the United Kingdom or in right of the government of the territory;
b. United Kingdom nationals;
c. Commonwealth citizens;
d. nationals of any European Economic Area state or of the Swiss Confederation;
e. bodies incorporated in any part of the Commonwealth and that have their registered office or principal place of business in any part of the Commonwealth; or
f. undertakings formed in accordance with the law of a European Economic Area state or within the Swiss Confederation and that have their registered office, central administration or principal place of business within the European Economic Area or within the Swiss Confederation."
Full details of the requirements and eligibility for registration of aircraft on the Aircraft Register are set out in the ANOTO.
It is also possible to note the interests of other parties (such as the lessor or a mortgagee) on the Aircraft Register.
No legislation in the Cayman Islands expressly provides that recording a "charterer by demise" as the registered owner constitutes public notice of a lessor's interest in the relevant aircraft. However, a person examining a certificate of registration in which the lessor's interest is noted will have actual notice of that interest. It would be reasonable to expect the Cayman Court to consider inspection of the Aircraft Register in respect of an aircraft that records that the registered owner is a "charterer by demise" to constitute actual notice to the inspecting party of third-party interest in the relevant aircraft.
2.3.2 Registration if the Owner Is Different From the Operator
See 2.3.1 Notation of Owner's/Lessor's Interests on Aircraft Register.
In order to register an aircraft on the Aircraft Register:
- an aircraft registration application must be submitted (this can be done via the CAACI's online platform) and a deposit paid;
- financial and legal due diligence satisfactory to the CAACI must be completed, following which the CAACI will issue a notice of acceptance of the applicant and a reserved Cayman Islands registration mark;
- an airworthiness survey of the aircraft must be completed by a CAACI surveyor;
- supporting documentation (including various technical forms) must be completed and submitted; and
- deregistration from any existing state of registration must be completed.
2.3.3 Aircraft/Engine-Specific Registers
There is no formal legal requirement for a lease to be registered with the CAACI in relation to an aircraft registered in the Cayman Islands. However, it is usual in the case of an aircraft to be registered in the name of its "charterer by demise" for the CAACI to request a copy of the aircraft lease in support of the registration application.
There is no separate engine register maintained by the CAACI.
2.3.4 Registration of Leases With the Domestic Aircraft Registry
See 2.3.1 Notation of Owner's/Lessor's Interests on Aircraft Register and 2.3.3 Aircraft/ Engine-Specific Registers. Leases are not subject to consent from any government entity.
2.3.5 Requirements for a Lease to Be Valid and Registrable
See 2.3.1 Notation of Owner's/Lessor's Interests on Aircraft Register and 2.3.3 Aircraft/ Engine-Specific Registers. An aircraft lease submitted to the CAACI is not required to satisfy any formalities, although the CAACI will ask for a lease in a language other than English to be accompanied by an English translation.
2.3.6 Taxes/Duties Payable for Registering a Lease
See 2.3.1 Notation of Owner's/Lessor's Interests on Aircraft Register and 2.3.5 Requirements for a Lease to Be Valid and Registrable. Any fees payable to the CAACI are for registration of the aircraft, not the lease.
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Originally published by Chambers Global Practice Guides.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
