Canada: Aircraft Seizure And Detention Rights Of NAV Canada And Airport Authorities Have Priority Over The Property Interest Of Aircraft Lessors: The Supreme Court Of Canada Has Ruled

Last Updated: October 2 2006

A recent decision by the Supreme Court of Canada has significant implications for the aircraft leasing industry in Canada and has the effect of allocating costs, for air navigation charges, landing fees and the like, arising from the insolvency of an airline to aircraft lessors rather than to Canadian airport authorities or the national air traffic control authority ("NAV Canada"). On June 9, 2006, the Supreme Court of Canada allowed in part the appeals by NAV Canada and various airport authorities from two decisions (one by the Court of Appeal for Ontario and the other by the Québec Court of Appeal) concerning the rights of NAV Canada and airport authorities against the lessors of aircraft relating to unpaid charges incurred by a Canadian airline as lessee and operator of aircraft. The Supreme Court’s decision resolves very important priority and remedy issues for the aviation industry in Canada, in which many airlines lease the vast majority of the aircraft they operate and airline insolvencies have continued to occur.

FMC represented some of the aircraft lessors involved in the Ontario case and was actively involved in this litigation.

Background Facts

The Ontario case arose out of the financial collapse of Canada 3000 Airlines Limited and its related companies (collectively, "Canada 3000"), which operated a fleet of aircraft leased from various parties that retained legal title to the aircraft. After Canada 3000 obtained protection under the Companies’ Creditors Arrangement Act (the Canadian equivalent to Chapter 11 proceedings under the U.S. Bankruptcy Code), NAV Canada, which was owed approximately $7.4 million in unpaid charges for services it provided to Canada 3000, applied under the Civil Air Navigation Services Commercialization Act (the "CANSCA") to seize and detain certain aircraft in the possession of Canada 3000. Canada 3000 was subsequently assigned into bankruptcy, resulting in the lessors of the aircraft becoming entitled under their leases to repossess their aircraft. Various airport authorities, which together were owed approximately $21 million for various airport charges, then applied for an order authorizing the seizure and detention of the same aircraft pursuant to the Airport Transfer (Miscellaneous Matters) Act (the "Airports Act").

The Québec case, which related to ten separate claims made by the lessors of aircraft operated by Inter-Canadian (1991) Inc., arose out of similar factual circumstances to those in the Canada 3000 case.

The main issues were the same in both the Ontario and Québec cases. In both cases the aircraft lessors prevailed at the Courts of Appeal with those courts ruling that the airport authorities and NAV Canada did not have the right to seize and detain leased aircraft in priority to the rights of aircraft lessors who had retained title to the aircraft.

Decision of the Supreme Court

There were two main issues in the appeals. The first was whether or not the aircraft lessors are "owners" of the aircraft for the purposes of section 55 of the CANSCA, which provides for the joint and several liability of an "owner" and "operator" of an aircraft for unpaid air navigation charges. Justice Binnie, writing for a unanimous Supreme Court, agreed with the unanimous conclusions of both the Ontario and Québec Courts of Appeal that the lessors are not "owners" for the purposes of the section, which means that the aircraft lessors were not personally liable to NAV Canada for the unpaid charges incurred by Canada 3000 and Inter-Canadian (the Airports Act contains no provision comparable to section 55 of the CANSCA, and the airport authorities conceded that the aircraft lessors were not personally liable to them for the unpaid charges).

The second main issue concerned the interpretation of the sections of the CANSCA and the Airports Act entitling NAV Canada and airport authorities to apply for a court order permitting them to seize and detain aircraft for unpaid charges and fees. The issue was whether any seizure and detention order that might be made would have priority over the rights of the aircraft lessors (under operating leases who had retained title to the aircraft) to repossess their aircraft upon default by the operating airlines under their leases.

Justice Binnie, reversing the majority of both the Ontario and Québec Courts of Appeal on this issue, held that seizure and detention orders, once obtained by NAV Canada and the airport authorities, are effective against aircraft lessors. Justice Binnie reasoned that, if aircraft lessors were able to obtain release of seized aircraft without paying the outstanding charges, owing by the bankrupt airline, the recourse provided to NAV Canada and airport authorities under the seizure and detention provisions would be unavailable when it is most needed, i.e., when the aircraft operator becomes insolvent. In Justice Binnie’s view, the more reasonable interpretation of the seizure and detention provisions was that they provide for a right to seize and detain aircraft until the unpaid charges are paid or sufficient security is provided, regardless of who owns the aircraft.

In practical terms, this means that an aircraft lessor that wants the release of its detained aircraft will have to pay the outstanding charges in respect of which the aircraft was seized. In this regard, Justice Binnie held that, subject to a court order providing otherwise, any particular detained aircraft need not be released until the entire amount owed by the defaulting operator is paid. The likely practical implication of this ruling seems to be that a court making a seizure and detention order can, and will be expected to, exercise its discretion to place terms on the order to avoid burdening one aircraft lessor with the entire amount owing by an insolvent airline where that result would be unfair. How and when a court should achieve that result is not addressed in the Supreme Court’s decision and will have to be worked out in subsequent cases.

With respect to the issue of interest on the unpaid charges, Justice Binnie held that NAV Canada and airport authorities are entitled to charge and seize and detain aircraft in respect of both their unpaid fees and interest thereon. He held that interest runs to the earliest of the date of payment, the posting of appropriate security, or the bankruptcy of the operator. Justice Binnie also held that the remedy under a seizure and detention order is limited to possession, i.e., that such an order does not give rise to the power to sell the detained aircraft on the part of NAV Canada and airport authorities.

Comments

The Supreme Court’s decision allocates the risk of loss arising from the charges incurred but unpaid by an insolvent aircraft operator to the aircraft lessors rather than NAV Canada and airport authorities. Therefore, aircraft lessors should take this risk into account when entering into aircraft leases and drafting covenants (especially reporting and monitoring covenants). As noted by Justice Binnie, aircraft lessors may try to manage this risk by negotiating appropriate security deposit, reserve account, or similar arrangements when leasing aircraft. If you want to know more about this decision and its impact on your business, contact Peter Murphy, Chris Woodbury or Barbara Grossman of our firm who were involved in the case, or any member of Fraser Milner Casgrain LLP’s National Aviation practice group.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
23 Oct 2018, Other, Toronto, Canada

Dentons and SheEO are coming together for an evening of #radicalgenerosity on October 23, 2017. Meet Vicki Saunders, Founder of SheEO, and learn about how SheEO is changing the landscape for female entrepreneurs.

23 Oct 2018, Seminar, Montreal, Canada

Dentons is pleased to invite you to join us for a breakfast seminar as part of the Les Matinées Dentons series on issues relevant to you and your business.

24 Oct 2018, Other, Toronto, Canada

If you build it, claims may come. Join the Dentons Construction group for breakfast and an informative discussion on current topics in construction law.

 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions