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.


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

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

In association with
Up-coming Events Search
Font Size:
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
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.