SEIZURE AND DETENTION OF AIRCRAFT IN CANADA. G. Dino DeLuca Allan D. Coleman Burnet, Duckworth & Palmer LLP Osler, Hoskin & Harcourt LLP

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1 SEIZURE AND DETENTION OF AIRCRAFT IN CANADA G. Dino DeLuca Allan D. Coleman Burnet, Duckworth & Palmer LLP Osler, Hoskin & Harcourt LLP

2 Airport & Navigation Fees Canadian Airport Authorities charge both domestic and international airlines for landing fees, terminal fees and other charges related to the use of their airports NAV Canada charges domestic and international airlines for providing air navigation services over Canadian airspace Airport Authorities often require deposits or letters of credit from airlines prior to granting the airlines access to airports. Airport Authorities also often require airlines to pre-pay certain fees expected to be incurred based on proposed flight schedules However, even after obtaining deposits and collecting pre-payments, circumstances arise where an airline has unpaid amounts owing to Airport Authorities or NAV Canada In such circumstances, in addition to the remedies available to any creditor, the Airport Authorities and NAV Canada have each been provided with a specific statutory remedy to seize and detain aircraft: the Airport Transfer (Miscellaneous Matters) Act for the Airport Authorities and the Civil Air Navigation Services Commercialization Act ( CANSCA ) for NAV Canada

3 Airport Transfer Act, Section 9(1) 9(1) Where the amount of any landing fees, general terminal fees or other charges related to the use of an airport, and interest thereon, set by a designated airport authority in respect of an airport operated by the authority has not been paid, the authority may, in addition to any other remedy available for the collection of the amount and whether or not a judgment for the collection of the amount has been obtained, on application to the superior court of the province in which any aircraft owned or operated by the person liable to pay the amount is situated, obtain an order of the court, issued on such terms as the court considers necessary, authorizing the authority to seize and detain aircraft. CANSCA, Section 56(1) 56(1) In addition to any other remedy available for the collection of an unpaid and overdue charge imposed by the Corporation for air navigation services, and whether or not a judgment for the collection of the charge has been obtained, the Corporation may apply to the superior court of the province in which any aircraft owned or operated by the person liable to pay the charge is situated for an order, issued on such terms as the court considers appropriate, authorizing the Corporation to seize and detain any such aircraft until the charge is paid or a bond or other security for the unpaid and overdue amount in a form satisfactory to the Corporation is deposited with the Corporation.

4 Seizure and Detention Applications Typically, applications for seizure and detention have been brought by the Airport Authorities and NAV Canada when an airline has become insolvent Because many commercial airlines lease their aircraft, the parties opposing the application often do not include the insolvent airline itself, but rather the lessors/owners of the aircraft Aircraft lessors have an interest in not having a multi-million dollar aircraft seized and detained for a debt owed to the Airport Authorities and NAV Canada by the airline If the seizure and detention application is granted, the aircraft lessors will effectively be required to pay the insolvent airline s debts in order to have their aircraft returned and subsequently redeployed. The seizure and detain order can encompass any aircraft within the jurisdiction and the aircraft can be held until the airline s debt to the Airport Authority is repaid, even if that specific aircraft was not responsible for any part of the debt owing. Discuss three decisions that engaged the competing interests of the Airport Authorities/NAV Canada and those of the aircraft lessors

5 Canada 3000 In November 2001, Canada 3000 Inc. filed for protection from its creditors under the Companies Creditors Arrangement Act the Canadian equivalent of Chapter 11 proceedings but ceased operations shortly thereafter and was placed into bankruptcy In November 1999, Inter-Canadian (1991) Inc. ceased operations. In January 2000, it filed a Notice of Intention to Make a Proposal under the Bankruptcy and Insolvency Act, but its creditors did not approve the proposal, so Inter-Canadian was deemed to have made an assignment into bankruptcy Canada 3000 and Inter-Canadian were the registered owners of various aircraft throughout the matter; however, the aircraft were leased from numerous third party lessors Airport Authorities and NAV Canada applied for detention remedies against the aircraft under section 9 of the Airport Transfer Act and section 56 of CANSCA As the aircraft were the subject of true leases, and as the airlines had ceased operations, the lessors of the aircraft were the parties with both legal title to, and the economic interest in, the aircraft. The aircraft lessors opposed the applications for the seizure and detention orders

6 Canada 3000 The Airport Authorities submitted that, as the airlines were the owners and operators of the aircraft at the time the seizure and detention orders were sought, the Airport Authorities were entitled to the seize and detain the aircraft, regardless of the fact that the lessors held title to the aircraft The lessors submitted that it was unfair to allow the Airport Authorities and NAV Canada to seize and detain their aircraft if the lessors were not personally liable for the airport and navigation fees owed by the airlines Supreme Court of Canada accepted position of NAV Canada and Airport Authorities that the seizure and detention remedies were available in the circumstances. However, the SCC also concluded that the lessors were not personally liable to pay the fees Legislative scheme was clear that any aircraft "owned or operated" by a person liable to pay the fees and charges could be seized. Therefore, remedy can be enforced against any aircraft in respect of which an airline is the owner or operator for fees that that airline has incurred. However, where the airline is insolvent and has ceased operations, the economic burden of the remedy will typically fall on the aircraft lessor, who will have to satisfy the outstanding debt of the airline in order to secure the return of its aircraft

7 Canada 3000 BINNIE J. of the Supreme Court of Canada: "The CARs, adopted pursuant to the Aeronautics Act, provide that an "operator" in respect of an aircraft "means the person that has possession of the aircraft as owner, lessee or otherwise" (s (1)). At the dates of the applications for seizure and detention orders, Canada 3000 and Inter-Canadian were still the registered owners of the aircraft. Accordingly, if the Court is to read the words of the detention remedy in the context of the realities of this industry previously discussed, it seems to me that those remedies must be available against the aircraft of Canada 3000 (except any aircraft already repossessed by the titleholder prior to the CCAA application on November 8, 2001) and Inter-Canadian. (Once a titleholder reclaims possession, it becomes an operator in possession within s. 55(1) of CANSCA. However, as its possession post-dates the charges, no personal liability is incurred on that account.)"

8 Zoom Airlines August 26, 2008, AerCap (the lessor) ed an aircraft lease termination notice to Zoom Airlines (the lessee), Transport Canada, and Zoom s insurer. Under the terms of the lease, upon termination, AerCap was entitled to take possession of the Aircraft August 27, 2008: At 01:31 MDT, Zoom informed AerCap that the Aircraft had departed Paris for Calgary. At approximately 13:00 MDT, AerCap retained the services of Skyservice Airlines Inc. to repossess the Aircraft upon its arrival in Calgary. Skyservice was instructed to seize the Certificate of Airworthiness, the Certificate of Registration and the Logbooks At 14:13 MDT, the Aircraft arrived at the Calgary Airport and at approximately 14:23 MDT, Skyservice boarded the Aircraft and collected the Certificate of Airworthiness, the Certificate of Registration and the Logbooks, and had taken possession of the Aircraft August 27, 2008 At 15:50 MDT, the Calgary Airport Authority appeared before Madam Justice Kent of the Court of Queen s Bench seeking an ex parte seizure and detention order At 16:15 MDT, unaware of the foregoing facts, Madam Justice Kent grants the detention order August 29, 2008 Halifax, Vancouver and Winnipeg Airport Authorities are added to the detention order AerCap posted cash collateral to cover the claims of all 4 Airport Authorities in order to allow the aircraft to leave the jurisdiction September 2, 2008 Transport Canada issues interim certificate of registration to Skyservice

9 Zoom Airlines On September 4, 2008 Madame Justice Kent set aside the Detention Order she granted to the Calgary Airport Authority on August 27, 2008:» By Section 9 of the Air Transfer Act, the Airport Authorities are able to obtain an order against an owner or operator who owes fees to the airport authority, and that was done in this case. Under the regulations, the Canadian Aviation Regulations, by Section , where the registered owner transfers any part of the legal custody or control of the aircraft, the certificate of registration of the aircraft is cancelled. In this case, that act occurred around 2:30 on August 27 th, when the agent for AerCap entered the aircraft. I do acknowledge that the change in registration as shown in the registry in Ottawa shows a date of September 2 nd, but in my view, at the time that the aircraft was on the ground in Calgary and the relevant books were turned over from the pilot to the agent for AerCap, there was a relinquishment or transfer of any part of the legal custody of this aircraft.

10 Zoom Airlines Calgary Airport Authority appealed from decision of Kent J. to set aside the seizure and detention order The appeal was dismissed, with the majority holding that the aircraft was no longer owned or operated by Zoom Airlines at the time the order was granted and therefore the seizure and detention remedy was not available to the Calgary Airport Authority in respect of the aircraft Once Skyservice, as agent for AerCap, entered GZUM, taking the certificate of airworthiness, certificate of registration and the log books, Zoom, as the registered owner, transferred legal custody and control over GZUM pursuant to section of the CARs. This cancelled Zoom s registered ownership status and allowed AerCap to became the owner of GZUM by taking complete responsibility for the operation and maintenance of the aircraft pursuant to sections and (3) of the CARs. Further, AerCap became the operator of GZUM, when it was repossessed through Skyservice. Therefore, at the time of the detention order, Zoom no longer "owned or operated" GZUM.

11 Zoom Airlines Leave to appeal to the Supreme Court of Canada was denied Airline operator must be the "owner or operator" at the time the detention remedy is sought Consistent with Canada 3000 decision and the exception that Binnie J. noted that the remedy would not be available where the aircraft had been repossessed Victory therefore goes to the swiftest Airport Authorities and NAV Canada must get to court before lessor retakes possession of aircraft

12 Skyservice Airlines The issue of the moment in time when an airline will cease to be the owner or operator of an aircraft became an issue again in Skyservice On March 31, 2010: Thomas Cook obtained a receivership order against Skyservice Transport Canada suspended its Air Operator Certificate Certain aircraft lessors purported to deliver to Skyservice notices of lease terminations GTAA, WAA & NAV Canada bring ex parte applications for seizure & detention orders (with OMCIAA subsequently being added) Lessors object to the granting of the orders on the basis that Skyservice was no longer the owner or operator of the aircraft, because: Skyservice had ceased operations Skyservice had abandoned the aircraft The appointment of the receiver; and Certain of the leases had purportedly been terminated

13 Skyservice Airlines First, Justice Morawetz granted a status quo order which froze the situation as it was when the Airport Authorities and NAV Can made their application Airport Authorities, NAV Can, and aircraft lessors then negotiated a release protocol pursuant to which aircraft lessors posted collateral with Skyservice s receiver and obtained the release of their aircraft Airport authorites and NAV Canada were successful on the merits. Justice Morawetz found that: Skyservice remained owner and operator of aircraft because it had retained possession over the aircraft Different from Zoom Airlines where the aircraft had been repossessed prior to the seizure and detention order being sought The Receiver did not take possession of the aircraft The Receivership Order stayed the lessors from terminating the leases and taking possession of the aircraft The Receivership Order did not stay the Airport Authorities and NAV Canada from seeking the seizure and detention order because that was not relief against the debtor or its property as the aircraft were subject to true leases

14 Skyservice Airlines Certain of the lessors appealed from the decision of Morawetz J. Court of Appeal unanimously dismissed the appeal Concluded that Justice Morawetz had applied the proper test in determining whether Skyservice remained the owner or operator of the aircraft The fact that Skyservice could not actually operate the aircraft did not mean it was not the owner or operator of the aircraft The fact that Skyservice s air operator certificate was cancelled did not mean that it ceded legal custody and control of the aircraft or that it ceded possession of the aircraft Purported termination of leases were ineffective by virtue of the stay in the Receivership Order The Airport Authorities and NAV Canada s right to the detention remedy was not affected by the stay

15 Questions Impact of various forms of stay vis-a-vis Airport Authorities and NAV Canada ability to obtain seizure and detention orders Issues arising from a domestic airline having aircraft in multiple jurisdictions that have been leased from multiple lessors Entitlement to seek seizure and detention order against aircraft expected to land in jurisdiction Any limitations on use of remedy against aircraft operated by international airlines but present in jurisdiction Other options available to lessors/airlines/airport Authorities to minimize the likelihood of future disputes