COURT OF APPEAL FOR ONTARIO

CITATION: Greater Toronto Airports Authority v. IAI V, Inc., 2012 ONCA 283

DATE: 20120502

DOCKET: C53721

BEFORE: O’Connor A.C.J.O., LaForme J.A. and Cunningham A.C.J. (ad hoc)

IN THE MATTER OF THE RECEIVERSHIP OF SKYSERVICE AIRLINES INC., of the City of Toronto, in the Province of Ontario

AND IN THE MATTER OF AN APPLICATION pursuant to Section 9 of the Airport Transfer (Miscellaneous Matters) Act, S.C. 1992, c. 5 (Application by the Greater Toronto Airports Authority)

AND IN THE MATTER OF AN APPLICATION pursuant to Section 9 of the Airport Transfer (Miscellaneous Matters) Act, S.C. 1992, c. 5 (Application by the Ottawa MacDonald-Cartier International Airport Authority)

AND IN THE MATTER OF AN APPLICATION pursuant to Section 56 of the Civil Air Navigation Services Commercialization Act, S.C. 1996, c. 20, as amended (Application by NAV Canada)

BETWEEN

Greater Toronto Airports Authority, Ottawa MacDonald-Cartier International Airport Authority and NAV Canada

Applicants/Responding Parties (Respondents)

and

IAI V, Inc., MCAP Europe Limited, Celestial Aviation Trading 23 Limited, Thomson Airways Limited, Sunwing Tours Inc., International Lease Finance Corporation, and CIT Leasing Corporation

Respondents/Moving Parties (Appellants)

Donald Gray, Auriol Marasco and Victoria Allsopp, for the appellants

Clifton P. Prophet, E. Patrick Shea and Frank Lamie, for the respondent, NAV Canada

Allan D. Coleman and Shawn T. Irving, for the respondents, Greater Toronto Airports Authority and Ottawa MacDonald-Cartier International Airport Authority

Heard: November 7, 2011

On appeal from the order of Justice Geoffrey B. Morawetz of the Superior Court of Justice dated April 6, 2011, with reasons reported at 2011 ONSC 703, 78 C.B.R. (5th) 193.

H.S. LaForme J.A.:

[1] Skyservice Airlines Inc. collapsed in March 2010 leaving over $1.5 million in unpaid bills for airport charges and air navigation services. The question before this court is, who must bear this financial loss: the authorities who were obliged to and did provide those services, or the ultimate owners of the aircraft that were leased to Skyservice?

[2] A similar question was answered by the Supreme Court of Canada in Canada 3000 Inc. (Re); Inter-Canadian (1991) Inc. (Trustee of), 2006 SCC 24, [2006] 1 S.C.R. 865, in the context of the collapse of the Canada 3000 and Inter-Canadian airlines. In Canada 3000, the Supreme Court held that the authorities were entitled to seize and detain aircraft to recover amounts owed to them by the collapsed airlines without regard to the property interests of the aircraft owners.

[3] The application judge held that this case is indistinguishable from Canada 3000 in any relevant respect. Consequently, the application judge concluded that the respondent authorities were entitled to seize and detain aircraft to recover amounts owed to them by Skyservice without regard to the property interests of the appellant aircraft owners.

[4] For the reasons that follow, I find that the application judge made no reversible error and would dismiss this appeal.

A. Factual Background

[5] Skyservice was a Canadian airline, headquartered in Toronto and incorporated under the laws of Canada. It offered domestic and international charter flight air service, and flew in and out of the Toronto Pearson International Airport and the Ottawa MacDonald-Cartier International Airport on a regular basis.

[6] Skyservice operated a fleet of twenty aircraft, which it leased from various lessors. Three of the aircraft were leased from the appellants, IAI V, Inc., MCAP Europe Limited, and Celestial Aviation Trading 23 Limited.

[7] Ten of the aircraft it had operated were returned to the lessors of those aircraft shortly before Skyservice went into receivership on March 31, 2010. The other ten aircraft, including the three leased from the appellants, were the subject of seizure and detention applications made by the respondents, the Greater Toronto Airports Authority (the “GTAA”), the Ottawa MacDonald-Cartier International Airport Authority (the “OMCIAA” and, together with the GTAA, the “Airport Authorities”), and NAV Canada.[^1]

[8] The events relevant to the seizure and detention applications took place as follows.

[9] On March 30, 2010, at around 5:30 p.m., all of Skyservice’s officers and directors resigned. The officers and directors caused Skyservice to pay all of its statutory priority payables because of concern that it would not continue to operate after March 30.

(1) March 31, 2010

(a) Receivership

[10] On March 31, 2010, Skyservice went into receivership. At approximately 11:00 a.m., Gans J. granted a receivership order pursuant to the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (“BIA”), s. 243(1), and the Courts of Justice Act, R.S.O. 1990, c. C.43, s. 101. Among other things, the Receivership Order appointed a receiver over the assets, undertakings and properties of Skyservice. The receiver was authorized to wind down Skyservice’s business, but not to operate it.

[11] The Receivership Order also imposed a stay of proceedings in respect of Skyservice. Paragraph 9 of the Receivership Order reads in part: “all rights and remedies against [Skyservice], the Receiver, or affecting [the assets, undertakings and properties of Skyservice], are hereby stayed and suspended except with the written consent of the Receiver or leave of this Court”.

(b) Suspension of licenses

[12] At approximately the time of the Receivership Order, Transport Canada (the airline’s regulator) suspended the air operator certificate and aircraft maintenance organization licenses and authorities held by Skyservice under s. 103.07 of the Canadian Aviation Regulations, SOR/96-433 (the “CARs”), and s. 7.1(1)(b) of the Aeronautics Act, R.S.C. 1985, c. A-2. This was done because Skyservice ceased business and could no longer meet the requirements of its air operator certificate, including possessing or having the authority or capacity to maintain or operate aircraft.

(c) Termination of leases

[13] Skyservice’s cessation of business and the appointment of the receiver constituted events of default under the various aircraft leases between the lessors and Skyservice. Subject to the provisions of the Receivership Order, the events of default would have permitted the lessors to exercise remedies under the applicable leases.

[14] After the Receivership Order was granted, MCAP and IAI purported to terminate their leases with Skyservice, but did not take physical possession or control of their aircraft. None of the other lessors took physical possession of their aircraft.

(d) Seizure and detention applications

[15] At approximately 3:00 p.m., the GTAA commenced an ex parte application for an order under s. 9 of the Airport Transfer (Miscellaneous Matters) Act, S.C. 1992, c. 5 (“Airports Act”) authorizing it to seize and detain aircraft until the amount Skyservice owed the GTAA was paid.

[16] At around 5:00 p.m., the application was initially heard and solicitors for the lessors of the aircraft were in attendance and made submissions.

[17] NAV Canada verbally requested similar relief to that sought by the GTAA and later, on April 6, 2010, formally brought its application under s. 56 of the Civil Air Navigation Services Commercialization Act, S.C. 1996, c. 20 (“CANSCA”). Also on April 6, 2010, the OMCIAA brought its application for an aircraft seizure and detention order under s. 9 of the Airports Act.

(e) Status quo order

[18] The application judge granted a status quo order effective as of 6:30 p.m. The Status Quo Order provided, among other things, that no person, including the receiver, was permitted to take, or cause any steps to be taken, to possess, repossess, or to dispossess Skyservice of any aircraft owned or operated by Skyservice, pending the hearing and determination of the GTAA’s and NAV Canada’s applications. The lessors were permitted to take certain steps to relocate, inspect, protect and preserve the aircraft, provided that those steps were deemed not to constitute the exercise of custody, control or possession of the aircraft.

(2) After March 31, 2010

(a) Release protocol

[19] Following the Status Quo Order, the parties negotiated a release protocol. The lessors were to post cash security with the receiver for the amounts that the Airport Authorities and NAV Canada claimed were owed to them by Skyservice. In exchange, the Airport Authorities and NAV Canada were to release their claims against the ten aircraft that were the subject of the seizure and detention applications.

[20] The release protocol was approved by the application judge pursuant to an order dated April 9, 2010, which specified that the seizure and detention applications were to be “determined based on facts and legal circumstances as they existed at 6:30 p.m. (Toronto time) on March 31, 2010, being the effective date of the Status Quo Order”.

(b) Aircraft return agreements

[21] On April 15, 2010, the receiver obtained court approval to enter into a series of agreements specifying the terms upon which possession, custody and control of the aircraft would be transferred from Skyservice to the lessors. The lessors subsequently obtained possession and control of the aircraft.

(c) Hearing of the seizure and detention applications

[22] On June 1 and 16, 2010, the application judge heard the three aircraft seizure and detention applications, that is: (1) the GTAA’s application under s. 9 of the Airports Act to recover unpaid fees and charges related to Skyservice’s use of Toronto Pearson International Airport; (2) the OMCIAA’s application under s. 9 of the Airports Act to recover unpaid fees and charges related to Skyservice’s use of the Ottawa MacDonald-Cartier International Airport; and (3) NAV Canada’s application under s. 56 of CANSCA to recover unpaid charges related to Skyservice’s use of air navigation services.

[23] The lessors of the ten aircraft that were the subject of the applications disputed priority to the aircraft. The lessors took the position that the Airport Authorities and NAV Canada did not have the right to seize and detain their aircraft for any amounts Skyservice owed them. The lessors brought motions requesting, among other things, declarations to this effect.

(d) The application judge’s decision

[24] By order dated April 6, 2011, the application judge granted the three aircraft seizure and detention applications. The application judge ordered and declared that the applications were not affected by the stay, and were enforceable up to the full amount owing to the GTAA, the OMCIAA and NAV Canada. The lessors’ motions were dismissed.

[25] The appellants now appeal the application judge’s order with respect to their three aircraft.

[26] Before turning to the substance of the application judge’s decision, I will explain the statutory requirements that must be met in order to grant a seizure and detention order under s. 9 of the Airports Act and s. 56 of CANSCA, as well as the interpretation of those requirements in the relevant cases.

B. Statutory requirements for a seizure and detention order

[27] As mentioned, the Airport Authorities brought their aircraft seizure and detention applications under s. 9 of the Airports Act, and NAV Canada brought its application under s. 56 of CANSCA. These provisions are to the same effect.

[28] Both s. 9 and s. 56 allow an applicant to bring an application to the superior court of the province in which any aircraft owned or operated by a person liable to pay an amount or charge is situated for an order authorizing the applicant to seize and detain aircraft until the amount or charge is paid.

[29] Section 9 of the Airports Act reads:

Seizure and detention for fees and charges

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[, which includes the GTAA and OMCIAA,] 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.

[Application may be ex parte]

(2) Where the amount of any fees, charges and interest referred to in subsection (1) has not been paid and the designated airport authority has reason to believe that the person liable to pay the amount is about to leave Canada or take from Canada any aircraft owned or operated by the person, 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 ex parte application to the superior court of the province in which any aircraft owned or operated by the person 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.

Release on payment

(3) Subject to subsection (4), except where otherwise directed by an order of a court, a designated airport authority is not required to release from detention an aircraft seized under subsection (1) or (2) unless the amount in respect of which the seizure was made is paid.

Release on security

(4) A designated airport authority shall release from detention an aircraft seized under subsection (1) or (2) if a bond, suretyship or other security in a form satisfactory to the authority for the amount in respect of which the aircraft was seized is deposited with the authority.

Same meaning

(5) Words and expressions used in this section and section 10 have the same meaning as in the Aeronautics Act.

[30] Section 56 of CANSCA reads:

Seizure and detention of aircraft

56. (1) In addition to any other remedy available for the collection of an unpaid and overdue charge imposed by the Corporation[, NAV Canada,] 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.

Application may be ex parte

(2) An application for an order referred to in subsection (1) may be made ex parte if the Corporation has reason to believe that the person liable to pay the charge is about to leave Canada or take from Canada any aircraft owned or operated by the person.

Release

(3) The Corporation shall release from detention an aircraft seized under this section if

(a) the amount in respect of which the seizure was made is paid;

(b) a bond or other security in a form satisfactory to the Corporation for the amount in respect of which the seizure was made is deposited with the Corporation; or

(c) an order of a court directs the Corporation to do so.

[31] It is sufficient for our purposes to say that, to obtain a seizure and detention order under either s. 9 or s. 56, two requirements must be satisfied.

[32] First, Skyservice must owe the Airport Authorities amounts related to the use of the airport it operates for purposes of s. 9, and must owe NAV Canada charges related to air navigation services for purposes of s. 56. This requirement is clearly established in this case for all of the respondents.

[33] Second, Skyservice must have “owned or operated” the aircraft that are to be subject to the seizure and detention order. The issues in this case are grounded in this second requirement.

C. Interpretation of the statutory requirements

[34] The Supreme Court of Canada’s decision in Canada 3000 and the Alberta Court of Appeal’s decision in Calgary Airport Authority v. AerCap Group Services Inc., 2009 ABCA 306, 460 A.R. 341 (“Zoom”), are central to this proceeding. Both cases addressed the issue before this court (namely, whether aircraft to which the lessors held legal title should be subject to seizure and detention orders to answer for the unpaid amounts owed by a collapsed airline). I will set out the facts and decision in both cases to illustrate how these cases have interpreted the statutory requirement that the debtor airline must have “owned or operated” the aircraft that are to be subject to the seizure and detention order.

(a) Canada 3000

i. Factual background: the collapse of Canada 3000 in 2001

[35] On November 8, 2001, Canada 3000 Airlines Ltd. and Royal Aviation Inc. (collectively, “Canada 3000”) filed for protection under the Companies’ Creditors Arrangement Act, R.S.C., 1985, c. C-36 (“CCAA”). An initial order was granted on that date staying all proceedings by creditors pending the filing of a plan of arrangement. The stay contemplated that operations would continue, but Canada 3000 issued a press release five hours later declaring that the airlines had ceased operations.

[36] A further order issued the next day grounded Canada 3000’s fleet and provided for the return of aircraft to Canada. The day after that, November 10, 2001, the directors and officers of Canada 3000 resigned and Canada 3000 was put into bankruptcy.

[37] Some of the various aircraft leases were terminated and the lessors became entitled to repossession by the granting of the CCAA order, by cessation of operations, or by the assignment in bankruptcy. However, the CCAA stay operated, in effect, as an interim bar to repossession.

[38] Despite that the lessors retained legal title to the aircraft; Canada 3000 was registered as owner of all of the aircraft under the Aeronautics Act.

[39] The various airport authorities and NAV Canada applied for seizure and detention orders over the relevant aircraft under s. 9 of the Airports Act and s. 56 of CANSCA, respectively. NAV Canada brought its application on November 9, 2001, and was followed by the GTAA on November 12 and the other airport authorities on November 23. Cross-motions were brought by the various aircraft lessors seeking, among other relief, interim release of the aircraft and declarations that the airport authorities and NAV Canada were not entitled to seize and detain the aircraft. In other words, the various forms of relief sought by the parties in Canada 3000 are the same as those sought in our case.

ii. Factual background: the collapse of Inter-Canadian in 1999

[40] Canada 3000 also dealt with the collapse of Inter-Canadian (1991) Inc. Airline in 1999.

[41] On November 27, 1999, Inter-Canadian ceased operations and laid off 90 percent of its employees. The airport authorities and NAV Canada moved to seize and detain a number of the aircraft through early December 1999 in order to recover approximately $5 million owed to them by Inter-Canadian. The seizure motions were granted by the Quebec Superior Court.

[42] One of the lessors had purported to terminate its lease with Inter-Canadian prior to the seizure motions, but the aircraft remained on the airport tarmac.

[43] Inter-Canadian filed a notice of intention to make a proposal to its creditors pursuant to the BIA on January 5, 2000. In March, the airline’s creditors rejected the proposal and Inter-Canadian was deemed to have retroactively made an assignment in bankruptcy as of January 5.

[44] In response to the legal titleholders’ claims that they were entitled to repossession of the aircraft, the trustee in bankruptcy applied to the Superior Court for directions on the validity of the detention and the liability of the legal titleholders liable for the amounts owing.

iii. The Supreme Court’s Decision

[45] For a unanimous court, Binnie J. held that the authorities were entitled to the seizure and detention orders, holding that the statutory requirements of s. 9 of the Airports Act and s. 56 of CANSCA were met with respect to both Canada 3000 and Inter-Canadian.

[46] The detention remedy, Binnie J. specified, is available against an aircraft either “owned or operated” by a person liable to pay, with the exception of any aircraft already repossessed by the legal titleholder. At para. 74, he approved the conclusion of Juriansz J. – who was sitting ad hoc and dissented in part in the Court of Appeal decision under appeal – that the statutory remedy takes priority to the property interests of the lessors:

74 …the wording of the Detention Provisions makes apparent that aircraft may be seized and detained without regard to the property interests of persons who are neither the registered owners nor the operators of the aircraft under the legislation. As long as the aircraft is owned or operated by a person liable to pay the outstanding charges, it may be the subject of an application to seize and detain it. The fact that there may be other persons, who are not liable to pay the outstanding charges but have property interests in the aircraft, is of no consequence…

[47] Binnie J. discussed the meaning of “owner” in the legislative framework of aeronautics in Canada at paras. 54-56. Binnie J. found that the policy and practice of Canada’s regulatory aeronautics scheme is to use the term “owner” to refer to those in legal custody and control of the aircraft, and that a person who is the “registered owner” of an aircraft constitutes an “owner”:

55 The policy and practice throughout the federal regulatory scheme is to use the term “owner” to refer to the person in legal custody and control of the aircraft, not the legal titleholder. The CARs, for example, define owner as “the person who has legal custody and control of the aircraft” (s. 101.01(1)). The Aeronautics Act refers only to “registered owners” and, under s. 4.4(5), only the operator or registered owner may face liability for charges imposed under that Act. Section 3(1) defines a registered owner as the person to whom a certificate of registration has been issued and the CARs make clear that an aircraft may only be registered by an owner who, again, must have legal custody and control of the aircraft; see ss. 202.15 to 202.17. Section 2(2) of CANSCA itself states that “[u]nless a contrary intention appears, words and expressions used in this Act have the same meaning as in subsection 3(1) of the Aeronautics Act.” I appreciate that arguments are available to counter these points but in my view the legal titleholders have the better side of the debate.

56 Internationally, the Convention on International Civil Aviation, December 7, 1944, Can. T.S. 1944 No. 36 (the “Chicago Convention”), does not require legal title to correspond with registered ownership. Article 19 states that registration shall be in accordance with the laws of the contracting State. It is common ground that, by virtue of ss. 202.15, 202.16 and 202.17 of the CARs, an aircraft may only be registered in the Canadian Civil Aircraft Register by the “owner” of the aircraft as that term is defined under s. 101.01(1) of the CARs, and that that person is the entity having legal custody and control of the aircraft. Thus an airline operating aircraft in Canada under a long-term lease is named on the Certificate of Registration as “owner” of the aircraft, notwithstanding that title is actually held by the lessor; see D. H. Bunker, Canadian Aviation Finance Legislation (1989), at p. 764. We have been given no reason why the privatization legislation should be held to depart so strikingly from Canadian regulatory practice.

[48] At para. 70, Binnie J. addressed the meaning of “operator” and concluded that Canada 3000 and Inter-Canadian “owned or operated” the relevant aircraft at the dates of the applications for seizure and detention orders:

70 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. 101.01(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.)

[49] The exception for “any aircraft already repossessed by the titleholder” contemplated by Binnie J. in para. 70 was picked up on by the Alberta Court of Appeal in Zoom.

(b) Zoom

i. Factual background: the collapse of Zoom Airlines in 2008

[50] Zoom Airlines Incorporated was in default under an aircraft lease. The lessor, AerCap Group Services Inc., faxed a notice of default to Zoom on August 25, 2008 at 3:05 p.m. indicating its intention to terminate the lease and repossess its aircraft if the default was not remedied.

[51] The default was not remedied and, on August 26, 2008 at 5:02 p.m., AerCap gave written notice of termination to Zoom, Zoom’s insurer, and Transport Canada. The lease provided that AerCap was entitled to take possession of the aircraft upon termination.

[52] Early the next day, Zoom and AerCap exchanged a series of emails in which Zoom requested reinstatement of the lease upon payment. AerCap refused the request, confirming termination of the lease and advising that it required possession of the aircraft and payment of arrears and then would provide a new lease.

[53] AerCap hired an agent to repossess its aircraft. At about 2:23 p.m. on August 27, 2008, an employee of the agent met the aircraft as it arrived at the Calgary airport, boarded the aircraft and advised the pilot that he was taking possession of the aircraft. He then collected the certificate of airworthiness, the certificate of registration and the logbooks. The agent surrendered the two certificates to Transport Canada at about 4:30 p.m. and notified Transport Canada that the lease between Zoom and AerCap had been terminated. At about 5:00 p.m., Zoom filed a notice of intention under the BIA.

[54] Meanwhile, at about 4 p.m., the Calgary Airport Authority obtained an ex parte seizure and detention order under s. 9 the Airports Act. At this point, Zoom was still listed in the Canadian Civil Aircraft Register as the owner of the aircraft.

[55] On August 29, 2008, AerCap brought a motion to set the detention order aside, which raised the question of whether Zoom still “owned or operated” the aircraft at the time the detention order was made.

ii. The Alberta Court of Appeal’s decision

[56] The Court of Appeal, in a majority decision, held that Zoom did not own or operate the aircraft at the time of the detention order and, accordingly, affirmed the motion judge’s decision to set aside the detention order.

[57] The majority reasoned, at para. 31, that once AerCap’s agent boarded the aircraft and took the certificate of airworthiness, certificate of registration and the logbooks, Zoom, as registered owner, transferred legal custody and control of the aircraft to AerCap pursuant to s. 202.35 of the CARs. AerCap became the “owner” of the aircraft because the transfer of legal custody and control cancelled Zoom’s registered ownership status and allowed AerCap to take complete responsibility for the operation and maintenance of the aircraft. AerCap also became the “operator” of the aircraft when it was repossessed by the agent.

[58] Canada 3000 was distinguished on the basis that, in Zoom, at the time of the detention order, the lessor had already taken active steps to obtain legal custody and control, and in fact had repossessed the aircraft. Consequently, Zoom fell within the exception contemplated by Binnie J. at para. 70.

D. The application judge’s Reasons

[59] The application judge stated that the priority issue in this case is, in many respects, the same issue addressed in Canada 3000 and Zoom. Accordingly, he characterized the issues as: (1) Can the case at bar be distinguished from Canada 3000? (2) If Canada 3000 cannot be distinguished, it becomes the controlling authority, and the sole question is whether any of the lessors repossessed the aircraft prior to the Receivership Order and thus regained their status as owners and operators, as was the case in Zoom.

[60] After reviewing both Canada 3000 and Zoom, the application judge held that (1) the case at bar cannot be distinguished from Canada 3000, and (2) no repossession of the aircraft had occurred prior to the Receivership Order. He concluded, at para. 102: “The period following the granting of the Status Quo Order was, in my view, equivalent to the position of the parties that were before the court in Canada 3000. I must follow the same result.”

[61] The application judge’s principal findings are set out in paras. 95 and 96 of his reasons:

[95] The outcome is, in my view, clear. There was no repossession of Aircraft prior to the Receivership Order. Repossession could not occur after the granting of the Receivership Order, absent consent of the Receiver or leave of the court, neither of which occurred. Therefore, at the time that the Status Quo Order was granted, no lessor had completed repossession in the manner set out in Zoom. In fact, no repossession took place until the order of April 15, 2010.

[96] At the time of the Receivership Order and the Status Quo Order, Skyservice was in possession of the airplanes. It was still the registered owner. It may not have had the ability to operate the Aircraft but, within the context of the principles set out in Canada 3000, it was, in my view, the “owner” or “operator” of the Aircraft. It remained “owner” or “operator” of the Aircraft as of April 6, 2010, by which time GTAA had amended its application, OMCIAA had formally commenced its application and NAV Canada had formally commenced its application. The priority dispute that then evolved with the Airport Authorities and NAV Canada was identical to that in Canada 3000.

[62] The application judge rejected the lessors’ argument that Canada 3000 and Zoom should be distinguished on the basis that a stay in the receivership context (as in this case) cannot be equated with stays under the CCAA or Part III of the BIA (as in Canada 3000 and Zoom). The application judge disposed of this submission by pointing out that the parameters of the stay are defined by the language of the Receivership Order, not the receivership context generally.

[63] The application judge also rejected the lessors’ assertion that the steps taken by the lessors to terminate their leases with Skyservice affected the availability of the detention remedy. He found, at para. 93, that the “fundamental difficulty and fatal flaw with this position was that proceedings to enforce any remedy as against Skyservice were stayed” by the Receivership Order, and explained this finding, at para. 89:

[89] Any action taken to terminate an Aircraft lease with Skyservice after the granting of the Receivership Order is the enforcement of a remedy against Skyservice, which, absent the written consent of the Receiver or leave of the Court, is expressly prohibited under paragraph 9 of the Receivership Order. No written consent of the Receiver was provided and no leave of the Court was granted.

[64] In the result, at para. 94, the application judge concluded that “Canada 3000 addresses all of the arguments put forth by the aircraft lessors and it is a complete answer to the position put forth by the aircraft lessors”.

E. NATURE OF THE APPEAL

[65] The appellants submit that the sole issue on appeal is whether the application judge erred in holding that the respondents are entitled to the seizure and detention orders.

[66] Broadly speaking, the appellants’ position is that the application judge erred in holding that Skyservice “owned or operated” aircraft for the purposes of s. 9 of the Airports Act and s. 56 of CANSCA. The appellants attempt to distinguish this case from Canada 3000 and submit that the principles in Zoom assist them. They also raise several sub-issues based on the timing and content of the Airport Authorities’ applications.

[67] The respondents submit that this is not a complicated case. The application judge was asked to follow the principles of statutory interpretation as applied to s. 9 and s. 56 by Binnie J. in Canada 3000, and made no error in doing so. The respondents submit that Canada 3000 is not distinguishable from this case in any manner that resulted in Skyservice relinquishing or transferring its status as “owner” or “operator” of the relevant aircraft.

[68] I agree with the application judge that a number of the lessors’ submissions in this proceeding are misplaced and need not be fully addressed. Much of the written and oral argument in this appeal dealt with the correct interpretation of s. 9 of the Airports Act and s. 56 of CANSCA. I would reinforce the point that the proper interpretation of these provisions was determined by the Supreme Court in Canada 3000. This appeal concerns the application judge’s decision to grant the seizure and detention orders given the Supreme Court’s decision in Canada 3000, not a reinterpretation of the statutory requirements for a detention remedy.

[69] My analysis will proceed as follows. First, I will address the appellants’ submission that the application judge applied the wrong test for an aircraft seizure and detention order. Second, I will address whether the application judge erred in concluding that Canada 3000 provides a complete answer to this case. If Canada 3000 is not distinguishable from this case in a manner that affects the availability of the detention remedy, then there is no basis on which to interfere with the trial judge’s conclusion that Canada 3000 provides a complete answer to this case and that the statutory requirements for the detention remedy were satisfied. Third, I will address the sub-issues raised by the appellants.

F. ANALYSIS

(1) Did the application judge apply the wrong test for a detention order?

[70] The appellants argue that the application judge misapplied the test for a detention order by holding that the lessors had to show that they regained physical possession of the aircraft prior to the Receivership Order. They submit that the statutory language is clear that the test is that the Airport Authorities and NAV Canada must show that Skyservice “owned or operated” the leased aircraft at the time the Status Quo Order was granted.

[71] In my view, the application judge made no error of law in applying the test for a detention order. The application judge considered the proper statutes, determined how s. 9 and s. 56 were interpreted by the Supreme Court in Canada 3000 and, subsequently, by the Alberta Court of Appeal in Zoom, and applied the law to the facts at issue.

[72] In stating that the lessors had to show that they regained physical possession of the aircraft, the application judge was merely applying the exception to the detention remedy articulated by Binnie J. at para. 70 of Canada 3000, namely; that the detention remedy is not available against “any aircraft already repossessed by the titleholder prior to the CCAA application”. The application judge was clear that he considered this case indistinguishable from Canada 3000, and thus identified the “critical issue” to be addressed in this case as whether the lessors could show that this case fell within the exception.

[73] The application judge analyzed whether the lessors had completed a repossession and found this case did not fall within the exception. He concluded, at paras. 95-96 of his reasons, that Skyservice was the “owner” or “operator” of the aircraft at the time of the Status Quo Order on the basis that Skyservice was the registered owner, was in possession of the airplanes, and none of the lessors had completed a repossession in the manner set out in Zoom.

[74] I see no reversible error in the manner that the application judge applied the test for a detention order.

(2) Does Canada 3000 provide a complete answer to this case?

[75] The appellants argue that, unlike Canada 3000 and Inter-Canadian, Skyservice no longer “owned or operated” the aircraft at the time the Airport Authorities and NAV Canada brought their seizure and detention applications. This is because of four distinguishing features: (a) Skyservice went into receivership with no intention to continue operating, whereas Canada 3000 shut down with a view to temporarily cease operations and restart with new financing; (b) Transport Canada suspended Skyservice’s air operator certificate and aircraft maintenance organization licenses, whereas there is no evidence that this occurred in Canada 3000; (c) the active steps taken by the lessors in purporting to terminate their leases with Skyservice were sufficient to come within the exception contemplated by Binnie J., as that exception was applied in Zoom; and (d) policy considerations have changed since Canada 3000 was decided such that it is no longer appropriate to rely on Canada 3000.

[76] In my view, and for the following reasons, none of these factors affected whether Skyservice “owned or operated” the aircraft in this case.

(a) Cessation of business

[77] The appellants argue that Skyservice could not have been the owner or operator at the time of the Status Quo Order because Skyservice shut down with no intention to continue operating. In support of this argument, the appellants point to the following facts: (i) all of the officers and directors of Skyservice resigned before the Receivership Order; (ii) Skyservice decided to cease all business; and (iii) Skyservice consented to the appointment of a receiver for the purpose of liquidating the company’s assets.

[78] The appellants’ arguments are without merit. The facts that the appellants point to were also present in Canada 3000 and the Supreme Court nevertheless found that Canada 3000 and Inter-Canadian were the owners or operators of the relevant aircraft.

[79] Canada 3000 is clear that intention to continue operating is irrelevant to an airline’s status as owner or operator.

[80] Before the airport authorities brought their applications to seize and detain the aircraft of Canada 3000, (i) the directors and officers of Canada 3000 had resigned, (ii) Canada 3000 had ceased operations and the entire fleet of aircraft had been grounded, and (iii) a trustee-in-bankruptcy had been appointed: Canada 3000, at paras. 13, 15.

[81] Similarly, Inter-Canadian ceased operations and laid off 90 percent of its employees before the authorities brought their seizure and detention applications: Canada 3000, at paras. 19-20.

[82] Yet, despite the presence of these facts in Canada 3000, the Supreme Court did not consider the debtor airline’s lack of intention to continue operating in determining whether Canada 3000 and Inter-Canadian “owned or operated” the relevant aircraft.

(b) Suspension of air operator certificate

[83] The appellants argued that Skyservice could not have “owned or operated” the aircraft at the time of the Status Quo Order because Skyservice shut down without the legal capacity to continue operating, as Transport Canada suspended Skyservice’s air operator certificate and aircraft maintenance organization licenses at approximately the time of the Receivership Order. The appellants place considerable significance on the cancellation of the air operator certificate.

[84] In support of this argument, the appellants submitted that “operator” should be interpreted as meaning a person who can legally operate an aircraft. In the case of a large aircraft, this could only be the holder of an aircraft operator certificate or a private operate certificate, and Skyservice had neither. The appellants submitted that an “owner” is virtually always an “operator”, except in limited circumstances that do not apply in this case.

[85] I reject the appellants’ position. This court is bound by the interpretation of the phrase “owned and operated” set out by the Supreme Court in Canada 3000. Transport Canada’s suspension of Skyservice’s air operator certificate and licenses does not impact whether Skyservice “owned” or “operated” the aircraft as these terms were interpreted in Canada 3000.

i. “owned”

[86] Canada 3000 indicates that the meaning of “owned” in s. 9 of the Airports Act and s. 56 of CANSCA is consistent with the definition of “owner” in s. 101.01(1) of the CARs. Under the CARs, “owner” is defined as “the person who has legal custody and control of the aircraft”. The Supreme Court found that “owner” includes a “registered owner” since the CARs are clear that an owner must have legal custody and control in order to register the aircraft: Canada 3000, at paras. 55-56.

[87] Relying on this interpretation, the application judge held, at para. 96, that Skyservice was the “owner” of the aircraft as it was the “registered owner”. This finding is supported by the records of the Canadian Civil Aircraft Register, which identified Skyservice as the registered owner of all the aircraft as of March 31, 2010, and the fact that Skyservice was in possession of the certificates of registration for each of the aircraft at the time the Status Quo Order was issued.

[88] Given the applicable definition of “owned”, there is no basis on which to find that the application judge erred in concluding that Skyservice “owned” the aircraft in spite of Transport Canada suspending the air operator certificate and aircraft maintenance organization licenses.

[89] The appellants provide no support for the proposition that suspension of the air operator certificate or aircraft maintenance organization licenses in any way affects an airline’s status as “registered owner” of an aircraft. In my view, the suspensions have no such affect. Under the CARs, an air operator certificate is required for a person to operate a “commercial air service” (s. 101.01(1)), not for it to be the “registered owner” of an aircraft. Further, in the Joint Request to Admit and Admission of March 31, 2010, the parties agreed that Transport Canada’s suspension of the air operator certificate “did not, in and of itself, cause the cancellation of the certificates of registration” for the relevant aircraft.

ii. “operated”

[90] Canada 3000 specifies that the meaning of “operated” in s. 9 of the Airports Act and s. 56 of CANSCA is consistent with the definition of “operator” in s. 101.01(1) of the CARs: Canada 3000, at para. 70. Under the CARs, “operator” is defined as “the person that has possession of the aircraft as owner, lessee or otherwise”.

[91] Relying on this interpretation, the application judge held, at para. 96, that Skyservice was in possession of the aircraft and thus was the “operator”, despite that it “may not have had the ability to operate the [aircraft]”. This finding is supported by the uncontested evidence that Skyservice remained in physical possession of the aircraft.

[92] Contrary to the appellants’ submissions, “operator” in this context is not restricted to mean the holder of either an aircraft operator certificate or a private operate certificate. To find otherwise would fly in the face of Binnie J.’s finding that the relevant definition of “operator” is the broader definition of “operator” found in the CARs.

[93] Whether Skyservice had an air operator certificate is relevant only to whether Skyservice was an “air operator” and thus could continue to operate a commercial air service, not to whether Skyservice was the “operator” of the aircraft for the purposes of the detention remedy. This is evident from the definitions of the terms “air operator”, “air operator certificate” and the separate definition of “operator” set out in s. 101.01(1) of the CARs:

“air operator” means the holder of an air operator certificate;

“air operator certificate” means a certificate issued under Part VII that authorizes the holder of the certificate to operate a commercial air service;

“operator”, in respect of an aircraft, means the person that has possession of the aircraft as owner, lessee or otherwise;

[94] Termination of Skyservice’s air operator certificate is not relevant to its status as “operator”; it is relevant to its status as “air operator”. As long as Skyservice had possession of the aircraft, it remained the “operator”.

[95] Given the applicable definition of “operator”, there is no basis on which to find that the application judge erred in concluding that Skyservice “operated” the aircraft in spite of Transport Canada suspending the air operator certificate and aircraft maintenance organization licenses.

(c) Termination of leases

[96] The appellants submit that Zoom broadens the exception to the detention remedy contemplated in Canada 3000 to circumstances where a lessor took active steps to obtain legal control and custody, and not just where repossession has actually occurred. The appellants contend that, although they may not have completed repossession of their aircraft, the active steps they did take to attempt to terminate their leases were sufficient to come within the exception to the detention remedy.

[97] The appellants also submit that a valid lease termination is a separate exception to the detention remedy.

[98] The problem with the appellants’ arguments is that the appellants agree with the application judge’s finding, at paras. 89-93, that their purported lease terminations could not have deprived Skyservice of its owner or operator statuses because the Receivership Order stayed the enforcement of any remedy against Skyservice. While I appreciate the appellants’ desire for clarity with respect to the impact of a valid lease termination on the availability of the detention remedy, given the application judge’s unchallenged finding that the stay rendered the appellants’ purported terminations ineffective, these arguments are irrelevant to this appeal.

(d) Policy

[99] The appellants argue that the application judge erred in relying on Binnie J.’s finding in Canada 3000 that aircraft lessors are in a better position than the Airport Authorities and NAV Canada to protect themselves from the default of an airline. The appellants submit that the application judge erred in failing to consider that airport authorities now have the legal right to obtain prior security to protect their positions, and can now withdraw the provision of their services to defaulting airline customers. These authorities, the appellants submit, also have a “panoply of remedies” available to secure payment from airlines, and are better posed than the lessors to assess and protect themselves against risk.

[100] I cannot accept that Canada 3000 is not to be considered controlling authority on this basis for several reasons.

[101] First, findings in this regard by the application judge, if any, were obiter. The application judge did not rely on policy grounds as a free-standing basis for determining whether the Airport Authorities and NAV Canada were entitled to the detention remedy in this case.

[102] Second, there is no evidence that the legal position of airport authorities was any different at the time Canada 3000 was decided. None of the parties were able to confirm that any changes to airport authorities’ legal rights were made after Canada 3000 was decided in 2006.

[103] Third, s. 9(1) of the Airports Act and s. 56(1) of CANSCA are clear that the seizure and detention remedy is available to the Airport Authorities and NAV Canada “in addition to any other remedy available” for the collection of the amounts owing.

[104] Fourth, Canada 3000 clearly confirms, at para. 74, that aircraft may be seized and detained without regard to the property interests of people who are not the registered owners or operators of the aircraft.

(e) Conclusion

[105] For all of the above reasons, I see no basis on which to interfere with the trial judge’s conclusion that Canada 3000 provides a complete answer this case. Canada 3000 is factually indistinguishable from this case in any relevant respect and, accordingly, the application judge did not err in finding that the statutory requirements for the detention remedy were satisfied.

(3) Sub-issues

(a) Was the GTAA’s ex parte application valid?

[106] The appellants submit that the GTAA was not entitled to bring its seizure and detention application on an ex parte basis because the criteria for bringing an ex parte application, as set out in s. 9(2) of the Airports Act, were not met.

[107] Section 9(2) of the Airports Act specifies that an ex parte application may be brought where the airport authority “has reason to believe that the person liable to pay the amount is about to leave Canada or take from Canada any aircraft owned or operated by the person”. The appellants point out that there is no evidence suggesting that Skyservice was about to leave or take any of the aircraft out Canada.

[108] This ground of appeal is misguided. Although the GTAA commenced its application on an ex parte basis at approximately 3:00 p.m. on March 31, 2010, by 5:00 p.m. the parties had been given notice and counsel for the lessors, NAV Canada and the receiver were in attendance before the application judge prior to the granting of the Status Quo Order. Various counsel made submissions before the application judge, yet none of the parties objected to the GTAA’s application on these grounds at that time.

[109] Further, the very purpose of the Status Quo Order was to allow the various applications for seizure and detention orders to be heard on notice and the applications were heard on notice in June 2010. All parties filed evidence and were granted their procedural rights, including the right to make written and oral submissions and the right to cross-examine.

[110] Given the way the proceedings transpired, I do not accept the appellants’ position that the GTAA’s application should now be rendered invalid. I would dismiss this ground of appeal.

(b) Was the OMCIAA entitled to bring its claim after the Status Quo Order?

[111] The appellants submit that the OMCIAA is not entitled to the seizure and detention order as it did not bring its application until after the Status Quo Order was granted. The OMCIAA was not present or even mentioned at the hearing on March 31, 2010 so, the appellants contend, the OMCIAA should not be entitled to retroactively obtain any rights that the GTAA and NAV Canada may have as of the Status Quo Order.

[112] The appellants acknowledge that this argument was specifically raised by the appellants at the hearing of the seizure and detention applications, and rejected by the application judge.

[113] The application judge was well aware of the timing of the OMCIAA’s application, yet did not consider it contrary to the Status Quo Order to allow the OMCIAA to bring its application in the circumstances. This is clear as the application judge granted the Status Quo Order on March 31, 2010 – prior to the OMCIAA bringing its application on April 6, 2010 – and then approved the release protocol on April 9, 2010, which included the OMCIAA as one of the airport authorities whose application was pending determination.

[114] I see no basis on which to interfere with the application judge’s decision. I read the Status Quo Order as intending to prevent the parties from changing the circumstances on the ground in a way that would affect the success of the GTAA’s and NAV Canada’s applications. I do not read the order as being designed to strip the OMCIAA of its legal rights without notice. Accordingly, I would not give effect to this ground of appeal.

(c) Can IAI’s aircraft be the subject of the detention order when it was not identified in the GTAA’s initial notice of application?

[115] The appellants submit that the aircraft leased by Skyservice from IAI was not identified in the initial notice of application issued by GTAA on March 31, 2010, so should not be subject to the seizure and detention order. The appellants argue that the Status Quo Order should not be used to distort rights, but that is exactly what would occur if the Airport Authorities are allowed to pile additional aircraft into their applications in the face of a Status Quo Order preventing the lessors from taking steps to become the owner or operator of those aircraft.

[116] This submission is without merit. While the IAI aircraft was not listed in the GTAA’s initial notice of application, there is no dispute that this aircraft was subject to the Status Quo Order. The order preserved the status quo with respect to the aircraft specifically listed in the GTAA’s initial notice of application as well as “any other aircraft owned or operated by [Skyservice]”, so unquestionably captures more aircraft than the aircraft specifically identified in the initial notice of application. The inclusion of the IAI aircraft thus cannot be characterized as a distortion of rights.

[117] Further, before the hearing of the applications, on April 5, 2010, the GTAA amended its notice of application to expressly refer to the IAI aircraft. Accordingly, the application judge did not err in including the IAI aircraft within the scope of the seizure and detention order.

(d) Was the detention remedy affected by the stay?

[118] The appellants did not press this issue in oral argument. In any event, I will deal with it briefly.

[119] In their factum, the appellants submitted that the application judge correctly found, at para. 61 of his reasons, that an important principle of Canada 3000 is that “the right to the detention remedy is subject to any stay that is in place”, but misapplied this principle when finding, at para. 99, that the detention remedy in this case was unaffected by the stay. As such, they contend that the stay should apply to the detention order.

[120] I reject this submission. The application judge’s findings are consistent with the parameters of the stay.

[121] The stay set out in the Receivership Order reads, in part: “all rights and remedies against [Skyservice], the Receiver, or affecting [the assets, undertakings and properties of Skyservice], are hereby stayed and suspended except with the written consent of the Receiver or leave of this Court”.

[122] The detention remedy is not a remedy against Skyservice. Canada 3000, at paras. 9 and 68, is clear that the seizure and detention remedy in s. 9 of the Airports Act and s. 56 of CANSCA is a remedy against the aircraft, not against the debtor airline.

[123] The detention remedy is also not a remedy affecting the assets, undertakings and properties of Skyservice. Since the aircraft were all the subject of true leases, at no time did the aircraft form part of the “assets, undertakings and properties” of Skyservice. Skyservice had the ability to use and operate the aircraft, but not legal title to them. Legal title to the aircraft remained with the lessors.

[124] Thus, the application judge did not err in finding that such remedy was unaffected by the stay. I would not give effect to this ground of appeal.

G. DISPOSITION

[125] For all of the reasons given, I would dismiss the appeal. I would award each of the Airport Authorities and NAV Canada their costs of the appeal fixed in the amount of $27,000 inclusive of disbursements and HST.

Released:

“MAY -2 2012” “H.S. LaForme J.A.”

“DOC” “I agree D. O’Connor A.C.J.O.”

“I agree J.D. Cunningham A.C.J. S.C.J.”

[^1]: NAV Canada is a private, not-for-profit corporation, operating under the Civil Air Navigation Services Commercialization Act, S.C. 1996, c. 20. NAV Canada owns and operates Canada’s civil air navigation service and charges fees to the users of its air navigation services, including Skyservice.