CITATION: S.G. Air Leasing Ltd. v. Inchatsavane Company, 2015 ONSC 1483
COURT FILE NO.: CV-14-519022
DATE: 20150327
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
SG AIR LEASING LTD.
Applicant
– and –
INCHATSAVANE COMPANY, GODERICH AIRCRAFT INC.,
NEW UNITED GODERICH INC.
Respondents
and ACE WORLDWIDE MANAGEMENT PTD LTD, SOUTH AFRICA RESOURCES LTD.
Proposed Intervenors
Sean N. Zeitz and Ian Klaiman,
for the Applicant
Kenneth Prehogan and Scott McGrath,
for the Respondent, Inchatsavane Company
David Lederman and Ryan Cookson, for the Proposed Intervenors
HEARD: February 25, 2015
and March 9, 2015
DOW, j
reasons
[1] The applicant, S.G. Air Leasing Ltd. (“S.G. Air”) seeks, among other relief as listed in the Notice of Motion, declaratory relief for the continuance of an interim and interlocutory injunction over a McDonnell Douglas model DC-9-87 (the “aircraft”) belonging to the respondent, Inchatsavane Company (Proprietary) Limited (“Inchatsavane”), pursuant to provisions of the Repair and Storage Liens Act, R.S.O. 1990, c. R.25. The applicant obtained an ex parte order for an interim interlocutory injunction from Justice Spence on January 12, 2005.
[2] In the event the application is unsuccessful, the applicant seeks a stay of the Court’s order setting aside the injunction/lien for seven days so that it may proceed with an appeal and cause the aircraft not to depart its current location which is with the co-respondent, Goderich Aircraft Inc., currently known as New United Goderich Inc. (“Goderich Aircraft”) in a hangar at their place of business in Huron Park (about 45 kilometres north of London), Ontario. Goderich Aircraft did not participate in this matter and the Court was advised it takes no position on the issues raised.
[3] Inchatsavane seeks, among other things listed in its Notice of Motion, release of the aircraft and ancillary orders required to facilitate same.
[4] The proposed intervenors, South Africa Resources Ltd. (“SARL”) and Ace Worldwide Management Ptd. Ltd. (“AWMPL”) seek leave to be added for the purposes of obtaining (or maintaining) a non-possessory lien related to funds allegedly diverted from it to pay for a portion of the refurbishing of the aircraft in question. SARL became Salgaocar Resources Africa Limited (“SRAL”) as of May 2014, but the parties agree this has no bearing on the issues raised.
Facts
[5] In April 2010, Inchatsavane was incorporated pursuant to the laws of the Kingdom of Swaziland governed by His Majesty King Mswaiti III (“HMK”). While its articles indicate it will carry on a variety of activities, it appears to have only been involved in the purchase, modification, sale and repurchase of the aircraft.
[6] S.G. Air is a British Virgin Island incorporated company owned and operated by Mr. Shanmuga Rethenam (known as “Mr. Shan”). Mr. Shan is a citizen of Singapore who had business dealings with HMK prior to the sale of the aircraft to Inchatsavane around May 12, 2010 (Exhibit 7 to Mr. Shan’s affidavit sworn January 8, 2015) in the amount of $11,450,000.
[7] After that sale, the aircraft was subject to an agreement to be refurbished (Exhibit 10 of the affidavit of Mr. Shan sworn January 8, 2015) in the amount of $6,050,000 US (clause 1.5) with a payment schedule set out between June 7, 2010, and November 8, 2010, that contemplated completion (clause 4.1) shortly after the latter.
[8] Problems ensued after initial payments were made. Inchatsavane decided to sell the aircraft in December 2010 through an agreement between Inchatsavane and Wells Fargo, which provided that the aircraft be held in trust for Miller Capital. The amount of $7,500,000 was paid by Miller Capital with funds advanced to pay Goderich Aircraft the $3,000,000 it was owed and the other $4,500,000 provided to Inchatsavane (Exhibits 13 and 14 of Mr. Shan’s affidavit sworn January 8, 2015).
[9] As a result, the repairs continued, including change orders which increased the cost of refurbishing. Goderich Aircraft began to have financial difficulty in or about August 2011, so it requested advances which were provided by S.G. Air in the amount of approximately $3,300,000. The applicant, through Mr. Shan, is clearly involved in other business dealings with HMK and through the applicant, S.G. Air, HMK was provided with replacement aircraft on two occasions through short-term leases, which Mr. Shan alleges he paid personally.
[10] On or about April 12, 2012, the aircraft was resold by Wells Fargo to Inchatsavane for $9,500,000 (Exhibit 27 of Mr. Shan’s affidavit sworn January 8, 2015). At page three of the agreement, “liens” are defined and Article 6(d) sets out that as of the delivery date, the seller “shall hold good and marketable legal and beneficial title to the Aircraft, free and clear of any liens”. The aircraft then departed the premises of Goderich Aircraft and returned to Swaziland for use by HMK. In November or December 2014, additional modifications were sought by Inchatsavane and the aircraft was returned to Goderich Aircraft.
[11] S.G. Air became aware of the location of the aircraft and proceeded to obtain the ex parte order from Justice Spence.
[12] It is clear other issues have arisen between the parties. The materials indicate there is a company, SG Iron Ore Mining (“SG Iron”) which is owned 50 percent by SARL, 25 percent by the nation of Swaziland and 25 percent by HMK. Mr. Shan is a 20 percent owner/shareholder in SARL. Mr. Gautam Radia is also a shareholder in SARL. In 2013, SARL encountered financial distress, and there was also a withdrawal by Mr. Shan from SARL of $1,800,000.
[13] Counsel for SARL directed me to an email chain of October 25, 2013 (Exhibit A to the affidavit of Ajay Singhvi sworn February 23, 2015) raising the issue of the withdrawal of the $1,800,000 US by Mr. Shan from SARL for the purpose of refurbishing the aircraft, and the parties’ mutual awareness of this transaction.
[14] In May 2014, a draft Settlement Agreement (Exhibit L of the affidavit of Sihle Dlamini [“Mr. Sihle”] sworn January 25, 2015) sets out a payment in the sum of $4,500,000 US which notes at clause C, “S.G. Air Leasing had breached their undertaking to carry out repairs to the Aircraft and refurbish the internals and fittings within 12 months and Inchatsavane having suffered a loss arising from S.G. Air Leasing’s breach.” There is conflicting evidence whether this represented a scheme to invest further funds in SG Iron. Regardless, it has S.G. Air paying Inchatsavane funds as opposed to the reverse. Also, there is a Settlement Agreement (Exhibit G to the affidavit of Mr. Shan sworn February 24, 2015) dated March 14, 2014 (clause 2.1) wherein Mr. Shan agrees to buy Mr. Radia’s shares in SRAL for $29,990,000 US. Any dispute under this agreement is subject to Singapore law (clauses 7.5 and 7.6).
[15] Mr. Shan deposes that he met with HMK in the Lozitha State Palace in Swaziland on November 13, 2014, where the two of them, alone, agreed that HMK, through Inchatsavane, would pay the sum of $3,500,000 US in final settlement of cost overruns in connection with the aircraft paid by Inchatsavane between April 2010 and April 2012. There is an email chain commencing December 6, 2014 (Exhibit 30 to the affidavit of Mr. Shan sworn January 8, 2015) which the applicant claims confirms this agreement. However, Inchatsavane points out the email from Mr. Shan to Mr. Sihle (HMK’s private secretary and royal estate manager) states precisely, “We have now agreed to settle this long outstanding matter on the overrun cost on MD-87-MSN: 53041 between Inchatsavane and S.G. Air Leasing for USD-3.5M (Three Million and Five Hundred Thousand) US Dollars as Full and Final Settlement.” That is, who is to pay whom is not clear.
[16] Inchatsavane’s position through Mr. Sihle is that this was a reduction from the prior agreement of payment to Inchatsavane of $4,500,000 million dollars with the overrun cost relating to the additional time required to complete the refurbishment. The email is not responded to, is re-sent by Mr. Shan and is then “acknowledged” on December 9 by Mr. Sihle. Attached to the email is an invoice from S.G. Air Leasing to Inchatsavane for “Full and Final Settlement on the Overrun of Interior on MD-87-MSN: 53041.” Mr. Sihle claims he contacted Mr. Shan by telephone to indicate this was a reversal of what had been agreed to and that Mr. Shan agreed, indicating it was a secretarial error on his part and would be corrected.
[17] In the supplementary affidavit of Mr. Shan sworn February 11, 2015, there are further details regarding financial difficulties arising from problems with SG Iron. Mr. Shan admits he was executive chairman of S.G. Air at all material times. He claims HMK requested an advance payment of $10,000,000, which was facilitated. SG Iron required funds and a plan to sell equity in SARL to Glencor International as discussed, with a proposal to purchase 10 percent of Mr. Shan’s shares for $16,500,000 in March of 2014. The plan did not proceed. By September 2014, Mr. Shan had emailed Mr. Sihle (Exhibit R to Mr. Shan’s affidavit sworn February 11, 2015) “that I am almost broke (I don’t even have money to fight my legal cases) and now working for an aviation company in UAE which is owned by a friend”.
Issue – State Immunity Act
[18] S.G. Air Leasing has conceded the respondent Inchatsavane is an “agency of a foreign state” which is defined in s. 2 of the State Immunity Act, R.S.O. c. 1985 c-S-18. Section 3 of the statute provides immunity to the foreign state from the jurisdiction of any court in Canada. Section 5 provides an exception “in any proceeding that relates to any commercial activity of the foreign state.” The test to be applied was described by Justice Firestone in Brown v. Spagnuolo, 2013 ONSC 5178 at paragraph 41 and adopts the reasoning in P.S.A.C. v. United States Defence Department, 1992 CanLII 54 (SCC), [1992] 2 S.C.R. 50 requiring first, the examination of the nature and or purpose of the activity and second, whether the proceeding’s impact is on the commercial rather than the sovereign aspect of the activity. S.G. Air characterizes the situation as an attempt to enforce/collect monies spent on refurbishing or upgrading Inchatsavane’s aircraft while Inchatsavane claims the figure of $3,500,000 is an amount owed by S.G. Air or Mr. Shan to Inchatsavane or HMK. Regardless, the nature or purpose appears to be a commercial action.
[19] Therefore, the conclusion of this Court is that this is a commercial activity and this proceeding relates to the commercial rather than the sovereign aspect of the activity.
Issue – [Repair and Storage Liens Act](https://www.canlii.org/en/on/laws/stat/rso-1990-c-r25/latest/rso-1990-c-r25.html) – Limitation Act
[20] S.G. Air argues it is entitled to a non-possessory lien under Part 2 of the Repair and Storage Liens Act, R.S.O. 1990, c. R.25, on the basis that the article, in this case the aircraft, was surrendered to the owner without it having been paid the full amount (see Section 7). S.G. Air attempts to characterize its payment of over $4,500,000 to the respondent, Goderich Aircraft for refurbishment of the aircraft as a repair given that “repair” is defined to include “an expenditure of money”, and to characterize itself as a “repairer” as defined in s. 1 as a “person who makes a repair on the understanding that the person will be paid for the repair”. Factually, the situation, taken at its most favourable to S.G. Air, involves a December 2014, agreement between Mr. Shan and HMK to pay S.G. Air $3,500,000 towards the claim which S.G. Air says is in excess of $4,500,000 for funds it paid up to April 2012, to Goderich Aircraft for refurbishing of the aircraft.
[21] There does not appear to be a case directly on point. However, Knew Order v. 2291955 Ontario Inc. (cob Tai Groups Inc.) 2012 ONSC 3091 dealt with a similar situation. In that case, National Airborne Service Corps. (“NASC”), an arm of the Government of Taiwan, agreed to pay $475,000 to Knew Order for repair and overhaul of an aircraft engine. The engine was transported directly to the company that was actually doing the work, United Turbine Corps., at Knew Order’s request. United Turbine had an agreement with Tai Groups to pay a commission on the work done. When the work was complete, Tai Groups had the engine shipped to Ontario and refused to return it to the owner or Knew Order.
[22] Tai Groups allege they were entitled to possession or a lien on the engine, but their claim was rejected, given they only acted as a middleman between the owner of the engine and the performers of the repair (at paras. 22-24).
[23] Similarly, in the circumstances here, S.G. Air Leasing did not do the work and thus is not entitled to a repairer’s lien. Further, the work was completed and paid for by April 2012, while the aircraft was actually owned by Miller Capital, following which it was resold and possession returned to Inchatsavane. Thus, in my view, any action for recovery of the money paid by S.G. Air from Inchatsavane that relates to the aircraft is beyond the two years contemplated by our Limitations Act, 2002 S.O. 2002, c. 24, s. 4.
Issue – Estoppel
[24] Inchatsavane raises an interesting point about repurchase of the plane in April 2012, and the contract which suggests it is free of any liens. I agree with S.G. Air that this is a statement made by the seller, Miller Group, and does not extend protection to Inchatsavane for work that may have been done by a third party. The lien or court imposed injunctive relief is with regard to the aircraft as opposed to its owner. However, since I have found there is no valid lien in this jurisdiction, it is moot.
Issue – Injunctive Relief
[25] S.G. Air seeks an ongoing interlocutory injunction, that is, the Court impounding the aircraft as the only asset Inchatsavane has in the jurisdiction.
[26] The parties appear to agree the test involves:
whether there is a serious issue to be tried;
whether S.G. Air would suffer irreparable harm if the injunction is not granted;
which party would suffer greater harm from the granting or refusing of the injunctive relief sought pending a decision on the merits.
[27] The relevant authority is R.J.R.-MacDonald Inc. v. Canada (Attorney General), 1994 CanLII 117 (SCC), [1994] 1 S.C.R. 311 at para. 48.
[28] It would seem the first aspect of the test, a serious issue to be tried, is met. However, I would frame the issue as an action over an alleged $3,500,000 debt between S.G. Air Leasing and Inchatsavane Company. Alternatively, Mr. Shan and HMK have a legal dispute over who owes whom $3,500,000. Regardless, I accept this is a serious issue to be tried.
[29] Regarding whether S.G. Air Leasing would suffer irreparable harm, my reading of the type of harm contemplated from paragraph 64 of the R.J.R.-MacDonald Inc. v. Canada (Attorney General) decision is that it is something beyond the scope of a Singapore-based company, that is S.G. Air, and a Swaziland-based company, that is Inchatsavane, in dispute over an alleged payment or debt of $3,500,000. As a result, the claim by S.G. Air fails on this ground.
[30] As a result, there is no need to address the third aspect of the test but with regard to that “greater harm” test, my impression is that for the applicant to succeed it must demonstrate more than entitlement to payment or repayment of money. There must be a concern that an Ontario judgment for payment of a sum of money is not collectable in this jurisdiction without the injunctive relief.
Issue – Conversion to an Action
[31] Counsel for S.G. Air advised that in the event I concluded there was no lien or injunctive relief granted, it was not seeking to convert its claim into an action in this jurisdiction. As this is what has been determined, this matter is dismissed.
Issue – Intervenors’ Motion
[32] The intervenors, SARL and AWMPL, allege S.G. Air, or rather Mr. Shan, as both the owner of S.G. Air and a 20 percent owner of SARL, misappropriated $1,800,000 from SARL to pay for, in part, the refurbishment of Inchatsavane’s aircraft. The proposed intervenors agree with S.G. Air’s position on all issues except where any funds should be paid in the event S.G. Air is successful in its claim against Inchatsavane.
[33] The Court heard submissions about a joint interest the parties held directly or indirectly in SG Iron that encountered financial difficulties and is in the process of being liquidated. There is a claim for $141,000,000 US pending (Exhibit Q of Mr. Shan’s affidavit sworn February 11, 2015).
[34] The test under r. 13.01 is disjunctive and provides for adding the intervenor if:
(a) that person has an interest in the subject matter of the proceeding;
(b) that person may be adversely affected by a judgment in the proceeding; or
(c) there exists between the person and one or more of the parties to the proceeding a question of law or fact in common with one or more of the questions in issue in the proceeding.
[35] While the intervenors’ claim does appear to fit within each of the requisite tests, the Court agrees with Inchatsavane’s position that the intervenors have no rights greater than that of S.G. Air. SARL and AWMPL may have a separate action against Mr. Shan and/or S.G. Air which, in my view, might have been the subject of a motion or order for trial together.
[36] The argument made by SARL that it too was a repairer within the Repairs and Storage Liens Act assisted the Court in reaching its conclusion. Counsel for SARL directed the Court to the decision of Justice Ground in Canadian Imperial Bank of Commerce v. OSF Inc., [2003] O.J. No. 195, where the lien claimant, known as “Air 500” was also a co-owner of the aircraft and sought a lien on the aircraft for expenses it had incurred in maintaining and storing the aircraft as well as amounts it had paid to subcontractors. In my view, the decision by Justice Ground that the right to a lien existed was not predicated on the payments made to subcontractors but considered “all the amounts” (at para. 4). While the argument was also made that the statute was remedial legislation that should be given a liberal interpretation, such an interpretation would appear to result in lien claims far removed from the logical, direct intention and application of the legislation. SARL has only a business dispute with Mr. Shan as opposed to any involvement with the refurbishing of the aircraft, or any action against its owner or the actual repairer, Goderich Aircraft.
[37] As a result, their motion is dismissed.
Issue – Sealing Order
[38] The ex parte order of Justice Spence included sealing of the court file from public review. The parties agreed at the outset that this was no longer necessary and could be set aside.
[39] Having concluded S.G. Air Leasing Limited has no right for a lien or interim injunctive possession of the aircraft, their motion is dismissed.
Issue – Undertaking as to Damages
[40] Rule 40.03 provides for a party seeking interim injunctive relief, as occurred here, to provide an undertaking if the making of such an order causes damages to the responding party. The aircraft was impounded on or after January 12, 2015, and has remained so to date. While it does not appear necessary to address this point in detail, it should be noted that at the conclusion of the initial day of argument on February 25, 2015, counsel for S.G. Air indicated it had in its possession and was prepared to make a payment into court of $245,000. When submissions resumed on March 9, 2015, counsel indicated it had and was willing to make a payment of $350,000 Canadian. In addition, it was willing to post $100,000 security for costs. In the materials submitted on behalf of Inchatsavane, (particularly Exhibit P to the affidavit of Mr. Sihle sworn January 27, 2015), there is reference to the cost of obtaining a temporary replacement aircraft, a Boeing 757 and an amount in excess of $1,600,000 US (clause 7). There were submissions regarding this being excessive. This led to my obtaining the position of the proposed intervenors regarding whether they were prepared to also give an undertaking or make an additional payment and they declined any willingness to do so. While I make no finding as to the entitlement of Inchatsavane to any damages arising from this proceeding, counsel for S.G. Air appears to have sufficient funds in trust to satisfy any outstanding account of Goderich Aircraft for storage of the aircraft and I order those funds be used to pay such account in priority to any other claim or return to S.G. Air or Mr. Shan.
Issue - Costs
[41] In my view, while S.G. Air was the driving force in this proceeding, the decision by the intervenors did lengthen the proceeding and they adopted the key arguments of S.G. Air with regard to detaining the aircraft as security for the debt alleged by Mr. Shan. As a result, I would hold them responsible for 20 percent of costs of Inchatsavane.
[42] The parties provided costs outlines. Inchatsavane, having been successful, is entitled to its costs. Their cost outline sets out a partial indemnity claim of $117,560.96 with a substantial indemnity claim of $173,560.37. This compares to the cost outline of S.G. Air at $121,840.50 for partial indemnity and $169,099.55 for substantial indemnity. The intervenors’ claim was for $22,065.10 on a partial indemnity basis and $32,937.39 on a substantial indemnity basis. Given the circumstances, I would assess Inchatsavane’s costs on the partial indemnity basis and the figure of $117,560.96 would appear to be appropriate with regard to the outline of S.G. Air.
[43] Following preparation of these reasons, I opened and reviewed a sealed offer to settle from SG Air dated February 5, 2015. Given it proposed Inchatsavane pay into court the disputed sum of $3,500,000, and my decision was less favourable than that, my decision on costs remains as detailed above.
Issue – Stay Pending Appeal
[44] Rule 63.02(1)(a) provides for an order of the Court whose decision is to be appealed to stay its order. While I have found in favour of the respondent, Inchatsavane, the Court was advised and counsel for Inchatsavane acknowledged the aircraft is ready for flight and the intention is to remove it from the jurisdiction as soon as possible. Removal of the aircraft from the jurisdiction is problematic in the event I am incorrect. To that end, I am prepared to grant S.G. Air seven days before the following order takes effect:
(a) The order of Justice Spence January 12, 2015, including the sealing of the file is set aside;
(b) S.G. Air Leasing and/or SARL/AWMPL has seven days to expunge any and all PPSA registrations and/or liens including PPSA registration number 20150106 1557 1092 5424;
(c) S.G. Air Leasing is to immediately pay any amount owed to New United Aircraft for storage of the aircraft from trust funds in the possession of counsel for S.G. Air Leasing;
(d) The aircraft is released to its owner, Inchatsavane Company;
(e) Inchatsavane Company is awarded its costs of this motion, fixed in the amount of $117,560.96, payable 20 percent by SARL/AWMPL (or $23,512.19) and the remaining 80 percent by S.G. Air (or $94,048.77).
Mr. Justice G. Dow
Released: March 27, 2015
CITATION: S.G. Air Leasing Ltd. v. Inchatsavane Company, 2015 ONSC 1483
COURT FILE NO.: CV-14-519022
DATE: 20150327
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
SG AIR LEASING LTD.
Applicant
– and –
INCHATSAVANE COMPANY, GODERICH AIRCRAFT INC.,
NEW UNITED GODERICH INC.
Respondents
and ACE WORLDWIDE MANAGEMENT PTD LTD, SOUTH AFRICA RESOURCES LTD.
Proposed Intervenors
REASONS FOR JUDGMENT
Mr. Justice G. Dow
Released: March 27, 2015