Canada is a signatory to the Cape Town Convention (the Convention). The Convention is focused on providing creditors with an internationally recognised set of rights in the event of a debtor’s default or insolvency; and allowing creditors to register their interests in an international register to guarantee the priority of their claim against other parties. As the Convention deals with some matters that are under federal jurisdiction and other matters that are under provincial jurisdiction, implementation legislation had to be introduced both at the federal level and in each provincial legislature. As of June 1st, 2015, the Convention is in effect at the federal level as well as in all the territories and provinces, except for the Province of New Brunswick. However, the implementation legislation has been adopted in the Province of New Brunswick, but no declaration has yet been lodged by Canada under Articles 52 and 53 of the Convention to include the Province of New Brunswick. As such, the Convention is not fully implemented yet in that province.
2. Registration of the Aircraft
While Transport Canada maintains the Canadian Civil Aircraft Register (CCAR), that register is not a register of title to the aircraft or liens thereon.
Every Canadian person that has the legal custody and control of an aircraft may register the aircraft in the CCAR. As per the Canadian Aviation Regulation, having legal custody and control over an aircraft is defined as having the complete responsibility of the operation and maintenance of the aircraft. Even though the certificate refers to the registered owner of the aircraft, that owner is not the legal owner, but rather the entity that has legal custody and control of the aircraft. Evidence of that responsibility over the aircraft has to be filed with Transport Canada.
A lease interest must also be registered with the CCAR. In order to avoid disclosing sensitive commercial information, a practice has evolved whereby a short form lease containing only the basic information required by Transport Canada (identity and address of lessor, term of lease, etc.) is filed with the CCAR.
3. Deregistration of the Aircraft
In Canada, the de-registration is the process where the aircraft is removed from the CCAR following the transfer of control of the aircraft.
An irrevocable deregistration and export request authorisation (IDERA) can be filed with Transport Canada who will acknowledge and confirm receipt of same. In possession of such IDERA, a lessor or secured creditor may ask Transport Canada for de-registration.
4. Security over Aircraft
In Canada, the applicable law for taking security will be determined at the provincial level, and not at the federal level. Typically, the conflict of law rules will direct to the jurisdiction of chief executive or registered office of the debtor or lessee as the appropriate law for the creation of the security and its registration.
To the extent the laws of the Province of Québec apply, a type of security referred to as a movable hypothec (akin to a chattel mortgage) will be required to create a security interest over the aircraft. In the other Provinces, a security agreement will be sufficient and a New York law or English law mortgage would typically be recognized to be sufficient to create a security interest over the aircraft.
In respect of a lease or a security interest, registrations would be required at the International Registry and in the applicable provincial security register (the PPSA Register in all provinces other than Quebec and the Register of personal and movable real rights in Québec). Filing fees in Canada are nominal and the deposit of the lease or the document creating the security interest is not required. In some circumstances, for conflict of law reasons, a filing at the FAA register may be required or desirable.
5. Repossession and Enforcement Procedures
With the adoption of the Convention, repossession of the aircraft as contemplated in the lease or the security agreement will be recognized. This would have been the case only in some, but not all, jurisdictions in Canada prior to the adoption of the Convention.
6. Insolvency
Insolvency in Canada is a federal jurisdiction. There are two (2) principal statutes that are applicable, theBankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act.
Canada has opted for Alternative A in its adoption of the Convention. As a result, a lessee or debtor who seeks protection from its creditors under either of these statutes will benefit from a stay of a maximum of 60 days prior to the lessor or secured creditor being entitled to seize the aircraft. In order to avoid the seizure, the lessee or debtor must remedy all prior defaults and agree to continue to perform its obligations both during the insolvency proceedings and thereafter.
Even though the Convention is not yet implemented in the Province of New Brunswick, as insolvency is a federal jurisdiction, Alternative A will apply in that province as in all other provinces.
7. Choice of Law
In their interpretation or enforcement of contractual provisions, Canadian courts will typically recognize the foreign law chosen by the parties to govern their contractual relationship, provided such law is proven in court and the choice was made bona fide. However, as regards the creation of a security interest over an aircraft, the conflict of law rules will direct to the law of a specific jurisdiction to validly create and register the security interest. See paragraph 4 above.
8. Enforcement of Foreign Judgment
The applicable rules relating to the enforcement of foreign judgments are determined at the Provincial level and, accordingly, may vary from one province to the other. Generally speaking, though, Canadian courts will recognize and enforce a judgment of a foreign jurisdiction for a sum certain that is a final non-appealable judgment issued by a court of competent jurisdiction. Parties may voluntarily submit to the jurisdiction of foreign courts and Canadian courts will acknowledge any such submission.
9. Right of Seizure and Detention
In Canada, the provider of civil air navigation services, Nav Canada and most airport authorities have a right to seize and detain, anywhere in Canada, aircraft for unpaid services. This right can be set up against the lessor or title owner of the aircraft. Furthermore, in certain circumstances, the right can be exercised against an aircraft for outstanding fees relating to services rendered to other aircraft of the operator.
10.Stamp Duty / Withholding Tax
As a general rule, no withholding tax applies to payments of interest made by a Canadian resident to a non-resident lender as long as the parties are dealing at arms’ length and the interest does not constitute participating interest.
Similarly, no withholding tax applies on lease payments made by a Canadian resident to a non-resident lessor as long as the parties are dealing at arms’ length.
Canada does not levy stamp duties.
