In an important decision for commercial creditors and contract drafters in the transportation and aviation sectors, the Alberta Court of Appeal recently upheld a chambers decision that refused to recognize trust claims over Airport Improvement Fees collected by an insolvent airline. In Edmonton Regional Airports Authority v. Lynx Air Holdings Corporation, the Court reaffirmed the primacy of contractual language and rejected attempts to impose express, implied, or constructive trusts where a commercial agreement expressly disclaimed such relationships.

This decision provides significant guidance on the limits of equitable remedies in insolvency proceedings under the Companies’ Creditors Arrangement Act. It emphasizes the importance of precise contract drafting, especially for parties operating in sectors prone to financial instability.

Lynx Air’s Insolvency and the Unpaid Fees

In February 2024, Lynx Air Holdings Corp (Lynx Air), a low-cost Canadian airline, sought protection under the Companies’ Creditors Arrangement Act (CCAA). At the time of filing, Lynx Air had collected but not remitted over $4 million in Airport Improvement Fees (AIFs) to several major Canadian airport authorities, including those in Edmonton, Calgary, Halifax, Winnipeg, and Vancouver.

These AIFs were charges between $25 and $38 added to passenger tickets and are a key funding source for airport infrastructure and capital improvements. Under a 2022 Memorandum of Agreement, Lynx Air, as a signatory airline, was obligated to collect and remit AIFs monthly to the airport authorities.

Upon Lynx Air’s insolvency filing, the airport authorities sought a declaration that the unpaid AIFs were subject to a trust, which would give them priority over other creditors in the CCAA proceedings. The chambers judge, however, found that the Memorandum of Agreement did not establish a trust relationship, and the AIFs formed part of the airline’s general estate.

Was a Trust Created for the Airport Improvement Fees?

The central legal question in this case was whether the contractual and factual circumstances gave rise to an express trust, an implied trust, or a constructive trust (as a remedy in equity).

Section 20.1 of the Memorandum of Agreement was at the heart of the analysis. It expressly stated that the parties “disclaim any intention to create a partnership, joint venture, trust relationship or joint enterprise,” while also affirming that airlines acted as “agents for the airports in collecting and remitting the AIF funds.”

The airport authorities argued that despite this language, the structure and intent of the arrangement required recognizing a trust. They pointed to the agency language and the public purpose of the AIFs as supporting a trust-based relationship.

Chambers Judge Decided Contractual Intent Trumps Equity

The chambers justice rejected the trust arguments, interpreting the Memorandum of Agreement’s language as clear and unambiguous. The agency relationship created by the agreement did not imply or establish a trust. While an agency can co-exist with a trust, the memorandum specifically disclaimed any such relationship.

The chambers judge also declined to impose a constructive trust. Although Lynx Air failed to remit funds it had collected, the court found no equitable wrongdoing sufficient to justify overriding the contractual terms. It emphasized that the airport authorities were sophisticated commercial entities capable of negotiating stronger protections, as illustrated by a separate agreement between Lynx Air and the Greater Toronto Airports Authority (GTAA), which explicitly created a trust and allowed GTAA to recover its AIFs.

Arguments for a Broader Interpretation of the Trust Relationship on Appeal

On appeal, the airport authorities maintained that:

• The chambers justice erred by focusing too narrowly on one provision of the Memorandum of Agreement;
• The intent of the parties, read as a whole, supported finding an express or implied trust; and
• Equity should impose a constructive trust even absent a trust to prevent unjust enrichment and protect public infrastructure funding.

They argued that allowing Lynx Air’s estate to retain the AIFs collected on behalf of airports was contrary to public policy and the reasonable expectations of passengers and the aviation industry.

Alberta Court of Appeal: No Grounds for Finding a Trust

The Alberta Court of Appeal dismissed the appeal, affirming the chambers decision in full. Writing unanimously, the Court emphasized the following key points:

Clear Contract Language Precludes Creation of Trust

The Court of Appeal held that Section 20.1 of the Memorandum of Agreement disclaimed any trust relationship unambiguously. The existence of an agency for collection purposes did not, in itself, create a trust. There was no ambiguity or inconsistency that would justify a broader interpretation.

Further, the Court found no other parts of the memorandum or contextual factors that altered or undermined the clear disclaimer of a trust. The language was enforceable, and commercial parties are expected to bear the consequences of the agreements they enter.

No Implied Trust Found

The airport authorities also sought to establish an implied trust, arguing that air passengers acted as settlors and that the structure of the AIF collection supported an inference of trust. However, the Court of Appeal found this theory speculative and unsupported by evidence.

Notably, the Court noted that passengers had no apparent intention to create a trust or any continuing interest in the funds once paid to the airline. No trust could be inferred without evidence of the “three certainties” required to create one (intent, subject matter, and beneficiary).

Constructive Trust Not Warranted

Finally, the Court of Appeal addressed whether equity could impose a constructive trust as a remedy for unjust enrichment. While acknowledging that Lynx Air retained funds meant for others, the Court agreed with the chambers justice that there was no equitable wrongdoing or breach of fiduciary duty justifying the creation of an equitable trust. It also noted the parties could have protected themselves via contract, as the Greater Toronto Airports Authority did.

Finally, the Court found imposing a trust would undermine the pari passu principle of insolvency law, which requires remaining assets to be divided equally among unsecured creditors. Recognizing a trust in this case would violate that principle, as it would give one unsecured creditor an improper priority.

The Court found no basis to override the Memorandum of Agreement’s explicit terms. The airport authorities remained unsecured creditors in the CCAA process.

Implications for Creditors and Contracting Parties

This decision carries several vital lessons for creditors and those drafting commercial contracts, especially in sectors where insolvency risk is ever-present:

1. Agency ≠ Trust

Even when one party acts as an agent for another, courts will not automatically infer a trust. Unless clearly stated, an agency relationship may give rise to duties, but not proprietary rights.

2. Language Matters

The Memorandum of Agreement explicitly disclaimed a trust, and the courts enforced that disclaimer. Precise language is essential. If parties intend for funds to be held in trust or to have proprietary protection, they must say so clearly.

3. Equity Will Not Override Commercial Bargains Lightly

The Court of Appeal reinforced the principle that equity intervenes only in exceptional cases. Sophisticated commercial parties are presumed to understand the risks of their arrangements. Courts will not “rewrite” contracts to correct perceived unfairness after the fact.

4. Priority in Insolvency Requires Advance Planning

Had the airport authorities negotiated terms similar to those of the Greater Toronto Airports Authority, their position may have been different. This decision highlights the importance of insolvency-proofing contractual relationships through explicit trust provisions or security arrangements.

While this decision may feel harsh from a public policy perspective, given the nature of AIFs and their use in maintaining national infrastructure, the Court of Appeal’s decision emphasizes that freedom of contract prevails and courts are wary of intervening when parties could have protected their interests through better planning.

Getz Collins and Associates Provides Multifaceted Business Law Solutions in Calgary and Strathmore

The Alberta Court of Appeal’s decision in Edmonton Regional Airports Authority v. Lynx Air Holdings Corporation is a cautionary tale for entities seeking priority treatment of funds in commercial agreements. At Getz Collins and Associates, our experienced business lawyers understand the importance of drafting all commercial agreements with precision and anticipating any adverse scenarios, including insolvency, in advance. Our team provides comprehensive assistance in a broad range of business contracts to clients across a spectrum of industries, helping minimize risk and avoid costly disputes.

Getz Collins and Associates has convenient office locations in Calgary and Strathmore and proudly serves communities across Alberta, including Airdrie, Cochrane, Okotoks, Drumheller, Chestermere, and Hussar. To book a consultation, please call 587-391-5600 or contact us online.