The recent decision of the Alberta Court of Appeal in Edmonton Regional Airports Authority v Lynx Air Holdings Corporation provides a valuable refresher on the law of trusts. The Court’s ruling serves as an important reminder that if parties intend to create a trust relationship, clearly proving that intention is key.
Background
A Memorandum of Agreement (“MOA”) exists among the Airport Transport Association of Canada, certain signatory airlines (including Lynx Air), and certain airport authorities, including the Calgary, Edmonton, Winnipeg, and Halifax Airport Authorities (collectively referred to as the “Airport Authorities”). Pursuant to the MOA, the signatory airlines agreed to collect Airport Improvement Fees (“AIF”) from airline passengers and remit same to the Airport Authorities on a monthly basis. The relevant term of the MOA in this case was section 20.1, which reads in full as follows:[1]
The Parties expressly disclaim any intention to create a partnership, joint venture, trust relationship or joint enterprise. Nothing contained in this MOA nor any acts of any party taken in conjunction hereunder, shall constitute or be deemed to constitute a partnership, joint venture, or principal/agency relationship in any way or for any purpose except as the signatory air carriers acting as agents for the airports in collecting and remitting the AIF funds.
On February 22, 2024, Lynx Air filed for protection under the Companies’ Creditors Arrangements Act, RSC 1985, c C-36 (“CCAA”). On that date, it held over $4M in AIF that had yet to be remitted to the Airport Authorities. The Airport Authorities sought a declaration that the unremitted AIF held by Lynx Air was subject to a trust in their favor, and ought to be paid forthwith, as opposed to being subject to the CCAA proceedings.
Procedural history
The chambers justice dismissed the Airport Authorities’ application, finding that the MOA created an agency relationship between the signatory airlines and Airport Authorities, but expressly disclaimed a trust relationship. As a result, the unremitted AIF held by Lynx Air at the time an initial order was granted under the CCAA was not the property of the Airport Authorities, held in trust for them by Lynx Air.
The Airport Authorities appealed that decision, and the Court of Appeal upheld the lower court’s ruling. In the course of its analysis, the Court of Appeal provided helpful reminders on the requisite elements for express, implied and remedial constructive trusts.
Key principles of trust law affirmed by the Court of Appeal
The following is a summary of the key principles of trust law reaffirmed by the Court of Appeal’s decision:
- A trust can be explicit (i.e., in writing) or implicit.[2]
- The creation of a trust requires the presence of three certainties: “a) certainty of intent (that the settlors clearly expressed the intention to create a trust and impose binding fiduciary duties on the trustee), b) certainty of subject matter (the trust property was separated from other property), and c) certainty of object (the beneficiaries are clearly identifiable).”[3]
- An agency relationship does not necessarily imply a trust relationship.[4]
- “[B]ecause of the proprietary nature of a trust relationship, it is important to clearly establish an express trust arrangement.”[5]
- A trust may be implied or inferred based on circumstantial evidence. The test is whether a reasonable person would infer that the parties intended to form a trust based on their words or conduct. A subsequent, subjective assertion of a trust that was not made manifest at the time of creation will not suffice.[6]
- The following are some objective indicia of an intention to form a trust when evaluating whether an implied trust was created: “(i) a separate trust account; (ii) the commingling of funds in question; (iii) the language of the agreement; and (iv) other evidence that alludes to the treatment of the funds as trust funds.”[7]
- A remedial constructive trust is a discretionary remedy available to cure wrongdoings or in the case of unjust enrichment.[8]
- The criteria guiding a Court’s discretion to impose a remedial constructive trust are as follows: (i) the defendant was under an equitable obligation in relation to activities giving rise to the assets in their hands; (ii) the assets held by the defendant resulted from deemed or actual agency activities of the defendant who is in breach of their equitable obligations; (iii) the plaintiff has a legitimate reason for seeking a proprietary remedy; and (iv) there are no factors rendering the imposition of a constructive trust unjust in all the circumstances (e.g., the protection of the interests of intervening creditors).[9]
- Where a contract is relied upon as a juristic reason for an alleged unjust enrichment, “the clause doing so must in fact justify the defendant’s enrichment at the expense of the plaintiff.”[10]
The Court of Appeal’s analysis and application of these principles
The Alberta Court of Appeal considered three main issues:
- First, whether the chambers justice correctly applied the principles of contractual interpretation in interpreting section 20.1 of the MOA as an agency relationship without the creation of an express trust.
- Second, whether the chambers justice correctly applied the test for considering whether an implied trust was created on behalf of the airline passengers.
- Third, whether it is reasonable to apply the remedy of a constructive trust.
No express trust was created by the MOA
The Airport Authorities argued that the second sentence of section 20.1 of the MOA clearly established a trust relationship between the airlines and Airport Authorities regarding the collection of AIF, because the only way AIF “could be safeguarded” once they were collected and held by Lynx Air, and until they were remitted to the Airport Authorities, was impressing them with a trust. In other words, the Airport Authorities pushed for an interpretation of section 20.1 as meaning there was no trust relationship between the airlines and Airport Authorities except as regards the collection and remittance of AIF.
The Court of Appeal rejected this argument. The language of section 20.1 clearly and unambiguously disclaimed a trust relationship, and the Airport Authorities’ proffered argument ran contrary to the plain and ordinary meaning of the first sentence of section 20.1. Nothing else in the MOA, considered in light of the factual matrix, altered that clear wording.[11] Moreover, the creation of an agency relationship does not necessarily or automatically mean the parties intended a trust relationship, as a trust is not required for an agent to perform their duties.[12]
No implied trust
In the alternative, the Airport Authorities argued that an implied trust was created with the airline passengers being the settlors of the trust funds (i.e., paying the AIF), Lynx Air holding the AIF as a trustee, and the Airport Authorities being the beneficiaries. In attempting to establish certainty of intent, the Airport Authorities pointed to the terms and conditions on the Lynx Air website informing passengers about AIF and its use. More specifically, the Airport Authorities claimed that the airline passengers would have reasonably believed that Lynx Air would remit the AIF to the Airport Authorities, for the benefit of the airports. In other words, the Airport Authorities had no direct evidence about the settlor/air passengers’ intentions regarding the AIF; however, argued that their intent may be inferred from the circumstantial evidence.
The Court of Appeal also rejected this argument, finding it unreasonable to assume or infer that airline passengers would have contemplated the “legal arrangements between air carriers and airport authorities,” the creation of a trust regarding AIF, or even reviewed the terms of Lynx Air’s website.[13] There was no circumstantial evidence to explain the air passengers’ interest or intent in ensuring AIF were received by the Airport Authorities.[14] Without certainty of intent to create the trust, no implied trust was created in the circumstances.
No remedial constructive trust
Finally, the Airport Authorities submitted that the chambers justice erred in concluding that a constructive trust was an inappropriate remedy, and that section 20.1 of the MOA was not a juristic reason for Lynx Air’s unjust enrichment.
The Court of Appeal agreed with the chambers justice that a remedial constructive trust is an exceptional remedy that should not be granted in this case.[15] There were two key reasons why a remedial constructive trust was inappropriate in the circumstances.
First, section 20.1 of the MOA explicitly disclaimed the formation of any trust relationship. Ignoring that clause and imposing a trust would be tantamount to the Court rewriting a contract that was negotiated by sophisticated commercial entities with special knowledge in the air travel industry.[16] The Airport Authorities were aware of the allocation of commercial risk when they negotiated and signed the MOA. Freedom of contract should prevail.
Second, it cannot be ignored that the trust claim was being asserted within the context of a CCAA filing by Lynx Air. To allow a trust relationship between the Airport Authorities and Lynx Air, where one was not previously outlined, would violate the pari passu principle and give the Airport Authorities an advantage over secured creditors and other unsecured creditors.[17]
Main takeaway
This case reaffirms the importance of clear language or evidence indicating the intention to create a trust relationship if such a relationship is intended.
Should you have any questions, or have a civil or commercial dispute, we invite you to contact a member of Miller Thomson’s Commercial Litigation Group. Our experienced lawyers can help with resolving trust-related disputes.
[1] Edmonton Regional Airports Authority v Lynx Air Holdings Corporation, 2025 ABCA 116 at para 6.
[2] Ibid at para 37.
[3] Ibid at para 30.
[4] Ibid at para 26.
[5] Ibid at para 27.
[6] Ibid at paras 34-36.
[7] Ibid at para 37, citing Firepower Debt GP Inc v TheRedPin Inc, 2019 ONCA 903.
[8] Ibid at para 45.
[9] Ibid at para 14, citing Redstone Investment Corporation (Re), 2015 ONSC 533 at paras 67- 68.
[10] Ibid at para 40, citing Microcell Communications Inc v Frey, 2011 SKCA 136 at para 27.
[11] Ibid at paras 23, 25.
[12] Ibid at paras 26-28.
[13] Ibid at para 35.
[14] Ibid at para 36.
[15] Ibid at paras 46, 51.
[16] Ibid at para 51.
[17] Ibid at para 41.
