674921 B.C. Ltd. v. Advanced Wing Technologies Corp. et al., 2006 BCCA 49

• Judge: Donald, Newbury and Levine, JJ.A.
• Court: Court of Appeal (British Columbia)
• Case Date: December 13, 2005
• Jurisdiction: British Columbia
• Citations: 2006 BCCA 49;(2006), 222 B.C.A.C. 104 (CA)

674921 B.C. v. Advanced Wing Tech. (2006), 222 B.C.A.C. 104 (CA);

    368 W.A.C. 104

MLB headnote and full text

Temp. Cite: [2006] B.C.A.C. TBEd. FE.018

674921 B.C. Ltd. (respondent/appellant by cross-appeal/petitioner) v. New Solutions Financial Corporation (appellant/respondent by cross-appeal/respondent)

(CA033224; 2006 BCCA 49)

Indexed As: 674921 B.C. Ltd. v. Advanced Wing Technologies Corp. et al.

British Columbia Court of Appeal

Donald, Newbury and Levine, JJ.A.

February 3, 2006.

Summary:

Two doctors entered into a joint venture with Advanced Wing Technologies Corp. (AWTC). When AWTC was unable to meet its obligations under the joint venture arrangements, it entered into "amended loans agreements" with the doctors back dated to March 2000 which contained a promise that AWTC "will provide its assets as collateral for the loan". In June 2001, the doctors registered financing statements against AWTC in the Personal Property Security Act (PPSA) registry and they prepared a general security agreement for execution by AWTC, but it resisted providing the same until months later (after May 2002). In the meantime, AWTC negotiated with New Solutions Financial Corp. to obtain additional financing. After conducting a search of the PPSA registry, New Solutions discovered the doctors' financing statement of 2001. New Solutions required the doctors to sign a postponement agreement to subordinate their interest to that being taken by New Solutions as a condition of it financing AWTC. New Solutions agreed to finance AWTC's accounts receivable and registered a financing statement on February 2, 2002. The doctors assigned their interest to the petitioner company. In 2004, AWTC filed for bankruptcy. At issue was whether the petitioner or New Solutions' interest had priority.

The British Columbia Supreme Court, in a decision reported at [2005] B.C.T.C. 1113, held that the petitioner's security interest had priority. New Solutions appealed. The petitioner cross-appealed certain findings of fact of the court.

The British Columbia Court of Appeal allowed the appeal and dismissed the cross-appeal.

Personal Property - Topic 6004

Security interests - General - Security interests - Scope of - [See Personal Property - Topic 6005 ].

Personal Property - Topic 6005

Security interests - General - Security interest - Creation of or revival of - Two doctors entered into a joint venture with Advanced Wing Technologies Corp. (AWTC) - When AWTC was unable to meet its obligations under the joint venture arrangements, it entered into "amended loans agreements" with the doctors back dated to March 2000 which provided that AWTC "will provide its assets as collateral for the loan" - The British Columbia Court of Appeal held that the loan agreements did not grant a security interest that arose immediately - Although no particular wording needed to be used to create a security interest, a covenant by a debtor that it "will provide" security meant that it "will" provide a security, at a future date - Further, the loan agreements did not conform with s. 10(1)(b) of the Personal Property Security Act where they referred only to "assets" and failed to describe the collateral by item or kind or by references to any of the classes of goods set forth in s. 10(1)(b)(i) - Moreover, the agreements did not state that security interests were taken "in all of the debtor's present and after-acquired personal property" or any words with a similar effect, nor that the security was taken in all of the debtor's present and after-acquired personal property with specified exceptions (s. 10(1)(b)(iii)) - As a result, the agreements did not create security interests enforceable against third parties - See paragraph 28 to 30.

Personal Property - Topic 6005.2

Security interest - General - Security interest - Subordination of - Two doctors entered into a joint venture with Advanced Wing Technologies Corp. (AWTC) - When AWTC was unable to meet its obligations under the joint venture arrangements, it entered into "amended loans agreements" with the doctors back dated to March 2000 which provided that AWTC "will provide its assets as collateral for the loan" - In June 2001, the doctors registered financing statements against AWTC in the Personal Property Security Act (PPSA) registry and prepared a general security agreement for execution by AWTC, but it resisted providing the same until months later (after May 2002) - Meanwhile, AWTC negotiated with New Solutions Financial Corp. to obtain additional financing - New Solutions discovered the doctors' registered financing statement of 2001 - New Solutions required the doctors to sign an agreement in which the doctors agreed to postpone their security interests to New Solutions for a period of six months to the date of this document - New Solutions agreed to finance AWTC's accounts receivable and registered a financing statement on February 2, 2002 - In 2004, AWTC filed for bankruptcy - At issue was whether the doctors' assignee's or New Solutions' interest had priority - The British Columbia Court of Appeal held that the priority granted to New Solutions was "time-limited in nature" - The court held that the most "commercially sensible" interpretation of the agreement was that advances made by New Solutions during the six months had priority over the doctors' claims - It did not make sense for the parties to have contemplated that New Solutions would have had to enforce its security and recover its funds within the six months, as a condition of its priority - Alternatively, the steps taken by New Solutions during the six months were sufficient to invoke the priority clause - See paragraphs 40 and 41.

Personal Property - Topic 6201.2

Security interests - Priorities - Residual priority clause - Two doctors entered into a joint venture with Advanced Wing Technologies Corp. (AWTC) - When AWTC was unable to meet its obligations under the joint venture arrangements, it entered into "amended loans agreements" with the doctors back dated to March 2000 which provided that AWTC "will provide its assets as collateral for the loan" - In June 2001, the doctors registered financing statements against AWTC in the Personal Property Security Act (PPSA) registry and they prepared a general security agreement (GSA) for execution by AWTC, but it resisted providing the same until months later (after May 2002) - Meanwhile, AWTC negotiated with New Solutions Financial Corp. to obtain additional financing - New Solutions discovered the doctors' financing statement of 2001 - New Solutions required the doctors to sign a postponement agreement to subordinate their interest to that being taken by New Solutions as a condition of it financing AWTC - New Solutions agreed to finance AWTC's accounts receivable and registered a financing statement on February 2, 2002 - In 2004, AWTC filed for bankruptcy - At issue was whether the doctors' assignee's or New Solutions' interest had priority - The British Columbia Court of Appeal held that New Solutions' interest had priority - The agreements did not comply with s. 10 of the PPSA and, as a result, was not an enforceable security interest - Section 35(1)(a)(i) was subject to any other method provided by the PPSA for determining priority between security interests and s. 10 was a rule about enforceability against third parties - The doctors' interest was not perfected until AWTC executed the GSA, after May 2002 - Accordingly, New Solutions' valid interest was registered prior to the doctors' valid interest - See paragraphs 34 to 36.

Cases Noticed:

Alda Wholesale Ltd. (Bankrupt), Re, [2001] B.C.T.C. 921; 26 C.B.R.(4th) 1; 2001 BCSC 921, refd to. [para. 10].

Rogerson Lumber Co. v. Four Seasons Chalet Ltd. and Bank of Montreal et al. (1980), 113 D.L.R.(3d) 671 (Ont. C.A.), refd to. [para. 20].

Sun Life Assurance Co. of Canada v. Royal Bank of Canada (1995), 129 D.L.R.(4th) 305; 37 C.B.R.(3d) 89 (Ont. Gen. Div.), refd to. [para. 23].

Bank of Montreal v. Kimberley Brewing Co. et al. (1999), 25 B.C.T.C. 215; 12 C.B.R.(4th) 10 (S.C.), refd to. [para. 23].

Canada Deposit Insurance Corp. v. Canadian Commercial Bank, [1992] 3 S.C.R. 558; 143 N.R. 321; 131 A.R. 321; 25 W.A.C. 321, refd to. [para. 25].

Statutes Noticed:

Personal Property Security Act, R.S.B.C. 1996, c. 359, sect. 10 [Schedule]; sect. 35 [Schedule].

Authors and Works Noticed:

Cuming, Ronald C.C., and Wood, Roderick J., British Columbia Personal Property Security Act Handbook (4th Ed. 1998), pp. 101 [para. 10]; 102 [para. 34]; 103 [paras. 21, 34]; 256 [para. 4]; 313 [paras. 3, 33]; 329 [para. 3].

Doan, D., British Columbia Personal Property Security Act Practice Manual (1996), vol. 1, sect. 1.3 [para. 1].

Counsel:

J.R. Sandrelli and S.A. Dubo, for the appellant;

R.A. Finlay, for the respondent.

This appeal and cross-appeal were heard on December 13, 2005, at Vancouver, British Columbia, by Donald, Newbury and Levine, JJ.A., of the British Columbia Court of Appeal. The following judgment of the Court of Appeal was delivered by Newbury, J.A., on February 3, 2006.