Conflict of Laws

• Author: Ronald C.C. Cuming, Catherine Walsh, Roderick Wood
• Pages: 180-239

180

CHA PTER 3

CONFLICT OF LAWS

A. INTRODUCTION AND GENERAL

CONSIDER AT IONS

1) Scope of Chapter

This chapter is concerned primarily with the statutory choice of law

rules for security interests contained in the PPSA (and in the STA in

the case of security interests in investment property). Occasional com-

parative reference is made to the counterpart rules of the Civil Code of

Québec (Civil Code) and Article 9 of the UCC. Reference is sometimes

also made to other relevant rules of Canadian private intern ational law.

The PPSA rules apply to security interest s in personal property.

They do not apply to proprietary rights in movables generally. Yet if

the law applicable to security interests differs from that applicable to

ownership and other proprietary interests, there is a risk that compet-

ing claims to the same asset will be subject to different and potentially

conf‌licting priority regimes. Consequently, this chapter also emphasiz-

es the desirability of drawing by analogy on the PPSA rules applicable

to security interest s in the development of choice of law rules relating

to the property effects of other types of proprietary rights.

The insolvency of the debtor is the crucible in which the eff‌icacy of

a security interest is tested. Consequently, this chapter also covers the

impact of bankruptcy or insolvency proceedings on the law applicable

to security interest s.

Conf‌lict of Laws 181

Chapter 1 of the book mentioned the pending adoption into Can-

adian law of the Cape Town Convention on International Interests in

Mobile Equipment,1 a reform initiative examined in greater detail in

Chapter 13.2 Because the Convention, in conjunction with its asset-

specif‌ic Protocols, establishes a uniform global legal framework and

registry infrastructure, its implementation will largely eliminate the

need for conf‌licts rules with respect to the type s of collateral and trans-

actions within its scope (notably aircraft f‌inancing).3

Chapter 1 also referred to the United Nations Convention on the As-

signment of Receivables in International Trade.4 Although not in force,

the Convention offers persuasive authority on a number of issues on

which the private international law rules in Canadian common law

jurisdictions are underdeveloped. These include the law applicable to

the rights of a secured party or assignor against the debtor on the ac-

count where accounts are assigned outright or encumbered by a secur-

ity interest. In view of the importance of these issues in cross-border

receivables f‌inancing transactions, this chapter also addresses the law

applicable to relations between an assignee or secured party and the

debtor on the account.

2) Importance of Choice of Law Rules

The various versions of the PPSA sometimes differ on signif‌icant

issues.5 The PPSA varies even more substantially from the security re-

gimes contained in the Civil Code6 and UCC Article 9.7 Beyond Canada

and the United States, the differences can be dramatic w ith many legal

systems not sharing the same level of commitment to the concept of a

public registration system for non-possessor y security interests.

In view of these differences, it is critical for the parties to a secu-

rity agreement — and third parties potentially affected by their trans-

action — to determine which jurisdiction’s laws apply to a given issue.

1 See Chapter 1, Se ction K.

2 See Chapte r 13, Section E.

3 The PPSA choice of law ru les will continue to be releva nt to the resolution of

any issues not s ettled by the Convention. See Chapte r 13, Section E(1), note 100

and accompanyi ng text.

4 See Chapter 1, Sec tion K(4).

5 For a summar y overview of the difference s among the Acts, see Chapter 1, Sec-

tion H.

6 For a summary compa rison of the PPSA and the Civ il Code regime s for security,

see Chapter 1, Sect ion M.

7 For a summar y overview of some of the pri ncipal differences betwe en the PPSA

and Article 9 of t he UCC, see Chapter 1, Section L.

PERSO NAL PROPERT Y SECUR ITY LAW182

The drafters of the PPSA recognized the importance of certainty and

predictability at the choice of law level. Explicit guidance is provided on

the law applicable to the validity, perfection, priority, and enforcement

of security interests.

3) Overview of PPSA Conf‌licts Regime

Property rights in immovables have always been governed by the law

of their location (lex rei sitae). However, the property effects of rights

in movables were historically subject to the law of the domicile of their

owner (lex domicili). This idea is captured in the old maxims, mobilia

personam sequuntur (movables follow the person) and mobilia ossibus

inherent (movables inhere in the bone). These maxims were justif‌ied by

the exigencies of global trade and the stateless and impermanent qual-

ity of movable property:

In a country a gre at part of whose commercial c apital is employed

abroad, it is particularly proper that such capital over which the

trader has disposing power although situ ated out of the Kingdom,

should be considered as referable to the domicilium of the ow ner.8

It was not until the nineteenth centur y that the lex do micili was replaced

by the lex rei sitae for private commercial transactions.9 Although par tly in-

f‌luenced by emerging territorial theories of choice of law, the lex rei sitae

rule was primarily justif‌ied on pragmatic grounds: the convenience of hav-

ing a single choice of law rule for movables and immovables, the practical

exigencies of enforcement, and the reasonable expectations of the parties.

Today, the lex rei sitae rule is still widely accepted, but only as a

starting point. For intangible assets, more speciali zed connecting fac-

tors are emerging, including a variation of the old lex domicili of the

owner rule for accounts. The PPSA ref‌lects this trend.

In identifying the law applicable to the validity, perfection, and ef-

fects of perfection or non-perfection of a security interest, t he PPSA

generally employs one of two basic connecting factors: the location of

the collateral or the location of the debtor. For goods, the law of the ju-

risdiction where the collatera l is located generally applies,10 subject to a

8 Phillips v Hunter (1795), 2 H BI 402, as quoted by Marti n Wolff, Private Intern a-

tional Law, 2d ed (Oxford: Clare ndon, 1950) at 502–76.

9 Winans v Attorney-General, [1910] AC 27 at 32. The law of the domic ile retains

currency i n the context of choice of law for succession to movable s on death,

and for matr imonial property.

10 PPSA (A, BC, M, NB, NW T, Nu, O, PEI, S) s 5(1); (NL, NS) s 6(1); Y s 4(1).