Conflict of Laws

• Author: Ronald C.C. Cuming/Catherine Walsh/Roderick J. Wood
• Profession: University of Saskatchewan, College of Law/McGill University, Faculty of Law/University of Alberta, Faculty of Law
• Pages: 118-160

CHAP TER 3

CONFLICT OF LAWS

A. INTRODUCTION AND GENERAL

CONSI DER ATIONS

1) Scope of Chapter

This chapter is concerned primarily with the statutory choice of law

rules for security interests contained in the PPSA although occasional

comparative reference will be made to t he counterpart rule s of the Civil

Code of Québ ec (Civil Code) and Article 9 of the Uniform Commercial

Code (UCC). Reference is sometimes also made to other relevant rules

of Canadian private international law.

The PPSA rules apply to security intere sts in personal property, not

proprietary interests in movables generally. Yet, if the law applicable to

security interests differs from that applicable to ownership and other

types of non-security interests, there is a risk of conf‌licting priority

determinations under the different applicable laws in relation to the

same item of collateral. Consequently, this chapter also addresses the

desirability of drawing by analogy on the PPSA rules in the judicial

development of choice of law rules for movables generally, particularly

in relation to the critical issues of perfection and pr iority.

The insolvency of the debtor is the crucible in which t he power of

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

impact of bankruptcy or insolvency proceedings on the law applicable

to security interests.

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Conf‌lict of Laws 119

The PPSA conf‌licts regime is not necessa rily suitable for all categor-

ies of collateral. Chapter 1 of the book examined pending reforms with

respect to two categories of collateral: investment property and mobile

equipment commonly used across borders. When implemented, these

reforms will have an impact on the conf‌licts rules outlined in this chap-

ter. Chapter 1 also discussed the United Nations Convention on the As-

signment of Receivables in Internatio nal Trade. Although implementat ion

plans are only at a very prel iminary stage, the convention offers persu a-

sive authority on a number of issues on which the pr ivate international

law rules in Canadian common law jurisdictions are underdeveloped,

including the law applicable to the r ights of a secured part y against the

account debtor where the collateral takes the form of an account.

2) Importance of Choice of Law Rules

The various versions of the PPSA sometimes dif fer on signif‌icant issues.

The PPSA varies even more substantially from the security regimes

contained in the Civ il Code a nd UCC Article 9.1 Beyond Canada and the

United States, the differences c an be dramatic with many legal system s

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

registration system for non-possessory secur ity interests.

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

agreement — and third parties potentially affected by their transaction

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

drafters of the PPSA recogni zed the importance of certainty and predict-

ability at the choice of law level. Ex plicit guidance is provided on the law

applicable to four issues: the valid ity of a security interest, perfection, the

effects of perfection or non-perfection (priority), and enforcement.

3) Overview of PPSA Conf‌licts Regime

Property rights in immovables have always been governed by the law

of their location (lex rei sitae). However, rights in movables were his-

torically 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 quality of movable

property:

1 For a comparative over view of some of the principal di fferences, see chapter 1.

PERSO NAL PR OPERTY SEC URI TY LAW120

In a country a gre at part of whose commercial capital is employed

abroad, it is partic ularly proper th at such capital over which the

trader has di sposing power although situated out of the Kingdom,

should be considered as referable to the domiciliu m of the owner.2

It was not until the nineteenth centur y that the lex domicili was replaced

by the lex rei sitae for private commercial transactions.3 Although partly in-

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

rule was pri marily justif‌ied on pragmat ic grounds: the convenience of hav-

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

practical enforcement, and the rea sonable expectations of the parties.

Tod ay, t he lex rei sita e rule is still widely accepted, but only as a

starting point. For intangible assets, more specialized connecting fac-

tors are emerging,4 including a variation of the old lex domic ili of the

owner rule for accounts.5 The PPSA ref‌lects — indeed it was at the

forefront of — these trends.

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

fects of perfection or non-perfection of a security intere st, the PPSA em-

ploys two basic connecting factors: the locat ion of the collateral and the

location of the debtor. For goods generally, the law of the jurisdiction

where the collateral is located applies,6 subject to a special destination

rule for goods intended for export.7 For intangibles and for goods that

are inherently mobile, the law of the jur isdiction in which the debtor is

located applies.8 For money and reif‌ied intangibles (securities, chattel

paper, and documents of title), the rule varies depending on whether

2Phillips v. Hunter (1795), 2 H. B.I. 409, as quoted by Mar tin Wolff, Private Inter-

national Law, 2d ed. (Oxford: Clarendon , 1950) at 502–76.

3Winans v. Attorney-General, [1910] A.C. 27 at 32. The law of the domicile retain s

currency i n the context of choice of law for success ion to movables on death,

and for matrimon ial property.

4 See, for example, the Hag ue Convention on the Law Applicable to Ce rtain Rights in

respect of Securit ies held with an Intermedi ary, 2001. The convention is posted at

www.hcch.net under Inter national Commercia l and Finance Law — Secur ities

held with intermediaries.

5 See, for example, a rt. 22 of the United Nations Conventi on on the Assignment of Re-

ceivables in Inter national Trade, 2001. The convention is posted at ww w.uncitral.org

under General A ssembly Resolutions — 56th S ession 2001 — A/RES /56/81 United

Nations Convention on t he Assignment of Receiva bles in Internationa l Trade.

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

7 PPSA (A, BC, M, NB, NWT, Nu, O, PEI, S) s. 6(1); (NL, NS) s. 7(1); Y s. 5(1).

8 PPSA (A, BC, M, NB, NWT, Nu, O, PEI, S) s. 7(2); (NL, NS) s. 8(2); Y s. 6(1).