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).
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