GE Canada Equipment Financing G.P. v. ING Insurance Co. of Canada, 2009 ONCA 171

• Judge: Cronk, Juriansz and MacFarland, JJ.A.
• Court: Court of Appeal (Ontario)
• Case Date: October 02, 2008
• Jurisdiction: Ontario
• Citations: 2009 ONCA 171;(2009), 248 O.A.C. 83 (CA)

GE Can. Equipment v. ING Ins. (2009), 248 O.A.C. 83 (CA)

MLB headnote and full text

Temp. Cite: [2009] O.A.C. TBEd. MR.002

GE Canada Equipment Financing G.P. (applicant/appellant) v. ING Insurance Company of Canada (respondent/respondent in appeal)

(C48486; 2009 ONCA 171)

Indexed As: GE Canada Equipment Financing G.P. v. ING Insurance Co. of Canada

Ontario Court of Appeal

Cronk, Juriansz and MacFarland, JJ.A.

February 25, 2009.

Summary:

GE Canada Equipment Financing G.P. (GE) financed Brampton Leasing and Rentals Ltd.'s (Brampton) acquisition of two trucks. GE perfected its purchase money security interests (PMSIs) in the trucks under the Personal Property Security Act. Brampton leased the trucks to two third parties. Each lessee obtained automobile insurance from ING Insurance Co. of Canada (ING). Brampton was named as the lessor and loss payee in the policies, which did not mention GE. The trucks were stolen. Brampton submitted proofs of loss which stated falsely that no person other than Brampton had an interest in the trucks. ING paid the claims. Under statutory condition 6(7) of the Insurance Act, ING became entitled to salvage rights in the trucks. Both trucks were later recovered. ING took possession of them. Brampton did not notify GE of the thefts or payment of the ING insurance proceeds. Brampton defaulted on its payments to GE and filed an assignment in bankruptcy. In attempting to exercise its remedies, GE discovered that ING was the registered owner of the trucks. When GE informed ING of its perfected PMSIs, ING refused to surrender possession of the trucks. GE commenced proceedings against ING, seeking declarations that its PMSIs had priority over ING's salvage rights and that GE was entitled to the trucks' return.

The Ontario Superior Court, in a decision reported at [2008] O.T.C. Uned. 266, dismissed the application. GE appealed.

The Ontario Court of Appeal allowed the appeal. The declaration was granted.

Insurance - Topic 1062

The insurance contract - Statutory conditions - Application of - [See Personal Property - Topic 6203 ].

Insurance - Topic 5229

Automobile insurance - Compulsory government schemes - Rights and duties of insurer - Re salvage - [See Personal Property - Topic 6203 ].

Personal Property - Topic 6002

Security interests - General - Application of legislation (incl. exceptions) - [See Personal Property - Topic 6203 ].

Personal Property - Topic 6014

Security interests - General - Obligation to act in good faith and a commercially reasonable manner - GE Canada Equipment Financing G.P. (GE) financed Brampton Leasing and Rentals Ltd.'s (Brampton) acquisition of two trucks - GE perfected its purchase money security interests (PMSIs) in the trucks under the Personal Property Security Act - Brampton leased the trucks to two third parties - Each lessee obtained automobile insurance from ING Insurance Co. of Canada (ING) - Brampton was named as the lessor and loss payee in the policies, which did not mention GE - The trucks were stolen - Brampton submitted proofs of loss which stated falsely that no person other than Brampton had an interest in the trucks - ING paid the claims - Under statutory condition 6(7) of the Insurance Act, ING became entitled to salvage rights in the trucks - Both trucks were later recovered - ING took possession of them - Brampton did not notify GE of the thefts or payment of the ING insurance proceeds - Brampton defaulted on its payments to GE and filed an assignment in bankruptcy - In attempting to exercise its remedies, GE discovered that ING was the registered owner of the trucks - When GE informed ING of its perfected PMSIs, ING refused to surrender possession of the trucks - GE commenced proceedings against ING, seeking declarations that its PMSIs had priority over ING's salvage rights and that GE was entitled to the trucks' return or to the proceeds of their sale - The application judge dismissed the application - The Ontario Court of Appeal allowed GE's appeal - In concluding observations, the court noted that the action involved the balancing of competing interests in collateral by two innocent parties - It was unreasonable that a creditor in GE's position should lose its priority in secured collateral because it failed to foresee that its debtor would actively mislead its involved insurers - To hold otherwise would impose a protectionist obligation on GE and similarly situated lenders that could undermine normal good faith collateral financings - As between GE and ING, the consequences of Brampton's misrepresentations had to be borne by ING - An insured or its named loss payee who had derived the benefit of an insurance policy had to make good to the insurer any loss occasioned to it by the insured's or loss payee's lack of good faith or honesty - See paragraphs 79 to 85.

Personal Property - Topic 6203

Security interests - Priorities - Insurance proceeds - GE Canada Equipment Financing G.P. (GE) financed Brampton Leasing and Rentals Ltd.'s (Brampton) acquisition of two trucks - GE perfected its purchase money security interests (PMSIs) in the trucks under the Personal Property Security Act (PPSA) - Brampton leased the trucks to two third parties - Each lessee obtained automobile insurance from ING Insurance Co. of Canada (ING) - Brampton was named as the lessor and loss payee in the policies, which did not mention GE - The trucks were stolen - Brampton submitted proofs of loss which stated falsely that no person other than Brampton had an interest in the trucks - ING paid the claims - Under statutory condition 6(7) of the Insurance Act, ING became entitled to salvage rights in the trucks - Both trucks were later recovered - ING took possession of them - Brampton did not notify GE of the thefts or payment of the ING insurance proceeds - Brampton defaulted on its payments to GE and filed an assignment in bankruptcy - In attempting to exercise its remedies, GE discovered that ING was the registered owner of the trucks - When GE informed ING of its perfected PMSIs, ING refused to surrender possession of the trucks - GE commenced proceedings against ING, seeking declarations that its PMSIs had priority over ING's salvage rights and that GE was entitled to the trucks' return or to the proceeds of their sale - The application judge dismissed the application, concluding that the combined effect of s. 4(1)(c) of the PPSA (under which the PPSA did not apply to "a transfer of an interest or claim in or under any policy of insurance") and statutory condition 6(7) was to deprive GE of its PPSA priority protection - The Ontario Court of Appeal disagreed - Section 4(1)(c) did nothing more than relieve ING of the obligation to protect its interests by providing notice in the PPSA registry - It did not relieve ING of the obligation to be mindful of the PPSA-protected interests of secured creditors - Since s. 4(1)(c) did not address priorities, it did not operate to oust the priority otherwise conferred on GE's PMSIs by s. 9(1) of the PPSA - Nor did statutory condition 6(7) operate to vest title to the salvage in ING, free and clear of pre-existing perfected security interests - Brampton's interests in the trucks were subject to GE's perfected PMSIs - Statutory condition 6(7) conferred on ING only those rights to salvage possessed by Brampton prior to ING's payment of the trucks' cash value - As against GE, ING was in no better position than Brampton - GE's appeal was allowed - The declaration was granted - See paragraphs 23 to 60.

Personal Property - Topic 6463

Security interests - Loss of title to third parties - Goods sold or leased in ordinary course of business - What constitutes - GE Canada Equipment Financing G.P. (GE) financed Brampton Leasing and Rentals Ltd.'s (Brampton) acquisition of two trucks - GE perfected its purchase money security interests (PMSIs) in the trucks under the Personal Property Security Act (PPSA) - Brampton leased the trucks to two third parties - Each lessee obtained automobile insurance from ING Insurance Co. of Canada (ING) - Brampton was named as the lessor and loss payee in the policies, which did not mention GE - The trucks were stolen - Brampton submitted proofs of loss which stated falsely that no person other than Brampton had an interest in the trucks - ING paid the claims - Under statutory condition 6(7) of the Insurance Act, ING became entitled to salvage rights in the trucks - Both trucks were later recovered - ING took possession of them - Brampton did not notify GE of the thefts or payment of the ING insurance proceeds - Brampton defaulted on its payments to GE and filed an assignment in bankruptcy - In attempting to exercise its remedies, GE discovered that ING was the registered owner of the trucks - When GE informed ING of its perfected PMSIs, ING refused to surrender possession of the trucks - GE commenced proceedings against ING, seeking declarations that its PMSIs had priority over ING's salvage rights and that GE was entitled to the trucks' return or to the proceeds of their sale - The application judge dismissed the application - GE appealed - ING asserted that the transfer of the trucks from Brampton to ING was a usual transaction for a leasing company, with the result that it was a "sale" in the "ordinary course of business" by Brampton within the meaning of s. 28(1) of the PPSA, such that ING took title to the trucks free from GE's PMSIs - The Ontario Court of Appeal disagreed - There was no "sale" for the purpose of s. 28(1) - Under statutory condition 6(7), ING became entitled to the salvage in the trucks on its election to pay their actual cash value - Once ING so elected, its entitlement to Brampton's salvage rights occurred by operation of law - Even if the transfer could be said to be a "sale", it was not carried out by Brampton in the "ordinary course of business" as Brampton was in the vehicle leasing and rental business - Moreover, Brampton obtained the ING insurance proceeds through misrepresentation - The transfer was accomplished by dishonest means - Normal commercial dealings did not proceed on that basis - GE's appeal was allowed - The declaration was granted - See paragraphs 61 to 71.

Personal Property - Topic 6465

Security interests - Loss of title to third parties - Consent to sale to third party - [See Personal Property - Topic 6463 ].

Personal Property - Topic 6465

Security interests - Loss of title to third parties - Consent to sale to third party - GE Canada Equipment Financing G.P. (GE) financed Brampton Leasing and Rentals Ltd.'s (Brampton) acquisition of two trucks - GE perfected its purchase money security interests (PMSIs) in the trucks under the Personal Property Security Act (PPSA) - Brampton leased the trucks to two third parties - Each lessee obtained automobile insurance from ING Insurance Co. of Canada (ING) - Brampton was named as the lessor and loss payee in the policies, which did not mention GE - The trucks were stolen - Brampton submitted proofs of loss which stated falsely that no person other than Brampton had an interest in the trucks - ING paid the claims - Under statutory condition 6(7) of the Insurance Act, ING became entitled to salvage rights in the trucks - Both trucks were later recovered - ING took possession of them - Brampton did not notify GE of the thefts or payment of the ING insurance proceeds - Brampton defaulted on its payments to GE and filed an assignment in bankruptcy - In attempting to exercise its remedies, GE discovered that ING was the registered owner of the trucks - When GE informed ING of its perfected PMSIs, ING refused to surrender possession of the trucks - GE commenced proceedings against ING, seeking declarations that its PMSIs had priority over ING's salvage rights and that GE was entitled to the trucks' return or to the proceeds of their sale - The application judge dismissed the application - GE appealed - ING asserted that s. 25(1) of the PPSA prevented GE's PMSIs in the trucks from attaching to the collateral in ING's hands - The Ontario Court of Appeal disagreed - The effect of s. 25(1) was that where a secured party authorized the disposition of collateral, then the acquiring party took title free of the secured party's claim - However, GE neither expressly nor impliedly authorized Brampton to sell or otherwise dispose of the trucks - Under the sale agreements, until its payment obligations to GE had been satisfied, Brampton enjoyed only the right to quiet use and enjoyment of the trucks for so long as it was not in default - GE's appeal was allowed - The declaration was granted - See paragraphs 72 to 78.

Cases Noticed:

Bell ExpressVu Limited Partnership v. Rex et al., [2002] 2 S.C.R. 559; 287 N.R. 248; 166 B.C.A.C. 1; 271 W.A.C. 1, refd to. [para. 22].

Rizzo & Rizzo Shoes Ltd. (Bankrupt), Re, [1998] 1 S.C.R. 27; 221 N.R. 241; 106 O.A.C. 1, refd to. [para. 22].

Royal Bank of Canada v. 1231640 Ontario Inc. (Bankrupt) et al., 2007 ONCA 810, leave to appeal granted (2008), 386 N.R. 393 (S.C.C.), refd to. [para. 24].

Royal Bank of Canada v. Sparrow Electric Corp., [1997] 1 S.C.R. 411; 208 N.R. 161; 193 A.R. 321; 135 W.A.C. 321, refd to. [para. 24].

Rektor, Re, [1983] O.J. No. 957 (H.C.), refd to. [para. 28].

Stelco Inc. et al., Re (2005), 197 O.A.C. 1; 2005 CanLII 13192 (C.A.), refd to. [para. 30].

Paskow v. Calvert Fire Insurance Co. (1979), 579 F.2d 949 (5th Cir.), refd to. [para. 36].

PPG Industries v. Hartford Fire Insurance Co. (1976), 531 F.2d 58 (2nd Cir.), refd to. [para. 36].

Polowin (David) Real Estate Ltd. v. Dominion of Canada General Insurance Co. (2005), 199 O.A.C. 266; 76 O.R.(3d) 161 (C.A.), leave to appeal refused (2006), 350 N.R. 398; 216 O.A.C. 400 (S.C.C.), refd to. [para. 41].

First Vancouver Finance v. Minister of National Revenue et al., [2002] 2 S.C.R. 720; 288 N.R. 347; 219 Sask.R. 185; 272 W.A.C. 185; 2002 SCC 49, refd to. [para. 44].

DaimlerChrysler Financial Services (Debis) Canada Inc. v. Mega Pets Ltd. et al. (2002), 166 B.C.A.C. 298; 271 W.A.C. 298; 2002 BCCA 242, refd to. [para. 45].

Giffen (Bankrupt), Re, [1998] 1 S.C.R. 91; 222 N.R. 29; 101 B.C.A.C. 161; 164 W.A.C. 161, refd to. [para. 49].

Chrysler Credit Canada v. Fehr et al., [2001] O.T.C. 634; 55 O.R.(3d) 430 (Sup. Ct.), dist. [para. 56].

Bank of Nova Scotia v. Groupe Procycle Inc. (1999), 92 O.T.C. 356 (Gen. Div.), refd to. [para. 66].

Fairline Boats Ltd. v. Leger, [1980] O.J. No. 216 (H.C.), refd to. [para. 66].

Statutes Noticed:

Insurance Act Regulations (Ont.), Statutory Conditions - Automobile Insurance Regulation, Reg. 777/93, Schedule, stat. cond. 6(7) [para. 15].

Personal Property Security Act, R.S.O. 1990, c. P-10, sect. 4(1)(c), sect. 9(1), sect. 25(1), sect. 28(1) [para. 15].

Authors and Works Noticed:

Boivin, Denis, Essentials of Canadian Law: Insurance Law (2004), pp. 280, 282, 284 [para. 47].

Catzman, Fred M., Personal Property Security Law in Ontario (1976), p. 35 [para. 28].

Driedger, Elmer A., Construction of Statutes (2nd Ed. 1983), p. 87 [para. 22].

Fridman, Gerald Henry Louis, The Sale of Goods in Canada (5th Ed. 2004), pp. 11, 12 [para. 62].

McLaren, Richard H., Secured Transactions in Personal Property in Canada (2nd Ed.) (2003 Looseleaf Supp.), para. 9.01 [para. 73].

Sullivan, Ruth, Sullivan and Driedger on the Construction of Statutes (4th Ed. 2002), pp. 1, 2, 3 [para. 22].

Ziegel, Jacob S., and Denomme, David L., The Ontario Personal Property Security Act: Commentary and Analysis (2nd Ed. 2000), pp. 82 [para. 28]; 116 [para. 32].

Counsel:

Harvey G. Chaiton and Doug Bourassa, for the appellant;

Adam J. Stephens and Nafisah Chowdhury, for the respondent.

This appeal was heard on October 2, 2008, by Cronk, Juriansz and MacFarland, JJ.A., of the Ontario Court of Appeal. On February 25, 2009, Cronk, J.A., delivered the following judgment for the court.