National and International Security Interests

• Author: Ronald C.C. Cuming, Catherine Walsh, Roderick Wood
• Pages: 692-732

692

CHAPTER 13

NATIONAL AND

INTERNATIONAL

SECURITY INTERESTS

The impact of federal bankruptcy and insolvency law on PPSA secur-

ity interests is discussed in Chapter 10 of this book. Several addition-

al statutes of the Parliament of Canada regulate security interests in

personal property. In some cases, the statute essentially provides for a

secured transactions regime that governs certain types of assets or cer-

tain ty pes of lenders. The federa l Bank Act1makes it pos sible for cert ain

kinds of debtors to grant security in certain classes of assets to a bank.

The Canada Shipping Act, 20012 provides a regime governing ship mort-

gages. In such cases, competitions m ay arise between a provincial PPSA

security interest and a federal security interest taken in the same asset.

In other cases, the federal statute regulating the secur ity interest is less

pervasive in scope. Rather than creating a separate and distinct federal

secured transactions regime, the federal statute provides an additional

rule that has the effect of pre-empting the otherwise applicable provin-

cial law. This is the approach taken in several of the intellectual prop-

erty statutes as well as in the provisions of the Canada Transportation

Act3 relating to security interests in railway assets and rolling stock.

Over the last two decades, there has been increased internation-

al activity in the f‌ield of secured transactions law. Canada is close to

ratifying and implementing an international convention that creates

an international regime within which secured f‌inancing and leasing

1 SC 1991, c 46.

2 SC 2001, c 26 [CSA].

3 SC 1996, c 10.

National and Inte rnational Securit y Interests693

of large aircraft will occur. The major features of this regime will also

be examined in this chapter. Chapter 1 gives a brief introduction to

several other recent internationa l initiatives, notably the United Nations

Convention on the Assignment of Receivables in Interna tional Trade (2001)

and the Hague Convention on the Law Applicable to Certain Rights in re-

spect of Securities Held with an Intermediary (2002) and the UNIDROIT

Convention on Substantive Rules for Intermediated Securities (2 009).

A.

BANK ACT

SECURITY

A separate federal system of secured transactions law is set out in sec-

tions 427 to 429 of the Bank Act (the provisions are frequently renum-

bered upon revision of the Bank Act, and the security is referred to

as section 88 security or section 178 security in the older cases). Al-

though the Bank Act secur ity regime was one of the f‌irst Canadian ch at-

tel security statutes to facilitate inventory f‌inancing, it is increasingly

showing signs of obsolescence. Banks are not limited to the Bank Act

security. Banks may choose to take provincial (PPSA) security inter-

ests to secure their loans or they may take Bank Act security. They may

also take both federal and provincial security interests to secure the

same obligation. Unfortunately, the co-existence of two separate secur-

ity systems premised on fundamentally different principles gives rise

to diff‌icult issues of scope and priority.

1) Availability of the Security

The availability of the Bank Act security is restricted in two ways. First,

only banks may take the security. Other lenders such as credit unions

and trust companies cannot take Bank Act security, and therefore their

security interests will be governed solely by the PPSA. The second lim-

itation is that only cetain categories of debtors may grant the security,

and only certain classes of goods can be taken as collateral. The major

categories are summarized as follows:

1. wholesale or retail purchasers, shippers or dealers in products of

agriculture, products of aquaculture, products of the forest, prod-

ucts of the quarr y and mine, products of the sea, lakes, and river, or

goods, wares, and merchandise on the security of such products or

goods;4

4 Above note 1, s 427(1)(a).

PERSO NAL PROPERT Y SECUR ITY LAW694

2. manufacturers on the security of the goods produced or goods pro-

cured for the production or packing of the manufactured goods;5

3. farmers on the security of crops, agricultural equipment, agricul-

tural implements;6

4. farmers or other persons engaged in livestock raising on the secur-

ity of feed or livestock;7

5. f‌ishers on the se curity of f‌ishing vessels, f‌ishing equipment or prod-

ucts of the sea;8

6. forestry producers on the security of fertilizer, pesticide, forestry

equipment, forestry implements, or products of the forest;9 and

7. aquaculturists on the security of aquaculture stock, aquacultural

equipment, or aquacultural implements.10

The Bank Act provides a def‌inition for most of the classes of debtors

(such as “manufacturer”) and the classes of collateral (such as “agricul-

tural equipment”).11 Although these def‌initions are comprehensive in

scope, there may still be a few ca ses in which the debtor or the collateral

falls outside the permitted categories. These restrictions prevent Bank

Act security from being used in many cases. Bank Act security cannot

be used to secure consumer loans (for example, a loan to a consumer

on the security of her automobile). Nor can it be used to take a secur-

ity interest in many kinds of equipment (for example, the ovens of a

bakery or the computers and cash registers of a retail seller).12 Further-

more, Bank Act security does not cover intangible personal property

(although the question of accounts produced by the sale of collateral

subject to Bank Act security requires separate consideration).13

2) The Security Agreement

In order to create a valid Bank Act security, it is necessa ry for the debtor

to deliver a security agreement to the bank.14 As delivery of the se-

curity agreement is a precondition to the validity of the security, it is

not possible for a bank to claim rights under the Bank Act regime in

5 Ibid, s 427(1)(b).

6 Ibid, s s 427(1)(d), (f), (j), (l), and (n).

7 Ibid, s 427(1)(h).

8 Ibid, s 427(1)(o).

9 Ibid, s 427(1)(p).

10Ibid, ss 427(1)(c), (e), (g), (i), (k), and (m).

11Ibid, s 425.

12Waldron v Royal Bank of Canada (1991), 78 DLR (4th) 1 (BCCA).

13 See Section A(7)(d), below in this chapt er.

14Bank Act, above note 1, s 427(2).