National and International Security Interests

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

692

CHA PTER 13

NATIONAL AND

INTERNATIONAL

SECURITY INTERESTS

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

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

al statutes of the Parliament of Can ada regulate security interests in

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

secured transactions regime that governs cert ain types of assets or cer-

tain ty pes of lenders. The federa l Bank Act1 makes it pos sible for cert ain

kinds of debtors to grant secur ity in certain cla sses 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 i n the same asset.

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

pervasive in scope. Rather than creating a separ ate and distinct federal

secured transactions regime, the federal statute provides an additional

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

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

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

Act3 relating to secur ity interests in railway assets and rolling stock.

Over the last two decades, t here has been increased internation-

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

ratifying and implementing an international convention that creates

an international reg ime within which secured f‌in ancing and leasing

1 SC 1991, c 46.

2 SC 2001, c 26 [CSA].

3 SC 1996, c 10.

National and Inte rnational Securit y Interests 693

of large aircraft wi ll occur. The major features of this regime will al so

be examined in t his 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.

BA NK ACT

SECUR IT Y

A separate federal system of secured t ransactions 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 secur ity is referred to

as section 88 security or section 178 secur ity 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 incre asingly

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

security. Banks may choos e 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 g ives rise

to diff‌icult issues of scope and priority.

1) Availability of the Security

The availability of the Bank Act secur ity is restricted in two ways. Fir st,

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

and trust companies c annot take Bank Act security, and therefore their

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

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

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

categories are summar ized as follows:

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

agriculture, products of aquaculture, products of t he forest, prod-

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

goods, wares, and merchandi se 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. ma nufacturers on the security of the goods produced or goods pro-

cured for the production or packing of the manufactured good s;5

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

tural i mplements;6

4. farmers or other pers ons 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. forestr y producers on the security of fertili zer, pesticide, forestry

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

7. aquaculturists on the security of aquaculture stock, aquacultur al

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 the se def‌initions are comprehensive in

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

falls outside the perm itted categories. These restrictions prevent Bank

Act security from being u sed in many cases. Bank Act security cannot

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

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

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

bakery or the computers and cash regi sters 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 securit y require s 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 Ib id, 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).

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

11 Ibid, s 425.

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

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

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