National and International Security Interests

AuthorRonald C.C. Cuming, Catherine Walsh, Roderick Wood
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 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
4 Above note 1, s 427(1)(a).
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).

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