National and International Security Interests

• 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: 584-622

CHAP TER 14

NATIONAL AND

INTERNATIONAL

SECURITY INTERESTS

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

ity interests is discussed in chapter 11 of this book. Several addition-

al statutes of the Parliament of Canada regulate secur ity interests in

personal propert y. In some cases, the statute ess entially provide s for a

secured tran sactions regime th at governs certain t ypes of assets or cer-

tain ty pes of lenders. The federal Bank Act1makes it possible for certain

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

The Canada Shipping Act2 provides a regime governing ship mortgages.

In such cases, competit ions may arise between a provincia l PPSA se-

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

In other cases, the federal statute regulating the security interest is less

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

secured-tran sactions regime, the federal statute provides an add itional

rule that has the effect of pre-empting the other wise 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 secur ity interests in r ailway assets a nd rolling stock.

Over the last two decade s, there has been incre ased internation-

al activity in t he f‌ield of secured tran sactions law. Canada is close to

ratifyi ng and implementing an internat ional convention that creates

1 S.C. 1991, c. 46.

2 R.S.C. 1985, c. S-9 [CSA].

3 S.C. 1996, c. 10.

584

National and Int ernational Secur ity Interests 585

an international regime within which secured f‌inancing and lea sing

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 international i nitiatives, notably the United Nations

Convention on the Assignment of Receivables in Internat ional Trade (20 01)

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

spect of Securities Held with an Intermediary (200 2).

A.

BANK ACT

SECUR ITY

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

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

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

as section 88 secur ity or section 178 security in the older case s). Al-

though the Bank Act security regime wa s one of the f‌irst Canadian chat-

tel security stat utes to facilitate inventory f‌in ancing, it is increasi ngly

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

security. Banks may c hoose to take provincial (PPSA) security interest s

to secure their loans or they may take Bank Act secur ity. They may

also take both federal and provincial security i nterests to secure the

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

ity system s premis ed on funda mentally d ifferent pr inciples g ives ri se

to diff‌icult issue s of scope and priority.

1) Availability of the Security

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

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

and trust companie s cannot take Bank Act security, and therefore their

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

itation is that only cert ain categories of debtors may gra nt the security,

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

categories are summar ized as follows:

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

agriculture, product s 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 mercha ndise on the security of such products

or goods;4

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

PERSO NAL PR OPERTY SEC URI TY LAW586

2. manufacturers on the secur ity 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 security of f‌ishing ve ssels, f‌ishing equipmentf or

products 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 def‌in ition for most of the cla sses of debtors

(such as “manufacturer”) and the classe s of collateral (such as “agric ul-

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

scope, there may stil l be a few cases in which the debtor or the collateral

falls outside the per mitted categories. These rest rictions prevent Bank

Act security from being used 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 used to take a secur-

ity interest in many k inds 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 int angible 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 secur ity, 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 secur ity, it is

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

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

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

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

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

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

10 Ibid., s. 427(1)(c),(e),(g),(i ),(k), an d (m).

11 Ibid., s. 425.

12 Waldron v. Royal Bank of Canada (1991), 78 D.L.R. (4th) 1 (B.C.C.A.).

13 See A.7.d “Bank Act Sec urity and Proceeds.”

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