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: 751-788

751

CHA PTER 13

NATIONAL AND

INTERNATIONAL

SECURITY INTERESTS

The impact of federal bankruptcy and insolvency law on PPSA security

interests is di scussed in Chapter 10 of this book. Several additional st at-

utes of the Parliament of Canada reg ulate security interests in persona l

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

transaction s regime that governs certain ty pes of assets or certain t ypes

of lenders. The federal Bank Act1 makes it possible for certain ki nds of

debtors to grant security i n certain classe s of assets to a bank. The Can-

ada Shipping Act, 20012 provides a regime governing ship mortgages. In

such cases, competitions may arise between a provincia l PPSA secu rity

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

cases, the federal st atute regulating the security i nterest is less pervasive

in scope. Rather tha n creating a separate and dist inct federal secured

transaction s regime, the federal statute provides an additional rule th at

has the eect of pre-empting the otherwise applicable provincial l aw.

This is the approach taken in sever al of the intellectual property statutes

as well as in the provi sions of the Canada Transport ation Act3 relating to

security interest s in railway assets and rolling stock.

Over the last two decades, t here has been increased inter national

activity in the field of secured t ransactions law. Canada is close to ratif y-

ing and implementing an intern ationa l convention that cre ates an inter-

national regime within which secured financing a nd leasing of large

1 SC 1991, c 46.

2 SC 2001, c 26 [CSA].

3 SC 1996, c 10.

PERSO NAL PROPERT Y SECURI TY LAW752

aircraft will occur. The major features of this regime will also be exam-

ined in this ch apter. Chapter 1 gives a br ief introduction to several other

recent international in iti ative s, notably the United Nations Convention

on the Assignment of Receivables in Inter national Trade (2001), the

Hague Convention on the Law Applicable to Certain R ights in respect

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

Convention on Substantive Rules for Intermediated Securit ies (2009).

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 sect ion 178 security in the older ca ses). Although

the Bank Act secur ity regime was one of the first Canadian chattel sec-

urity statutes to faci litate inventory financing, it is increasing ly showing

signs of obsolescence. Bank s are not limited to the Bank Act se cu ri ty.

Banks may choos e to take provincial (PPSA) security interests to sec ure

their loans or they may t ake Bank Act security. They may also take both

federal and provincial security interests to secure t he same obligation.

Unfortunately, the co-existence of two separate security systems prem-

ised on fundamentally dierent principles gives rise to dicult issues

of scope and priority.

1) Availability of the Security

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

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

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

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

itation is that only certain categories of debtors may grant the secur ity,

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

categories are summar ized as follows:

1) Wholesale or retail purchaser s, 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 r ivers,

or goods, wares, and merchandi se on the security of such products

or goods4

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

National and Inter national Securit y Interests 753

2) Manufacturers on the security of the goods produced or goods pro-

cured for the production or packing of the manufactured good s5

3) Farmers on the security of crops, agricultural equipment, or agri-

cultura l implements6

4) Farmers or other persons engaged in livestock r aising on the secur-

ity of feed or livestock7

5) Fishers on the security of fi shing vessels, fishing equipment, or

products of the sea8

6) Forestr y producers on the security of fertilizer, pesticide, forestry

equipment, forestry implements, or products of the forest9

7) Aquaculturists on the security of aquaculture stock, aquacultural

equipment, or aquacultural i mplements10

The Bank Act provides a definition for most of the classe s 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 u sed in many cases. Bank Act sec urity cannot

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

the security of their automobile). Nor can it be used to take a secur ity

interest in many kind s of equipment (for example, the ovens of a baker y

or the computers and cash registers of a retail seller).12 Further more,

Bank Act security does not cover intang ible personal property (although

the question of accounts produced by the sale of collateral subject to

Bank Act security 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 t he bank.14 As delivery of the security

agreement is a precondition to the validity of the security, it is not pos-

sible for a bank to claim rights under t he Bank Act regime in respect

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

6 Ibid, ss 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 Se e Section A(7)(d), below in thi s chapter.

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