National and International Security Interests

AuthorRonald C.C. Cuming/Catherine Walsh/Roderick J. Wood
ProfessionUniversity of Saskatchewan, College of Law/McGill University, Faculty of Law/University of Alberta, Faculty of Law
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.
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 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).

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