Radius Credit Union Ltd. v. Royal Bank of Canada, (2010) 407 N.R. 267 (SCC)

• Judge: McLachlin, C.J.C., Binnie, LeBel, Deschamps, Fish, Abella, Charron, Rothstein and Cromwell, JJ.
• Court: Supreme Court (Canada)
• Case Date: April 19, 2010
• Jurisdiction: Canada (Federal)
• Citations: (2010), 407 N.R. 267 (SCC);2010 SCC 48

Radius Credit v. Royal Bk. (2010), 407 N.R. 267 (SCC)

MLB headnote and full text

[French language version follows English language version]

[La version française vient à la suite de la version anglaise]

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Temp. Cite: [2010] N.R. TBEd. NO.004

Royal Bank of Canada (appellant) v. Radius Credit Union Limited (respondent)

(33152; 2010 SCC 48; 2010 CSC 48)

Indexed As: Radius Credit Union Ltd. v. Royal Bank of Canada

Supreme Court of Canada

McLachlin, C.J.C., Binnie, LeBel, Deschamps, Fish, Abella, Charron, Rothstein and Cromwell, JJ.

November 5, 2010.

Summary:

At issue was the priority between the security interests of a bank and a credit union regarding collateral that was after-acquired property. The credit union's interest was granted prior to the bank's but was not registered under the Saskatchewan Personal Property Security Act until after the bank had registered its interest under the Bank Act.

The Saskatchewan Court of Queen's Bench, in a decision reported at [2007] Sask.R. Uned. 137, held that the bank's security interest, although taken after the credit union's security, had priority to that of the credit union because the credit union's interest was not perfected by registration prior to the bank taking its security interest and registering notice of its intention to do so under the Bank Act. The credit union appealed.

The Saskatchewan Court of Appeal, in a decision reported at (2009), 324 Sask.R. 191; 451 W.A.C. 191, allowed the appeal. The credit union's prior, unperfected security interest took priority over the interest of the bank. The bank appealed.

The Supreme Court of Canada dismissed the appeal.

Editor's Note: This decision was released with a companion decision, Innovation Credit Union v. Bank of Montreal, 407 N.R. 294; 2010 SCC 47.

Banks and Banking - Topic 5222

Loans - Secured loans - Section 427 (formerly ss. 88 and 178) loans - Nature of security under s. 427 - [See first, second and third Banks and Banking - Topic 5236 ].

Banks and Banking - Topic 5236

Loans - Secured loans - Section 427 (formerly ss. 88 and 178) loans - Priorities - This was a priority dispute between a credit union's prior unregistered security interest taken under the Saskatchewan Personal Property Security Act (PPSA) and a subsequent security interest taken by a bank and registered under the Bank Act - Both security interests covered the debtor's present and after-acquired property - At issue was property that was acquired by the debtor after the execution of both security agreements - The Supreme Court of Canada held that the bank's security interest was subject to the credit union's rights under the PPSA - The court looked first at the nature of the security interest conveyed to the bank, concluding that, from the time that the bank first took its Bank Act security, it acquired an inchoate proprietary interest in the assigned after-acquired property in the nature of a fixed charge, which subsequently attached when each item of collateral was purchased by the debtor - See paragraphs 15 to 28 - The second step was to compare this interest to the prior competing PPSA interest to consider whether the credit union had acquired any interest that would derogate from the debtor's title - The court concluded that, at the time of execution of its security agreement, the credit union had acquired a statutory interest in the nature of a fixed charge over the debtor's assigned after-acquired property, which effectively derogated from the title that the debtor had available to assign to the bank - This interest was in existence when the bank took its Bank Act security interest, although the PPSA interest attached to the collateral in question only subsequently - As the bank could receive no greater interest in the property than the debtor himself had, at the time when the bank took its interest, the credit union already held a proprietary interest in the same collateral - The failure to register did not detract from the nature and validity of the credit union's prior interest - See paragraphs 29 to 36.

Banks and Banking - Topic 5236

Loans - Secured loans - Section 427 (formerly ss. 88 and 178) loans - Priorities - The Supreme Court of Canada summarized the regime governing Bank Act security - See paragraph 15.

Banks and Banking - Topic 5236

Loans - Secured loans - Section 427 (formerly ss. 88 and 178) loans - Priorities - This was a priority dispute between a credit union's prior unregistered security interest taken under the Saskatchewan Personal Property Security Act (PPSA) and a subsequent security interest taken by a bank and registered under the Bank Act - Both security interests covered the debtor's present and after-acquired property - At issue was property that was acquired by the debtor after the execution of both security agreements - The Supreme Court of Canada discussed the nature of the security interest conveyed to the bank under the Bank Act - Through ss. 427(2) and 435(2), the Bank Act effectively created an inchoate proprietary interest in the after-acquired property from the time of delivery of the security agreement - In creating an interest that came into existence immediately on delivery of a security document, but only attached to the collateral at the time when the debtor actually had an interest in the property, the Bank Act gave statutory recognition to the notion of "inchoate interest from the date of execution" that had long been recognized by courts of equity - This interpretation was the only one that gave effect to all of the words contained in ss. 427(2) and 435(2) - Further, the historical provisions in earlier versions of the Bank Act had precisely the same effect as the current ss. 427(2) and 435(2) - Consequently, the court could only read in ss. 427(2) and 435(2) the intention to statutorily vest in the bank a proprietary, albeit inchoate, interest in the after-acquired property enforceable against third parties from the time of execution of the security agreement, provided proper notice of intention was registered as required by the statute - See paragraphs 16 to 27.

Banks and Banking - Topic 5236

Loans - Secured loans - Section 427 (formerly ss. 88 and 178) loans - Priorities - This was a priority dispute between a credit union's prior unregistered security interest taken under the Saskatchewan Personal Property Security Act (PPSA) and a subsequent security interest taken by a bank and registered under the Bank Act - Both security interests covered the debtor's present and after-acquired property - At issue was property that was acquired by the debtor after the execution of both security agreements - The Supreme Court of Canada, having determined that the bank's interest was an inchoate proprietary interest in the assigned after-acquired property in the nature of a fixed charge, which subsequently attached when each item of collateral was purchased by the debtor, discussed the nature of the security interest conveyed to the credit union under the PPSA - Because attachment had not yet occurred when the debtor gave the bank its Bank Act security interest, the critical question was whether the credit union had acquired any interest in the assigned property at that time that derogated from the debtor's title - If so, the bank could acquire its interest only subject to the prior encumbrance - Under s. 10 of the PPSA, a security interest was enforceable against third parties on signing of the security agreement - This meant that, at that time, a statutory interest was acquired by the creditor - The fact that the interest was necessarily inchoate until the debtor acquired rights in the property did not change the fact that, as of the date of execution, the creditor (here the credit union) acquired an interest that derogated from the debtor's title - The date of attachment was of no consequence - In a priority dispute such as here, where the priority rules under the PPSA did not apply, the date of execution of the agreement was the relevant date because it was at that time that the statutory interest was created - Therefore, the credit union's interest was in existence when the bank took its Bank Act security interest, even though the credit union's interest only attached subsequently - See paragraphs 28 to 34.

Personal Property - Topic 6005.1

Security interests - General - Security interest - Attachment - [See first and fourth Banks and Banking - Topic 5236 ].

Personal Property - Topic 6063

Security interests - Registration - General - Requirement of registration - [See first Banks and Banking - Topic 5236 ].

Personal Property - Topic 6209.1

Security interests - Priorities - After acquired property - [See first and fourth Banks and Banking - Topic 5236 ].

Personal Property - Topic 6218

Security interests - Priorities - Bank Act - Section 427 loans - [See first and fourth Banks and Banking - Topic 5236 ].

Statutes - Topic 502

Interpretation - General principles - Intention of legislature - [See third Banks and Banking - Topic 5236 ].

Statutes - Topic 1624

Interpretation - Extrinsic aids - Other statutes - Prior statutes respecting same subject matter - [See third Banks and Banking - Topic 5236 ].

Cases Noticed:

Rogerson Lumber Co. v. Four Seasons Chalet Ltd. and Bank of Montreal (1980), 113 D.L.R.(3d) 671 (Ont. C.A.), refd to. [para. 17].

Bank of Montreal v. Hall, [1990] 1 S.C.R. 121; 104 N.R. 110; 82 Sask.R. 120, refd to. [para. 17].

Abraham et al. v. Canadian Admiral Corp. (Receivership) et al. (1998), 109 O.A.C. 36; 158 D.L.R.(4th) 65 (C.A.), refd to. [para. 17].

Holroyd v. Marshall (1862), 10 H.L. Cas. 191, refd to. [para. 20].

Tailby v. Official Receiver (1888), 13 App. Cas. 523 (H.L.), refd to. [para. 20].

Lind, Re; Industrial Finance Syndicate Ltd. v. Lind, [1915] 2 Ch. 345 (C.A.), refd to. [para. 20].

Neilson (William) Ltd. v. Banque Nationale du Canada, Red Carpet Distribution Inc. et autre, [1991] R.J.Q. 712; 37 Q.A.C. 92 (C.A.), refd to. [para. 22].

Royal Bank of Canada v. Sparrow Electric Corp., [1997] 1 S.C.R. 411; 208 N.R. 161; 193 A.R. 321; 135 W.A.C. 321, refd to. [para. 23].

Statutes Noticed:

Bank Act, S.C. 1991, c. 46, sect. 427(2) [para. 16]; sect. 435 [para. 16].

Personal Property Security Act, S.S. 1993, c. P-6.2, sect. 10(1)(d)(iii) [para. 30].

Authors and Works Noticed:

Cuming, Ronald C.C., and Wood, Roderick J., Compatibility of Federal and Provincial Property Security Law (1986), 65 Can. Bar Rev. 267, p. 276 [para. 17].

Cuming, Ronald C.C., Fitting a Square (Federal) Peg in a Round (Provincial) Hole: Rationalizing Section 427 Bank Act With Provincial Property Security Law (2010), 73 Sask. L. Rev. 1, pp. 16 to 19 [para. 24].

Cuming, Ronald C.C., Walsh, Catherine, and Wood, Roderick J., Personal Property Security Law (2005), p. 312 [para. 20].

Fisher and Lightwood, Law of Mortgage (11th Ed. 2002), p. 133 [para. 20].

Goode, Royston Miles, Legal Problems of Credit and Security (4th Ed. 2008), p. 74 [para. 20].

Moull, William D., Security under Sections 177 and 178 of the Bank Act (1986), 65 Can. Bar Rev. 242, p. 251 [paras. 17, 18].

Counsel:

Michael W. Milani, Q.C., and Erin M.S. Kleisinger, for the appellant;

Donald H. Layh, Q.C., and Shawn M. Patenaude, for the respondent.

Solicitors of Record:

McDougall Gauley, Regina, Saskatchewan, for the appellant;

Layh & Associates, Langenburg, Saskatchewan, for the respondent.

This appeal was heard on April 19, 2010, by McLachlin, C.J.C., Binnie, LeBel, Deschamps, Fish, Abella, Charron, Rothstein and Cromwell, JJ., of the Supreme Court of Canada. On November 5, 2010, Charron, J., delivered the following judgment for the court in both official languages.