Recent amendments to the Personal Property Security Act (PPSA) in Ontario and British Columbia, designed to provide certainty as to the law governing security in intangibles, may actually cause uncertainty in certain factual situations. Intangibles generally include personal property other than tangible goods, chattel paper, documents of title, ‎investment property (such as certificated and uncertificated securities and securities accounts), instruments and ‎money. Intangibles which are commonly pledged by debtors include bank accounts, a variety of accounts ‎receivable, and intellectual property.‎

In the common law provinces, the location of the debtor determines which law will govern the perfection of security interests in intangibles, and related matters such as priority of security interests. As long as the PPSAs in different provinces maintained the same rules for determining the location of the debtor, there was rarely a reason for uncertainty. Now, however, with provinces having different rules for determining the location of the debtor, an interesting conflict of laws issue arises. You may refer to our previous article on last year’s amendments to the BC PPSA here.

In British Columbia and Ontario, a corporate debtor that has more than one location is deemed to be located in the province in which it is incorporated. In the other common law provinces, which have not amended their PPSAs, the debtor is deemed to be located at the debtor’s chief executive office. For security which involves British Columbia or Ontario, and one of the other provinces, determining the location of the debtor has now become a challenge.

Two examples will illustrate this problem:

First: consider a corporate debtor that is incorporated in British Columbia but has its chief executive office in Alberta, a common occurrence, as many corporations have chosen to incorporate in British Columbia because of its unique ‎rules on director residency. The British Columbia PPSA would say that the British Columbia PPSA (jurisdiction of incorporation) applies, while the Alberta PPSA would say that the Alberta PPSA (jurisdiction of chief executive office) would apply.

Second: consider a corporate debtor that is incorporated in Alberta but has its chief executive office in British Columbia. The Alberta PPSA would say that the British Columbia PPSA applies, while the British Columbia PPSA would say that the Alberta PPSA applies.

In the first case, the law of two provinces would seem to apply, and in the second, the law of neither province would seem to apply. There is nothing in either PPSA that would offer any guidance as to how such a conflict should be resolved.

This creates a serious dilemma for banking lawyers. Where the conflict of laws provisions lead to uncertainty such as this, serious consideration should be given to conducting searches and registering security in each of the provinces which might be applicable. As well, solicitors opinions regarding the validity, registration, perfection or priority of security should be appropriately qualified with respect to the present state of uncertainty in the law.

We are not yet aware of any cases in which a court of any province has had to resolve a perfection or priority issue arising out of the disparity in the law between a province which has amended its PPSA, and one that has not. Until a court has the opportunity to weigh in on one of the fact patterns described above, or until the PPSAs of all of the common law provinces are again integrated with respect to conflict of laws matters, this uncertainty in the law will persist.