As a result of their “open” nature, the various Personal Property Registry systems in Canada are occasionally the subject of abuse. For example, in the midst of a litigation proceeding, it may be inappropriately suggested that to prevent an adversary from transferring or dealing with their assets, a financing statement should be registered in order to annoy the other party or to scare off any potential transferees. Such a registrant should be wary, however, as an improper registration is not only invalid, but it may also expose the registrant to an order from the Court — which may include a direction as to costs. In Alberta, there are specific provisions of the Alberta Personal Property Security Regulation, Alta Reg 95/2001 (the “Regulations”) dealing with vexatious registrations.
Sections 57.1 – 57.7 of the Regulations contain the provisions related to vexatious registrations. To qualify as a vexatious registration, the registration must be made (a) in circumstances where the secured party does not in law have a claim or interest in relation to the debtor for which the registration has been made, and (b) for the purpose of annoying or harassing the debtor.
While no Alberta case law has yet considered this provision, in order to make a valid registration, the secured party must satisfy the following basic requirements:
- The transaction creates or evidences a propriety interest in an asset in favour of a creditor;
- The asset is personal property;
- The creditor’s proprietary interest functions to secure payment or performance of an obligation; and
- The interest arises out of an agreement between the parties.
The final requirement, an agreement between the parties, is often over-looked. Returning to the litigation example, having a dispute where a contracting party expects to be successful with a future claim against assets is not enough – the registering party must have a document signed by the debtor that creates a security interest in order to have a valid registration.
The requirement that a vexatious registration be one that is made to annoy or harass the debtor has similarly not been considered in Alberta.
To safeguard against improper registrations, the Registrar of the Alberta Personal Property Registry (the “Registrar”) has broad powers to prevent or discharge a vexatious registration. The Registrar may refuse to register a financing statement, and, in instances where registration has already be made, may discharge such a registration, though such a discharge must be made with notice to the secured party.
In the event the Registrar refuses a registration or discharges an alleged vexatious registration, the refused party (or previously secured party, as the case may be) may apply to the Court to direct the Registrar to make the requested registration, re-register the discharged registration (and give directions as to priority) or any other appropriate direction, including costs.
A debtor under a vexatious registration may also apply to the Court for an order to not only have the vexatious registrar discharged, but also to prohibit an alleged secured party under a vexatious registration from making any future registrations, except as permitted by the Court. The Court may also make any other appropriate direction, including costs. A party that is not currently a debtor under a vexatious registration, but either has been or reasonable expects that it may become one, can also apply to the Court to seek the same remedies. In the event the Court directs the Registrar to discharge a vexatious registration, the Registrar may do so without notice to the affected secured party.
The vexatious registration provisions of the Regulations are a powerful tool for wrongfully named debtors (or potential debtors). Potential registrants should be aware that a vexatious registration is not simply invalid and unenforceable, but it may also expose them to liability, including for costs, from the affected debtor.