Perimeter Transportation Ltd. (Re), 2010 BCCA 509, on appeal from 2009 BCSC 1458
April 2008: Century McMynn Leasing leased three buses to Perimeter pursuant to leases for a term of more than one year and did not register under the Bristish Columbia PPSA. May 2008: Century financed 10 buses and their leases and proceeds with GE, including the three buses on lease by Century to Perimeter. GE registered its security agreement against Century and listed the 10 buses by vehicle identification number. Nov. 2008: Perimeter declares bankruptcy. The trustee in bankruptcy relying on advice, returns the three buses to Century on the basis that GE is properly entitled to them.
Subsequently, the trustee determines that GE is not properly entitled to the buses, and demands a return of the buses, or payment of an amount equal to their value. The chambers judge held in favour of GE. The trustee appealed.
The BC Court of Appeal upheld the chambers judge’s finding in favour of GE, but for some different reasons. The Court held that:
- Section 30(2) provides that where goods are leased in the ordinary course of the business of the lessor, the lessee enjoys the goods free of the security interests granted in the leased goods by the lessor. The Court held that this means that the interests of GE in the leased buses were not extinguished, but could not be enforced until the lease to Perimeter had ended; and
- As the trustee had returned the buses without condition to GE, the leases were in effect terminated and GE was therefore entitled to assert its rights in them as granted by Century as debtor-lessor.
Professor Duggan of the University of Toronto Law School has prepared a case comment on this decision and the case law referred to in this decision, noting that the operation of the British Columbia PPSA provisions as to sales and leases in the ordinary course relate to security interests created by the vendor/lessor BEFORE the sale or lease to the buyer/lessee. In this case, the lease by Century to Perimeter was in existence before Century financed the buses with GE.
His helpful article also deals with the issues of whether those financing lessors and vendors on credit need to search both their target debtor name, plus the applicable VINs or serial numbers, to ensure all applicable security interests are found. This case comment is expected to be published in the (2011) 50 Canadian Business Law Journal, Issue 1 (March 2011).