The Supreme Court of Canada recently rendered two companion decisions concerning priority disputes between security taken pursuant to the Personal Property Security Act (Saskatchewan) and security taken pursuant to the Bank Act (Canada). The Court determined that, as between PPSA security that was unperfected at the relevant time and perfected Bank Act security granted subsequent in time to such PPSA security, the unperfected PPSA security had priority.
These decisions are likely to have the greatest impact in circumstances where the Saskatchewan PPSA is the applicable personal property security legislation. Under the Saskatchewan PPSA, to the extent that a debtor gives security under both the PPSA and the Bank Act over the same collateral to secure the same obligations, the security under the PPSA is invalid. Accordingly, under the Saskatchewan PPSA, banks eligible to take Bank Act security must choose between taking Bank Act security or PPSA security. The PPSAs in the other common law provinces do not contain a similar provision. In these provinces, such as Ontario, banks will want to continue to take PPSA security and retain the flexibility to rely on it where prior unperfected PPSA interests exist. Given that Bank Act security may, in certain circumstances, have priority over other protected interests (including some deemed trusts), where PPSA security does not, Bank Act security may still be a valuable part of a security package, depending on the identity of the lender, and the nature of the borrower and its business.
Issued on November 5, 2010, the two rulings are Bank of Montreal v. Innovation Credit Union, 2010 SCC 47 and Royal Bank of Canada v. Radius Credit Union Ltd., 2010 SCC 48.