The Supreme Court of Canada released its decision in Saulnier v. Royal Bank of Canada on October 24, 2008. The decision provides welcome clarification concerning the nature of government licenses and confirms that at least certain kinds of licenses constitute property for the purposes of the Bankruptcy and Insolvency Act (the “BIA”) and for the purposes of Canadian personal property security legislation. The decision is also important because it takes a purposive and commercial approach to the interpretation of bankruptcy and personal property security legislation.

Saulnier was a fisher. He held four federal fishing licenses. Saulnier borrowed from the Royal Bank and guaranteed the obligations of a related corporation to the Bank. The Bank obtained security from Saulnier by way of a general security agreement for those obligations. Later, Saulnier became bankrupt. Two related issues arose. First, did the fishing licenses constitute property for the purposes of the BIA? Second, did the fishing licenses constitute property for the purposes of the Nova Scotia Personal Property Security Act (the (Nova Scotia PPSA”)? If the answer to both questions was no, as Saulnier argued, he would be able to continue to enjoy the fruits of the fishing licenses and retain their significant commercial value. If not, then, subject to the requirements of the Fisheries Act (Canada), the Bank as secured creditor or the trustee of Saulnier’s estate would be entitled to the benefit of the licenses and to sell them. A purchaser was ready, willing and able to buy the licenses for an amount sufficient to pay all of Saulnier’s creditors in full leaving a surplus.

Licenses are often referred to as a permission to do that which is otherwise prohibited or unlawful. Traditionally, licenses are not regarded as giving rise to an interest in property. However, from a commercial perspective, licenses can have great value. In the context of government licenses (e.g., taxi licences, nursing home licences, tobacco and milk quotas), courts have often considered the question from the perspective of the rights of the licensee against the issuing government authority. If the court is satisfied that the issuing government authority is essentially bound to issue the license and has little discretion to refuse to do so, then the license constitutes property. This is referred to as the “regulatory approach”. While the Supreme Court does not disavow this approach, it did not endorse it.

Rather, the Supreme Court looked to the breadth of the definitions of property and personal property in the BIA and the Nova Scotia PPSA. Binnie, J., for the Court, concluded that these definitions are broader than common law notions of property and should be given effect to, particularly in light of the commercial purposes of both statutes. In particular, he noted that the fishing licenses in question did give rise to property rights, akin to a profit à prendre (a type of property clearly caught by the BIA and the Nova Scotia PPSA), that is, the license gave the fisher the rights to the fish he caught as permitted by the license. The Court therefore concluded that the fishing licenses constituted property, for purposes of the BIA, and personal property for purposes of the Nova Scotia PPSA.

It is open to question whether other government licenses (or private licenses) will be found to constitute property on the basis of this analysis, but as Binnie, J. said, quoting the definition of “property” in the BIA,

“property” means any type of property, whether situated in Canada or elsewhere, and includes money, goods, things in action, land and every description of property, whether real or personal, legal or equitable, as well as obligations, easements, and every description of estate, interest and profit, present or future, vested or contingent, in, arising out of or incident to property;

The terms of the definition are very wide. Parliament unambiguously signalled an intention to sweep up a variety of assets of the bankrupt not normally considered “property” at common law. This intention should be respected if the purposes of the BIA are to be achieved.

Binnie, J. was careful to point out a number of times that, in the case of fishing licenses, the fisher acquired a right to tangible property, namely the fish that was caught. Accordingly, it will be important when considering whether other kinds of licenses constitute property, as that term is defined in the BIA, to determine whether the license gives rise to rights in property and, more generally, to “look at the substance of what was conferred”. It seems clear that this decision will have much broader implications than simply for fishing licenses or even simply for government licenses.

The amendments to the BIA and the CCAA, which are not yet in force, will provide additional protections for licensees. These protections together with the commercial approach to license rights indicated by the Supreme Court of Canada fundamentally affect the approach to licensing issues in restructuring cases.