Canada: Two in the Bush: When Registered Security is not a Bird in the Hand

Last Updated: December 7 2010
Article by Jennifer D.S. Dezell and Jill Macgillivray

On November 5, 2010, the Supreme Court of Canada gave judgment in two companion cases involving security granted under section 427 of the Bank Act (Canada) (the "Bank Act Security") in competition with security granted under the Personal Property Security Act (Saskatchewan) (the "PPSA"). The two cases, Bank of Montreal v. Innovation Credit Union1 and Royal Bank of Canada v. Radius Credit Union Ltd.2, gave the Court an opportunity to bring some clarity to what had become, in the Court's words, "a muddled area of law"3.

In both Innovation and Radius, a debtor had executed a general security agreement ("GSA") under the PPSA in favour of a credit union, prior to granting Bank Act Security in the same collateral to the bank. In each case the credit union had not registered notice of its interest in the Personal Property Registry, and the debtor had not disclosed the pre‐existing GSA at the time that the bank took and registered Bank Act Security.

Upon the default of each debtor, it fell to be determined whether the unperfected security interests under the PPSA had priority over the valid Bank Act Security taken later. The Court found, in both cases, that it did.

The security regimes under the Bank Act and under the PPSA are entirely separate. The Bank Act does not address the interplay of Bank Act Security with other security regimes; the PPSA expressly excludes Bank Act Security from the scope of its application. In Saskatchewan, the PPSA presents an additional hurdle to banks – if a debtor grants Bank Act Security, any security granted under the PPSA to the same secured party in the same collateral is rendered void. Because of this, these cases will have less practical impact in other provinces where banks tend to obtain general security agreements and file financing statements under the PPSA (whether or not they also obtain Bank Act Security).

The Court, in both cases, recognized the paramountcy of federal legislation. However, since Parliament had failed to legislate in the area of competing federal and provincial security regimes, the Court was obliged to resort to the common law, tempered by the provincial modifications to personal property law, to resolve the priority dispute.

In Innovation, the Court stated, "While the provinces cannot legislate in order to oust the bank's rights, they can alter the law as it relates to property and civil rights in the province."4 The Court found that a valid security interest in favour of the credit union had been created when the debtor signed its GSA. The Court upheld earlier decisions and academic commentary to conclude that the credit union's PPSA interest constituted a fixed charge on the collateral, in the nature of a proprietary interest. The Court held that perfection by registration under the PPSA is only relevant in establishing priority between competing PPSA security interests, and as such could have no bearing on a question of priority between a PPSA security interest and a Bank Act interest. Furthermore, perfection or lack of perfection under the PPSA did not affect the nature or validity of the credit union's security interest, which arose upon signing the GSA.

With these findings in mind, the Court applied the common law principle nemo dat quod non habet (loosely translated, a debtor cannot give rights in collateral that it does not have, or that it has already transferred to another secured party). As the debtor had granted a proprietary interest in the collateral to the credit union when the GSA was signed, the bank could only take an interest in the debtor's equitable right of redemption in the collateral. The credit union's unregistered and undisclosed security interest therefore took priority.

Radius presented essentially the same facts but with a twist – the collateral in question was acquired after both the GSA and the Bank Act Security had been granted. The question of when the proprietary interest under the PPSA arose was therefore central to the determination of priority. The Saskatchewan Court of Appeal had resolved the issue in favour of the credit union by applying the principle "first in time is first in right". However, the Supreme Court of Canada, coming to the same conclusion, stated that the applicable principle was not "first in time" but "nemo dat", as discussed above. Despite the fact that under the PPSA a security interest in after‐acquired collateral attaches when the debtor acquires rights in that collateral, the Court found that, for the purposes of a nemo dat analysis, the relevant date was the date the GSA was signed, as that was the date on which a proprietary interest was conferred upon the credit union.

It should be noted that the trial judge in Innovation had held in favour of the bank on the basis of the priority rule set out in section 428 of the Bank Act, which states that security under section 427 has priority "over all rights subsequently acquired in or in respect of that property". The trial judge reasoned that section 428 extended to subsequently‐acquired priority rights. As the credit union's priority rights arose under the PPSA when it registered in the Personal Property Registry, after the Bank Act Security had been taken, the bank had priority. The Supreme Court of Canada, before explaining why this interpretation was incorrect, made the following comment regarding the trial judge's analysis:

"In addition to its being a reasonable interpretation of the text of the Bank Act, Zarzeczny J. viewed this interpretation as best promoting two policy goals reflected in the Act. First, it provides a means of achieving compatibility and resolving future conflicts between the PPSA and the Bank Act. Second, it promotes commercial and business lending efficacy and predictability."5

Both banks in these cases submitted that the application of the nemo dat rule would lead to a commercially unreasonable result and advocated for the adoption by the Court of a "first to register" priority rule. The Court in both cases could find no legislative basis on which to do so. In Radius, the Court noted that, "Such a rule would have to be enacted by Parliament, if it saw fit to do so."6 In Innovation, the Court stated, "The Bank's argument echoes the cry by many commentators for legislative reform."7

It seems clear that the Court did not relish making these findings and joined, more or less subtly, in the cry for legislative reform. One such cry was contained in an October 2004 report to Parliament8 on the topic of Bank Act security, which identified several areas of concern and concluded with a recommendation that sections 427 to 429 of the Bank Act be repealed. However, neither legislative reform nor repeal of those sections appears to be high on Parliament's legislative agenda. In the meantime, banks who wish to take security under the Bank Act would be well advised to take additional security under provincial personal property security legislation where the two may coexist. Banks lending to debtors in Saskatchewan will need to assess the value of Bank Act security and consider whether security under the PPSA would afford better protection.


1 Bank of Montreal v. Innovation Credit Union, 2010 SCC 47 [Innovation].

2 Royal Bank of Canada v. Radius Credit Union Ltd, 2010 SCC 48 [Radius].

3 Innovation, supra note 1 at para. 1.

4 Ibid at para. 31.

5 Ibid at para. 10.

6 Radius, supra note 2 at para. 5.

7 Innovation, supra note 1 at para. 53.

8 Canada, Law Commission of Canada, Modernizing Canada's Secured Transactions Law: The Bank Act Security Provisions (Ottawa: Law Commission of Canada)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions