- Which Security Wins After Acquired Assets - Bank Act Or PPSA?
- Putting Your Greenback Behind Green Energy
- Supreme Court Of Canada Upholds Bank's Ability To Cooperate With Another Bank To Recover From Fraud
- Broad Interpretation Of "Wages" Under WEPPA
Which Security Wins After Acquired Assets - Bank Act Or
By: Benjamin Dawkins
The Saskatchewan Court of Appeal (the Court) recently addressed the issue of priority in instances where valid but conflicting Bank Act and the Personal Property Security Act (Saskatchewan)(the PPSA) security interests were being asserted in after-acquired property. In its decision, the Court held that the priority rule to be applied was qui prior est tempore potior est jure (whomever is first in time, is first in right), and that this rule should apply based on the respective dates of execution of the agreements. Further, the Court held that this rule shall apply even if the PPSA interest is unperfected.
In Royal Bank of Canada v. Radius Credit Union Limited, a priority dispute arose between Radius Credit Union (the Credit Union), which held security on after-acquired property under the PPSA, and Royal Bank of Canada (the Bank), which held security on after-acquired property under the Bank Act. Although the Credit Union's security interest was unperfected when the Bank's interest came into existence, the Credit Union security agreement had been executed prior to the date of execution of the Bank's security agreement.
Since the Bank Act does not provide a rule to address this priority dispute, the Court found it necessary to resort to the ordinary law of the province. The Court held that both security interests were legal interests and that both attached simultaneously to the collateral, when the collateral was acquired by the debtor. Notwithstanding that the competing interests, were legal interests and that the Credit Union's interest was unperfected at the time of the acquisition by the Bank of its Bank Act security, the Court held that the priority rule to be applied was qui prior est tempore potior est jure and that this rule should apply based on the respective dates of execution of the respective security agreements. In the result, the Credit Union's prior unperfected security interest took priority over the interest of the Bank.
Putting Your Greenback Behind Green
By: Jarvis Hétu
In an attempt to facilitate investment and growth in Ontario's green energy economy, Ontario's Green Energy and Green Economy Act (the Act) provides for a number of measures which reduce the traditional barriers and impediments to investment in green energy initiatives in the province. In particular, the Act provides for a streamlined process for securing environmental approvals for renewable energy projects and exempts green energy projects from the municipal land-use approval process. In addition, the Act has created the Renewable Energy Facilitation Office to facilitate the development of renewable energy projects by working with proponents and other ministries in securing provincial and (if required) federal approvals. By doing so, the Act seeks to remove much of the red tape currently associated with the energy sector, and attempts to attract investment in order to rebuild Ontario's outdated energy capacity in a sustainable manner.
In addition to increased demand for project financing, the measures contained in the Act will result in decreased transaction costs and increased predictability in the government approval process. Furthermore, the introduction of the Act comes at a time when a large portion of Ontario's current energy capacity enters the final period of its lifespan. Current estimates suggest that within the next twelve years, Ontario will need to replace approximately 80 per cent of its current energy capacity. Therefore, the Act, as well as the need to replace much of Ontario's current energy capacity, will create significant opportunities for business investment in Ontario. In turn, these opportunities will lead to an increase demand for financing and related financial services. Overall, the introduction of the Act signifies a promising period of growth in Ontario's energy sector, and should result in increased opportunities for lenders.
Supreme Court Of Canada Upholds Bank's Ability To
Cooperate With Another Bank To Recover From Fraud
By: Kori Williams
Recently, the Supreme Court of Canada affirmed a bank's ability to assist another bank to recover funds acquired by the use of a fraudulent instrument. Although certain provisions of federal legislation govern a bank's rights in connection with particular instruments, these particular rights can only be invoked by the bank itself and not by third parties. Furthermore, a bank does not have an absolute duty to give preference to its client when dealing with a claim for restitution over a fraudulent instrument by not assisting another bank in collecting funds held by its client. In effect, a bank can choose not to invoke of its rights even if doing so would be to its client's detriment.
In B.M.P. Global Distribution Inc. v. The Bank of Nova Scotia, B.M.P. Global Distribution Inc. (BMP) reached an oral agreement with a distributor to sell its products in the United States. This agreement was made without negotiation, review of sales forecasts, or other financial due diligence. In fact, the amount sought by BMP and accepted by the distributor was "pulled out of the air" at $1.2 million.
In connection with the distribution agreement, BMP received an unendorsed cheque for $904,563, drawn on an account at Royal Bank of Canada (RBC). An individual from BMP deposited the cheque at a branch of the Bank of Nova Scotia (BNS) where BMP held an account with a balance of $59. Due to the odd circumstances, BNS did not provide BMP with immediate access to the funds. However, BNS eventually received the funds from RBC and released them to BMP.
Later, RBC notified BNS that the cheque contained a forged signature. Unfortunately, BMP had already made numerous transfers through its BNS account. RBC sought assistance from BNS to recover the remaining traceable proceeds of the cheque. RBC and BNS entered into an agreement, whereby BNS agreed, at RBC's request, to restrain and subsequently transfer back to RBC the funds traced to the fraudulent instrument. To that end, BNS transferred $777,336 to RBC. As a result of this transfer, BMP sued BNS for damages equivalent to the transferred funds.
In its decision, the Supreme Court of Canada (SCC) overruled a lower court decision and held, among other things, that where a bank pays money to another under a mistake of fact (in this instance, the authenticity of a signature), the bank is entitled to recovery provided certain circumstances are met, all of which circumstances were met in this case.
Section 128(a) of the Bills of Exchange Act (BEA) states that by accepting a bill, a person is precluded from denying a holder in due course the existence of the genuineness of the signature on the bill. A holder in due course is an individual who has taken the bill in good faith and for value without notice that the bill has been previously dishonoured. Section 165(3) of the BEA states that where a cheque is delivered to a bank for deposit to the credit of a person, and the bank credits the person with the amount of the cheque, the bank acquires all the rights and powers of a holder in due course of the cheque. The SCC determined that BMP could not rely on either section of the BEA. The SCC reasoned that because BMP did not take the instrument for value, it was not a holder in due course, and as such could not rely on section 128(a) of the BEA. In addition, although section 165(3) of the BEA deems the collecting bank (i.e. BNS) to be in the same position as a person who has taken the bill free from any defect of title, the bank is not obligated to rely on the benefit of section 165(3) when restitution is claimed, and a third party cannot obligate a bank to assert the bank's benefit under this section.
Finally, the SCC also determined that there was nothing in the service agreement between BMP and BNS that precluded BNS from returning the funds to RBC. In fact, the standard form service agreement between a bank and its client gives a bank the explicit right to charge back amounts credited to its customer's account if an instrument is not settled.
Broad Interpretation Of "Wages" Under WEPPA
The decision of the British Columbia Superior Court in Re Ted Leroy Trucking Ltd. was a result of an application for directions with respect to what amounts are properly covered by the Wage Earner Protection Program Act, S.C. 2005, c. 47 (the WEPPA), and the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (the BIA).
A receiver was appointed over Ted Leroy Trucking Ltd. (TLT) on March 27, 1992. On September 3, 2008, TLT was assigned into bankruptcy. Under the WEPPA, each individual employee can recover up to $3000 for wages earned during the six months prior to bankruptcy or receivership. The issue in this application was how the term "wages" should be interpreted in the WEPPA and under s. 81.3 of the BIA.
The union which represented the employees of TLT (the Union) asserted that all liabilities arising from the collective agreement between the Union and TLT ought to be included in this calculation irrespective of whether the amount was payable directly to the employee, or to a third party such as the Union on the employee's behalf.
The receiver rejected the Union's argument, stating that it interpreted the provisions of the WEPPA and the BIA to provide priority protection solely to employee's wages that are directly payable to an employee. The receiver did not believe that the definition of "wages" in the WEPPA and the BIA encompassed benefit payments to third parties on behalf of employees.
Section 2(1) of the WEPPA provides:
2 (1) In this Act, "wages" includes salaries, commissions, compensation for services rendered, vacation pay and any other amounts prescribed by regulation but does not include severance or termination pay.
The WEPPA Regulations, S.O.R./2008 – 222 further define wages as follows:
2 (2) The following amounts are prescribed for the purpose of subsection 2(1) of the Act:
(a) gratuities accounted for by the employer
(b) disbursements of a travelling salesperson properly incurred in and about the business of a bankrupt or the business of a person subject to receivership; and
(c) production bonuses and shift premiums.
The Court also noted that the term "compensation" had previously been interpreted in the context of a bankruptcy.
Based on the foregoing, the Court in this case found that "[i]n the absence of authority by way of a specific statutory definition or otherwise...the word 'compensation'...include[es] any return given by an employer to, or for the benefit of, an employee for services by the employee as such".
In the case at hand, the Court was of the view that the definition of "wages" was rather broad, and includes holiday and overtime pay and all employee benefits and entitlements, with the exception of severance and termination pay. The Court agreed with the Union's position and concluded that the term "wages" in the WEPPA includes not only amounts due to be paid directly to the employee but also other amounts that were earned by the employee which were directed to be paid to a third party by the employee directly or pursuant to a contract such as a collective agreement. Regardless of whether these third party payments may be considered "wages" in the ordinary sense of the word, they are clearly "returns given by an employer to or for the benefit of the employee for services given by the employee" and are therefore included in the WEPPA scheme.
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