Report on Commercial Liens 1994

VI. SHOULD THE LIEN BE DEEMED TO BE A SECURITY INTEREST AND TAKE ITS PLACE IN THE PERSONAL PROPERTY SECURITY RÉGIME?

Given our decision to limit uniform reform to the liens of repairers, storers and common carriers, it is unnecessary to consider woodworkers' liens in general, but the B.C. Working Paper recommended a new method of characterizing woodworkers' liens, which should be considered with respect to the remaining liens. The B.C. Working Paper proposed the creation, by legislation, of a "security interest for forest work" to secure "the payment of money owed to a forest worker for forest work". The B.C. Working Paper then recommended the incorporation of this security interest as much as possible into the PPSA. For example, priority is to be governed by the PPSA. The only provisions included in the B.C. Draft Act are those necessary to modify the PPSA rules to meet the needs of the forest industry.

The proposed B.C. Draft Act integrates the "security interest for forest work" into the priority structure of the PPSA by deeming it a purchase-money security interest that is perfected upon attachment without registration. This means it will defeat most competing security interests. The B.C. Working Paper described this priority at p. 22 (footnote 15) as preserving the strong priority existing under the woodworkers' lien legislation. The purchase-money security interest terminates as soon as the forest products which are subject to the interest no longer have a physical link to the harvesting site. This protects subsequent third parties who would be unable to rely on the register.

The Alberta Report considered whether to deem liens generally to be security interests under the PPSA (see: p. 64). It recognized that the PPSA deems other interests to be purchase-money security interests: true leases, non-security assignments of accounts and commercial consignments. However, the Alberta Report rejected the deemed inclusion of liens as purchase-money security interests under the PPSA because of a reluctance to modify what is essentially becoming a model régime for secured transactions in Canada outside of Quebec. Enough change has been wrought by the PPSA and it should not try to accomplish this initiative as well. However, what B.C. proposed involves no changes to the PPSA, but simply ties into it.

As previously indicated, this was clearly the most difficult issue facing the Committee. The attraction to deem a lien to be a security interest or a purchase-money security interest cannot be denied. To do so also would resolve other issues like the selection of the appropriate priority and conflict of laws rules.

On the other hand, the only way the lien is like a true security interest is that each secures payment of an obligation, but the similarity ends there. A true security interest represents an agreement of the parties reached before or at the time value is given. The secured party protects its interest in collateral usually before value is given or shortly thereafter.

The deemed security interests, i.e., true leases, non-security assignments of accounts and commercial consignments, share the need to register to protect a property interest in priority over others. There is a separation of ownership and possession which fits easily into the PPSA registration régime, but again, like the true security interest, enforcement of the deemed security interest is not the main goal as it is with a lien.

The holder of the lien has no agreement with the owner of the collateral to grant a lien. Rather the agreement between the depositor of the goods and the repairer, storer or common carrier, is to provide services in exchange for payment. Only after services are provided and the bill not paid does the lienholder consider the lien as a means of collecting the unpaid debt.

It has also been argued that if the legislature deems a lien to be a purchase-money security interest, it will run afoul of the law surrounding the deeming of certain Crown interests as security interests (see, for example, Deloitte Haskins & Sells Limited v. Workers' Compensation Board, (1985) 55 C.B.R. (N.S.) 241 (S.C.C.); Federal Business Development Bank v. Commission and De la Sante [1988] 1 S.C.R. 1061; R. v. Henfrey Samson Belair Ltd. (1989), 75 C.B.R. (N.S.) 1 (S.C.C.) and Clarkson, Gordon Inc. (Trustee of Robinson, Little & Co. Limited), v. Saskatchewan, [1990] 1 W.W.R. 354 (Sask. C.A.)).

It is settled law that the province cannot by legislation alter the scheme of distribution under the Bankruptcy Act. At the present time, a lien takes priority under the Bankruptcy Act according to whether the lienor can come within the definition of secured creditor. The fear is that if the traditional character of the lien is lost, it could lose this status.

On balance, the Committee concluded that the characteristics and priority of the lien claimant's interest should be defined using PPSA concepts and terminology, but that the lien or liens created or continued by the Uniform Lien Act should not be a deemed security interest under the PPSA. This does not mean the security aspect of the lien is irrelevant. The lien, as indicated, shares many of the same characteristics as a security interest created by the PPSA and, it should be recognized, by adopting such features of the PPSA as the ability to assign the lien makes third party financing of repairs possible. This change alone has the potential to move the lien from the realm of cash transactions to that of lender credit. Nonetheless, the Committee believes the aspects of the lien which make it unique justify a separate statute and a distinct concept.

6. RECOMMENDATION:

The lien or liens created or continued should not be deemed security interests under the PPSA.


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