Changes to Personal Property Security Act - Report 2007

V. PROPOSED CHANGES TO THE PPSA CONFLICT OF LAWS PROVISIONS

[17] In late 2005, the author of this report was informed by, Mr. John Cameron, Chairperson of the Ontario Bar Association Personal Property Law Subcommittee that the Ontario government had announced its intention to modernize business laws in the province. One phase of this undertaking would involve changes to the Ontario PPSA. In later correspondence, the author was informed that a working group had been formed to consider whether the Ontario PPSA conflicts of laws rules should be revised further than is already proposed in Ontario's Bill 41 (which contains Ontario's Securities Transfer Act and related amendments to the PPSA and OBCA).

[18] Mr. Cameron pointed out that the Working Group recognized the desirability of each Canadian common law jurisdiction having the same conflicts of laws rules. He proposed the creation of an expanded working group with the goal of developing a common understanding as to the most appropriate approach to this issue. As a result the author and Professor Tamara Buckwold (a member of the ULC Study Committee) were invited to work with Group.

[19] In a series of telephone meetings held over a period of three months a set of revised conflict of laws rules were developed by the expanded Working Group. The recommended provisions were presented to the Ontario Government and enacted by the Ontario Legislature as the Ministry of Government Services Consumer Protection and Service Modernization Act, 2006, chapter 34, Schedule E. However, they have not been proclaimed in force. Set out as an Appendix to this report is a generic version of the recommended provisions as they would appear in a CCPPSL Model Act.

[20] The following is an excerpt from a transmittal letter dated May 19, 2006 sent by Mr. Cameron to the Ontario Minister of Government Services explaining the proposed changes:

“All Canadian PPSAs contain conflict of laws rules which point to the “location of the debtor” to determine the validity, perfection and priority of security interests in some types of collateral. Under these rules, a debtor is deemed to be located at its place of business. Where the debtor has two or more places of business, the rules define the “location of the debtor” by reference to the debtor’s chief executive office. In practice, lawyers often cannot easily determine the location of a debtor’s chief executive office, which often results in additional expense to ensure that a security interest is perfected and searches are carried out in, and legal opinions obtained from, every jurisdiction which might possibly contain the debtor’s chief executive office.

To avoid this additional expense, we recommend that all of the Canadian PPSAs be amended to define “location of the debtor” by reference to, in the case of an individual, his or her residence and, in the case of an organization, the jurisdiction in which the debtor is organized. This new approach as it applies to organizations is consistent with the recommendations of the Study Committee on Reform of Canadian Secured Transactions Law, which recommended to the Uniform Law Conference of Canada (“ULCC”) that the location of a Canadian organized debtor be defined by reference to its place of organization. In addition, this new approach is consistent with the recent amendments contained in Revised Article 9 of the Uniform Commercial Code in the United States. However, our proposal goes further by (among other things) creating specific rules to address the location of trusts and general partnerships. Frequently in Canada, income trusts (including REITs, oil and gas trusts and other business trusts) are used as vehicles to raise funds for business, often creating security interests in personal property. It is often difficult to determine the location of a trust -- particularly in the case of income trusts in which the trustees are individuals and the trust has no business office. The proposed new rules would address this problem.”

[21] The author has taken steps through CCPPSL contacts and directly with legislative counsel in various provinces to bring to the attention of legislators in their jurisdictions the recommended changes to the CCPPSL Model Act. Mr. Allen Doppelt, Senior Counsel, Legal Services Branch, Ontario Ministry of Government Services (who was a member of the Work Group) has undertaken to contact his counterparts in other Canadian jurisdictions in order to facilitate contemporaneous or substantially contemporaneous implementation of these changes in all common law jurisdictions.

VI. CONCLUSION AND RECOMMENDATION

[22] In view of the fact that the ULCC Model Personal Property Security Act is no longer of significance in the development of this area of the law in Canada, there is little point in recommending that the Model Act be amended to incorporate the changes set out in the Appendix to this report. However, it is recommended that the ULCC to recommend to the common law provinces and territories (other than Ontario) amendment of their PPSAs to incorporate the proposed conflict of laws provisions.

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