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Part 2

. 1758704 Ontario Inc. v. Priest

In 1758704 Ontario Inc. v. Priest (Ont CA, 2021) the Court of Appeal consider the principle that the common law requires notice to the debtor before security can be realized:
The Principle in Lister v. Dunlop

[46] The trial judge did not consider the position advanced by the appellants on the common law obligation to give notice to a debtor before seizing secured assets. This principle was adopted in Canada in R.E. Lister Ltd. v. Dunlop Canada Ltd., 1982 CanLII 19 (SCC), [1982] 1 S.C.R. 726. Writing for the Court, Estey J. said, at p. 746:
The rule has long been that enunciated in Massey v. Sladen (1868), L.R. 4 Ex. 13 at 19, 38 L.J. Ex. 34: the debtor must be given "some notice on which he might reasonably expect to be able to act". The application of this simple proposition will depend upon all the facts and circumstances in each case. Failure to give such reasonable notice places the debtor under economic, but nonetheless real duress, often as real as physical duress to the person, and no doubt explains the eagerness of the courts to construe debt-evidencing or creating documents as including in all cases the requirement of reasonable notice for payment.
[47] See also Royal Bank of Canada v. W. Got & Associates Electric Ltd., 1999 CanLII 714 (SCC), [1999] 3 S.C.R. 408, at p. 417, where it is applied in a debt collection action that shares some similarities with this case.

[48] In Kavcar Investments Ltd. v. Aetna Financial Services Ltd. (1989), 1989 CanLII 4274 (ON CA), 70 O.R. (2d) 225 (C.A.), this court applied and clarified the Lister principle. McKinlay J.A. wrote that it applies, “regardless of the wording of the security document” (at p. 228) and that “[r]easonable time must be given by the creditor, whether or not asked for by the debtor” (at p. 235). See also Waldron v. Royal Bank (1991), 1991 CanLII 5710 (BC CA), 53 B.C.L.R. (2d) 294 (B.C.C.A.), at p. 7, per Lambert J.A.

[49] In Kavcar and Got Electric, both courts considered what constitutes reasonable notice in the circumstances. However, it is not necessary to address that issue in this case because, as discussed below, no notice was given at all.

[50] The Lister principle has been embedded in Canadian debtor-creditor law for decades. This reality is important when considering the reach and effect of the PPSA. The respondents submit that it has been ousted by the PPSA. Even if I were to accept the respondents’ interpretation of s. 63(7) of that Act, there is no basis to conclude that the Legislature intended to extinguish the Lister v. Dunlop line of authority: Owners, Strata Plan LMS 3905 v. Crystal Square Parking Corp., 2020 SCC 29, 41 B.C.L.R. (6th) 1, at para. 39; Parry Sound (District) Social Services Administration Board v. O.P.S.E.U., Local 324, 2003 SCC 42, [2003] 2 S.C.R. 157, at para. 39. In Goodyear Tire & Rubber Co. of Canada Ltd. v. T. Eaton Co. Ltd., 1956 CanLII 2 (SCC), [1956] S.C.R. 610, at p. 614, Fauteux J. (as he then was) wrote, “a Legislature is not presumed to depart from the general system of the law without expressing its intentions to do so with irresistible clearness, failing which the law remains undisturbed.”

[51] In my view, the Lister v. Dunlop line of cases remains undisturbed by the PPSA.
. Atlas (Brampton) Limited Partnership v. Canada Grace Park Ltd.

In Atlas (Brampton) Limited Partnership v. Canada Grace Park Ltd. (Ont CA, 2021) the Court of Appeal considered an interesting (and uncommon) PPSA case of attaching corporate shares as security against a loan. In this extract the court covers the issue generally:
(1) The Governing Principles

[27] Contemporary personal property security legislation was intended to simplify and rationalize the law of secured transactions. Under s. 2(a), the PPSA applies to “every transaction without regard to its form and without regard to the person who has title to the collateral that in substance creates a security interest.” The PPSA adopts a “functional approach to determining what security interests are covered by its provisions”: Bank of Montreal v. Innovation Credit Union, 2010 SCC 47, [2010] 3 S.C.R. 3, at para. 18. Almost anything that serves functionally as a security interest is a security interest for the purposes of the Act: I Trade Finance Inc. v. Bank of Montreal, 2011 SCC 26, [2011] 2 S.C.R. 306, at para. 26. Subsection 2(a)(i) of the PPSA specifically includes a pledge among the forms of transaction that give rise to a security interest.

[28] The steps required to create a security interest in collateral, on the one hand, must not be confused with the steps required to make a security agreement enforceable against third parties, on the other hand. Under s. 9(1) of the PPSA, a consensual security agreement is “effective according to its terms between the parties to it.” By contrast, under s. 11, “[a] security interest is not enforceable against a third party unless it has attached”. Attachment can be achieved in different ways, under s. 11(2) of the PPSA, depending on the nature of the collateral. The question of attachment is not strictly at issue in this case since there is no third-party claim on the pledged collateral. I use the language of attachment to reflect the fact that Canada Grace’s security interest did attach to the pledged shares.

[29] If Canada Grace became a “secured party having control of investment property” for the purposes of s. 17.1 of the PPSA, then Canada Grace could in theory “sell, transfer, use or otherwise deal with the collateral”, subject only to the terms of the security agreement. Each of the terms “investment property” and “control” requires analysis.

(a) “Investment property”

[30] The term “investment property” is defined in s. 1 of the PPSA as “a security, whether certificated or uncertificated, security entitlement, securities account, futures contract or futures account”. The word “security” is in turn defined by reference to the Securities Transfer Act, 2006, S.O. 2006, c. 8 (“STA”). Under ss. 1 and 10 of the STA, the term security includes a share or equity interest issued by a corporation. In this case, the pledged shares fit the STA definition of “security” and, by extension, “investment property”.

(b) “Control”

[31] The concept of “control” was introduced into Ontario law through the STA in 2006, accompanied by simultaneous amendments to the PPSA.

[32] The 2006 amendments to the PPSA responded to a concern that the PPSA was ill-equipped to deal with declining physical share ownership and the growth of the “indirect holding system” in capital markets. In the indirect holding system, shareholders own shares and other securities through securities intermediaries, clearing services, banks, or other financial institutions. The development of the indirect holding system permitted greater efficiency in securities trading but left the law of secured transactions to rely on increasingly unwieldy analogies to physical share ownership in order to accommodate use of securities accounts and book entries as collateral: see Richard McLaren, Secured Transactions in Personal Property in Canada, loose-leaf, 3rd ed. (Toronto: Carswell, 2016), at para. 1.04; Robert Scavone, “Stronger than Fictions: Canada Rethinks the Law of Securities Transfers in the Indirect Holding System” (2007) 45 Can. Bus. L.J. 67, at p. 77.

[33] Professor McLaren concisely sets out the concept of control, at para. 14.03:
Control is the functional equivalent of the prior law’s notion of physical possession of a certificated security, but has been expanded to conform to current market practices with regard to investment property. Under the STA, control is not limited to physical possession, however includes it within the concept.
See also Eric Spink, “Securities Transfer Act – Fitting New Concepts in Canadian Law” (2007), 45 Can. Bus. L.J. 167, at p. 184. Control exists when the secured party is in a position to liquidate the property without any further involvement from the owner of the property: Scavone, at pp. 23-30; Spink, at p. 185.

[34] The STA defines “control” by reference to the different means of acquiring it, depending on the nature of the collateral. Sections 23-26 of the STA describe how a purchaser can acquire control of certificated securities (s. 23), uncertificated securities (s. 24), or “security entitlements”, which is the broader category encompassing, most notably, securities accounts (s. 25). The PPSA incorporates each manner of obtaining control in s. 1(2), which refers to a “secured party” rather than a “purchaser”. In each case, “control” essentially mimics a pledge arrangement.

[35] If the parties employ certificated securities, s. 23 of the STA states that control may be established by simple possession of the certificates. This arrangement resembles a traditional pledge whereby one party places the physical share certificates in the other’s possession.

[36] In the case of uncertificated securities such as the pledged shares in Atlas Springbank, s. 24 of the STA establishes that the secured party will have control of an uncertificated security if (a) the uncertificated security is delivered to the secured party (i.e. registered in the secured party’s name on the books of the issuer); or (b) the issuer has agreed that the issuer will comply with instructions that are originated by the secured party without the further consent of the registered owner. This latter arrangement is referred to as a “control agreement”.

[37] While the STA enumerates a fixed set of methods for obtaining control based on the nature of the investment property, the notion of control must be applied functionally rather than formalistically. For instance, a control agreement governing uncertificated securities need not take a particular form so long as it grants the secured party rights to give instructions to the issuer and to deal with the securities without the further consent of the registered owner.

[38] Control, as defined in the STA, plays a number of roles in the PPSA scheme. Under s. 11(2)(d) of the PPSA, a secured party’s security interest in investment property attaches when the secured party has control of it. Similarly, a secured party may perfect a security interest in investment property by control under s. 22.1 in order to establish priority in a dispute between secured parties. For the purposes of this appeal, control is a pre-requisite to the application of certain remedies, including the remedies set out in s. 17.1 on which Canada Grace relies.
. Atlas (Brampton) Limited Partnership v. Canada Grace Park Ltd.

In Atlas (Brampton) Limited Partnership v. Canada Grace Park Ltd. (Ont CA, 2021) the Court of Appeal considers whether a contractual right of security survived over statutory rights under the PPSA:
H. A note on Harry Shields

[96] As noted earlier, the appellants assert that the application judge misapplied the ruling in Harry Shields in finding that Canada Grace could rely entirely on the freestanding contractual right of foreclosure outside of the PPSA. Because I have found that the respondents’ notices were PPSA compliant, I need not address this issue but I will do so in light of the argument.

[97] In my view, the ruling in Harry Shields has been superseded by later cases interpreting the PPSA such as Bank of Montreal v. Innovation Credit Union and i Trade Finance Inc. v. Bank of Montreal, and especially by the 2006 amendments to the PPSA and STA, all of which were discussed earlier.

[98] The proper understanding and application of the ruling in Harry Shields was the focus of argument before the application judge and in the parties’ submissions on appeal. The plaintiff, Harry Shields Ltd., executed a demand debenture in favour of the Bank of Montreal. The debenture agreement gave the bank the right to appoint a receiver in the event of default. The bank also required Shields to pledge the debenture back to the bank under a separate pledge agreement. This was to ensure that the bank had possession of the debenture upon default. When Shields began to experience financial difficulties, the bank demanded payment and appointed a receiver under the debenture. Shields argued that the bank was not entitled to enforce the debenture directly because it held the debenture as a pledgee and was therefore required to resort to its remedies as a pledgee under the PPSA. Shields submitted that the bank might be required to sell the debenture, potentially to itself, before it could enforce it.

[99] Lane J. defined the issue before him as whether, “where the parties have expressly agreed that the security holder has received the debenture both as a continuing collateral security enforceable directly and as a pledge, the security holder is confined to the remedies of a pledgee.” He reasoned: “I see nothing in the PPSA that compels this conclusion,” adding, “This view leads to the commercially sensible result intended by the parties: that the bank may enforce the debenture as owner without any ritual need to sell it to itself.”

[100] Section 17.1, which was introduced after Harry Shields, simplifies the analysis. To the extent that most share pledges will give the secured party control over investment property (securities), secured parties can now rely on s. 17.1 instead of Harry Shields to “sell, transfer, use or otherwise deal with collateral”. The issue, in most cases, will be to determine whether the pledged instrument is “investment property” within the meaning of the PPSA. Whether a debenture of the kind used in Harry Shields could be considered “investment property” under the PPSA is a matter for another day. If it is not, Harry Shields may still provide some guidance. However, in most cases dealing with a pledge of shares or other securities, s. 17.1 sets out the framework.
. Drywall Acoustic Lathing and Insulation, Local 675 Pension Fund v. Barrick Gold Corporation

In Drywall Acoustic Lathing and Insulation, Local 675 Pension Fund v. Barrick Gold Corporation (Ont CA, 2021) the Court of Appeal heard an appeal from a Securities Act class action lawsuit motion, dealing with the s.138.1(1) issue of when (and whether) a listing corporation issued a 'public correction', and it's effect. Securities Act cases are unusual so I've linked the entire case [114 paras and an appendix] for now.

. Wright v. Horizons ETFS Management (Canada) Inc.

In Wright v. Horizons ETFS Management (Canada) Inc. (Ont CA, 2020) the Court of Appeal reviews statutory remedies under the Securities Act:
(2) The Legal Framework

(a) Purposes of the Securities Act

[126] One of the underlying purposes of the Securities Act is “the protection of the investing public through full, true and plain disclosure of all material facts relating to securities being issued”: Pacific Coast Coin Exchange v. Ontario Securities Commission, 1977 CanLII 37 (SCC), [1978] 2 S.C.R. 112, at p. 126, citing Re Ontario Securities Commission and Brigadoon Scotch Distributors (Canada) Limited, 1970 CanLII 436 (ON SC), [1970] 3 O.R. 714, at p. 717.

[127] With some exceptions, the Securities Act requires companies to file a prospectus before engaging in a trade in a security that qualifies as a “distribution”. The statutory definition of distribution under s. 1(1) of the Securities Act captures “that moment of initial distribution when a security first becomes available to the public, thereby triggering the disclosure obligations designed to protect investors”: David Johnston, Kathleen Rockwell, and Cristie Ford, Canadian Securities Regulation, 5th ed. (Toronto: LexisNexis Canada, 2014), at 5.7 (italics in original).

[128] The prospectus must make “full, true and plain disclosure of all material facts relating to the securities issued or proposed to be distributed”: Securities Act, s. 56(1). Thereafter, companies must meet continuous disclosure obligations under Part XVIII of the Securities Act.

(b) Sections 130 and 138.3 of the Securities Act

[129] Sections 130 and 138.3 of the Securities Act enhance the common law by providing statutory causes of action for misrepresentations that affect the value of securities purchased.

[130] Section 130 provides a statutory cause of action for misrepresentations in a prospectus for funds distributed on the primary market: Tucci v. Smart Technologies Inc, 2013 ONSC 802, 114 O.R. (3d) 294, at paras. 21, 40. Section 130 in Part XXIII provides that:
130. (1) Where a prospectus, together with any amendment to the prospectus, contains a misrepresentation, a purchaser who purchases a security offered by the prospectus during the period of distribution or during distribution to the public has, without regard to whether the purchaser relied on the misrepresentation, a right of action for damages against,

(a) the issuer or a selling security holder on whose behalf the distribution is made…
[131] Section 138.3 provides a statutory cause of action for misrepresentations for purchasers who acquire securities on the secondary market: Sharma v. Timminco Limited, 2012 ONCA 107, 109 O.R. (3d) 569, at paras. 7-8, leave to appeal refused, [2012] S.C.C.A. No. 157. Section 138.3 in Part XXIII.1 provides that:
138.3 (1) Where a responsible issuer or a person or company with actual, implied or apparent authority to act on behalf of a responsible issuer releases a document that contains a misrepresentation, a person or company who acquires or disposes of the issuer’s security during the period between the time when the document was released and the time when the misrepresentation contained in the document was publicly corrected has, without regard to whether the person or company relied on the misrepresentation, a right of action for damages against,

(a) the responsible issuer; …
[132] Section 138.3 provides fewer remedies to investors than s. 130. Unlike s. 130, s. 138.3 includes a damages cap of the greater of 5% of the issuer’s market capitalization or $1 million for a responsible issuer, and a loser pays costs rule: Securities Act, ss. 138.1, 138.7, and 138.11. Moreover, a plaintiff who brings a claim pursuant to s. 138.3 must first obtain leave to commence an action, unlike a plaintiff who commences an action under s. 130: Securities Act, s. 138.8(1).

[133] As such, there are distinct advantages to pursuing a claim under s. 130 rather than s. 138.3 of the Securities Act.

[134] Both sections enhance the remedies available to investors under the common law. The common law tort of negligent misrepresentation requirements are as follows:
a. There must be a duty of care based on a “special relationship” between the representor and the representee;

b. The representation must be untrue, inaccurate, or misleading;

c. The representor must have acted negligently in making the representation;

d. The representee must have relied, in a reasonable manner, on the negligent misrepresentation; and

e. The reliance must have been detrimental to the representee in the sense that damages resulted.
Queen v. Cognos Inc., 1993 CanLII 146 (SCC), [1993] 1 S.C.R. 87, at p. 110.

[135] While at common law plaintiffs must demonstrate reasonable reliance, plaintiffs who proceed with a claim for statutory misrepresentation are not required to demonstrate reliance in order to recover damages: Securities Act, ss. 130(1), 138.3(1).


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