| Case-Name: | Bank of Montreal v Innovation Credit Union |
| Full-Case-Name: | Bank of Montreal v. Innovation Credit Union |
| Heard-Date: | April 19, 2010 |
| Decided-Date: | November 5, 2010 |
| Citations: | 2010 SCC 47, [2010] 3 S.C.R. 3 |
| Docket: | 33153 |
| History: | Appeal from a judgment of the Saskatchewan Court of Appeal, reversing a decision of the Court of Queen's Bench for Saskatchewan. |
| Ruling: | Appeal dismissed. |
| Ratio: | The Bank Act provides no express priority rule vis à vis prior security interests. |
| Scc: | 2008-2011 |
| Unanimous: | Charron J. |
Bank of Montreal v Innovation Credit Union is a decision of the Supreme Court of Canada that deals with the priority of unregistered security interests of a creditor against a security interest created later by a chartered bank under the Bank Act.
James Buist, a farmer in Saskatchewan, borrowed money from the Innovation Credit Union in October 1991. In return, he provided the credit union with a security interest in all of his present and after-acquired personal property, which would be governed by the Personal Property Security Act (Saskatchewan). The interest was not entered into Saskatchewan's PPSA registry until June 2004.
After this loan was provided, Buist also borrowed money from the Bank of Montreal, and several security agreements were executed between 1998 and January 2004. Buist did not disclose to the bank the loan from the credit union or its security interest, and, as it had not been registered, its existence did not appear in searches of the PPSA and Bank Act registries.
The Bank's security interest was registered under the Bank Act, and the PPSA in Saskatchewan does not allow parallel registration of such interests in its registry.
Buist ultimately became insolvent, and the Bank seized some of his property that was covered by its security in December 2004. The credit union applied to the Court of Queen's Bench for Saskatchewan for a declaration that it had a priority claim over the proceeds of the disposition of that property.
Was a registered security interest under the Bank Act able to defeat an unregistered security interest that operated under provincial legislation?
The Court of Queen's Bench ruled that the Bank Act had priority by virtue of the Bank having perfected its security interest. As the judge (T.C. Zarzeczny J.) noted,
This ruling was reversed on appeal to the Saskatchewan Court of Appeal. In a unanimous decision (per Jackson, J.A.), the court stated,
The appellate decision was upheld unanimously by the Supreme Court. While it generally agreed with that decision, the court detailed what it felt to be the correct reasoning in arriving at the result.
The Saskatchewan CA had relied on its previous decision in Royal Bank of Canada v. Agricultural Credit Corp. of Saskatchewan,[1] which had laid down some basic rules for resolving priority issues:
The SCC stated that, while this approach did not lead the Court of Appeal into error in deciding this case, this formulation does not accurately reflect the applicable constitutional principles at play. Step 2 is correct, but Step 1 properly means that internal priority rules of the PPSA have no bearing on determining a priority dispute between Bank Act and PPSA security interests.
However, the PPSA retains importance in resolving the priority dispute at issue:
As noted by the Court:
This decision has reinforced requirements for banks to practice due diligence in lending to prospective borrowers. They will also need to consider in which cases PPSA registration will be preferable to that under the Bank Act.[3] [4] [5]
In response to this decision, the Parliament of Canada has amended the Bank Act to explicitly state that registry under its provisions will also take priority over unperfected security interests, except where a bank is already aware of their existence.[6] Royal assent was given on 29 March 2012, and the relevant provisions came into force on 24 May 2012.[7]