Royal Bank of Canada v. Cow Harbour Construction Ltd., 2012 ABQB 112

Court of Queen ’ s Bench of Alberta Citation: Royal Bank of Canada v. Cow Harbour Construction Ltd., 2012 ABQB 112 Date: 20120221 Docket: 1003 11241, 1003 05560 Registry: Edmonton Between: Royal Bank of Canada Plaintiff - and - Cow Harbour Construction Ltd. and 1134252 Alberta Ltd. Defendant’s And Between: Docket: 1003 05560 BKCY Action No: 24-115359 In the Matter of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 , as amended In the Matter of Companies ’ Creditors Arrangement Act, R.S.C. 1985, c. C-36, as amended And in the Matter of a Plan of Compromise or Arrangement of Cow Harbour Construction Ltd. _______________________________________________________

Reasons for Judgment of the Honourable Mr. Justice K.D. Yamauchi _______________________________________________________ I. Introduction [ 1 ] On April 7, 2010, Cow Harbour Construction Ltd. (“Cow Harbour”) applied for a stay of proceedings against it under

section 11.02 of the Companies' Creditors Arrangement Act , RSC 1985, c C-36 [ CCAA ]. This Court granted that order (“Initial Order”) in CCAA action number 1003-05560, and extended the stay of proceedings from time to time by a number of subsequent orders. [ 2 ] The history and other background information concerning this Court’s handling of the Cow Harbour matter is in its decision reported as Royal Bank of Canada v Cow Harbour Construction Ltd , 2010 ABQB 637 , 504 AR 319, leave to appeal den’d De Lage Landen Financial Services Canada Inc v Royal Bank of Canada , 2010 ABCA 394 , 499 AR 198.

The present decision deals exclusively with applications by Fountain Tire Mine Services Ltd. (“Fountain Tire”) and Kramer Ltd. (“Kramer”), in which they claim that they have valid garage keepers’ liens (collectively, the “Liens”). [ 3 ] Fountain Tire and Kramer (collectively, the “Lien Claimants”) registered the Liens pursuant to the Garage Keepers' Lien Act , RSA 2000, c G-2 [ Act ] against equipment that Cow Harbour owned or leased.

The Lien Claimants registered notice of their Liens at the Alberta Personal Property Registry (“Alberta PPR”). [ 4 ] This Court eventually appointed PricewaterhouseCoopers Inc. as receiver and manager of Cow Harbour’s assets, property and undertaking (“Receiver”).

The Receiver sold most of Cow Harbour’s assets to a third party, but retained an amount representing the Liens, pending this Court’s determination of their validity. [ 5 ] GE Canada Equipment Financing G.P. (“GE”), which held general security over Cow Harbour’s assets, property and undertaking, challenges the validity of the Liens. [ 6 ] This Court will outline the specific fact situation relating to each of the Lien Claimants’ claims later in these Reasons, but first it is useful to provide the legislative and jurisprudential background that will guide this Court through its reasoning. II.

Legislation and Case Law [ 7 ] The Act provides: 2(1) In addition to every other remedy that a garage keeper has for the recovery of money owing to the garage keeper for (

a) the storage, repair or maintenance of a motor vehicle or a farm vehicle or of any part of a motor vehicle or farm vehicle, or (

b) the price of accessories or parts furnished for a motor vehicle, farm vehicle or part of a motor vehicle or farm vehicle,

a garage keeper who is entitled to payment of a sum for the storage, repair or maintenance or the price of accessories or parts furnished, has a lien on the motor vehicle or part of it or the farm vehicle or part of it for the sum to which the garage keeper is entitled.

(2) No garage keeper is entitled to a lien under this Act for the price of fuel, oil or grease furnished for a motor vehicle or farm vehicle.

(3) No garage keeper is entitled to a lien under this Act unless the garage keeper retains possession of the motor vehicle or farm vehicle or the garage keeper obtains from (

a) the person who authorized the storage, repair or maintenance or the person's authorized agent, or (

b) the person who ordered that accessories or parts be furnished for the motor vehicle or farm vehicle or the person's authorized agent, an acknowledgment of indebtedness by requiring that person or that person's agent to sign an invoice or other statement of account. 3(1) A lien referred to in

section 2 terminates on the 21st day after the day (

a) on which possession of the motor vehicle or farm vehicle is surrendered to the owner or the owner's agent, (

b) on which repairs were completed to the motor vehicle or farm vehicle or any part of the motor vehicle or farm vehicle if the vehicle was not at the time of repair in the possession of the garage keeper, or (

c) on which the accessories or parts for the motor vehicle or farm vehicle were furnished, as the case may be, unless on or before the 21st day the garage keeper registers in the Registry a financing statement indicating a claim of lien on the motor vehicle or farm vehicle. [ 8 ] Two

definitions contained in the Act s 1 are of some importance as well. Those are: (d) “garage keeper” means a person who keeps a place of business for the housing, storage or repair of a motor vehicle or farm vehicle and who receives compensation for that housing, storage or repair; (h) “Registry” means the Personal Property Registry under the Personal Property Security Act . [ 9 ] A garage keeper, at common law, has a recognized interest in a motor vehicle or farm vehicle (“Vehicle”) while the garage keeper maintains possession of the Vehicle.

In Alberta, if the garage keeper surrenders possession of the Vehicle to the person who authorized the repair or that person’s authorized agent (the “Owner”) or some other person, the garage keeper retains an interest in the Vehicle only if the garage keeper obtains an acknowledgment of indebtedness from the Owner. [ 10 ] As stated in the Act , the lien terminates on the 21 st day after the garage keeper surrenders possession of the Vehicle, or after the garage keeper completes the work if the Vehicle was not in the garage keeper’s possession at the time it undertook the work, unless the garage keeper registers a financing statement at the Alberta PPR.

[ 11 ] Ronald C.C. Cuming, Catherine J. Walsh and Roderick J. Wood, in their text Personal Property Security Law (Toronto: Irwin Law, 2005) refer to the garage keeper’s interest in those circumstances as an “artificer’s lien” (at p 408) and to the garage keeper’s lien (and others that the common law and statute create) as “non-consensual security interests” (at p 406). [ 12 ] The Alberta Personal Property Security Act , RSA 2000, c P-7 [ AB PPSA ] does not apply to liens, except as otherwise provided in that statute ( AB PPSA s 4(a)).

As the definition of “security interest” in AB PPSA s 1(1)(tt) does not expressly include liens, liens are not considered security interests for purposes of that statute. However, the AB PPSA governs the priority of secured interests and liens.

Section 32 of the AB PPSA states: Where a person in the ordinary course of business furnishes materials or services with respect to goods that are subject to a security interest, any lien that the person has with respect to the materials or services has priority over a perfected or unperfected security interest in the goods unless the lien is given by an Act that provides that the lien does not have the priority. III. The Fountain Tire Liens A.

Background and Facts [ 13 ] Fountain Tire provided Cow Harbour with industrial tires and performed various services in relation to those tires. [ 14 ] Cow Harbour and Fountain Tire began dealing with each other in or around January 2009, at which time Cow Harbour agreed to purchase tires from Fountain Tire at predetermined prices. Fountain Tire was to provide Cow Harbour with product management and support in relation to the tires Cow Harbour purchased, pursuant to an “enhanced services agreement.” The parties began operating under the “enhanced services agreement” in or around the first half of September 2009.

The parties confirmed their relationship by contract dated October 15, 2009 (“Service Agreement”). The support that Fountain Tire was to provide to Cow Harbour was outlined in the Service Agreement, and included the provision of garage and mobile repair facilities and technicians, and the operation of a maintenance and repair facility for Cow Harbour in Fort McMurray. [ 15 ] Pursuant to the Service Agreement, Fountain Tire was to provide Cow Harbour with updated price lists in advance of any increase or decrease in the price of its tires.

Fountain Tire issued the price lists to Cow Harbour from time to time. [ 16 ] In accordance with the Service Agreement, Fountain Tire established an on-site garage facility for Cow Harbour at the Aurora mine in Fort McMurray, where Cow Harbour was then operating. As well, it established a mobile service facility to service Cow Harbour’s equipment that was operating at other remote sites. These facilities allowed Fountain Tire to provide Cow Harbour with 24-hour site supply and service, in order to prevent any needless delay in the work on the mine site where Cow Harbour was then operating.

In addition, they allowed Cow Harbour to satisfy itself that Fountain Tire was performing its services efficiently and safely, as Cow Harbour previously had suffered a fatal industrial accident when one of its workers was killed while installing and inflating a tire. [ 17 ] Cow Harbour and Fountain Tire set up a document processing and billing system (“Document Processing System”), designed to facilitate Cow Harbour's accounting requirements. The price lists were the foundation on which the Document Processing System was built. [ 18 ] In an affidavit sworn on September 7, 2011, Mr.

Charles Kennedy Huntingford, Fountain Tire’s Vice-President and General Manager, described how the Document Processing System worked: (

a) Fountain Tire would replace tires as a result of tire failure or, more commonly, through regular service and inspection. (

b) A tire replacement was initiated by an "OTR Work Order" that a representative of Cow Harbour (usually Mr. Byron Hutching,

Cow Harbour’s Superintendent of Equipment Maintenance, or Mr. Paul Brown) would sign and provide to Fountain Tire. Cow Harbourwould then deliver its vehicle to the Fountain Tire on-site garage or mobile service site and the tire replacement would occur. (

c) Once Fountain Tire completed the service, it would issue a “pre-invoice” setting out the amount that Cow Harbour owed it forthe inventory that it provided to Cow Harbour, in accordance with the predetermined pricing set out in the price lists. (

d) The pre-invoices stated, "[a]n express mechanic's lien is hereby granted on above vehicle to secure the amount of repairs hereto." (

e) After Fountain Tire issued the pre-invoice, generally, it would register a garage keepers' lien in the Alberta PPR. (

f) Cow Harbour processed its accounts by issuing purchase order numbers for the tires it requested. Cow Harbour providedFountain Tire with purchase orders containing the purchase order numbers after Fountain Tire supplied the tires. (

g) On receipt of notification of the purchase order numbers, Fountain Tire would issue a final invoice to Cow Harbour,incorporating the purchase order number information to accord with Cow Harbour's internal accounting system. Cow Harbour’s agentwould then sign the final invoice. The parties presented no evidence to this Court as to when Cow Harbour’s agent actually signed the final invoices. [19] The parties exchanged all of the documents in the Document Processing System electronically, due to the remote nature of thework sites and the respective locations of the Cow Harbour and Fountain Tire offices. B.

Issue [20] The issue that this Court must address is whether the Document Processing System fulfilled the requirements of the Act s2(3). C. Analysis 1.

Interpretation of the Act [21] In Public Finance Corp v Edwards Garage Ltd (1957), (AB KB), 22 WWR 312 at para 15 (Alta SC)[Public Finance], Greschuk J found that in passing the Garagemen’s Lien Act, RSA 1942, c 233, the Alberta legislature “providedgaragemen with a new statutory lien.” Presumably, he meant that a garage keeper’s lien was statutorily created, unlike a possessory lienwhich existed as a result of the common law.

As the Alberta legislature conferred a statutory right on the garage keeper, Greschuk Jobserved (at para 15) that: ... it seems neither unjust nor inconvenient to exact a rigorous observance that the formalities and forms shall be complied with asessential to the acquisition of the right or authority conferred and this was probably the intention of the legislature. [22] The version of the Garagemen’s Lien Act that Greschuk J was considering required the garage keeper to complete and file itslien claim in a prescribed form.

The garage keeper in that case had failed to include in its filed form of lien the statement: “The addressfor service of the claimant is,” and had failed to insert its address for service after those words, although its address for service wasincluded in the top part of the form.

[23] Greschuk J found that while The

Interpretation Act s 36, as it was then, permitted slight deviations which did not affect thesubstance or were not calculated to mislead, the omission in the case before him was not a slight deviation or a minor defect or omission.Furthermore, he stated (at para 16) that: “[t]here is no provision in the Act which states that a substantial compliance with the Act or theforms shall be a sufficient compliance with the Act or the forms” (see also Delta Valley Landscaping & Lawn Services Ltd v Twin DeerParts & Sales Ltd, 2000 ABQB 874 at para 16, 276 AR 191; Mountain School District No 28 v General Brake & Clutch Service Ltd, (MB KB), [1979] 2 WWR 284 (Man QB)). [24] In 1960, subsequent to Public Finance, the Alberta legislature added a provision to the Garagemen’s Lien Act, whichprovided that: “... substantial compliance with the requirements of the form is sufficient ...” As a result, in R Angus (Alta) Ltd v UnionTractor Ltd (1967), (AB KB), 61 WWR 603 (Alta DC) [R Angus], Haddad J found that, in circumstances similar tothose in Public Finance, the garage keeper substantially had complied with the requirements of the form. [25] The Alberta Court of Appeal in Ed Miller Sales & Rental Ltd v Canadian Imperial Bank of Commerce (CIBC) (1987), 1987ABCA 56 , 51 Alta LR (2d) 54 at para 4 [Ed Miller Sales] held that there is a “clear legislative intention that the Act is not to bestrictly construed against the garageman.” The context in which that statement was made is important, however.

The court wasconsidering the amendment to the Garagemen’s Lien Act made in response to Greschuk J’s strict

interpretation in Public Finance of theform requirements under the Act. The Court of Appeal in Ed Millar Sales went on to say at para 7 that: “[w]hen a statute requiressubstantial compliance it requires the doing of those things which are of real importance, of substance, having regard to the object andscheme of the Act.” [26] The present Act does not have the same or a similar curative provision as the one the courts in R Angus and Ed Millar Salesconsidered. Nor does the current version of the Act have any form that a garage keeper must complete before it is entitled to maintain itslien.

The garage keeper simply needs to comply with the Act ss 2(3) and 3(1). [27] How should this Court interpret the Act s 2(3)? In R Angus at para 29, Haddad J quoted the following passage from Maxwell on

Interpretation of Statutes, 11th ed (London: Sweet and Maxwell, 1962) at 18: The literal construction then, has, in general, but prima facie preference. To arrive at the real meaning, it is always necessary to get anexact conception of the aim, scope, and object of the whole Act; to consider, according to Lord Coke (Heydon's Case [1584] 3 Co Rep7a, 76 ER 637): 1. What was the law before the Act was passed; 2. What was the mischief or defect for which the law had not provided;3. What remedy Parliament has appointed; and 4.

The reason for the remedy. [28] In Calgary (City) Regional Planning Commission v Alberta (Planning Board) (1986), 1986 ABCA 174 , 46 AltaLR (2d) 245 at para 16 (CA), the court instructed that: We should try to make statutes work by determining the object or scheme of the Act and then by giving the words the meaning whichbest advances that object or scheme, provided only that the actual words under review can reasonably bear that

interpretation. [Citationsexcluded.] 2. Purpose of the Act [29] To answer the questions that Lord Coke posed in Heydon’s Case, the law before the Alberta legislature passed the Act and itspredecessor was that for the garage keeper to maintain a lien, it had to retain possession of the Vehicle in question. If the garage keeperparted with its possession of the Vehicle, it would lose its “security” over the Vehicle and would have to pursue the Owner as anunsecured claimant.

The Alberta legislature passed the Act and its predecessor to respond to this “mischief or defect.” [30] In R Angus, Haddad J commented (at para 32) that he could "conceive that it could be harmful or impractical in many casesto hold a machine required in industry, or by a person in his trade or calling." In Ed Miller Sales, the Alberta Court of Appeal agreedwith this observation (at para 4).

[31] Ferg J opined in Prairie Mack Sales

(1990) Ltd v Dueck Builder Mart (1992), (MB KB), 12 CBR (3d) 1at para 11 (Man QB) that the Manitoba equivalent of the Act was passed, “... not to accommodate garage keepers, but rather the publicand commercial users of a garage.” As the Alberta Court of Appeal stated in Ed Miller Sales at para 3, “[a]s this action places thevehicle back in the hands of an apparent owner, a mechanism to protect third parties is necessary and the registration system is providedto that end.” [32] One of the reasons why the Act requires the garage keeper to register a financing statement at the Alberta PPR is to give theworld notice of its lien.

Cormack J observed in Union Tractor Ltd v Black Cat Construction and Northwest Acceptance Corporation(1984), (AB KB), 6 DLR (4th) 195 at para 28 (Alta QB), that the description of the chattel is required to enablesufficient identification of it to be displayed in the Alberta PPR so as to fix anyone proposing to purchase or encumber the chattel withnotice of the lien. [33] This Court’s view is that the Alberta legislature passed the Act to accommodate all of these interested parties: the garagekeeper wants to maintain its “security;” the Owner wants to use its Vehicle; and third parties interested in purchasing the Vehicle orobtaining security over it want to know about any liens on the Vehicle.

By virtue of AB PPSA s 32, registration also is intended to assistparties and the courts in determining the priority that should be accorded to the lien. 3. When must the garage keeper obtain the acknowledgement of indebtedness? [34] The garage keeper must obtain an acknowledgement of indebtedness from the Owner. Section 2(3) of the Act does not set outa time limit within which the garage keeper must do so. In Union Tractor Ltd v FMX Construction Ltd (1992), (ABKB), 126 AR 321 at paras 40 and 41 (QB) [FMX], Master Funduk cautioned: One should not confuse practice with

interpretation. It is usually the practice of garagemen to get the signed acknowledgment beforegiving up possession of the vehicle ... Keeping possession unless an acknowledgment is first given gives the garageman leverage. Thepossession is the leverage. If the garageman gives up possession before obtaining an acknowledgment he loses his leverage. He must then rely on the basic honestyof the owner to give a signed acknowledgment even though the owner already has possession.

If the owner refuses to give a signedacknowledgment the garageman will not be entitled to a lien. [35] Master Funduk went on to say (at para 46) that even though a garage keeper, at its own peril, does not obtain a signedacknowledgement of indebtedness before it gives up possession, its lien does not disappear “as long as it is gotten in time to let thegarageman register a lien” (see also Craddock Trucking Ltd v Leclair (1995), (AB KB), 28 Alta LR (3d) 145 at para22 (Master) [Craddock Trucking]). [36] Master Breitkreuz agreed with this statement, commenting in Craddock Trucking at para 22: The final issue to be addressed is whether the requirements of a written acknowledgment were complied with.

The law in this area hasbeen canvassed by Master Funduk in an unreported decision: Union Tractor Ltd. v. FMX Construction Ltd. ... It is clear that theacknowledgment need not be obtained at the time the work order is prepared nor at the time possession of the vehicle is released to theowner.

The acknowledgment must be obtained before the garageman's lien is registered at the [Alberta PPR]. [Citation and emphasisadded.] [37] Section 2(3) of the Act provides that the garage keeper must obtain “an acknowledgment of indebtedness by requiring [theperson who authorized the storage, repair or maintenance or the person's authorized agent] ... to sign an invoice or other statement ofaccount.” [38] Master Funduk in Landlink Freight Inc v Timberland Forest Products Ltd (1998), 1998 ABQB 648 , 230 AR 143(Master) [Landlink Freight], said that it was not sufficient that the owner had signed an authorization to do the work, as this did notcomply with the wording of the Act s 2(3).

He observed (at para 29) that, “[a]sking someone to do something is not the same as ‘signing

an invoice or other statement of account.’ The subsection is very plain.” Master Funduk was responding to a statement made by anotherMaster in an earlier decision, Crawler Sales Ltd v Hoe-Cat Consulting Ltd (1991), (AB KB), 83 Alta LR (2d) 280 atpara 5 (Master), who was of the view that by not finding a signature on an authorization to do the work to be an acknowledgement ofindebtedness: ... would be an unreasonable straining of the statute and an unrealistic distortion of the realities of commercial practice to interpret therespondent's signature as less than an acknowledgment of indebtedness. ... I think the proper

interpretation are the ordinary rules ofconstruction which give practical meaning to the legislation in the context of commercial reality. [39] Master Funduk went on to say in Landlink Freight at paras 20 and 21 that, “‘[c]ommercial practice’ does not and cannotdictate how legislation is to be interpreted ...

What is unrealistic about garagemen being required to do it right?” [40] In one of his previous decisions, Leduc Farm & Truck Supply Ltd v High Arctic Marketing Corp Ltd, [1982] AJ No 288(QB Master) (QL) [Leduc Farm & Truck], which he quoted in Landlink Freight at para 22, Master Funduk stated at paras 2, 6 and 7: ... It is not disputed that the charges for the work to be done were not determined at that time but were determined by the Applicant afterthe work was done and were then inserted in the form in the appropriate places. ...

In my view, what was signed by the Respondent was merely an authorization to do the work described on the form. It is not anacknowledgment of the indebtedness. The amount of the indebtedness depends on what work is done. This in turn depends on both thematerials supplied and the time spent in doing the work. At the time of the authorization there is no indebtedness. The indebtedness doesnot arise until the work is first done. If the authorization was an acknowledgment of the indebtedness the owner could not later, once the work was done and the chargesascertained, object to the charges.

The authorization would then become a carte blanche to the garagemen to charge whatever he wished.If the authorization was an acknowledgment of the indebtedness the owner would be liable to pay the charges even though the workdone might be covered totally by warranty.

Such would be the results of considering the authorization to do the work as anacknowledgment of the indebtedness. [Emphasis added.] [41] Master Funduk took this position again in Union Tractor Ltd v Horseshoe Contracting Ltd, 1999 ABQB 1015 at para 33(Master), rev’d on other grounds (2000), 22 CLR (3d) 269 (Alta QB), rev’d 2002 ABCA 259 [Horseshoe Contracting].

On appeal to theCourt of Queen’s Bench, Clarke J held (at para 18) that he did not need to deal with the difference of opinion of the Masters, as theauthorized signature in the case before him “was put on the work orders after the work was completed and after an approximate dollarvalue of the work was inserted on the document.” The real issue was the location of the signature and the intention behind it.

Clarke Jdetermined that there had been compliance with the Act. [42] On further appeal, the Court of Appeal in Horseshoe Contracting held that the Owner must give the garage keeper theacknowledgement of indebtedness after the garage keeper has determined the amount of obligation. Signatures that authorize work orthat the Owner provides before the garage keeper has determined the amount of the obligation are not compliant with the Act.

The courtstated at para 3: It is settled law in Alberta that to maintain a valid lien in the absence of continued possession, the garageman must first obtain "anacknowledgment of indebtedness by requiring [an authorized person] to sign an invoice or other statement of account." Theacknowledgment must be given after the amount of the obligation has been determined and entered onto the document. Signaturesauthorizing work or otherwise given before the amount of the obligation has been determined do not comply with the Act. [Emphasisadded.] [43] It went on to say at para 6:

... compliance with the Act is achieved where it is determinable on accepted evidence that the signature provided relates to and was furnished for the purpose of acknowledging indebtedness in the specified amount . Failure to affix one's signature on the specified line does not result in automatic invalidation of the lien. The relevant inquiry will always be whether the signature represents an acknowledgment of indebtedness within the meaning of the Act. There are cases where substance must override form.

This is one of them. [Emphasis added.] (See also Octane Energy Services Ltd ( Companies ’ Creditors Arrangement Act) , 2006 ABQB 65 [ Octane Energy ], in which Romaine J noted (at para 14) that the signatures in issue before her had been endorsed after the amount of indebtedness had been determined). [ 44 ] GE, in the present case, submits that the Court of Appeal’s comment in Horseshoe Contracting at para 3 as to what was “settled law” was the ratio decidendi of that decision.

This Court is of the view that the ratio decidendi is contained in Horseshoe Contracting at para 6 , quoted above, and that the Court of Appeal’s comments in para 3 are obiter dictum . [ 45 ] The duty of this Court, then, is to determine whether signatures authorizing work or otherwise given before the amount of the obligation has been determined comply with the Act . The issue is critical in this case because Cow Harbour signed the OTR Work Orders, but did not sign the pre-invoices which Fountain Tire issued after it completed the work and which set out the amount Cow Harbour owed.

Fountain Tire registered financing statements indicating a claim of lien at the Alberta PPR before Cow Harbour signed the final invoices (emphasis added). [ 46 ] Fountain Tire points out that Romaine J in Octane Energy at para 15 suggested that in the event of ambiguity, a court may consider the surrounding circumstances to determine whether an Owner has acknowledged the indebtedness. Romaine J was dealing with a situation where the garage keeper’s invoice contained two boxes; one that authorized the work, and the other that acknowledged the indebtedness.

The Owner signed the wrong box, viz. , the “authorization to do the work” box. Romaine J found at para 14 that: “the signatures were endorsed after the amount of indebtedness had been determined” (emphasis added). In her view, given the timing of the signatures and the circumstances that led to them being endorsed on the invoices, it was reasonable to infer that the signatures were in substance acknowledgements of indebtedness.

While it is not clear from her decision precisely when the owner signed the invoice, it appears to have been “shortly after the equipment was released” (at para 3), but “within 21 days of releasing possession of the [equipment]” (at para 5). [ 47 ] In the present case, the parties conceded that Cow Harbour signed the invoices not only after Fountain Tire did the work and released the vehicles to Cow Harbour, but also after Fountain Tire registered the garage keeper’s liens at the Alberta PPR. [ 48 ] Fountain Tire submits that the Act contains no prohibition against an Owner giving an acknowledgement of indebtedness before the garage keeper performs the work.

That is not what the Act says. Section 2(3) specifies that the garage keeper will retain its lien only if it obtains from the person who “authorized” the work an acknowledgement of indebtedness by requiring that person to sign an invoice or other statement of account. In other words, the Owner must first authorize the work, the work must then be done and the Owner must then acknowledge the indebtedness.

The Owner cannot acknowledge the indebtedness before the work is done as there is not yet any indebtedness. [ 49 ] Fountain Tire maintains that Cow Harbour acknowledged its indebtedness when it issued the purchase orders to Fountain Tire. A purchase order is not an invoice or a statement of account. Even if it is, Cow Harbour’s representative did not sign the purchase orders. 4. Conclusions [ 50 ] In

summary, this Court finds that: (

a) a garage keeper is entitled to claim a lien through continuous possession of the Vehicle over which it completed repairs ( Act s 2(1));

(

b) a garage keeper will maintain its lien on releasing possession of the Vehicle to the Owner, provided the garage keeper obtains an acknowledgement of indebtedness from the Owner by having the Owner sign an invoice or other statement of account ( Act s 2(3)); (

c) a garage keeper need not obtain the acknowledgement of indebtedness immediately on surrendering the Vehicle to the Owner ( FMX at para 46 ; Craddock Trucking at para 22 ); (

d) a garage keeper must obtain the acknowledgement of indebtedness after the amount of the indebtedness is determined and entered onto the invoice or statement of account ( Horseshoe Contracting , citing to the CA decision at para 3; Octane Energy at para 14 ); (

e) a garage keeper cannot obtain the acknowledgement of indebtedness before it completes the work, or in anticipation of the work being done, by having the Owner sign an authorization to do the work, as there is not yet any indebtedness ( Horseshoe Contracting , citing to the CA decision at para 3; Leduc Farm & Truck Supply ; Landlink Freight at para 20 ). The garage keeper must obtain the acknowledgement of indebtedness after it completes the work; (

f) a garage keeper must register notice of its lien at the Alberta PPR after it obtains the acknowledgement of indebtedness from the Owner, but before the 21 st day after the day on which it surrenders possession of the Vehicle to the Owner ( Act s 3(1); FMX ar para 46 ; Craddock Trucking at para 22 ). [ 51 ] This Court concludes that any of Fountain Tire’s liens that do not fall within those parameters are invalid, as a result of its failure to comply with the requirements of the Act . [ 52 ] In view of this conclusion, it is not necessary for this Court in this case to rule on whether electronic signatures would be sufficient to comply with the signature requirement contained in the Act s 2(3).

Nor is it necessary to determine who signed the final invoices and when that person signed them, as the parties agree that Fountain Tire registered notice of its lien at the Alberta PPR before the final invoices were signed. IV. The Kramer Liens A. Background and Facts [ 53 ] Kramer is a Caterpillar distributor and service provider with facilities in Regina and Saskatoon, Saskatchewan. From time to time, Kramer leased Vehicles to Cow Harbour. As well, Kramer provided mechanical services to Cow Harbour in respect of certain Vehicles.

If a Vehicle required service, Cow Harbour would transport the Vehicle to Kramer at its Saskatoon location. After Kramer completed the work, it would transport the Vehicle back to Fort McMurray and deliver the Vehicle to Cow Harbour. Kramer’s practice was to have Cow Harbour sign an acknowledgment of its obligations, generally by signing a copy of the invoice for the work done.

On occasion, Cow Harbour would sign the invoice before the Vehicle actually arrived in Fort McMurray, depending on when Kramer's sales representative met with a Cow Harbour representative. [ 54 ] Kramer would register a financing statement at the Alberta PPR, pursuant to the requirements of the Act s 3(2). It did so before the expiry of 21 days from the date it released the Vehicle to Cow Harbour at Fort McMurray. [ 55 ] As part of the CCAA proceedings, the Receiver sold ten Vehicles over which Kramer asserts a lien claim.

All of the creditors which had competing interests in those Vehicles consented to and approved of Kramer's lien claims, except for GE. GE takes the position that Kramer was required to register notice of its garage keepers' liens at the Saskatchewan Personal Property Registry pursuant to the Saskatchewan Commercial Liens Act , SS 2001, c C-15.1 [ SK Act ], rather than at the Alberta PPR. This Court attaches the relevant portions of the SK Act to these Reasons as Appendix A. GE argues that the Act does not apply, since Kramer performed the work on the Vehicles in Saskatchewan.

GE maintains that Kramer's lien claims were not properly preserved when it released possession of the Vehicles to Cow Harbour at Fort McMurray.

B. Issue [56] Neither Kramer nor GE disputes that Kramer’s liens arose when it began to perform the work on Cow Harbour’s Vehicles.Both the Act s 2(1) and the SK Act s 5 connect the creation of a lien with the performance of a service. [57] Kramer performed the services in Saskatchewan. Therefore, Kramer’s liens arose in Saskatchewan. Kramer could havemaintained its liens by maintaining possession of the Vehicles.

Instead, it returned the Vehicles to Cow Harbour and registered financingstatements in the Alberta PPR claiming liens on the Vehicles. [58] The parties do not dispute that Cow Harbour authorized the work that Kramer performed and acknowledged its indebtednessbefore Kramer registered the financing statements in the Alberta PPR. [59] The only issue which this Court must address is whether the liens were valid, given their registration at the Alberta PPR. Todetermine that issue, this Court must consider which jurisdiction's law governs the validity of Kramer's liens? C. Analysis 1.

Which jurisdiction’s law governs the validity of Kramer’s liens? [60] Several courts have held that liens generally create interests in property. In Suss Woodcraft Ltd v Abbey Glen Property Corp, (AB KB), [1975] 5 WWR 57 at 69 (Alta QB), McDonald J held that a person who has a builders’ lien acquires aninterest in the land on which that lien is registered.

Similarly, in Superior Modular Homes Inc v Canada, [1997] TCJ No 1336 (TCC)(QL), Bowman J determined at para 6 that: ... a mechanics' lien, which under the provincial legislation arises when the work is begun or the material furnished, is an interest in land.It permits the lienholder to enforce his claim out of the land. I have no difficulty in concluding that a lienholder has an interest in the landto which the lien attaches until the claim is satisfied.

As well, in R v 1431633, 2010 ONSC 266, 250 CCC (3d) 354, Molloy J acknowledged that a construction lien is an interest in property(at paras 31-34). [61] These cases refer to liens creating an interest in land because the liens arose in relation to work on land. A garage keeper’slien arises in relation to a Vehicle. When the law operates to grant the garage keeper a lien, the Owner’s bundle of rights in relation to theVehicle is reduced by the lien holder’s rights.

This Court finds, therefore, that a garage keeper’s lien creates an interest in the Vehicle. [62] The Vehicles over which Kramer claims an interest by virtue of its liens are moveables. The location of a moveable isdetermined by the lex fori, which is the domestic law of the forum: Lawrence Collins, ed., Dicey, Morris and Collins the Conflict ofLaws (London: Sweet & Maxwell, 2006) at p 33. See also Macmillan Inc v Bishopsgate Investment Trust Plc (No. 3), [1995] 3 All ER747 at p 760, [1995] 1 WLR 978 (Ch D).

The lex fori includes the law which furnishes the conflict of laws rules that the court will apply (Janet Walker and Jean-Gabriel Castel in Castel & Walker Canadian Conflict of Laws, 6th ed. looseleaf (Markham: LexisNexis Canada,2005) at p 1-11). [63] The validity of a transfer of an interest in moveable property, or the creation of a valid right in a moveable, is governed by thelex situs, the law of the place where the property is located at the time of the transfer.

In Canadian Deposit Insurance Corp v Canadian Commercial Bank (1994), (AB KB), 121 DLR (4th) 360 at para 13, 161 AR 121 (QB) (cited to DLR)) [CDIC],

Wachowich ACJ, as he then was, stated: In general, the validity of a transfer of an interest in moveable property, and the effect of that transfer on the proprietary rights of theparties, are governed by the law of the place where the moveable is at the time of the transfer — the lex situs. ...

If, under the lex situs, avalid right in the collateral has been created, then the general principle is that such a proprietary right will be recognized, and may beenforced, unless it is opposed to some rule of domestic policy or procedure which prevents recognition of the right. [Citations excluded.] [64] International Harvester Company of Canada Ltd v Canadian Kenworth Ltd (1962), (BC SC), 40 WWR126 (BCSC) [International Harvester] involved a situation similar to the one before this Court. A garage in Lethbridge, Alberta maderepairs to a Vehicle that was licensed and registered in British Columbia.

After the garage keeper completed the repairs, the Vehicle wasreturned to British Columbia. The garage keeper sought to enforce its lien under the British Columbia Mechanics’ Lien Act, RSBC 1960,c 238, not The Garagemen’s Lien Act RSA 1955, ch 128, which was in force in Alberta at the time. The court decided that the lien arosein Alberta and that the lex situs, the law of Alberta, applied.

It refused to apply the provisions of the British Columbia statute, stating atpara 4: ... [t]he province of Alberta has seen fit to provide by statute under what conditions a person may be entitled to a lien for repair workdone on a motor vehicle, and also to provide for the remedies available to realize on that lien. I cannot see how this entitles thegarageman to invoke the provisions of a Mechanics' Lien Act in another province simply because the vehicle is registered or licensed inthat other province.

In my opinion the operation of the Mechanics' Lien Act of this province must be regarded as being confined to theterritorial limits of the province. It is enacted to provide for the procedure to be followed respecting liens which have arisen within thisprovince. There is nothing in the Act to show an intent that it should apply to liens arising elsewhere.

It should be noted that International Harvester was decided before the Alberta legislature enacted the AB PPSA. [65] The lex situs in the present case is Saskatchewan, as Saskatchewan was where the Vehicles were located when Kramerperformed the mechanical services on them. According to the choice of laws rule, Saskatchewan law applies to determine the validity ofthe liens. [66] Pursuant to the SK Act s 5, the liens were created on Kramer’s performance of the services on the Vehicles.

They wereenforceable since Cow Harbour acknowledged an obligation to pay for the services giving rise to the lien in a signed writing thatincluded a description of the goods that were subject to the lien (SK Act s 6(1)). [67]

Section 24 of the SK Act provides that: 24. Except as otherwise provided in this Act, subsection 2(2), sections 5 to 8, 17 and 18, Parts IV and V and sections 65, 67 and 68 ofThe Personal Property Security Act, 1993 apply, with any necessary modification, to a lien created by this Act as though the lien were asecurity interest. [68]

Section 6 of the Saskatchewan Personal Property Security Act, 1993, SS 1993, c P-6.2 [SK PPSA] states: 6. Subject to

section 7, where: (

a) the parties to a security agreement that creates a security interest in goods in one jurisdiction understand at the time when thesecurity interest attaches that the goods will be kept in another jurisdiction; and (

b) the goods are removed to the other jurisdiction, for purposes other than transportation through the other jurisdiction, not laterthan 30 days after the security interest attaches;

the validity, the perfection and the effect of perfection or non-perfection and priority of the security interest are determined by the law of the other jurisdiction . [Emphasis added.] [ 69 ] The effect of this provision is that the continuing validity, perfection and the effect of perfection or non-perfection and priority of the Kramer liens are to be determined by the law of the jurisdiction where the parties understood that the Vehicles would be kept. In this case, that jurisdiction is Alberta. Therefore, according to Saskatchewan law, Alberta law governs those issues. 2.

Are the liens valid? [ 70 ] The liens were validly created in Saskatchewan. However, according to SK PPSA s 6, the validity of the liens is to be determined by the law of Alberta. The liens comply with the Act s 2(3) as Kramer obtained an acknowledgment of indebtedness from Cow Harbour before giving up possession of the Vehicles. Section 3(1) of the Act provides that a lien terminates on the 21 st day after possession of a Vehicle is surrendered to the Owner unless on or before the 21 st day, the garage keeper registers a financing statement in the Alberta PPR claiming a lien on the Vehicle.

In this case, Kramer registered financing statements within the time limit prescribed by the Act s 3(1). [ 71 ] Furthermore, the legislation in Alberta that deals with the concept of “perfection” and its effect is the AB PPSA .

Section 5 of the AB PPSA states, in part: 5(2) A security interest in goods perfected under the law of the jurisdiction in which the goods are situated at the time the security interest attaches but before the goods are brought into the Province continues perfected in the Province if it is perfected in the Province (

a) not later than 60 days after the goods are brought into the Province, (

b) not later than 15 days after the day the secured party has knowledge that the goods have been brought into the Province, or (

c) prior to the date that perfection ceases under the law of the jurisdiction in which the goods were situated when the security interest attached , whichever is the earliest , but the security interest is subordinate to the interest of a buyer or lessee of the goods who acquires the buyer's or lessee's interest without knowledge of the security interest and before it is perfected in the Province under

section 24 or 25.

(3) A security interest that is not perfected as provided in subsection (2) may be otherwise perfected in the Province under this Act .

(4) If a security interest referred to in subsection (1) is not perfected under the law of the jurisdiction in which the collateral was situated at the time the security interest attached and before the collateral was brought into the Province, it may be perfected under this Act . [Emphasis added.] [ 72 ] Were the liens perfected under the laws of Saskatchewan when the equipment came into Alberta?

Section 9(2) of the SK Act states that “[p]ossession of goods by a lien claimant or by a person acting on behalf of a lien claimant perfects a lien on the goods.” Kramer had possession of the Vehicles when it brought them back to Alberta. As a result, perfection of the liens continued if Kramer registered the liens in Alberta not later than 60 days after Kramer brought the Vehicles into Alberta, not later than 15 days after the day Kramer had knowledge that the goods had been brought into Alberta, or prior to the date that perfection ceased under the law of

Saskatchewan, whichever was the earliest.

In this case, the earliest of those dates likely was the date that perfection ceased under Saskatchewan law. [ 73 ] Section 10(1) of the SK Act states that: Where a lien is perfected by possession, returning the goods to the control of the person who requested the services does not affect the perfection of the lien if the lien claimant registers a financing statement pursuant to subsection 9(4) respecting the goods within the first 15 days after returning control of the goods to that person. [ 74 ] Since Kramer did not register financing statements in the Saskatchewan Personal Property Registry under SK Act s 9(4), perfection of the liens under Saskatchewan law ended when Kramer relinquished possession of the Vehicles to Cow Habour. [ 75 ] Perfection of the liens was maintained under Alberta law only to the extent that Kramer met the requirements of the AB PPSA s 5(2). [ 76 ] Ronald C.C.

Cuming and Roderick J. Wood, in 4 th ed. , Alberta Personal Property Security Act Handbook (4th ed) (Scarborough Ont.: Carswell, 1998) comment at 105: ... Failure to perfect under the PPSA within the periods specified in section 5(2) results in the foreign security interest being treated as unperfected from the moment the collateral comes into the province. [ 77 ] However, even though perfection of the liens may not have been maintained uninterrupted, Kramer could still perfect the liens under Alberta law ( AB PPSA s 5(3)).

Like the Saskatchewan legislation, the AB PPSA s 19 provides that a security interest is perfected when it has attached and all steps required for perfection under that statute have been completed, regardless of the order of occurrence. According to AB PPSA s 25, registration of a financing statement perfects a security interest in collateral. [ 78 ] As provided in the SK PPSA s 6, the priority of the liens is determined under Alberta law. 3.

Conclusions [ 79 ] As Kramer registered financing statements at the Alberta PPR within 21 days after surrendering possession of the Vehicles to Cow Harbour, its liens are valid pursuant to the Act and have been perfected pursuant to the AB PPSA . Their priority will depend on when Kramer registered the financing statements.

If it registered them before it surrendered possession of the equipment to Cow Harbour, the liens will be considered to have been continuously perfected for purposes of determining priority. [ 80 ] If Kramer registered the financing statements after giving up possession of the Vehicles, for purposes of determining priority perfection will be considered to have been interrupted between the date when Kramer surrendered possession of the Vehicles to Cow Harbour and the date Kramer registered the financing statements. [ 81 ] Priority is governed by the AB PPSA s 32, which states that a garage keeper’s lien has “priority over a perfected or unperfected security interest in the goods unless the lien is given by an Act that provides that the lien does not have the priority.” However, the Act s 4 also applies.

It provides that every lien on a Vehicle under the statute is postponed to an interest in or charge, lien or encumbrance on the Vehicle that is created or arises in good faith and without express notice of the first mentioned lien, and that was created or arose before the registration of a financing statement. The garage keeper's lien is postponed to a security interest taken bona fide and without notice in the interim between the garage keeper's lien arising and notice of it being registered (emphasis added). As stated in Craddock Trucking at para 11 :

... the priority given to a lien that meets all the requirement of [ AB PPSA ] s. 32 can be lost if “the lien is given by an Act that provides that the lien does not have the priority." This exception would apply, i.e. s. 5 of the Garagemen's Lien Act [the predecessor of the Act s 4] would be triggered, if Paccar's [security] interest arose after the lien claimant surrendered possession of the vehicle and before the lien claimant had registered its interest at the Personal Property Registry. [ 82 ] The rationale for this was set forth in Craddock Trucking at para 8 , where the court said: ... [T]he lien claimant favoured by [ AB PPSA ] s. 32 is someone who has supplied materials or services that have increased or preserved the value of the collateral, over and above the value that might otherwise have been expected, and it would be giving the owner of the security interest an unjustifiable windfall to allow him to claim the improved property, unencumbered by the lien, while the lien claimant remains unpaid. [ 83 ] In the case before this Court, there are no charges, liens or encumbrances that have arisen after Kramer surrendered possession of the Vehicles and before it had registered its lien interest at the Alberta PPSA.

Thus, Kramer would retain it priority over the Vehicles in question. Heard on the 2 nd day of November, 2011 to the 4 th day of November, 2011. Dated at the City of Edmonton, Alberta this 21 st day of February, 2012 . K.D. Yamauchi J.C.Q.B.A. Appearances: Robert Millar (Fasken Martineau DuMouline) for Applicant Fountain Tire Mine Services Ltd. Terrence Warner (Millar Thomson) for the Applicant Kramer Ltd. Walker W. MacLeod (McCarthy Tétrault) for the Respondent GE Capital Equipment Financing G.P.

Appendix A Saskatchewan Commercial Liens Act , SS 2001, c C-15.1 The relevant provisions of the Sk Act include the following: 3(2) A person who, pursuant to the legislation of another jurisdiction in Canada, has a lien on goods for services that he or she has provided in relation to those goods is deemed to have a lien on goods within the meaning of this Act if: (

a) the services were requested by a person: (

i) with an interest in the goods; (ii) in possession of the goods; or (iii) legally entitled to possession of the goods; and (

b) the lien is registered in a public registry for liens in that other jurisdiction. 5. A lien attaches to goods on the commencement of the services giving rise to the lien but, until completion of the services, secures only the fair value of the services provided. 6(1) Subject to subsection (4), a lien is enforceable only where: (

a) the goods are in the possession of the lien claimant; or (

b) the person requesting the services has, at any time: (

i) authorized the services giving rise to the lien in a signed writing that includes a description of the goods that are subject to the lien; or (ii) acknowledged an obligation to pay for the services giving rise to the lien in a signed writing that includes a description of the goods that are subject to the lien.

(2) For the purposes of clause (1)(a), a lien claimant is deemed not to have possession of goods that are in the apparent possession or control of the person requesting the services or that person's agent.

(3) An acknowledgment of an obligation to pay pursuant to subclause (1)(b)(ii) is without prejudice to the right of the person requesting

the services or any other person to dispute the amount the lien claimant is owed.

(4) If the conditions mentioned in subsection (1) have not been met when a third party acquires an interest in the goods, a subsequent acquisition of possession or of a signed acknowledgment of indebtedness by the lien claimant does not render the lien enforceable against the third party . . . . 9(1) In this section: "owner" includes a buyer, a lessee or a consignee under a transaction to which The Personal Property Security Act, 1993 applies; (" propriétaire ") "serial numbered goods" means serial numbered goods as defined in The Personal Property Security Regulations . (" biens numérotés en série ")

(2) Possession of goods by a lien claimant or by a person acting on behalf of a lien claimant perfects a lien on the goods.

(3) For the purposes of subsection (2), a lien claimant or a person acting on behalf of a lien claimant does not have possession of goods if: (

a) the goods are in the actual or apparent possession or control of the person requesting the services or that person's agent; or (

b) the goods are being held as a result of a seizure or repossession.

(4) Registration of a financing statement in the Personal Property Registry perfects a lien if: (

a) either: (

i) in the case of serial numbered goods, the goods are described in the financing statement by serial number; or (ii) in the case of goods that are not serial numbered goods, both the owner of the goods and the person requesting the services, if that person is not the owner, are identified as debtors in the financing statement; and (

b) all other requirements of The Personal Property Security Regulations have been met.

(5) Part IV of The Personal Property Security Act, 1993 applies, with any necessary modification, to a financing statement registered pursuant to subsection (4).

(6) A lien claimant may register a financing statement pursuant to subsection (4) for a lien that is enforceable pursuant to clause 6(1)(

b) at any time after receiving the written authorization or written acknowledgment.

(7) Where the perfection of a lien is not continuous, the date of perfection to be considered in determining the priority of the lien is the lien's most recent date of perfection.

(8) With respect to a lien mentioned in subsection 3(2), registration of the lien in a public registry for liens in another jurisdiction does not constitute perfection of the lien for the purposes of this Act , but the lien may be perfected by any of the methods set out in this section. 10(1) Where a lien is perfected by possession, returning the goods to the control of the person who requested the services does not affect the perfection of the lien if the lien claimant registers a financing statement pursuant to subsection 9(4) respecting the goods within the first 15 days after returning control of the goods to that person .

(2) Where a lien claimant does not have possession of goods when a lien attaches to the goods and the lien claimant registers a financing statement pursuant to subsection 9(4) respecting the goods within the first 15 days after completion of the services, the lien is deemed to be perfected during that 15-day period. 11(1) Except as provided in this Act or any other Act, a perfected lien has priority over an interest that was created after the lien attached.

(2) Notwithstanding subsections 35(2) and (5) of The Personal Property Security Act, 1993 , a lien, whether perfected or unperfected, has priority over: (

a) a security interest that attached before the lien attached; and (

b) a writ of execution issued or a charging order granted before the lien attached. 24. Except as otherwise provided in this Act, subsection 2(2) , sections 5 to 8 , 17 and 18, Parts IV and V and sections 65, 67 and 68 of The Personal Property Security Act, 1993 apply, with any necessary modification, to a lien created by this Act as though the lien were a security interest.