Hillier's Trades Limited Applicant And: Tim-Br Marts Ltd. Respondent And: Royal Bank of Canada Intervenor, 2019 NLSC 67
Opinion
court crest IN THE SUPREME COURT OF NEWFOUNDLAND AND LABRADOR GENERAL DIVISION Citation : Hillier's Trades Limited v. Tim-Br Marts Ltd. , 2019 NLSC 67 Date : March 21, 2019 Docket : 201801G1842 Between: Hillier's Trades Limited Applicant And: Tim-Br Marts Ltd. Respondent And: Royal Bank of Canada Intervenor Before: Justice Valerie L. Marshall Place of Hearing: St. John’s, Newfoundland and Labrador Date of Hearing: March 13, 2019 Appearances: Geoffrey Spencer Appearing on behalf of the Respondent Neil L. Jacobs, Q.C. Appearing on behalf of the Intervenor
Authorities Cited: CASES CONSIDERED: Pacific Mobile Corp (Trustee of) v. American Biltrite (Canada) Ltd., (SCC), [1985] 1 S.C.R.290; Canadian Commercial Bank v. Prudential Steel Ltd. (1986), (AB KB), 49 Alta. L.R. (2d) 58 (Alta. Q.B.);369413 Alberta Ltd. v. Pocklington, 2000 ABCA 307. STATUTES CONSIDERED: Personal Property Security Act, S.N.L. 1998, c. P-7.1, as amended. RULES CONSIDERED: Rules of the Supreme Court, 1986, S.N.L. 1986, c. 42,
Schedule D. REASONS FOR JUDGMENT Marshall, J.: INTRODUCTION [1] On April 12, 2018, Hillier’s Trades Limited (“Hillier’s”), filed an application seeking relief against the Respondent, Tim-BrMarts Ltd. (“Tim-Br”), pursuant to
section 68(
a) of the Personal Property Security Act, S.N.L. 1998, c. P-7.1, as amended, (the“PPSA”).
Section 68(
a) of the PPSA states, as follows: 68. On application by an interested person, the court may make one or all of the following orders: (
a) an order determining questions of priority or entitlement to collateral; … [2] The relief sought by Hillier’s included an order declaring the ranking of priority of its security interest in inventory ofHillCorp Investments Inc. (“HillCorp”); as well as an order indicating that Hillier’s was entitled, in priority to Tim-Br, to the proceedsderived from a purported transfer of inventory by HillCorp to Tim-Br. [3] More specifically, the application required a determination by the Court as to whether a transfer of inventory by HillCorp toTim-Br was conducted in the ordinary course of business.
That transfer occurred subsequent to, and as a result of, a fire at one ofHillCorp’s premises. [4] On June 6, 2018, pursuant to Rule 7.05 of the Rules of the Supreme Court, 1986, S.N.L. 1986, c. 42,
Schedule D, the RoyalBank of Canada (“RBC”) filed an application seeking to intervene in Hillier’s application. RBC also holds a security interest withHillCorp. Hillier’s and Tim-Br consented to RBC’s application. By order dated June 19, 2018, RBC was granted leave to intervene inHillier’s application. [5] On February 4, 2019 Hillier’s application was scheduled to be heard. The hearing did not proceed on that date as there wassome uncertainty as to who would represent Hillier’s at the hearing. At a subsequent court appearance on February 13, 2019, Hillier’swas represented in Court by new legal counsel.
Hillier’s new counsel advised the Court that Hillier’s no longer wished to participate inthe application. RBC and Tim-Br agreed not to seek costs to date against Hillier’s; however, RBC and Tim-Br wanted Hilliers’application to proceed to allow a determination of the dispute between RBC and Tim-Br. RBC was permitted to assume the role of theapplicant in the proceeding; and Hillier’s was excused from participating in the application. [6] The hearing proceeded on March 13, 2019.
BACKGROUND FACTS [7] HillCorp had operated a building supplies business in two locations; one at Happy Valley-Goose Bay, and the other atCartwright, in the province of Newfoundland and Labrador. [8] HillCorp had provided security interests to RBC, Hillier’s and Tim-Br in HillCorp’s present and after acquired personalproperty.
It is not disputed that the security interests were perfected, and that RBC’s security interest was registered first, then Hillier’ssecurity, and then Tim-Br’s security. [9] More specifically, a general security agreement dated November 3, 2014 granted RBC a security interest in all of HillCorp’spresent and after acquired property (“RBC’s GSA”). As detailed in the affidavit of Dave Northrup filed on behalf of RBC in this matter,RBC registered notice of RBC’s GSA on October 30, 2014 at Newfoundland and Labrador’s Personal Property Security Registry.
[ 10 ] Hillier’s then registered a general security agreement dated January 12, 2015 given by by HillCorp in favour of Hillier’s (“Hillier’s GSA”), which also created a security interest in HillCorp’s present and after acquired property. Notice of Hillier’s GSA was registered on January 13, 2015. [ 11 ] Tim-Br similarly next registered its security interest in all of HillCorp’s present and after acquired personal property on January 28, 2015 (“Tim-Br’s GSA”). [ 12 ] On or about April 19, 2017, HillCorp’s premises at Happy Valley-Goose Bay was destroyed by fire.
According to the affidavit of Robert Scalesse, Vice President of Tim-Br, HillCorp subsequently requested Tim-Br to accept return of lumber inventory, which HillCorp no longer required due to the fire. HillCorp had not yet paid Tim-Br for that lumber. HillCorp chose the inventory to be returned, and those items of inventory were returned to Tim-Br in exchange for a full credit on HillCorp’s account with Tim-Br. At the time that HillCorp’s inventory was returned to Tim-Br, Tim-Br had not received any notice that HillCorp was in default of any of the security agreements. [ 13 ] As further background, in Mr.
Scalesse’s affidavit, he explained that Tim-Br provided a number of services to support members of its buying group (the “Tim-Br Buying Group”). His affidavit evidence (at paragraph 2) indicated that one of the services offered to members is “making and arranging volume purchases of building materials and related goods from suppliers and manufacturers at favourable rates”.
These discounts and other benefits from suppliers are then passed on to the members of the buying group “in the form of rebates, price reductions, allowances and other benefits established from time to time” (at paragraph 2 of his affidavit). [ 14 ] According to Mr. Scalesse’s affidavit, HillCorp became a member of the Tim-Br Buying Group around January 19, 2015. As part of the membership application, HillCorp granted to Tim-Br a security interest over HillCorp’s present and after acquired property, as evidenced by Tim-Br’s GSA. [ 15 ] In his affidavit, Mr.
Scalesse suggested (at paragraph 8) that goods were frequently returned to Tim-Br, by its members, for a variety of reasons, and that was part of the ordinary course of business between Tim-Br and its members. Tim-Br has a standard form called an “Invoice Adjustment Form” which is completed by members whenever they return goods. Mr. Scalesse further stated that since HillCorp joined the Tim-Br buying group, HillCorp had returned goods to Tim-Br from time to time. Mr.
Scalesse attached to his affidavit copies of Invoice Adjustment Forms submitted to Tim-Br by HillCorp during the years 2015 to 2017. [ 16 ] Further, according to Mr. Scalesse’s affidavit (at paragraph 10), after the fire and during the month of May of 2017, HillCorp and Tim-Br were in contact on several occasions. During those discussions, HillCorp requested that Tim-Br “accept the return of lumber inventory that HillCorp had not paid for and did not require, given the recent fire at the Goose Bay location”. Mr. Scalesse stated that Tim-Br did not consider this request to be “unusual, given the circumstances”.
As a result, Tim-Br accepted the return of inventory which Mr. Scalesse described in his affidavit as being “part of its normal course dealings with its member”. He further stated at paragraph 9 in his affidavit that Tim-Br “did not view the return of the inventory from the Goose Bay location as anything other than an ordinary course of business transaction with its member”. He attached to the affidavit copies of bills of lading, receipts and invoices for these returned goods. [ 17 ] In his affidavit, Mr.
Scalesse further expressed the view that there was no seizure of inventory or enforcement of security by Tim-Br (paragraph 12 of his affidavit). To the contrary, in his view Tim-Br was simply responding to the request by HillCorp to return the inventory “because HillCorp did not need the inventory at the Goose Bay location due to the fire at its premises and HillCorp wished to receive a credit on its account in order to assist it in carrying on business at the Cartwright location”. Mr. Scalesse stated that Tim-Br agreed to this request in order to “help its member through a difficult situation”.
The total credit to HillCorp from Tim-Br was $155,437.30. [ 18 ] Mr. Scalesse further stated (at paragraph 13 of his affidavit) that following the return of the inventory, HillCorp continued to carry on business at the Cartwright location. In addition, HillCorp continues to be indebted to Tim-Br for a significant amount; being $629,330.70 as of April 30, 2018 (paragraph 14 of his affidavit). [ 19 ] A further affidavit was filed by John Morrissey, who is also a Vice President of Tim-Br. Mr.
Morrissey’s affidavit supported the affidavit of Robert Scalesse, and elaborated on the discussions with HillCorp leading to the transfer of the inventory. Mr. Morrissey indicated (at paragraph 3 of his affidavit) that he was told by Morris Hill of HillCorp that there were concerns regarding the security of the lumber inventory, as well as concerns that the lumber inventory would deteriorate if exposed to the elements for a period of time.
He confirmed that there was no demand or request for the return of the lumber; but that he “advised Morris that if he wanted to return some of the inventory to TBM that HillCorp had not yet paid for and did not require, that we would give him full credit for it” (paragraph 4 of Mr. Morrissey’s affidavit). Mr. Morrissey also suggested that the return of the inventory was part of the normal course dealings with HillCorp. THE PARTIES’ POSITIONS [ 20 ] It is not disputed that RBC’s GSA ranks in priority to Hillier’s GSA and Tim-Br’s GSA; and that Hillier’s GSA then ranks in priority to Tim-Br’s GSA.
The dispute arises from the post-fire inventory transfer to Tim-Br by HillCorp. [ 21 ] Tim-Br asserted that the return of inventory by HillCorp to Tim-Br was a transaction conducted in the ordinary course of business, and is therefore not subject to a security interest. This “ordinary course of business” exception is set forth in section 31(2) of the PPSA which states, as follows: 31(2) A buyer or lessee of goods sold or leased in the ordinary course of business of the seller or lessor takes free of any perfected or unperfected security interest given by the seller or lessor or arising under
section 29 or 30, whether or not the buyer or lessee knows of it, unless the buyer or lessee also knows that the sale or lease constitutes a breach of the security agreement under which the security interest was created.
[22] RBC disputed the assertion that the transfer of inventory by HillCorp to Tim-Br was conducted in the ordinary course ofbusiness. As a result, RBC’s position was that the inventory transferred was subject to security interests which have priority over Tim-Br’s security interest. RBC therefore sought an order declaring the ranking in priority of the securities, and an order pertaining to RBC’sentitlement to the proceeds derived from the return of the inventory. ISSUE [23] The issue to be first determined is whether the transfer of inventory by HillCorp to Tim-Br was conducted in the ordinarycourse of business.
If not, then the next issue is whether RBC is entitled to any proceeds derived from the return of the inventory. ANALYSIS [24] As stated, the ranking in priority of the security interests is not in dispute. Further, although Tim-Br’s security agreementprovided for a purchase money security interest, it is not disputed that the purchase money security interest super priority rules do notapply, due to Tim-Br’s non-compliance with
section 35 of the PPSA. Further, it is not disputed that Tim-Br did not seek a subordinationagreement from RBC, in accordance with
section 41 of the PPSA. [25] Rather, the dispute requires consideration of the meaning of “ordinary course of business” in accordance with section 31(2) ofthe PPSA; and a determination of whether the inventory transferred by HillCorp to Tim-Br, subsequent to the fire, was a sale of goods inthe ordinary course of business. If so, then Tim-Br would take the inventory free of any security interest. [26] To support its position, Tim-Br referred the Court to Pacific Mobile Corp (Trustee of) v.
American Biltrite (Canada) Ltd., (SCC), [1985] 1 S.C.R. 290, where the Supreme Court of Canada discussed the meaning of “ordinary course of business”, andstated at paragraphs 3 and 4 as follows: 3 It is not wise to attempt to give a comprehensive definition of the term "ordinary course of business" for all transactions.
Rather, itis best to consider the circumstances of each case and to take into account the type of business carried on between the debtor andcreditor. 4 We approve of the following passage from Monet J.A.'s reasons discussing the phrase "ordinary course of business" at p. 205: It is apparent from these authorities, it seems to me, that the concept we are concerned with is an abstract one and that it is the functionof the courts to consider the circumstances of each case in order to determine how to characterize a given transaction. This in effectreflects the constant interplay between law and fact.
With all due respect, however, I do not think that it can be said that a payment that isnot made when due cannot be regarded as having been made in the ordinary course of business. [27] Based on the foregoing excerpt from Pacific Mobile Corp, the Supreme Court of Canada instructs that the type of businesscarried on, and the specific circumstances of each case, must be considered in order to make a determination as to whether a transactionwas within the ordinary course of business.
In Pacific Mobile Corp., a late payment made to a creditor was considered “normal in thecontext of their business relationship” as well as “standard for their particular industry” (paragraph 5 of Pacific Mobile Corp.). [28] Tim-Br submitted that in accordance with the Supreme Court of Canada’s instruction, it is necessary to consider all the factsand circumstances pertaining to HillCorp’s inventory transfer to Tim-Br. [29] Tim-Br also referred the Court to the case of Canadian Commercial Bank v. Prudential Steel Ltd. (1986), (AB KB), 49 Alta. L.R. (2d) 58 (Alta. Q.B.).
In Prudential Steel Ltd., the defendant company accepted the return of $500,000 worth ofinventory as a credit on the account of Bird Oil Equipment Ltd. (“Bird”) with the defendant company. This was at a time when Bird wasin serious financial difficulty, due to the collapse of the oil industry in Western Canada. The bank sought declarations, including that theinventory return by Bird was not done in the ordinary course of business, and that it was therefore subject to the bank’s security.
Thebank’s action was dismissed. [30] In conducting its analysis, the Alberta Court of Queen’s Bench suggested that a difficult financial condition may be consideredwhen determining what is an “ordinary” transaction.
They stated this at paragraph 19 as follows: 19 In determining what is "in the ordinary course of trade", I am of the view that one can consider what is ordinary in the light of allthe circumstances, including the difficult financial condition in which a business finds itself at the time of the transaction impugned. [31] The Alberta Court in Prudential Steel Ltd. further stated that the Court must consider what an “objective viewer wouldreasonably conclude” (at paragraph 20). [32] At paragraph 24 of Prudential Steel Ltd., the Alberta Court determined that “it is normal practice in the pipeline industry for asupplier of pipe to accept a return of inventory from a distributor”; that a distributor agreement made “specific provisions for ‘returns’ ofinventory”; and that the “practice of returning inventory for credit had been followed in the past”.
Further at paragraph 25, the Court inPrudential Steel Ltd. noted that the credit was at “the full original invoice price”.
Also at paragraph 26 of Prudential Steel Ltd., theAlberta Court determined that “the return of inventory was a bona fide transaction entered into by both Bird and the defendant primarilyfor the purpose of keeping Bird’s business going”. [33] At paragraph 37 of the Prudential decision, the Alberta Court concluded that the defendant “was an innocent party in the sensethat, viewed objectively, its intentions were to carry on a bona fide business transaction with a valued customer and not for the purposeof gaining a fraudulent preference over other creditors”.
[34] At paragraph 22 of Tim-Br’s memorandum, Tim-Br referred to the Prudential Steel Ltd. and Pacific Mobile Corp. decisions,and described facts of significance for the Court’s consideration when determining whether HillCorp’s transfer of inventory to Tim-Brwas in accordance with the ordinary course of business. Tim-Br stated, as follows: 22. As established by the Supreme Court of Canada, the determination of what constitutes “ordinary course of business” is to beconsidered on a case-by-case basis.
Applying the factors utilized in the Canadian Commercial Bank case, the return of inventory byHillcorp to TBM was normal in the context of the business relationship between the parties, particularly given the difficult circumstancesthat Hillcorp was in at the time of the transaction. TBM notes the following factors of significance: (
a) It is a normal practice for members in the TBM Buying Group to return goods to TBM for various reasons. TBM has a standardInvoice Adjustment Form that its members use for such a purpose. (
b) The practice of returning inventory for credit had been followed in the past on several occasions by Hillcorp. (
c) Hillcorp requested TBM to accept the return of inventory given the fire at the Goose Bay location. TBM agreed to the request inan effort to help its member through a difficult situation and to assist it in carrying on business at its Carwright location. (
d) Not all of Hillcorp’s inventory was returned to TBM. Hillcorp chose the items to be returned. (
e) Following the return of inventory to TBM, Hillcorp continued to carry on business in the normal course and subsequentlyrequested TBM to deliver orders to the Carwright location. [35] Tim-Br further submitted that there was no evidence of intent on HillCorp’s or Tim-Br’s part to return the inventory for thepurpose of prioritizing one creditor over another.
Rather, Tim-Br was simply acting to assist HillCorp in light of the difficultcircumstances HillCorp was facing, and to assist HillCorp in continuing to operate its business in Cartwright. [36] On the other hand, RBC disputed that the transfer of inventory was a sale within the ordinary course of business. RBC referredthe Court to the decision in 369413 Alberta Ltd. v. Pocklington, 2000 ABCA 307, in which the Alberta Court of Appeal cited a number offactors for a court to take into consideration when determining whether a transaction is in the ordinary course of business.
They stated atparagraph 22, as follows: 22 In order to determine whether a transaction was in the ordinary course of a company's business, a court must consider all thecircumstances which were known, or ought reasonably to have been known, by the parties at the time: Ford Motor Credit Co. of CanadaLtd. v. Centre Motors of Brampton Ltd. (1983), (ON SC), 38 O.R. (2d) 516 (H.C.J.). Courts have identified a numberof factors which may be taken into account: (
i) The nature and significance of the transaction: it ought to be one that a manager might reasonably be expected to carry out on themanager's own initiative without making prior reference back or subsequent report to superior authorities, such as the board of directorsor the shareholders: Roynat Inc. v. Ron Clark Motors Ltd. (1991), 1 P.P.S.A.C. (2d) 191 at 197 (Ont. Gen. Div.); and 85956 HoldingsLtd. v. Fayerman Brothers Limited, (SK CA), [1986] 2 W.W.R. 754 (Sask.
C.A.); (ii) The value of any asset sold: the disposition should have been made with proper regard to its value: Estevan Credit Union Ltd. v.Dyer, (SK KB), [1997] 8 W.W.R. 49 (Sask. Q.B.); and Ford, supra; (iii) The quantity of assets sold: the transaction ought not to resemble a liquidation of assets: Fayerman, supra; (iv) The reason for the transaction: it ought not to have occurred as a response to financial difficulties or in suspicious circumstances:Ford, supra, and Countrywide Banking Corpn. Ltd. v. Dean, [1998] A.C. 338 (P.C.); and (
v) The intent of the transaction: neither its intent nor its effect should have been to undermine bank security: Ford, supra.
To this list I would add: (vi) The frequency of the type of transaction: an unusual or isolated transaction might be viewed differently from a routine one; and (vii) The arm's length nature of the transaction: a transaction between a company and a party with whom it is related should receive careful scrutiny. [ 37 ] The Pocklington decision contrasts with the Prudential Steel Ltd. decision in that the Alberta Court of Appeal in Pocklington states above that the transaction “ought not to have occurred as a response to financial difficulties or in suspicious circumstances”.
By contrast, in Prudential Steel Ltd. the Alberta Queen’s Bench stated a difficult financial condition is a circumstance to take into account when determining what is ordinary. [ 38 ] RBC submitted that applying the factors from the Pocklington decision, the transfer of inventory was not done in the ordinary course of business. Rather, the transfer arose in response to an unusual situation, being the destruction of the Happy Valley location by fire.
Further, the transfer, in itself, of the HillCorp inventory to Tim-Br was not a usual transaction, as it was for an amount far in excess of past returns of inventory. [ 39 ] On this latter point, RBC referred to the affidavit of Robert Scalesse, and the attached Invoice Adjustment Forms which were for the period of 2015 to 2017. The forms show transactions with values in the range of $975.90 to $14,588.03. By contrast, the transaction which occurred after the fire resulted in a total credit of $155,437.30 to HillCorp’s account with Tim-Br.
There was no evidence that HillCorp had ever returned this volume of building supplies to Tim-Br. In any event, the end result of the transfer was to reduce HillCorp’s outstanding debt to Tim-Br. [ 40 ] After carefully considering the submissions and the case law, I agree with RBC’s submissions that this was not a transaction in the ordinary course of business. In reaching this determination, I have considered the case law, evidence and submissions.
As instructed by the Supreme Court of Canada in Pacific Mobile Corp. , I have considered the specific circumstances of this case, and the type of business carried on by HillCorp and Tim-Br. Based on the affidavit evidence, I conclude that the transfer of inventory was solely in response to, and as a result of, the fire. [ 41 ] To elaborate, there was no affidavit from HillCorp indicating what HillCorp’s reasons were for the return of the inventory. However, Tim-Br’s affidavit evidence suggests what Tim-Br understood to be the reasons for the inventory return.
Tim-Br’s understanding was that the return of inventory was due to the fire; and that HillCorp had indicated to Tim-Br there were concerns as to the security of the lumber, and the risk of deterioration. Further, the evidence is the return was done because “HillCorp wished to receive a credit on its account in order to assist it in carrying on business at the Cartwright location” (paragraph 12 of Mr. Scalesse’s affidavit). Returns had been done in the past, and HillCorp requested this return. Further, at the time of transfer, there was no indication to Tim-Br of any default on securities.
There was no evidence that Tim-Br intended to undermine RBC’s or Hillier’s securities (see Pocklington at paragraph 12 ). There was nothing to suggest Tim-Br’s intentions were not bona fide. [ 42 ] Nevertheless, considering what an “objective viewer would conclude” ( Prudential Steel Ltd. , at paragraph 20 ), in my view because the transaction occurred in response to a fire, it cannot reasonably be characterized as a transaction in the ordinary course of business. A fire is a unique and unusual circumstance.
HillCorp’s transfer of inventory to Tim-Br in exchange for credit was in response to the fire. [ 43 ] On this point, in my view, it is arguable that the Supreme Court of Canada’s instruction in Pacific Mobile Corp. to consider the specific circumstances of each case is indeed broad enough to allow consideration of any difficult financial circumstances a company may be in. Such were the circumstances in Prudential Steel . Practically speaking, HillCorp may indeed have found itself in a precarious financial position due to the fire.
However, this cannot be presumed in the absence of evidence from HillCorp to suggest that HillCorp was in serious financial difficulty, and that the return of inventory was necessary to keep the company going. There was no affidavit evidence from a representative of HillCorp explaining the rationale for the return, and whether there were other options.
I am not prepared to presume that financial hardship was HillCorp’s rationale for the transaction, in the absence of direct evidence from HillCorp, by affidavit or otherwise. [ 44 ] I add that I do not accept that the sheer magnitude of the transaction, in comparison to past transactions, clearly suggests that this transaction was not in the ordinary course of business.
In my view, it is a factor to be considered in light of all the circumstances, but it is not determinative. [ 45 ] On this point, as submitted by Tim-Br, in the Prudential Steel case, the inventory returned was also of significant value, being $500,000. However, as submitted by RBC, Prudential Steel is distinguishable because in Prudential the bank had given verbal approval of the inventory return.
In any event, as stated, I consider the magnitude of the value of HillCorp’s inventory transfer to be a red flag, but not determinative of the issue of whether the transaction was in the ordinary course of business. [ 46 ] To conclude on this issue, I accept that a transfer of inventory may be appropriate in some cases where the circumstances are of economic downturn, resulting in financial difficulties, as in Prudential Steel . Economic ups and downs are expected when operating a business. Actions of a business in response to economic downturns are an expected part of doing business.
However, it cannot be said that a fire is an anticipated part of doing business. As stated, the evidence is that the return of inventory to Tim-Br was a result of the fire. There is nothing usual about a fire; nor is there anything usual about an inventory transfer due to, and resulting from, a fire. HillCorp’s transfer of inventory to Tim-Br was not in the ordinary course of business. [ 47 ] Based on the foregoing analysis, I conclude that the sale was not in the ordinary course of business. As a result, the transfer was not a lawful transfer.
REMEDY [ 48 ] To recap, the priority of security interests was not disputed. For certainty, the Court declares that RBC’s security interest in the HillCorp inventory ranks first in priority; Hillier’s ranks second; and Tim-Br’s ranks third. [ 49 ] Based on the finding that the inventory transfer was not in the ordinary course of business, the Court has concluded that HillCorp’s transfer of inventory to Tim-Br was unlawful.
The issues becomes what, if any, remedy is available to RBC. [ 50 ] The remedy sought by RBC is an order that RBC is entitled to the proceeds resulting from HillCorp’s inventory transfer to Tim-Br. RBC referred to the definition of “proceeds” as contained in section 2(1) (ff)(
i) of the PPSA which states: 2(1) (ff) "proceeds" means, (
i) identifiable or traceable personal property that is derived directly or indirectly from a dealing with collateral or proceeds of collateral and in which the debtor acquires an interest , … [ 51 ] The transfer of the inventory from HillCorp to Tim-Br resulted in a credit from Tim-Br to HillCorp in the amount of $155,437.30. RBC seeks an order that it is entitled to that amount. [ 52 ] Tim-Br expressed the view that if there was to be an order of entitlement, it should be for “net” proceeds, as Tim-Br incurred costs, including costs of retrieval and disposition; and RBC should not receive a windfall.
Tim-Br suggested there should be an order to assess damages if the parties cannot agree on the amount to which RBC is entitled. [ 53 ] In my view the transfer of inventory by HillCorp to Tim-Br is a “dealing with collateral” in accordance with section 2(1) (ff)(
i) of the PPSA . This gave rise to proceeds, as defined by section 2(1) (ff)(i). [ 54 ] Further, under section 29(1) of the PPSA , RBC’s security interest extends to those proceeds; and under section 11(5) of the PPSA , RBC’s security interest in the proceeds is enforceable against Tim-Br. As a result, I find that RBC is entitled to the proceeds derived from the transfer of inventory. [ 55 ] The amount of $155,437.30 was the amount derived from the inventory transfer. It is the amount by which HillCorp’s indebtedness to Tim-Br was reduced.
This was the value ascribed by both Tim-Br and HillCorp for return of the inventory. It is the amount of the proceeds to which RBC is entitled. No further assessment is necessary. COSTS [ 56 ] With respect to costs, RBC was added as an intervenor with the consent of Tim-Br. RBC then assumed the role of the Applicant. RBC was successful and I therefore exercise discretion to award RBC costs on a column 3 basis. Hillier’s is not subject to any order of costs. CONCLUSION [ 57 ] In conclusion, it is ordered, as follows: 1.
RBC’s security interest in the HillCorp inventory, which was transferred to Tim-Br, ranks first in priority; Hilliers’ security interest in that inventory ranks second; and Tim-Br’s security interest ranks third; 2. It is hereby declared that the inventory transfer by HillCorp to Tim-Br was unlawful, as it was not a sale in the ordinary course of business; 3. It is hereby declared that RBC is entitled in priority to the proceeds derived from HillCorp’s transfer of inventory to Tim-Br; and 4. RBC is entitled to party party costs of this application from Tim-Br, on a column 3 basis.
_____________________________ Valerie L. Marshall Justice
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