2019 NLCA 45, 2019 NLCA 45

Coleman Management Services Limited (appellant/respondent by cross-appeal) v. M.M.H. Prestige Homes Inc./Maisons Prestige M.M.H. Inc. (first respondent/appellant by cross- appeal) and Humber Valley Paving Ltd. (second respondent) and 65827 Newfoundland and Labrador Inc. (third respondent) (18/38 and 18/59) Indexed As: Coleman Management Services Limited v. M.M.H. Prestige Homes Inc. 2019 NLCA 45 4 C.A.N.L.R. 650 Court of Appeal of Newfoundland and Labrador Welsh, White and O’Brien JJ.A. July 18, 2019

Summary: Coleman Management Services Limited and M.M.H. Prestige Homes Inc. claimed a security interest in the same collateral. Coleman filed an originating application in the Supreme Court of Newfoundland and Labrador, General Division, seeking a declaration that its security interest in the collateral ranked in priority to the interest of Prestige. The applications judge found that Prestige’s interest ranked in priority to Coleman’s interest. Coleman appealed this decision and alleged that the judge erred in concluding that Prestige’s description of the collateral was adequate for the purpose of enforcing its security interest in priority to Coleman’s. This issue required the

interpretation of section 11(1) (b)(

i) of the Personal Property Security Act , SNL 1998, c. P-7.1 . Coleman also argued that the judge erred in concluding that discrepancies in the documentation did not affect the security interest for the purposes of enforcement. Prestige cross-appealed and alleged that the applications judge erred by finding that Coleman had an enforceable security interest in the collateral. Held: Appeal dismissed. In the circumstances, it was unnecessary to consider the cross-appeal. Welsh J.A. (White and O’Brien JJ.A. concurring): Enforceability of a security interest is addressed under

section 11 of the Personal Property Security Act (paragraphs 7-11). The applications judge did not err in finding that Prestige’s description of the collateral was adequate for the purpose of enforcing its security interest in priority to that of Coleman’s interest. An amendment to section 11(1) (b)(

i) of the PPSA , which removed the word “or” when listing the ways by which collateral could be described in order for a security interest to be enforceable against a third party, had the apparent effect of reducing the options for descriptors. However, when considering the legislative intention expressed in Hansard , and the context of

section 11 as a whole, the net effect of the amendment to section 11(1)(b)(

i) is that collateral may be described by item, by kind, or by category. If the collateral is described by item or by kind, it is not necessary to specify the category in which the collateral falls. Prestige’s description of the collateral was a description by kind. It was not necessary for Prestige to use the word “goods” to satisfy the requirements of section 11(1) (b)(

i) of the PPSA (paragraphs 7-22).

The applications judge did not err in finding that discrepancies in the documentation did not affect the security interest for the purposes of enforcement. There was a signed security agreement describing the collateral which was intended to secure the debt owed pursuant to a promissory note and an asset purchase agreement. This was sufficient to satisfy the requirements of

section 11 of the PPSA (paragraphs 23-27). With respect to the cross-appeal, the basis for Prestige’s claim that the judge erred in finding that Coleman had established an enforceable security interest was that the promissory note that specified the debt secured by the security agreement was not attached as a

schedule to the agreement. Given the determination that Prestige’s claim had priority, it was unnecessary to consider the issue on the cross-appeal and the Court declined to do so (paragraphs 28-31). Statutes considered: Personal Property Security Act , SNL 1998, c. P-7.1,

section 11 Securities Transfer Act , SNL 2007, c. S-13.01 ,

Part VII, section 110(33) Counsel: Gregory M. Smith and Travis Payne, for the appellant/respondent by cross-appeal; Ruth Trask and Giles Ayers, for the first respondent/appellant by cross-appeal; No appearance by the second and third respondents. The appeal was heard on April 10, 2019 before Welsh, White and O’Brien JJ.A. The following judgment was filed on July 18, 2019 by Welsh J.A. for the Court. ______________________________________________________________ Welsh J.A.: [ 1 ] The two companies, Coleman Management Services Limited and M.M.H. Prestige Homes Inc., claim a security interest in the same collateral. Based on an

interpretation of the relevant legislation, the applications judge found that the interest of Prestige ranks in priority to that of Coleman. Coleman appeals that decision. Prestige cross-appeals against the judge’s decision that Coleman had an enforceable security interest in the collateral. BACKGROUND [ 2 ] In July 2013, 65827 Newfoundland & Labrador Inc., entered into an agreement with Prestige in which Prestige undertook to build and supply camp trailers for a road construction project.

There were three financial agreements entered into by those parties: (1) an asset purchase agreement in which 65827 agreed to pay Prestige $1,198,323.35 in twelve equal installments, commencing in January 2014; (2) a security agreement securing the payment of that amount; and (3) a promissory note in the same amount. [ 3 ] When 65827 failed to make the payments required under the asset purchase agreement, Prestige gave notice on May 1, 2014, to 65827 of its intention to enforce its security against the collateral described as the “Camp Assets”. [ 4 ] Coleman had also entered into a security agreement with 65827, claiming an interest in various assets, including the Camp Assets in which Prestige claimed a security interest.

ISSUES [ 5 ] At issue in the appeal is whether the applications judge erred in concluding that Prestige’s description of the collateral was adequate for the purpose of enforcing the security interest in priority to that of Coleman. Consideration of that issue involves (

a) interpretation of the language of section 11(1) (b)(

i) of the Personal Property Security Act , SNL 1998, c. P-7.1 , and (

b) analysis of the effect of discrepancies in the documentation. [ 6 ] In the cross-appeal, the issue is whether the applications judge erred in concluding that Coleman had an enforceable security interest in the collateral. ANALYSIS The Legislation

[ 7 ]

Section 11 of the Personal Property Security Act (the “ PPSA ”) addresses the enforceability of a security interest. For purposes of interpreting that section, it is helpful to compare the legislation before and after amendment. In the 1998 statute,

section 11 provided:

(1) A security interest is enforceable against a third party only where … (

b) the debtor has signed a security agreement that contains (

i) a description of the collateral by item or kind, or by reference to one or more of the following : “goods”, “document of title”, “chattel paper”, “security”, “instrument”, “money” or “intangible”, (ii) a statement that a security interest is taken in all of the debtor’s present and after-acquired personal property, or (iii) a statement that a security interest is taken in all of the debtor’s present and after-acquired personal property except specified items or kinds of personal property or except one or more of the following: “goods”, “document of title”, “chattel paper”, “security”, “instrument”, “money” or “intangible”. (Emphasis added.) [ 8 ] As a result of a consequential amendment in

Part VII of the Securities Transfer Act , SNL 2007, c. S-13.01 , the language in section 11(1) (b)(

i) of the PPSA was changed and a new subparagraph (b)(ii) was added. Section 110(33) of the amending statute provides that subsection 11(1) of the PPSA is repealed and the following substituted:

(1) A security interest is enforceable against a third party only where … (

b) the debtor has signed a security agreement that contains (

i) a description of the collateral by item or kind as “goods ’ ( sic ), “chattel paper”, “investment property”, “documents of title”, “instruments”, “money” or “intangibles”, (ii) a description of collateral that is a security entitlement, securities account, or futures account …, (iii) a statement that a security interest is taken in all of the debtor’s present and after-acquired personal property, or (iv) a statement that a security interest is taken in all of the debtor’s present and after-acquired personal property except specified items or kinds of personal property or except personal property described as “goods”, “chattel paper”, “investment property”, “documents of title”, “instruments”, “money” or “intangibles”. (Emphasis added.) “Security interest” is defined in section 2(1) (pp) of the PPSA to mean “an interest in personal property that secures payment or performance of an obligation”. [ 9 ] Section 11(3) of the PPSA elaborates on the description requirement in section 11(1) (b)(

i) where the collateral consists of consumer goods or equipment: A description is inadequate for the purpose of subparagraph (1)(b)(

i) if it describes the collateral as consumer goods or equipment without further describing the item or kind of collateral, … [ 10 ] By contrast, pursuant to sections 11(4) and (5) of the Act no mention is made of a further description in the case of collateral that is inventory or proceeds:

(4) A description of collateral as inventory is adequate for the purpose of paragraph (1)(

b) only while it is held by the debtor as inventory.

(5) A security interest in proceeds is enforceable against a third party whether or not the security agreement contains a description of the proceeds. [ 11 ] While generally the debates in the House of Assembly do not form part of the analysis in interpreting legislation, there are situations where the comments made by members of the House are of assistance in assessing the purpose and intent of legislation. The amendment to

section 11 of the PPSA is one such example arising from amendments that are consequential to the operation of another statute. As documented in Newfoundland and Labrador, House of Assembly Proceedings (Hansard) , 45 th General Assembly, 4 th session, Vol. XLV, No. 19 (May 28, 2007) during second reading of the Bill to enact the Securities Transfer Act , the following statement was made by the minister responsible: Mr. Speaker, it is my pleasure today to speak to Bill 12,

An Act Respecting The Transfer of Securities. The Uniform Securities Transfer Act is a harmonized Act to be implemented in all Canadian jurisdictions to provide for uniform laws for the transfer of all securities and to facilitate electronic transfer of securities. The Act provides for the electronic transfer of securities which has actually been taking place for many years. Legislation is now catching up with the current industry practice. The consequential amendments to the Personal Property Security Act , … are purely

technical in nature with no policy implications and no impact on the effectiveness of these Acts . (Emphasis added.) Representatives of the two other parties in the House indicated their support for the legislation, and the Bill passed second reading. The Appeal

Interpretation of the Legislation [ 12 ] Prior to the consequential amendment to section 11(1) (b)(

i) of the PPSA , there were three ways in which collateral could be described in order for a security interest to be enforceable against a third party: (1) description by item; (2) description by kind; or (3) by reference to one or more of the listed categories which included “goods”. As a result of the consequential amendment, the following was removed from subparagraph (1)(b)(i): “ , or by reference to one or more of the following” (underlining added), and the word “as” was inserted before the list of categories.

Particularly the removal of the comma and word “or” had the apparent effect of reducing the options for descriptors. However, given the legislative intention expressed in the statement from Hansard that the changes were “purely technical in nature with no policy implications and no impact on the effectiveness of these Acts”, it is necessary to assess the amended language in the context of

section 11 as a whole and section 110(33) of the amending statute. [ 13 ] I begin by noting that the statement in Hansard is reinforced by the fact that no transitional provision was included in the amendments to address the law that would apply to security interests described in accordance with

section 11 prior to the amendment, and on which parties would continue to rely. This is a significant consideration given the importance of clarity where priority in a security interest in collateral is at stake. [ 14 ] There is nothing in

section 11 of the PPSA to preclude description of the collateral by item or kind, or to require the inclusion of the particular word “goods”, or some other category, if the collateral is described by item or kind. Since the consequential amendment to subparagraph (1)(b)(

i) was intended to be “purely technical in nature with no policy implications and no impact on the effectiveness” of the legislation, and where, prior to amendment, the legislation authorized description of collateral by item or kind, there is no apparent reason why the amended provision should be interpreted so as to require the use of the word “goods” where, in fact, the collateral is identified by the more precise description of the item or kind of collateral. [ 15 ] Subsections 11(3), (4) and (5), set out above, provide for particular requirements in respect of collateral that is consumer goods or equipment, inventory, or proceeds, with a specific requirement for a further description of the item or kind of collateral in the case of consumer goods or equipment.

Each of these subsections provides for description of collateral by category, but there is no basis on which to conclude that collateral cannot be described only by item or kind, but must be described by category. [ 16 ] Further, to permit description, where appropriate, by item, by kind, or by category would be consistent with the stated objective of achieving harmony in the legislation throughout the country.

Other than Ontario and the Yukon, which have a different scheme, this Province is the only jurisdiction across the country to have removed the word “or” between “kind” and the listing of categories. [ 17 ] As discussed below, for purposes of this case, it is unnecessary to determine any further potential effect of removing the word “or” and inserting “as” before the list of categories.

However, I note in passing that the change in language would indicate that collateral, if described by item or kind, must be capable of being characterized as falling within one of the listed categories. [ 18 ] The net effect of the amendment is that collateral may be described by item or by kind or by category. If the collateral is described by item or kind, it is not necessary to specify the category in which it falls.

This is because the more specific description, by item or kind, would be sufficient to identify the category. [ 19 ] However, while it is unnecessary to decide the issue for purposes of this case, I caution that the insertion of “as” before the list of categories would indicate that collateral must be capable of being characterized as falling within one of the categories listed. That

interpretation results in a potential change in the effect of section 11(1)(b)(

i) insofar as particular collateral may not fall within the listed categories. [ 20 ] In this case, clause 2 of the security agreement made by 65827 in favour of Prestige, dated July 25, 2013, describes the security interest: 2.1 The Borrower [65827] hereby … grants to the Lender [Prestige] a security interest in and full access to, all the Borrower’s right, title and interest in and to the Camp Assets and all proceeds therefrom (all of which is hereinafter collectively called the “Collateral”). 2.2 Any reference in this Agreement to Collateral shall, unless the context otherwise requires, be deemed to be a reference to Collateral as a whole or any part thereof. … “Camp Assets” are described in clause 1 of the security agreement: 1.1 The Lender and Borrower entered into an asset purchase and sale agreement dated July 19, 2013 (the “Asset Agreement”) whereby the Lender agreed to sell, and the Borrower agreed to purchase camps ( sic ) units, a laundry unit, a kitchen unit and related furnishings, pursuant to the details outlined in the Purchase and Sale agreement for the camp (collectively, the “Camp Assets”). 1.2 In connection with the Asset Agreement and the purchase of the Camp Assets, the Borrower is indebted to the Lender pursuant to a promissory note bearing the amount of $1,198,323.35 issued by the Borrower in favour of the Lender dated July 26, 2013 (the “Note”) and the Borrower’s obligations thereunder, and any balance thereof, and the Borrower’s obligations to comply with the terms of this Agreement (collectively the “Obligations”) are secured by a first charge on and security interest in the Camp Assets as set out herein. [ 21 ] This description of the collateral is a description by kind, in the category of goods.

It was not necessary to use the word “goods”

in order to satisfy the requirements of section 11(1) (b)(

i) of the PPSA . The security agreement provides for a security interest in the Camp Assets which is a defined term that identifies the collateral intended to be included and for which priority is claimed. [ 22 ] Accordingly, I conclude that the applications judge did not err in determining that the description of the collateral in Prestige’s security agreement satisfied the requirements of section 11(1) (b)(

i) of the PPSA . Discrepancies in the Documentation [ 23 ] The second question in the appeal is whether discrepancies in dates in the documentation resulted in a security interest that did not meet the requirements for enforcement against a third party.

As stated by the applications judge, the discrepancies cannot be reconciled, and indeed, they “demonstrate a surprising lack of exactitude by Coleman’s and Prestige Homes when completing those important documents” (decision of the applications judge, 2018 NLSC 45 , at paragraph 69 ). [ 24 ] The security agreement, dated July 25, 2013, refers to an asset purchase agreement dated July 19 th and a promissory note dated July 26 th . The asset purchase agreement is dated July 26 th , not July 19 th .

The promissory note, which is dated July 23 rd , not July 26 th , refers to the asset purchase agreement of July 19 th . [ 25 ] However, to be enforceable against a third party pursuant to

section 11 of the PPSA , a security interest, which is “an interest in personal property that secures payment or performance of an obligation”, requires (

a) a security agreement, (

b) signed by the debtor, (

c) in which the collateral is described as set out in paragraph (1)(b). In this case, those criteria are met: the security agreement is signed by the debtor, 65827, and, as set out above, satisfies the requirement for description of the collateral pursuant to subparagraph (1)(b)(i). [ 26 ] In the circumstances, the fact that there are discrepancies in the dates in the documentation does not affect the operation of

section 11 of the Act . There is a signed security agreement describing the collateral which is intended to secure the debt owed pursuant to the promissory note and the asset purchase agreement. This is sufficient to satisfy the requirements of

section 11 of the PPSA for purposes of enforcing the security interest against a third party. [ 27 ] It follows that the applications judge did not err in concluding that the discrepancies in the dates in the documentation did not affect the security interest for purposes of enforcement pursuant to

section 11 of the PPSA .

Summary and Cross-Appeal [ 28 ] The applications judge did not err in concluding that Prestige had perfected its security interest in the collateral. [ 29 ] Having determined that Coleman had also perfected its security interest in the same collateral, the judge concluded that Prestige perfected its security interest before Coleman, with the result that the claim by Prestige has priority over that of Coleman. That determination was not appealed. [ 30 ] By way of cross-appeal, Prestige claims that the applications judge erred in determining that Coleman had established an enforceable security interest.

The basis for the claim is that the promissory note specifying the debt secured by the security agreement was not attached, as required, as a

schedule to the agreement. [ 31 ] Given that Prestige’s claim has priority and, therefore, the right as between them is settled, it is unnecessary to address the cross- appeal, and I would decline to do so. The alleged error relates to the surprising lack of care exhibited by both parties in the preparation of their documents, and does not engage a question of law that would have general application. Proper business practice assumes a level of care taken by the parties in preparing and completing written documents and agreements.

Costs [ 32 ] The applications judge made no order as to costs at the time of his decision, but gave the parties leave to make submissions on the issue. In the circumstances, the parties agreed that this Court should decline to deal with costs in the court appealed from. [ 33 ] I would order that Prestige, as the successful party, is entitled to its costs in this Court under column 3 of the scale of costs under the Court of Appeal Rules .

SUMMARY AND DISPOSITION [ 34 ] In

summary, the applications judge did not err in concluding that Prestige had perfected its security interest in the collateral. As between the parties, Prestige’s claim in respect of the collateral has priority. In the circumstances, it is unnecessary to consider the cross- appeal. [ 35 ] Accordingly, I would dismiss the appeal with costs in this Court to Prestige under column 3 of the scale of costs under the Court of Appeal Rules . Appeal dismissed.