Docket: 1896 CNH Capital Canada Ltd. v. CNH Canada Ltd., 2011 SKCA 107

Source: Court of Appeal for Saskatchewan

Date: 2011-09-28

Jurisdiction: Saskatchewan

Docket: 1896

Citation: 2011 SKCA 107

Opinion

THE COURT OF APPEAL FOR SASKATCHEWAN Citation: 2011 SKCA 107 Date: 20110928 Between: Docket: 1896 CNH Capital Canada Ltd. and CNH Canada Ltd. Appellants (Respondents) - and - Wheatland Industries

(1990) Ltd. and Toronto-Dominion Bank Respondents Coram: Cameron, Richards and Ottenbreit JJ.A. Counsel: Murray Sawatzky, Q.C. for the Appellants David Gerecke for the Respondent, Price Waterhouse Coopers Inc., Receiver and Manager of Wheatland Industries

(1990) Ltd. Jeffrey Lee for the Respondent, Toronto-Dominion Bank

Appeal: From: 2009 SKQB 516 Heard: December 14, 2010 Disposition: Appeal allowed Written Reasons: September 28, 2011 By: The Honourable Mr. Justice Ottenbreit In Concurrence: The Honourable Mr. Justice Cameron In Dissent: The Honourable Mr. Justice Richards Ottenbreit J.A. I. Introduction [ 1 ] The primary question on this appeal is which of two security interests in certain property belonging to Wheatland Industries

(1990) Ltd. (“Wheatland”) has priority. The security interests in question are held in turn by the Toronto Dominion Bank (“the Bank”) and CNH Capital Canada Ltd. (“CNH Capital”) to secure lines of credit each had provided Wheatland for one purpose or another in the conduct of its business. Wheatland was then in the primary business of selling and repairing Case New Holland farm equipment. It is now in receivership.

The property subject to the competing security interests consists of approximately $235,000 in credits (“the Inventory Credits”) owing to Wheatland by CNH Canada Ltd. (“CNH Canada”), the supplier, or CNH Capital, the financier, or both.

The credits were created as a result of Wheatland having returned numerous Case New Holland parts to CNH Canada when it encountered financial difficulties--parts it had acquired with financing by CNH Capital but for which it had reimbursed CNH Capital prior to their return, thus entitling it to the Inventory Credits. [ 2 ] Which of the security interests has priority over the Inventory Credits depends on the construction and application of two Priority Agreements made by the parties or their predecessors for that purpose before Wheatland went into receivership.

I have read the decision of my colleague, Richards J.A., in this case, and on the issue of priority, I must respectfully disagree with him. As I read the Priority Agreements, the security interest held by CNH Capital has priority over that held by the Bank. Accordingly, I would allow the appeal, set aside the judgment to the contrary in the Court of Queen’s Bench, and grant judgment in favour of CNH Canada and CNH Capital, which were taken on appeal to have a common interest in the matter. II.

The Background [ 3 ] Before turning to the text of the Priority Agreements I should like to briefly explain the context in which they were made and to then touch upon the key fact that spawned the dispute over their terms. [ 4 ] In April of 1999, the Bank provided Wheatland with operating lines of credit for the purpose of facilitating the conduct of its business in general.

The Bank did this on the strength of a General Security Agreement under which Wheatland granted the Bank a security interest in the present and after-acquired personal property of Wheatland. [ 5 ] Shortly afterwards, in anticipation of Wheatland becoming an authorized New Holland Dealer, New Holland (Canada) Credit Company provided Wheatland with revolving lines of credit for the purpose of facilitating its business as a New Holland Dealer, including in particular its wholesale acquisition of inventory consisting of New Holland machinery and equipment, together with related parts and supplies.

In return, Wheatland granted a security interest to New Holland (Canada) Credit in certain of its present and after- acquired personal property, including such inventory. [ 6 ] Shortly after that, in May of 1999, the Bank, New Holland (Canada) Credit and Wheatland entered into a Priority Agreement in which they agreed upon which of the two security interests should prevail, in relation to this or that property of Wheatland, in the event of default by Wheatland. [ 7 ] Some two years later, in January of 2002, Wheatland also became an authorized Case Dealer. In consequence, Case Credit Ltd.

provided Wheatland with lines of credit similar to those earlier provided by New Holland Credit (Canada), and which were similarly secured. The Bank, Case Credit, Case Canada Corporation, and Wheatland then entered into a Priority Agreement almost identical to that made earlier with New Holland (Canada) Credit. [ 8 ] Over the course of time, Wheatland drew upon all of these lines of credit, CNH Capital succeeded to the interests of each of New Holland (Canada) Credit and Case Credit, and Wheatland fell into receivership while heavily indebted to both the Bank and CNH Capital.

Both then laid claim to the Inventory Credits, having regard for the terms of the two Priority Agreements made earlier. [ 9 ] The dispute over the terms of the Priority Agreements as they apply to the Inventory Credits has its genesis in the fact that Wheatland, at the time it returned the Case New Holland parts to CNH Canada, had reimbursed CNH Capital in connection with their acquisition. Nevertheless, Wheatland continued to be indebted to CNH Capital as a result of having acquiring other Case New Holland inventory by means of the lines of credit provided by CNH Capital.

It is this business of the returned parts having been paid for, as between the dealer and the finance company, that spawned the dispute over the terms of the Priority Agreements as they relate to the Inventory Credits. III. The Priority Agreements [ 10 ] As noted above, the two Priority Agreements are almost identically worded, so I need not refer to both.

It will be sufficient to recite and refer to the material terms as they appear in the Agreement made between the Bank, New Holland Credit Company (or NHCC as it was referred to in the Agreement) and Wheatland. [ 11 ] The terms directly in dispute are found in paras. 4.1 and 4.2, which read thus: 4.1 The Bank hereby agrees that the Bank Security is hereby postponed and subordinated in all respects to the NHCC Security on the NHCC Financed Collateral.

The Bank further agrees that NHCC shall also be absolutely entitled to any conditional sale contracts or other chattel paper, whether or not part of the NHCC Financed Collateral evidencing sales of Goods by the Dealer to the public from time to time, upon assignment of such contracts to NHCC.

The new or used goods described in such contracts, all moneys payable thereunder and the Proceeds thereof shall be free and clear of any and all right, title, interest or right of property of the Bank therein or thereto under or by reason of the Bank Security, provided that such contracts are purchased by NHCC in the ordinary course of business at a price established in accordance with NHCC’s usual practices.

The Bank further agrees that the NHCC Security in the Credits included in the NHCC Financed Collateral and all Proceeds thereof shall at all times remain prior to and rank ahead of the Bank’s Security in such Credits. 4.2 NHCC hereby agrees that the NHCC Security is hereby post-poned [sic] and subordinated in all respects to the Bank Security on all the present and future assets of the Dealer [other] than the NHCC Financed Collateral. NHCC further agrees that the NHCC Security related to the new or used Goods and the Proceeds thereof, effective upon NHCC having been paid by the Dealer in full for such Goods.

NHCC further agrees that the NHCC Security related to any trade-in Goods forming part of the NHCC Financed Collateral and all Proceeds of such trade-in Goods is hereby postponed and subordinated in all respects to the Bank Security related to the Trade-in Goods and the Proceeds thereof, effective upon the purchase price for the new Goods acquired by the Dealer’s customer who delivered the trade-in Goods to the Dealer as

part consideration for the new Goods acquired by such customer, having been paid in full. (The parties agree that the word “other”, found in square brackets in para. 4.2, corrects a typographical error.) [ 12 ] The terms used in paras. 4.1 and 4.2 which are germane to this case are defined in para. 2.1: 2.1 In this Agreement, the following terms shall have the meanings attributed to them: . . . (b) "NHCC Financed Collateral" means the following present and future assets of the Dealer: (

i) All of the Dealer's present and after-acquired inventory financed by NHCC consisting of new, used and trade-in Goods and all parts and supplies for such Goods (the NHCC Inventory); (ii) all present and after-acquired Credits relating to any item of NHCC Inventory and including all credits due or accruing due to the Dealer from NHCC; and (iii) all choses in action, rights and contracts relating to the NHCC Inventory and all Proceeds realized by the Dealer from such contracts, the NHCC Inventory and Credits, other than choses in action, rights and contracts arising from the sale by the Dealer of parts and services in the ordinary course of its business. (c) "NHCC Security" shall mean any security documentation now or in the future held by NHCC from the Dealer charging the present and future assets of the Dealer, including without limiting the generality of the foregoing, the documents listed in

Schedule B hereto, if any.

(d) "Credits" includes all factory rebates, credits, advertising and promotional allowances, and all other amounts, credits or claims due or accruing due to the Dealer from a manufacturer or distributor of goods, parts, and supplies. (e) "Proceeds" means personal property in any form derived directly or indirectly from any dealing with the Dealer's assets or that indemnifies for assets of the Dealer that are destroyed or damaged. [ 13 ] The recitals also inform the meaning of the terms at issue used in paras. 4.1 and 4.2 of the Agreement.

Section 1.1 of the Agreement stipulates that they are to be read and construed as part of the Agreement.

They read as follows: WHEREAS the Dealer is in the business of selling, leasing and repairing tractors, agricultural and industrial equipment, and implements (hereinafter referred to as "Goods"); AND WHEREAS the Bank has loaned money or made other financial accommodations to the Dealer and may in future loan further monies or make further financial accommodations to the Dealer to enable the Dealer to operate its business; AND WHEREAS NHCC is supplying credit and may in the future supply further credit to the Dealer to enable the Dealer to acquire and hold for sale or lease, Goods and parts and supplies therefor; AND WHEREAS the Bank and NHCC have taken and may in future take security documents from the Dealer to secure payment of the respective present and future indebtedness and obligations of the Dealer to each of them; [ 14 ] Also relevant is s. 4.3 of the Agreement, which reads as follows: 4.3 The subordinations and postponements contained herein shall apply in all events and circumstances regardless of:

a) the date of execution, attachment, registration, perfection or reperfection of any security interest held by the Bank or NHCC;

b) the date of any advance or advances made to the Dealer by the Bank or NHCC;

c) the date of default by the Dealer under any of the Bank Security or the NHCC Security or the dates of crystallization of any floating charges held by the bank or NHCC; or

d) any priority granted by any principal of law or any statute, including the Bank Act (Canada) , or any personal property security, corporation securities registration, or like statute. IV. The Decision under Appeal [ 15 ] Having regard for clauses 4.1 and 4.2 of the Agreement, construed in context, the chamber judge was of the opinion that the security interest held by the Bank in the Inventory Credits ranked ahead of the security interest held by CNH Capital.

For the most part, he arrived at his opinion on the basis of the following passages taken from his reasons for judgment: [ 16 ] The CNH companies contend that they are entitled to claim prior security to the credits generated by the parts returned based on the reasoning that parts, the proceeds of parts returned and the credits thereby generated are not included in the assets in respect of which TD is entitled to claim priority pursuant to paragraph 4.2. CNH contends that the priority extended to TD by paragraph 4.2 includes only assets that are not "NHCC Financed Collateral".

Notwithstanding that the parts in issue have been, in effect, paid for, CNH contends that those parts are nevertheless "NHCC Financed Collateral". [ 17 ] I am not able to follow the fine distinctions required to support the CNH position. [ 18 ] I do not accept the submission of the CNH counsel that the goods/parts issue is the cornerstone of the priority agreement. The critical issue is the distinction between inventory and credits paid for by Wheatland and inventory and credits financed by NHCC that Wheatland has not paid for.

I see that as the essential intent of the contracting parties and the impact of the agreement. If that were not the case, it would have been logical for the agreement to have contained an explicit provision that parts and supplies are not "Goods" or "inventory" for the purposes of the agreement. I note that the contrary intention of CNH is indicated in the NH policy manual.

However, there is no reference to any manual or manuals in the priority agreement itself, nor is there any acknowledgement or recognition of the provisions of any NHCC policy manuals by TD. [ 19 ] I should comment on the CNH submission that the fact that the specific reference to new goods, used goods and trade-in goods indicates that the omission of the word "parts" in these categories indicates that parts are something separate or different.

This does not, in my view, serve to identify an intention on the part of TD to relinquish any rights to its security claim against paid-for parts. [ 20 ] Notwithstanding the possibility of a contrary

for credit. But once the inventory supplied by New Holland was paid for by Wheatland, the TD general security on Wheatland's present and after-acquired property would prevail. V. Position of the Parties [16] CNH Canada and CNH Capital contend that the chamber judge misapprehended the scheme of the Agreement and misconstrued several of its terms.

Their argument is essentially twofold. [17] First, they say that according to the scheme and terms of the Agreement the parties agreed to the following: the Bank agreed, on the one hand, to subordinate its security interest to that of NHCC in the inventory of Wheatland acquired with financing by NHCC, inventory consisting of a combination of “Goods” (meaning “implements and equipment”) and of “parts and supplies therefor”.

NHCC agreed, on the other hand, to subordinate its security interest to that of the Bank in so much of the NHCC financed inventory as consisted of “Goods”, but not “parts and supplies”, and then only effective “upon NHCC having been paid by the Dealer for such Goods.” It is said that the effect of this, as between the Bank and NHCC, was to accord priority to the security interest of NHCC in all NHCC financed inventory, with the exception only of such big ticket items as implements and equipment in respect of which NHCC had been paid out by Wheatland.

In other words, the security interest held by the Bank was accorded priority in this respect, but not otherwise, meaning, among other things, that the security interest held by NHCC in inventory consisting of related parts and supplies was given priority. [18] Second, CNH Canada and CNH Capital say that according to the express terms of the Agreement, the security interest held by NHCC in the NHCC financed inventory extended beyond such inventory to “proceeds” and to all related “Credits”, which is to say “Credits relating to any to any item of NHCC Inventory”, including “all credits due or due or accruing due to the Dealer from NHCC”. [19] On the whole, then, CNH Canada and CNH Capital submit that, contrary to the finding of the chamber judge, they are entitled ahead of the Bank to the credits in question, credits earned by Wheatland as result of the return of New Holland parts it acquired with NHCC financing. [20] In response, the Bank contends that the chamber judge did not err in any of these respects.

Its argument is essentially threefold. First, it says the terms of the Agreement fall to be construed in light of the fact the Bank’s security interest had been taken and registered first in time and therefore enjoyed priority over that taken by NHCC before the Agreement was entered into.

Second, it says that the Agreement, thus construed, cannot be seen to derogate from the priority of its security interest in the Inventory Credits, especially on the premises that the Agreement was intended to distinguish between inventory consisting of “Goods”, on the one hand, and “parts and supplies”, on the other, or that it was intended to apply to credits of the nature of those in question. Third, it says that “parts” acquired by Wheatland by means of NHCC financing constitute “NHCC financed inventory” within the meaning of the Agreement only so long as NHCC remains unpaid for those parts.

Once paid, the parts in respect of which payment was made no longer constitute “NHCC financed inventory” and by extension “NHCC Financed Collateral”. VI. Analysis [ 21 ] I should say at the outset that I do not agree with the Bank’s contention that the Agreement falls to be construed in light of the fact that, because the Bank had acquired and registered its security interest prior to the time the Agreement was made, the Bank’s security interest in the subject matter of the dispute enjoyed priority over that of NHCC.

I do not agree with this contention for two reasons. [22] First, it would appear that because the security interest acquired, for example, by NHCC was in Wheatland’s inventory of New Holland machinery and equipment, together with related parts and supplies, it probably amounted to a purchase money security interest. That being so, it is not inconceivable that its security interest in this inventory enjoyed priority over that of the Bank’s, assuming, of course, that NHCC had complied with the applicable provisions of The Personal Property Security Act , S.S. 1993, c. P-6.2 .

I do not suggest this is necessarily so, but I do suggest it serves to cast doubt upon the accuracy of the Bank’s contention. [23] Second, and more importantly, perhaps, because of the certainty of the point, the Bank and NHCC expressly declared, in clause 4.3 of the Agreement, that clauses 4.1 and 4.2 were to operate without regard for dates of execution, attachment, registration, and the like, including (according to clause 4.3(d)), “any priority granted by any principle of law or statute…or any personal property security, corporation, securities registration, or like statute.” [24] Hence, I am of the opinion that the fact that the Bank had acquired and registered its security interest first in time is immaterial.

It is neither here nor there.

[25] That said, I turn to the terms of the Agreement under consideration, beginning with clause 2(1)(b), which serves to identify the most critical component of the subject matter of the Agreement, namely the “NHCC Financed Collateral”; critical, that is, to the dispute over the meaning and application of the operative provisions of the Agreement, namely clauses 4.1 and 4.2. As noted above, the term “NHCC Financed Collateral” is defined in clause 2(1)(

b) to mean the following, among other things: 2.1 In this Agreement, the following terms shall have the meanings attributed to them: . . . (b) "NHCC Financed Collateral" means the following present and future assets of the Dealer: (

I begin with clause 4.1, in which the Bank subordinated its security interest to that of NHCC in relation to the “NHCC Financed Collateral”: 4.1 The Bank hereby agrees that the Bank Security is hereby postponed and subordinated in all respects to the NHCC Security on the NHCC Financed Collateral. The Bank further agrees that NHCC shall also be absolutely entitled to any conditional sale contracts or other chattel paper, whether or not part of the NHCC Financed Collateral evidencing sales of Goods by the Dealer to the public from time to time, upon assignment of such contracts to NHCC.

The Bank further agrees that the NHCC Security in the Credits included in the NHCC Financed Collateral and all Proceeds thereof shall at all times remain prior to and rank ahead of the Bank’s Security in such Credits. [27] In my judgment, the intended meaning and effect of this clause, when read in conjunction with clause 2(b)(i)(ii) defining the term “NHCC Financed Collateral”, are really quite straightforward. The Bank postponed and subordinated “in all respects” its security interest in the “NHCC Financed Collateral”. By definition, the term “NHCC Financed Collateral” includes (

i) all Wheatland’s present and future inventory of New Holland machinery and equipment, together with related parts and supplies, financed by NHCC; and (ii) all “Credits relating to any item” of such inventory, including “credits due or accruing due...to NHCC”. Presumably, such “credits”, which is to say “credits” related to such inventory and “due or accruing due…NHCC”, was meant to include credits resulting from the return of parts from out of this inventory--parts that were acquired Wheatland by means of NHCC financing and in relation to which NHCC has been reimbursed.

How else could such a credit arise? [28] I shall have more to say about these credits. But, unless there be something to the contrary elsewhere in the Agreement, it seems to me the Bank is to be taken by clause 4.1 to have ceded priority to NHCC Financed Collateral including all credits to NHCC. [29] That brings me to clause 4.2, pursuant to which NHCC agreed, with stated exceptions, to postpone its security interest in the present and future property of Wheatland in favour of the security interest held by the Bank.

As I see it, the question at this juncture is whether there be something to the contrary to derogate from the notion that the Bank ceded priority to NHCC in relation to the credits in question. For convenience of reference, I repeat the clause: 4.2 NHCC hereby agrees that the NHCC Security is hereby post-poned [sic] and subordinated in all respects to the Bank Security on all the present and future assets of the Dealer [other] than the NHCC Financed Collateral.

NHCC further agrees that the NHCC Security related to the new or used Goods and the Proceeds thereof, effective upon NHCC having been paid by the Dealer in full for such Goods. NHCC further agrees that the NHCC Security related to any trade-in Goods forming part of the NHCC Financed Collateral and all Proceeds of such trade-in Goods is hereby postponed and subordinated in all respects to the Bank Security related to the Trade-in Goods and the Proceeds thereof, effective upon the purchase price for the new Goods acquired by the Dealer’s customer who delivered the trade-in Goods to the Dealer as

part consideration for the new Goods acquired by such customer, having been paid in full. [30] This is something of an ungainly clause, so I shall break it down into its constituent elements. Broken down thus, NHCC may here be seen to subordinate its security in favour of the Bank’s security as follows: (1) all present and future assets other than the NHCC financed collateral (this mirrors the opening sentence of para. 4.1); (2) new or used goods forming part of the NHCC Financed Collateral and proceeds thereof for which the Dealer has paid NHCC in full;

(3) trade-in goods forming part of the NHCC Financed Collateral and proceeds, upon the purchase price, for the new goods acquired by the Dealer’s customer who delivered the trade-in goods as

part consideration, having been paid in full. The first element confirms the Bank’s priority regarding assets other than NHCC Financed Collateral. The other two elements derogate from NHCC’s priority to NHCC Financed Collateral bargained for in 4.1. Exceptions to NHCC’s priority in the NHCC Financed Collateral are thereby created, but on the face of it, only in the case of specific assets and only upon the happening of certain events. The specific assets are, explicitly, new or used “Goods” and “trade in Goods” and the proceeds thereof.

The events are, in the case of new or used “Goods”, payment by the Dealer and in the case of trade in “Goods”, payment by the buyer of the new goods associated with the trade-in. [31] CNH Canada and CNH Capital argue that the distinction between “Goods” and “parts” is significant because there is no reference in para. 4.2 to “parts” and therefore CNH Canada and CNH Capital retain priority to them as part of NHCC Financed Collateral in accordance with the terms of para. 4.1. [32] As noted above, the term “NHCC Financed Collateral” is defined in para. 2.1(b)(

i) and (ii) as (i) “present and after-acquired inventory financed by NHCC consisting of new, used and trade-in Goods and all parts and supplies for such Goods (the NHCC Inventory)” and (ii) all present and after-acquired “Credits relating to any item of NHCC Inventory and including all credits due or accruing due to the Dealer from NHCC.” [33] “Goods” are identified in the first recital of the Agreement as “…tractors, agricultural and industrial equipment and implements (hereinafter referred to as ‘Goods’).” The third recital of the Agreement expressly contrasts and distinguishes “Goods” and “parts” by way of the words “…hold for sale or lease, Goods and parts and supplies therefor”.

The wording of the definition of “Credits” found in para. 2.1(

d) again distinguishes Goods, parts and supplies. [34] Paragraph 4.2, read together with the definition

section and the recitals, means that there is indeed a distinction between inventory consisting of “Goods,” on the one hand, and “parts and supplies” on the other. The term “Goods” as used in the Agreement refers to whole or complete units of equipment, such as tractors or combines, and not to individual repair parts for such machines.

It follows that in para. 4.2, NHCC did not subordinate its security interest to the Bank in relation to parts at all, and that pursuant to para. 4.1, the Bank subordinated its security in parts to NHCC, as well as in the credits generated by way of their return, since such parts and credits constitute NHCC Financed Collateral. [35] The Bank argues, however, that despite the distinction between inventory consisting of “Goods” in contradistinction to “parts and supplies”, once parts are paid for by Wheatland, they are no longer “financed by NHCC”, can no longer be categorized as “NHCC Inventory” and therefore cease to form part of the NHCC Financed Collateral to which the Bank subordinated its security interest under para. 4.1.

The Bank argues that, by virtue of the opening sentence of para. 4.2, it therefore has priority. [36] This brings to the fore the significance of the word “financed” in the definition of “NHCC Financed Collateral”. For ease of reference I repeat the definition of this term set out in para. 2.1(b)(i): (b) "NHCC Financed Collateral" means the following present and future assets of the Dealer: (

i) must mean “unpaid” as between the dealer and the finance company, or refer to assets on which money is still owing by Wheatland to CNH Capital. In support of this assertion, the Bank points to the third recital of the Agreement, which reads as follows: AND WHEREAS NHCC is supplying credit and may in the future supply further credit to the Dealer to enable the Dealer to acquire and hold for sale or lease, Goods and parts and supplies therefor; . . .

The Bank argues it can be inferred from the third recital that financing only exists so long as NHCC is supplying credit, and that once an item of inventory is paid for or returned, there is no more credit supplied on it, and it is therefore no longer “financed.” [38] However, the wording of the third recital alone is not determinative of the meaning of the word “financed”, for other parts of the Agreement also inform its meaning. [39] There is no reference to payment as such in the definition of “NHCC Financed Collateral.” However, the meaning of “financed” in para. 2(b)(

i) is informed by the presence and nature of the NHCC subordinations in para. 4.2. In these subordinations, payment is specifically addressed. The interplay of the priorities and the subordinations set out in 4.1 and 4.2 can for ease of reference again be

summarized as follows:

(1) NHCC has priority over NHCC Financed Collateral (first sentence of para. 4.1).

(2) NHCC subordinates its security to the Bank for all assets except NHCC Financed Collateral (first sentence of para. 4.2).

(3) NHCC subordinates its priority under (1) respecting a portion of the NHCC Financed Collateral (i.e. new and used goods and proceeds) upon NHCC having been paid by the Dealer in full.

(4) NHCC further subordinates its priority under (1) respecting a further portion of the NHCC Financed Collateral (i.e. trade in goods and proceeds) upon the purchase price for the new goods having been paid in full by the customer who bought the goods and used the trade-in as

part consideration. [40] The text of the subordinations regarding specific assets in para. 4.2 indicates that they were intended to carve out a specific class of assets from NHCC Financed Collateral for exceptional treatment.

The text begins by stating that “the NHCC Security related to any new or used “Goods” forming part of the NHCC Financed Collateral... is hereby postponed and subordinated. ...” The text of this first exception specifically mentions “Goods” forming part of the NHCC Financed Collateral, but not “parts and supplies”, suggesting that “Goods” were intended to be dealt with differently than the rest of the NHCC Financed Collateral, based in this case on payment. Payment is therefore relevant but restricted to the specific class of inventory mentioned and specific events of payment.

This implies that payment is generally irrelevant for the rest of the inventory still forming part of NHCC Financed Collateral not carved out by this exception. Otherwise there would be no need to make the exception. [41] Hence, I do not agree, as the Bank argues, that the exceptions are merely descriptive of what has been paid and is therefore not financed .

If the word “financed” in the definition of NHCC Financed Collateral were to be understood to mean “unpaid”, payment by the dealer for a class of specific goods which are part of NHCC Financed Collateral would not have to be mentioned at all in the first exception. [42] That payment by the dealer is generally irrelevant to the NHCC Financed Collateral and NHCC’s priority is further underlined by the second exception, which refers to trade-in goods. Trade-ins as such are not assets for which NHCC would have advanced any credit to Wheatland.

Yet trade-ins are included in the definition of Goods financed under para. 2.1(b)(i). If the definition of “financed” advocated by the Bank meant that money must have been advanced on an asset and must still be owing on that asset, trade-ins could never be “financed” as they apparently are under para. 2.1(b)(i). Moreover the payment in this exception which the Bank argues is descriptive of Goods no longer financed is not payment by the Dealer at all, but rather payment by the customer.

Payment by the Dealer is therefore irrelevant respecting whether trade-ins are financed and who has priority over them. [43] I conclude that the term “financed” as it appears in the definition “NHCC Financed Collateral” does not mean unpaid “present and after acquired inventory”. Thus parts returned, and the credits related to parts, remain part of NHCC Financed Collateral over which CNH Capital has priority. [44] I am confirmed in my conclusion by the business context which gave rise to the various financings.

Wheatland was obligated, pursuant to para. 15 of the New Holland Dealer Agreement, to obtain a wholesale line of credit. Unfortunately, the NHCC security agreement does not appear in the Appeal Books. The Agreement in

Schedule B lists one of the NHCC Securities as the “NHCC Wholesale Inventory Financing and Security Agreement”. This reference is consistent with the obligation of Wheatland in para. 15 of the New Holland Dealer Agreement. It may be inferred, from the description of the NHCC Security Agreement and the nature of Wheatland’s business, that what NHCC sought to, and did, finance and secure is the ever-changing collection of goods, parts, supplies and trade-ins flowing through the dealership. This

interpretation is reasonable and makes commercial sense. [45] Given the myriad of new and used goods, and new and used parts on hand as inventory, the specific exceptions in para. 4.2 to NHCC’s priority for its Financed Collateral under para. 4.1 are understandable. It is easier to track dealer payment on the bigger wholesale items and customer payment related to trade-ins than it is to track payment on the plethora of parts and other inventory which the dealer must have on hand to properly run its business.

Whole goods such as farm implements are more expensive compared to parts and, presumably, would amount to a larger portion of the financed inventory than parts. It would be in the interest of the Bank to stipulate that these bigger items should stand good for the Bank security rather than the NHCC security once it is clear that the large item has been paid in full by the dealer. That the arrangement that NHCC had with Wheatland is this type of a revolving credit facility is underscored by para. 4.2 of the Agreement.

Why else would the parties specify that NHCC subordinates its security interest in “Goods” for which the Dealer has paid (meaning whole goods as distinct from “parts and supplies”) to the Bank’s interest by way of exception? [46] This type of arrangement where normally all the inventory stands good for the debt of the Dealer to the inventory financier was described by Cameron J.A. in Chrysler Credit Canada Ltd. v. Royal Bank of Canada , [1986] 6 W.W.R. 337 at pp. 6, 7 and 9:

Having regard generally for the breadth of the security agreement in issue, and more specifically to the highlighted portions of it, Ibelieve the parties to the agreement intended Chrysler Credit’s security interest to attach to the whole of the new and used car inventory,as wall as to the component parts thereof. In other words they intended, I think, to have the whole of the inventory answerable for thewhole of the debt, so that as long as any part of the indebtedness remained owing, the inventory remained liable to satisfy it. . . . . . Professor Ziegel, in an

article entitled The Legal Problems of Wholesale Financing of Durable Goods in Canada, (1963) 41 CBR 54made these comments: . . . The situation is very different in the case of whole sale financing. The dealer is usually a limited company with few assets;there is – in the case of new goods at any rate – no down payment and there are no regular instalments, and the financer makes no,or very little, profit on the transaction but is obliged to accommodate the dealer in order to obtain the lucrative “paper”.

Above all,the risks are awesome: with values in the case of motor vehicles, for example, running to several thousand dollars per unit, itrequires only a few wholesale purchases to absorb impressive amounts of capital. . . .

And while the Act, either as proposed or enacted, is not altogether explicit about this, I believe, having regard for its wording, for thepolicy underlying it, and for the commercial necessities alluded to by Professor Ziegel, that the Act recognizes the inventory financier’sright to “cross-over” security: all the dealer’s inventory financed by the financier secures all of the advances which enabled the dealer toacquire it. And, of course, that is, as we have seen, what was contemplated in the security agreement in issue in this instance.

These passages were referred to with approval in Canadian Imperial Bank of Commerce v. Marathon Realty Co., (SKCA), [1987] 5 W.W.R. 236 at p. 10 (Sask. C.A.). [47] The term “financed” (and the reference to supplying credit in the third recital of the Agreement) is consistent with this type ofinventory financing and is descriptive of the relationship and not whether payment has been made. [48] The Bank also argues that inventory returned by a dealer does not give rise to credits at all, but rather proceeds and must be dealtwith as the paid realization of the collateral for which they compensate.

Given my conclusion as to which party has priority over theparts, it matters not whether the Credit accounts are described as Proceeds. Under para. 4.4 of the Agreement, NHCC has priority to theproceeds because they relate to the parts to which NHCC has priority. [49] Two additional issues were also raised on this appeal. I need not deal with whether CNH Canada is obligated to repurchase certainparts from Wheatland pursuant to s. 52 of The Agricultural Implements Act, R.S.S. 1978, c. A-10, given my conclusion on the priorityissue.

Insofar as the second issue is concerned, ie., the misgivings of CNH Capital and CNH Canada respecting the behaviour of theReceiver in this matter, I agree with the reasons of my colleague, Richards J.A. on this issue. VII. Conclusion [50] I conclude that CNH and CNH Capital’s interest in security respecting the Inventory Credits has priority over the Bank security’sinterest. I would therefore allow the appeal and grant judgment to the appellants, with costs to be taxed in the usual way and costs in thecourt below.

DATED at the City of Regina, in the Province of Saskatchewan, this 28th day of September, A.D. 2011. “Ottenbreit J.A.” Ottenbreit J.A. I concur “Cameron J.A.” Cameron J.A. Richards J.A. (in dissent) I. Introduction

[51] This appeal arises out of the insolvency of a farm machinery dealer. [52] The central question before the Court concerns the

interpretation of a subordination agreement as it relates to the competing claims of the Appellant CNH Capital Canada Ltd. (“CNH Capital”) and the Respondent Toronto-Dominion Bank (“the Bank”) to credits earned by the dealer for the return of machinery parts. As explained below, I conclude that the Bank’s security interest in the credits has priority over CNH Capital’s interest. [53] This case also raises a question about whether the Appellant CNH Canada Ltd. (“CNH”) is obliged to repurchase certain repair parts from the dealer. The resolution of this problem turns on the

interpretation of s. 50 of The Agricultural Implements Act , R.S.S. 1978, c. A-10. As indicated in the reasons that follow, I conclude CNH is not required to repurchase the parts. [54] CNH and CNH Capital also have raised some concerns about the approach taken by the Receiver appointed to manage the affairs of the machinery dealer. In my view, those issues should not be addressed in the context of this appeal. II. General Background [55] The Respondent Wheatland Industries

(1990) Ltd. (“Wheatland”) was in the business of selling, leasing and repairing agricultural machinery and equipment. It operated out of facilities in Rosetown and Elrose. [56] Beginning in 1999, the Bank advanced credit facilities to Wheatland. These included a demand operating credit facility of $500,000 and a Visa Business Credit Card facility. [57] In order to secure its obligations, Wheatland executed a general security agreement in favour of the Bank whereby it granted the Bank a security interest in all present and future property.

In April of 1999, the Bank registered a financing statement against Wheatland in the Saskatchewan Personal Property Registry. It claimed a security interest in respect of all Wheatland’s present and after-acquired personal property. [58] Wheatland became an authorized dealer for New Holland Canada Ltd. in 2000.

It became a dealer for Case Canada Corporation in 2002. (By virtue of a series of corporate reorganizations, those two companies subsequently became CNH.) [59] The Bank, Wheatland and New Holland (Canada) Credit Company entered into a priority agreement dated May 18, 1999 (the “NHCC Priority Agreement”) under which they agreed how priorities would be determined in relation to the assets of Wheatland.

The Bank, Wheatland, Case Canada Corporation and Case Credit Ltd. entered into a similar agreement on May 15, 2002 (the “Case Priority Agreement”). [60] CNH Capital stands in the shoes of New Holland (Canada) Credit Company and Case Credit Ltd. with respect to the NHCC and Case Priority Agreements.

In 2005, CNH began handling all of its dealer financing through CNH Capital. [61] CNH Capital terminated its financing agreement with Wheatland in 2006. [62] By April of 2006, Wheatland had defaulted on its obligations to the Bank under the Bank’s operating credit facility. [63] PricewaterhouseCoopers Inc. (the “Receiver”) was then appointed as receiver and manager of all current and future assets, undertakings and properties of Wheatland.

[64] Wheatland maintained several credit accounts arising from the return of parts inventory. All of these were ultimately administered by CNH Capital. Within each account, CNH Capital kept individual credit lines for various types of goods and parts. In total, the credits owing to Wheatland amount to $235,336.96. [65] In September of 2007, the Receiver requested payment of the credits owing by CNH Capital to Wheatland. CNH replied that its security interest had priority over that of the Bank with respect to all credit account balances.

An additional difference of opinion arose as to whether CNH was obligated to repurchase parts ordered from it by Wheatland but shipped directly to Wheatland by third party suppliers. [66] As a result, the Receiver sought the advice and direction of the Court of Queen’s Bench by way of an application raising the following questions: (

a) whether the Case New Holland group ("CNH") is obliged to pay certain amounts to the Receiver, as set out in the Report of the Receiver dated July 10, 2008 re: Issues Concerning CNH Group (the "Report"), in respect of credit balances of Wheatland and parts returned by the Receiver; and (

b) whether CNH was required to purchase certain parts from the Receiver, mainly comprised of Direct Ship Items (as defined in the Report) from the Receiver, and whether CNH is obliged to pay certain amounts to the Reciever [ sic ], as set out in the Report, in respect of such parts. III. The Subordination Agreements [67] The relevant provisions of the NHCC Priority Agreement and the Case Priority Agreement are worded in exactly the same way and, therefore, it is not necessary to recite the particulars of both.

For purposes of these reasons, I will refer only to the NHCC Priority Agreement (hereafter the “Agreement”). [68] The heart of the Agreement is found in ss. 4.1 and 4.2. In them, and speaking generally, the Bank agreed to subordinate its security interest in relation to “NHCC Financed Collateral” and NHCC agreed to subordinate its security interest in relation to all assets other than “NHCC Financed Collateral.” Sections 4.1 and 4.2 read as follows: 4.1 The Bank hereby agrees that the Bank Security is hereby postponed and subordinated in all respects to the NHCC Security on the NHCC Financed Collateral.

The Bank further agrees that the NHCC Security in the Credits included in the NHCC Finance [ sic ] Collateral and all Proceeds thereof shall at all times remain prior to and rank ahead of the Bank’s Security in such Credits. 4.2 NHCC hereby agrees that the NHCC Security is hereby post-poned [ sic ] and subordinated in all respects to the Bank Security on all the present and future assets of the Dealer [other] than the NHCC Financed Collateral.

NHCC further agrees that the NHCC Security related to any new or used Goods forming part of the NHCC Financed Collateral, and all Proceeds of the Goods, is hereby postponed and subordinated in all respects to the Bank Security related to the new or used Goods and the Proceeds thereof, effective upon NHCC having been paid by the Dealer in full for such Goods.

NHCC further agrees that the NHCC Security related to any trade-in Goods forming part of the NHCC Financed Collateral and all Proceeds of such trade-in Goods is hereby postponed and subordinated in all respects to the Bank Security related to the Trade-in Goods and the Proceeds thereof, effective upon the purchase price for the new Goods acquired by the Dealer's customer who delivered the trade in Goods to the Dealer as

part consideration for the new Goods acquired by such customer, having been paid in full. (The parties agree that the word “other,” found in square brackets above, must be added to s. 4.2 to correct a typographical error.) [69] The

definitions giving meaning to ss. 4.1 and 4.2 are found in s. 2.1: 2.1 In this Agreement, the following terms shall have the meanings attributed to them: ... (b) "NHCC Financed Collateral" means the following present and future assets of the Dealer:

(

Schedule B hereto, if any. (d) "Credits" includes all factory rebates, credits, advertising and promotional allowances, and all other amounts, credits or claims due or accruing due to the Dealer from a manufacturer or distributor of goods, parts, and supplies. (e) "Proceeds" means personal property in any form derived directly or indirectly from any dealing with the Dealer's assets or that indemnifies for assets of the Dealer that are destroyed or damaged. [70] The recitals are also relevant.

Section 1.1 of the Agreement stipulates that they are to be read and construed as part of the Agreement.

The recitals read as follows: WHEREAS the Dealer is in the business of selling, leasing and repairing tractors, agricultural and industrial equipment, and implements (hereinafter referred to as "Goods"); AND WHEREAS the Bank has loaned money or made other financial accommodations to the Dealer and may in future loan further monies or make further financial accommodations to the Dealer to enable the Dealer to operate its business; AND WHEREAS NHCC is supplying credit and may in the future supply further credit to the Dealer to enable the Dealer to acquire and hold for sale or lease, Goods and parts and supplies therefor; AND WHEREAS the Bank and NHCC have taken and may in future take security documents from the Dealer to secure payment of the respective present and future indebtedness and obligations of the Dealer to each of them; [emphasis added] IV.

The Decision under Appeal [71] At the Queen’s Bench hearing, CNH and CNH Capital argued that ss. 4.1 and 4.2 of the Agreement must be read as meaning CNH Capital did not subordinate its security interest in relation to paid for parts and the credits arising from their return. The Chambers judge did not accept this

interpretation. In his view, the critical consideration in construing the Agreement was the distinction between inventory and credits paid for by Wheatland, on the one hand, and inventory and credits financed by CNH Capital on the other.

The key parts of his reasons are set out below: [16] The CNH companies contend that they are entitled to claim prior security to the credits generated by the parts returned based on the reasoning that parts, the proceeds of parts returned and the credits thereby generated are not included in the assets in respect of which TD is entitled to claim priority pursuant to paragraph 4.2. CNH contends that the priority extended to TD by paragraph 4.2 includes only assets that are not "NHCC Financed Collateral".

Notwithstanding that the parts in issue have been, in effect, paid for, CNH contends that those parts are nevertheless "NHCC Financed Collateral". [17] I am not able to follow the fine distinctions required to support the CNH position. [18] I do not accept the submission of the CNH counsel that the goods/parts issue is the cornerstone of the priority agreement. The critical issue is the distinction between inventory and credits paid for by Wheatland and inventory and credits financed by NHCC that Wheatland has not paid for.

However, there is no reference to any manual or manuals in the priority agreement itself, nor is there any acknowledgement or recognition of the provisions of any NHCC policy manuals by TD. [19] I should comment on the CNH submission that the fact that the specific reference to new goods, used goods and trade-in goods indicates that the omission of the word "parts" in these categories indicates that parts are something separate or different.

This does not, in my view, serve to identify an intention on the part of TD to relinquish any rights to its security claim against paid-for parts. [20] Notwithstanding the possibility of a contrary

interpretation, in accordance with the submission on behalf of CNH on this application, it seems clear that objective of the contracting parties when they entered the priority agreement was that the NHCC security would have priority over the TD security as to Wheatland inventory supplied by New Holland but not paid for by Wheatland or returned for credit. But once the inventory supplied by New Holland was paid for by Wheatland, the TD general security on Wheatland's present and after-acquired property would prevail.

[72] At the end of the day, the Chambers judge said the Receiver was entitled to recover the credits in the full amount of $235,336.96. [73] The Chambers judge also went on to deal with the question of whether s. 50(14) of The Agricultural Implements Act , supra , applied so as to require CNH to repurchase parts from Wheatland even when the parts in question had been shipped to Wheatland by third party suppliers. This boiled down to a question of whether the parts in issue were “specially ordered” within the meaning of s. 50(14)(

c) of the Act . The Chambers judge concluded the parts were not specially ordered and that CNH was required to repurchase them. V. Analysis A. The Priorities Issue [74] CNH and CNH Capital say the Chambers judge erred in his

interpretation of ss. 4.1 and 4.2 of the Agreement. In their view, these provisions should be read as meaning the Bank subordinated its security interest in respect of both paid for and unpaid for parts and, as a result, that the credits in issue (arising as they do from the return of paid for parts) are not subject to the Bank’s security interest. [75] Their argument in this regard begins with s. 4.1 of the Agreement.

As noted, it says the Bank’s security interest is subordinated to the interest of CNH Capital (the Agreement uses the acronym “NHCC”) in respect of “NHCC Financed Collateral.” CNH and CNH Capital then point to s. 4.2 of the Agreement whereby CNH Capital subordinated its security interest to that of the Bank in all respects other than in relation to “NHCC Financed Collateral.” [76] Sections 4.1 and 4.2, of course, raise a question as to the meaning or scope of “NHCC Financed Collateral.” That term is defined in s. 2.1(b)(

i) as “present and after-acquired inventory financed by NHCC consisting of new, used and trade-in Goods and all parts and supplies for such Goods (the NHCC Inventory)” and, as per s. 2.1(b)(ii), as also including all present and after-acquired “Credits relating to any item of NHCC Inventory and including all credits due or accruing due to [Wheatland] from NHCC.” [77] A full understanding of the definition of “NHCC Financed Collateral” requires, in turn, consideration of the meaning of “Goods.” That term is defined in the first recital of the Agreement.

It refers to “…tractors, agricultural and industrial equipment and implements (hereinafter referred to as ‘Goods’).” CNH and CNH Capital say it is clear, therefore, that the term “Goods,” as used in the Agreement, refers to whole or complete units of equipment, such as tractors or combines, and not to individual repair parts for such machines.

They say this is underlined by the third recital which expressly contrasts “Goods” with “parts” by way of the words “…hold for sale or lease, Goods and parts and supplies therefor” and by the wording of the definition of “Credits” found in s. 2.1(d). [78] This distinction between “Goods” and “parts” is argued to be of particular significance in light of s. 4.2 which, after saying NHCC Security is subordinated to Bank security in relation to all assets other than NHCC Financed Collateral, goes on to provide that NHCC, i.e.

CNH Capital, “further” agrees to subordinate its security interest with respect to “new or used Goods forming part of the NHCC Financed Collateral” and all proceeds of those “Goods,” if CNH Capital has been paid in full by Wheatland for “such Goods.” [79] CNH and CNH Capital say this aspect of s. 4.2 indicates that CNH Capital subordinated its security interest to the Bank only in relation to paid for “Goods” and not in relation to paid for parts.

It is said to follow, therefore, that CNH Capital has priority with respect to paid for parts and the credits generated by way of their return to CNH. [80] There might be an arguable logic to this construction of the Agreement. The inventory held by Wheatland consisted of a large number of parts including many relatively inexpensive items such as gaskets, washers, bolts, clamps, pins and the like. The profile of that inventory was presumably in a state of constant flux as parts were removed from it on a continuing basis for sale or use and then replenished.

Keeping track of each individual item in terms of whether it had been paid for by Wheatland or obtained on the strength of credit from CNH Capital looks, from this vantage point, to be a complicated business. Accordingly, it might have been reasonable for CNH Capital and the Bank to agree that all parts, obtained on credit or not, would be subject to a priority claim by CNH Capital.

Complete units of machinery (like a tractor or combine) are more easily accounted for and this, as a result, could serve to explain why (as per s. 4.2 of the Agreement) fully paid for “Goods” are expressly stated not to be part of NHCC Financed Collateral. [81] Nonetheless, the reading of the Agreement urged by CNH and CNH Capital has an obvious flaw.

In order to understand that flaw fully, it is useful to begin by noting that, by virtue of its first in time registration of a present and after-acquired property interest, the Bank initially had priority, vis-à-vis CNH Capital, in relation to all of Wheatland’s property. The Agreement, therefore, must be seen as having been designed to carve out an exception to the Bank’s blanket priority. This basic reality, of course, explains why the Bank’s agreement to subordinate its security interest is restricted to “NHCC Financed Collateral.”

[82] The key to the concept of “NHCC Financed Collateral,” and hence the Agreement as a whole, is the requirement that the assets in issue be “financed” by CNH Capital. For ease of reference, ss. 2.1(b)(

i) and (ii) of the Agreement are reproduced below: (b) "NHCC Financed Collateral" means the following present and future assets of the Dealer: (

i) All of the Dealer's present and after-acquired inventory financed by NHCC [ i.e.

CNH Capital] consisting of new, used and trade-in Goods and all parts and supplies for such Goods (the NHCC Inventory); (ii) all present and after-acquired Credits relating to any item of NHCC Inventory and including all credits due or accruing due to the Dealer from NHCC; and (iii) all choses in action, rights and contracts relating to the NHCC Inventory and all Proceeds realized by the Dealer from such contracts, the NHCC Inventory and Credits, other than choses in action, rights and contracts arising from the sale by the Dealer of parts and services in the ordinary course of its business. [emphasis added] [83] This definition is the very foundation of the Agreement.

It has the effect of limiting the extent to which the Bank’s security interest is subordinated to CNH Capital’s interest. Specifically, it restricts the scope of the subordination of the Bank’s interest to present and after-acquired inventory financed by CNH Capital. This limitation reflects the fact of the Bank’s pre-existing priority in respect of all Wheatland property and, at the same time, it accommodates CNH Capital’s ongoing facilitation of Wheatland’s operations through the supply of credit in respect of inventory.

In short, the definition of “NHCC Financed Collateral”--the linchpin of the Agreement--clearly stipulates that the Bank’s security interest is subordinated only in respect of Goods and parts “financed” by CNH Capital. [84] All of this sits somewhat uncomfortably with CNH and CNH Capital’s point about the “further” agreement to subordinate CNH Capital’s interest with respect to paid for Goods, as per the second sentence of s. 4.2. Indeed, the Agreement does seem to present something of an inconsistency in this regard. In other words, “NHCC Financed Collateral” is defined in s. 2.1(b)(

i) so as to exclude paid for Goods and parts but the second sentence in s. 4.2 seems to imply that paid for parts fall within the scope of “NHCC Financed Collateral.” [85] The challenge here is to make sense of these provisions in light of the Agreement as a whole. In this regard, it is apparent that the central thrust and purpose of the Agreement is reflected in s. 2.1(b)(i). The notion expressed there is that the security interest of the Bank is subordinated only in respect of CNH Capital financed inventory. As explained above, this is self-evidently the foundational feature of the Agreement.

Accordingly, in my view, it must be given effect notwithstanding the ambiguity created by the wording of s. 4.2.

The best approach to the second sentence in s. 4.2 is to read it as something in the nature of a provision added out of an abundance of drafting caution, not as something intended to alter the basic purpose of the Agreement. [86] CNH and CNH Capital also submit that their security interest should prevail over the Bank’s interest because “NHCC Financed Collateral” is specifically defined, in s. 2.1(b)(ii) of the Agreement, to include “…Credits relating to any item of NHCC Inventory… .” As a result, they say the credits in issue here necessarily come within the meaning of NHCC Financed Collateral, the class of assets in relation to which the Bank agreed to subordinate its security interest. [87] The problem with this argument is that “Credit,” as set out in s. 2.1(b)(ii), is not a free-standing term.

Rather, it is defined as comprising only those credits “relating to any item of NHCC Inventory.” Thus, unless a credit relates to NHCC Inventory, it is not part of “NHCC Financed Collateral.” This forces the analysis directly back to s. 2.1(b)(

i) of the Agreement, discussed above, and the notion that NHCC Inventory is inventory financed by CNH Capital. The credits in dispute here arose from the return of paid for parts. As a consequence, CNH Capital cannot use the reference to “Credits” found in s. 2.1(b)(ii) as a tool for improving its position in relation to the Bank. Its argument on this front must fail because the credits in question do not relate to inventory financed by CNH Capital. [88] Thus, although the Agreement is not worded with great clarity, I conclude the Chambers judge interpreted it correctly.

CNH Capital’s security interest is subordinated to the Bank’s security interest in relation to credits arising from the return of paid for parts. B. The Agricultural Implements Act Issues [89] Having decided that the Bank has priority over CNH Capital with respect to the credits, it is now necessary to determine whether CNH (a parts supplier) is obligated to repurchase so-called “direct ship” parts from Wheatland pursuant to s. 50 of The Agricultural Implements Act .

[90]

Section 50 requires a supplier, on notice, to repurchase from a dealer unused implements, parts and other items. Sections 50(2) and (3) read as follows:

(2) Within 90 days after the day an agreement expires or is terminated by the dealer or the supplier for any reason, a dealer may give to the supplier a written notice to purchase containing a request by the dealer that the supplier purchase: (

a) all unused implements, unused parts , signs, computer hardware and computer software obtained from or required by the supplier; and (

b) any special tools and service manuals obtained from or required by the supplier.

(3) If a notice to purchase is given to the supplier in accordance with subsection (2), the supplier shall , subject to this Act and the regulations, purchase from the dealer : (

a) all unused implements obtained by the dealer from the supplier; (

b) all unused parts purchased as parts by the dealer from the supplier; … [emphasis added] [91] The direct ship parts in issue here constituted a portion of Wheatland’s parts inventory. They were ordered by Wheatland from CNH but manufactured by third party suppliers and shipped directly from those suppliers to Wheatland. Section 50(14)(

c) of the Act [92] In 2007, the Receiver served a notice to repurchase the direct ship parts pursuant to s. 50(2) of the Act . CNH refused to repurchase them on the basis that they fell within the scope of s. 50(14)(

c) of the Act . This provision says a supplier is not required to purchase any part “specially ordered by the dealer from the supplier on the understanding that the part was not returnable by the dealer.” Section 50(14)(

c) is set out below:

(14) A supplier is not required to purchase any of the following: … (

c) an unused part specially ordered by the dealer from the supplier on the understanding that the part was not returnable by the dealer; [emphasis added] [93] CNH submits the exemption found in s. 50(14)(

c) applies on the facts at hand. In this regard, it points to the Parts Policy Manual which states, in s. 9.0 dealing with “Special Return, Depot Parts,” that “Parts purchased on a Direct Ship (direct from vendor) sales program” are excluded from the return privilege program. [94] CNH also points to s. 25 of the Dealer Agreement between it and Wheatland which states: 25. ACQUISITION OF CERTAIN PROPERTY UPON TERMINATION Unless otherwise provided by law, the following provisions shall control: a.

If this Agreement expires or is terminated, then upon Dealer’s written request, the Company shall repurchase all new, complete, unused, unsold and undamaged PRODUCTS in Dealer’s stock on the date of termination provided the PRODUCT: (

i) is in new, complete, salable condition; (ii) is listed in the then-current price and data book or parts price list; (iii) is free and clear of all liens; and (iv) was purchased by Dealer from the Company. In addition, the Company will only repurchase GENUINE PARTS that are returned in correct order multiples, in a complete set (if originally sold in a set of two or more items) and in the original Company packaging with the original authorized Company identification label. The Company will only repurchase attachments that were not previously installed and which were invoiced separately to Dealer.

The Company will not repurchase any GENUINE PART that has a limited shelf life, has an altered or counterfeited identification label, is

in a broken package, is a hazardous material or was direct shipped from a supplier other than the Company. [emphasis added] [95] In reliance on the Parts Policy Manual and the Dealer Agreement, CNH says the direct ship parts in issue here must be seen ascoming within the scope of s. 50(14)(

c) because there was an understanding between it and Wheatland that they could not be returned. Itstresses that it does not stock or resell such parts and that it would be reasonable to give effect to the agreement with Wheatland. [96] I am not persuaded by CNH’s line of argument. First, there is nothing about the nature of direct ship parts, in and of itself, thattakes them outside the scope of a dealer’s buy-back obligation. This is apparent from s. 50(14)(b)(

i) of the Act. It says one of theexceptions to the buy-back obligation is parts not listed in “the supplier’s current price list.” The definition of the term “supplier’scurrent price list,” as found in s. 25 of The Agricultural Implements Regulations, 1982, R.R.S., c. A-10, Reg. 1, is as follows: 25 In

section 50 of the Act and in these Regulations: … (d) “supplier’s current price list” means the latest comprehensive price list or lists of the supplier that includes all parts that may beordered by a dealer from the supplier including parts that are ordered from the supplier that are shipped directly to the dealer from a thirdparty; Worded as it is, this definition necessarily indicates that direct order or direct ship parts are subject to the buy-back obligation. [97] Second, I cannot accept CNH’s approach because it operates to deprive the term “specially ordered” in s. 50(14)(

c) of anyindependent meaning. Under CNH’s logic, every part ordered on an understanding it is not returnable would be specially ordered byvirtue of the mere fact of its non-returnability. This, in my view, is a misinterpretation of the Act. [98] It seems clear enough that the ultimate purpose of s. 50 is to protect farmers. It does this by ensuring machinery dealers canmaintain an adequate stock of parts without running the risk of being unable to return those parts in the event a dealer agreement iscancelled. Section 50(14)(

c) sets out an exception to this general guarantee. As a result, care must be taken so as not to read s. 50(14)(c)too broadly. [99] The plain and ordinary meaning of “specially ordered” involves the notion of an order that is out of the ordinary or exceptional. Wilson J. offered this helpful view of the words “special” and “specially” in R. v. T. Eaton Co. Ltd. (1973), (MBKB), 14 C.C.C. (2d) 124 at p. 127: The word “special”, or phrases incorporating that word or its adverbial derivative “specially”, is not without meaning.

For the lawyer,one thinks perhaps of “special damages”, “special agent”, or “special jury”, and no doubt there are other phrases of less technicalsignificance, say “special leave”, or “special circumstances”. These last bring us closer to the every-day meaning imported by the word“special”, namely, something out of the ordinary, a thing exceptional, designed for a particular purpose, occasion, or person. [100] Section 50(14)(

c) would clearly be engaged in circumstances where a dealer, acting out of the ordinary course of operations,ordered a custom-made or custom-modified part from a supplier on the understanding the part was not returnable. How far, if at all, s.50(14)(

c) might reach beyond that sort of situation is difficult to map out in the abstract. It is apparent, however, that the “speciallyordered” concept must be rooted in either (

a) the unusual nature of a part, (

b) the unusual process by which a

part is ordered, or (

c) somecombination of these two considerations. [101] On the facts of this case, Wheatland’s orders in relation to the direct ship parts were not exceptional or extraordinary on eitherfront. First, the parts themselves, some 2,555 of them in total according to the Bank, were all on CNH’s price list. They involved suchmundane and generic things as nuts, washers, screws, bearings and bolts. According to the Receiver’s calculations--calculations notchallenged by CNH--more than half of Wheatland’s inventory was direct order parts.

In short, the parts themselves were in no wayunusual. [102] Second, there was nothing extraordinary about the process for ordering the direct ship parts in issue. Just as was the case for CNHmanufactured parts, orders for direct ship parts were placed with CNH. Wheatland was invoiced for the parts by CNH and Wheatlandpaid CNH for them. The only distinctive thing about a direct ship parts order was that the order form had a code indicating the partswere not returnable.

In all other respects, as explained to the Court, the details of the ordering process were precisely the same for directorder parts as for parts manufactured by CNH.

[103] It is apparent, therefore, that the direct order parts at issue in this appeal cannot be seen as being “specially ordered” in any reasonable sense of that term. Regardless of whether “specially ordered” is taken to involve factors relating to the nature of the parts in question or to the process by which the parts were ordered or obtained, the direct ship items in Wheatland’s inventory do not fall within the reach of s. 50(14)(c).

Accordingly, it is unnecessary for purposes of resolving this appeal to attempt to fully sort out all of the possible subtleties involved in the meaning of “specially ordered.” It is enough to say that, on the facts here, there is nothing that would bring Wheatland’s direct ship inventory within any reasonable scope of that term. [104] I conclude that s. 50(14)(

c) of the Act did not relieve CNH of its obligation to repurchase the direct ship parts ordered by Wheatland. [105] The Receiver indicates in its factum that, by agreement between it and CNH, the direct ship parts in issue here were sold at auction in June of 2007 without prejudice to the right of the Receiver to bring a claim against CNH for failing to repurchase the parts. The difference between the net sale proceeds for the parts and the CNH repurchase price was $88,724.59. I understand that these amounts and this aspect of the controversy between the parties are not in dispute. All this Court has been asked to determine is whether the parts fell within the ambit of s. 50(14)(

c) of the Act . Section 50(14)(

d) of the Act [106] The Receiver raised in its factum (for the first time in these proceedings) a question about the possible application of s. 50(14)(

d) of the Act to the problem at issue here. That provision reads as follows:

(14) A supplier is not required to purchase any of the following: … (

d) unused implements, unused parts, signs, computer hardware, computer software, service manuals and special tools that are subject to a lien, charge, encumbrance or mortgage in favour of a third party in an amount in excess of the amount that the supplier would be required to pay to the dealer pursuant to this section; [107] The Chambers judge obviously had no opportunity to consider this aspect of the Act . However, CNH and the Bank both made full submissions on it in arguing this appeal. There was no suggestion that this Court should not, or could not, deal with the implications of s. 50(14)(d). [108] The Bank says s. 50(14)(

d) is intended to introduce a sort of “marshalling” concept which, in the circumstances at hand, would not relieve CNH of its buy-back duty. Marshalling, of course, is an equitable doctrine dealing with the reconciliation of overlapping security interests. It provides that, where a senior creditor has taken security in multiple assets and a junior creditor has taken security only in a subset of those assets, the senior creditor must (to the extent possible) look to the assets in which the junior creditor has no interest.

As a result, the doctrine prohibits a senior creditor from prejudicing a junior creditor by collecting from “shared collateral” in situations where it has other collateral with which to satisfy its debts. [109] I see little in the wording of s. 50(14)(

d) to suggest it has a marshalling-type purpose. The provision says nothing at all about competing or overlapping security interests or security interests in different assets or classes of assets. Further, it says nothing about how such interests might be reconciled with each other.

It refers only to the situation where, inter alia , unused parts are subject to a security interest in favour of a third party “in an amount in excess of the amount that the supplier would be required to pay to the dealer pursuant to this section.” [110] The most obvious reading of s. 50(14)(d), and the one I prefer, is that it was intended to create an exception to the supplier buy- back obligation in circumstances where the entire proceeds from a parts repurchase would go into the pocket of a third party creditor, rather than directly benefiting the dealer. However, this

interpretation requires some refinement. Section 50(14)(

d) is not well drafted but I think it must be assumed the Legislature cannot have intended to negate the supplier buy-back obligation merely because of the existence of a third party security interest in an amount in excess of what a supplier would be required to pay a dealer by way of repurchase. A broad reading of that sort could well, in practical terms, make the buy-back obligation a hollow one in that many, or even most, dealers might be expected to have given a general security interest in future and after-acquired property to secure debts larger than the value of their parts inventory.

[111] It seems necessary, therefore, to read s. 50(14)(

d) as applying only when a third party creditor is actively enforcing its rights against a dealer, i.e. where the repurchase amount paid by the supplier would, as is the case here, simply go into the hands of the creditor. This reading of s. 50(14)(

d) seems to be in harmony with the general scheme of the Act in that s. 50 is designed to assist farmers by making it less onerous for machinery dealers to carry parts inventories. With this objective in mind, the Act imposes the buy- back duty--a very unusual duty--on suppliers. Seen from this perspective, it is apparent that the goal of the

section would be overshot if suppliers were required to repurchase parts when so doing would not directly benefit a dealer. [112] But this is not the end of the matter. The Bank argues, as an alternative position, that its secured claim in relation to the parts in issue here is not, as required by s. 50(14)(d), “in excess” of the amount the supplier would be required to pay the dealer, i.e. the amount CNH would be required to pay Wheatland.

It says its charge is limited to the value of the parts because there are no other remaining Wheatland assets to which the charge can apply. [113] I do not agree with this reasoning. First, there are, in fact, assets other than the parts which are still in play--specifically, the credits discussed earlier in these reasons. Second, the Bank’s approach does not reconcile with the root purpose of s. 50(14)(

d) which, as explained above, is to avoid those situations where a supplier is obliged to pay what is, in effect, a premium price to repurchase parts when that repurchase would be a direct benefit only to a third party creditor. [114] Section 50(14)(

d) is applicable on the facts of this case. As a result, CNH is not required to repurchase the parts. C. The Role of the Receiver [115] CNH and CNH Capital take exception to the way in which the Receiver brought its application for directions in the Court of Queen’s Bench. They say it failed to maintain an appropriate level of neutrality in the matter. [116] CNH and CNH Capital do not seek any relief in relation to the actions of the Receiver and they do not contend the Receiver’s actions somehow affected the outcome of the decision in the Court of Queen’s Bench.

Nor do they suggest the submissions made by the Receiver in this Court are inappropriate. In essence, they ask for a ruling or a commentary “in the air” about the approach taken by the Receiver in the Court of Queen’s Bench. [117] It would not be appropriate for this Court to offer an abstract commentary of the kind requested by CNH and CNH Capital. These sorts of issues would have been best raised in, and addressed by, the Court of Queen’s Bench. V. Conclusion [118] For the above reasons, I conclude the appeal sho

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