C. Dixon Fuels Ltd. v. S.W.S. Fuels Ltd., 2010 NSSC 259

IN THE SUPREME COURT OF NOVA SCOTIA Citation: C. Dixon Fuels Ltd. v. S.W.S. Fuels Ltd., 2010 NSSC 259 Date: 20100422 Docket: Yar 305082 Registry: Yarmouth Between: C. Dixon Fuels Limited, Charles E. Dixon and Judy M. Dixon Plaintiff v. S.W.S. Fuels Limited Defendant Judge: The Honourable Justice Simon J. MacDonald Heard: April 22, 2010, Yarmouth, Nova Scotia Counsel: Rubin Dexter (NP), for the plaintiff (Not Participating) S. Clifford Hood,Q.C., for the defendant Steven Zatzman, Q.C. for MacPhee Pontiac Buick G.M.C. Ltd. By the Court : [ 1 ] In a Notice of Motion dated February 10, 2010 S.W.S. Fuels Limited (“S.W.S.”) the defendant in the above captioned proceeding seeks an order as follows:

1) Declaring that the General Security Agreement grants S.W.S. the first charge over a 2004 GMC truck, serial number 1GDP7C1C540191 (the “Vehicle”); 2) That MacPhee’s security interest in the Vehicle be discharged; 3) That Service Nova Scotia register the Vehicle in the name of S.W.S. pursuant to the Motor Vehicles Act; and 4) That any subsequent purchaser have an ownership free from any interest claimed under or through Dixon Fuels. BACKGROUND: [ 2 ] S.W.S. operates a fuel supply services company for fishermen and their companies in southwest Nova Scotia. C.

Dixon Fuels Limited (Dixon Fuels) would buy fuel products from S.W.S. and they in turn, would re-sell it to customers. S.W.S. would pay commission to Dixon Fuels for the fuel products sold. [ 3 ] On or about September 2008 S.W.S. advised Dixon Fuels that it required security in order to continue to supply fuel under the original oral agreement. S.W.S. agreed to provide Dixon Fuels with a new $750,000 line of credit which was documented in a credit agreement, dated December 14, 2005. [ 4 ] This credit agreement was secured by

a) a General Security Agreement (the Agreement), dated December 14, 2005; and

b) the personal guarantees of Charles Dixon and Judy Dixon dated the same day. [ 5 ] A financing statement (financing statement) was registered December 20, 2005 as registration #10493161 and file #05H262, under the Personal Properties Security Act (The Act). [ 6 ] The registered financing statement included as security a 2004 GMC truck with serial #1GDP7C1C54F504191 (the vehicle). [ 7 ] As a result of breaches in the terms of the Agreement S.W.S. made a formal demand for payment from Dixon Fuels, Charles Dixon and Judy Dixon. It also, as a result of the default, seized the vehicle on March 13, 2009 from T.L.

Swaynie’s garage in Barrington Passage, claiming it had a first registered security interest in the vehicle. [ 8 ] At the time the Agreement was signed title to the vehicle was in the name of GMAC Leasco Corporation (GMAC).

It was leased to Dixon Fuels as Lessee and Charles Eugene Dixon as Co-Lessee by GMAC on January 7, 2004. [ 9 ] Title to the vehicle was transferred on November 22, 2007 from GMAC to MacPhee Pontiac Buick GMC Limited (MacPhee) and MacPhee paid GMAC the sum of $27,415.09, plus HST for the vehicle. [ 10 ] MacPhee, by Lease Agreement, dated November 22, 2007 leased the vehicle to Dixon Fuels as Lessee and Charles Eugene Dixon as Co-Lessee. [ 11 ] MacPhee registered the lease on December 5, 2007, Registration #1376332 and file #L15775, as a purchase money security interest under the Act.

[ 12 ] In her affidavit, sworn to on April 21, 2010, Donna Larkin, as general manager of S.W.S. states in paragraph 7, the only time Dixon Fuels and/or Charles Eugene Dixon ceased to be in possession of the vehicle was in March, 2009. They had possession of the vehicle I conclude from June 7, 2004 until it was seized in March, 2009. [ 13 ] Donald Hartigan, in his affidavit sworn to on April 14, 2010 states in paragraph 10 that at no time did C.

Dixon Fuels or Charles Eugene Dixon have registered title to the vehicle. [ 14 ] Therefore, I find Dixon Fuels and/or Charles Eugene Dixon had no registered title to the vehicle during the time involved and MacPhee did not have possession of the vehicle at any time during their business transactions together. There is no evidence MacPhee did any work or improvements on the vehicle. [ 15 ] S.W.S. now wishes to sell the vehicle and have the money applied to the account of Dixon Fuels.

However, registered title remains in the name of MacPhee who claims a priority security interest in the vehicle to that of Dixon Fuels. [ 16 ] MacPhee is not a party to the action and both parties ask that it be added so as to partake in the hearing of the motion. [ 17 ] Dixon Fuels Limited and Charles Eugene Dixon did not take

part in the motion per correspondence received from their Counsel, Mr. Rubin Dexter. ISSUES: [ 18 ] To resolve the motion the court must determine: 1) Should MacPhee be added as a party, and 2) Who has the security interest in the vehicle as between S.W.S. and MacPhee. THE LAW: [ 19 ] Civil Procedure Rule 22.11 provides an Order that may bind a non-party to a proceeding: 22.11

(1) A person who is appointed by a judge to carry out an assignment, such as a sheriff or receiver, may make a motion in connection with the assignment.

(2) A person who is not a party to a proceeding, and is not appointed in the proceeding, may make a motion in the proceeding only if a judge permits, except the person requires no permission to make a motion to intervene under Rule 35 - Parties.

(3) A party may move for an order binding a non-party only if legislation or these Rules allow, or a judge permits.

(4) A non-party who makes a motion, or against whom a motion is made, may be joined as a party to the proceeding in accordance with Rule 35 - Parties.

(5) Rules applicable to a party on a motion apply to a non-party on a motion as if the non-party were a party and as if an order affecting a non-party without notice were on ex parte order, unless a judge directs otherwise. [ 20 ] The Personal Property Security Act states: Priority of certain security interests 35(1) Subject to

Section 29, a purchase money security interest in (

a) collateral or its proceeds, other than intangibles or inventory, that is perfected not later than fifteen days after the debtor, or another person at the request of the debtor, obtains possession of the collateral, whichever is earlier; or (

b) an intangible or its proceeds that is perfected not later than fifteen days after the security interest in the intangible attaches, has priority over any other security interest in the same collateral given by the same debtor. PRIORITY RULES s. 36(1) Where this Act provides no other method for determining priority between competing security interests in the same collateral, (

a) priority between perfected security interests is determined by the order of the occurrence of (

i) the registration of a financing statement pursuant to

Section 26 without regard to the time of attachment of the security interest; 36.

(4) A security interest in goods that are equipment and are of a kind that are prescribed as serial numbered goods is not registered or perfected by registration for the purpose of subsection (1), (7) or (8) or 35(1) unless a financing statement relating to the security interest that includes a description of the goods by serial number is registered. POWERS OF COURT 64.

(2) On application by a debtor, a creditor of a debtor, a secured party, a sheriff or any person with an interest in the collateral, the Court may (

e) make any order necessary to ensure protection of the collateral or of the interest of any person in the collateral. 1995-96,c. 13, s.64 .

[ 21 ]

Section 2 of the Act is headed

Interpretation and the following is found: 2. (i) “financing statement” means the data authorized by the regulations to be entered in the Registry to effect a registration for the purpose of perfecting a security interest in collateral pursuant tot his Act and, where the context permits, includes

i) a financing change statement, and ii) a security agreement registered pursuant to the Assignment of Book Debts Act, the Bills of Sale Act , the Conditional Sales Act or the Corporations Securities Registration Act before the coming into force of this Act, together with any writing that was registered with the agreement or registered to rectify, amend or renew the agreement; and (ai) purchase money security interest means: (ii) a security interest taken in collateral by a person who gives value for the purpose of enabling the debtor to acquire rights in the collateral, to the extent that the value is applied to acquire the rights, (iii) the interest of a lessor of goods under a lease for a term of more than one year, or (iv) the interest of a consignor who delivers goods to a consignee under a commercial consignment, but does not include a transaction of sale by and lease back to the seller, and for the purpose of this definition, “purchase price” and “value” include interest, credit costs and other charges payable for the purchase or loan credit.

DISCUSSION AND CONCLUSION: [ 22 ] This motion involves a non-party to the action, MacPhee. It is obvious from the material on file this action involving S.W.S. and the plaintiffs affects MacPhee. [ 23 ] This is so because MacPhee is the registered owner of the vehicle. In order for S.W.S. to sell the vehicle it requires the owner’s registration documents. CPR 22:11 allows S.W.S. to make a motion binding MacPhee who is a non-party because if successful, S.W.S. will require as part of the order that Service Nova Scotia issue registration of the vehicle to S.W.S.

This would thus eliminate MacPhee’s registered title to the vehicle. [ 24 ] It is obvious therefore MacPhee is a necessary party and should be heard as a party to this motion. Furthermore, there is no prejudice to the plaintiffs by adding MacPhee to the motion as a result of the correspondence received from the plaintiffs’ counsel. He indicated they were not participating in the motion nor its hearing. [ 25 ] It is important when motions are heard that each person who has an interest in the issues be heard. Failure to do so could result in serious prejudice to that person.

Thus, failure to allow MacPhee to participate would be a denial of his right to argue his interest in the issue before the court. Secondly, it would be prejudicial to MacPhee in the sense that an asset which it had the registered title of, could be lost without its participation. [ 26 ] Here MacPhee received notice of the motion and replied by opposing it and seeking its own order.

[ 27 ] For those reasons MacPhee has been granted status and added to this motion. [ 28 ] S.W.S. argues since Dixon Fuels is in default under the GSA it has first charge pursuant to the agreement. S.W.S. states it registered its financial statement pursuant to the Act, including a description of the serial number of the vehicle on December 20, 2005. MacPhee also registered a financial statement on December 5, 2007 perfecting its security interest. However, S.W.S. argues this was 2 years after it filed its security. [ 29 ] It says under section 36(1) (a)(

i) of the Act it has a first in time registration and therefore priority over MacPhee. MacPhee argues at no time did Dixon Fuels have ownership or title to the vehicle. It argues Dixon Fuels surely cannot pledge security on something it did not own. MacPhee argues Dixon Fuels was merely a lessee of the vehicle. [ 30 ] MacPhee also has urged the court that under s.35, its Personal Money Security Interest (PMSI) was registered within the proper time and it should take priority in any other security, interest and collateral by the same debtor.

It claims therefore it has a “super priority.” [ 31 ] At first glance it would appear MacPhee is correct. It does take priority under s.35 of the Act .

In support of its “super priority” MacPhee has referred to Essentials of Canadian Law, Personal Property Security Law (authors, Cumming, Walsh, Wood) and especially reference is made to page 340 therein where the authors state the date the debtor becomes obligated to the secured party is the date of possession. [ 32 ] The date of possession here was November 22, 2007 and MacPhee registered its security interest within the 15 day period under the Act , thus claiming priority over the Agreement of S.W.S. [ 33 ] Mr. Zatzman has referred the court to Guaranteed Trust Company of Canada v.

Canadian Imperial Bank of Commerce , 1989 Carswell Ont. 626 . That case discussed the personal financing of a generator set and the pledging of it for security. It centered around when possession of the generator, within the meaning of Ontario’s Act , would entitle a party to priority. The court determined the generator set became subject to a security interest and therefore collateral when the loan transaction and the purchase of the generator set were completed. The court concluded the date the cheque was issued was the date the debtor obtained possession of the collateral.

It concluded the security of the plaintiff therein was perfected because the registration of the collateral was within the required time limits. [ 34 ] Mr. Zatzman argues the same principles would apply in this case. GMAC transferred title to MacPhee on November 22, 2007. It in turn had Dixon Fuels sign a lease to them and their PMSI was registered on December 5, 2007. [ 35 ] I conclude, they did in fact register its PSMI within the required time frames of

section 35. MacPhee argues this places it in a position of “super priority” and overrides

section 36 dealing with a first time registration. [ 36 ] I find on the facts in this motion: 1) the security agreements taken by both parties are valid and enforceable security agreements; 2) both parties have a security interest in the vehicle;

3) the security interests of both parties attach to the vehicle; 4) the security interests of S.W.S. and MacPhee were perfected by the registration of financing statements; 5) as far as the dates of registration are concerned S.W.S. registered its financial statement first in time, and; 6) MacPhee registered its financing statement as required under

section 35 of the Act. [ 37 ] The matter does not end there however. In Nova Scotia the Act applies pursuant to

section 4, ss.2 (

b) to a lease for a term of more than one year. Furthermore, the lease between S.W.S. and Dixon Fuels would be covered under the definition security interest. It thus follows a security interest in the lease would thereby become a PMSI and as such is subject to registration under the Act. [ 38 ]

Section 20 of the Act says the security interest is perfected when it has attached. [ 39 ] In Wheatland Industries

(1990) Ltd. v. Baschuk [1994] Carswell Sask. 89 , Gerein, J. of the Saskatchewan court of Queen’s Bench said at paras 16 and 17: 16. “When I consider the impugned transaction I come to the conclusion that in reality it did not create a purchase-money security interest, but merely created the appearance of same. There was no enhancement of the buyer's asset pool. There was no acquisition of new collateral. From its inception, the underlying purpose of the transaction was to obtain funds in order to repair the combine.

When Baschuk purported to "sell" the machine to the applicant, both parties knew Baschuk would forthwith "buy" it back. It was all a scheme whereby cash money was moved from Ford Credit Canada Ltd. to Baschuk. 17. In substance what transpired was not a transaction whereby the applicant gave credit to enable Baschuk to acquire the collateral i.e. the combine. As he already owned the combine, Baschuk did not need money to acquire it. What he needed was credit to repair it. He obtained that, but repayment of such credit is not intended by the legislation to be secured by a purchase-money security interest.

Accordingly, the first issue is decided against the applicant. [ 40 ] In this case S.W.S. was granted a general security agreement on the 14 th December, 2005 and it included the vehicle.

This financing statement was registered to perfect the security interest under the general security agreement on December 20 th , 2005. [ 41 ] I find S.W.S. is entitled to file its agreement in accordance with the Act, even though Dixon Fuels did not have the registered ownership of the vehicle. [ 42 ] I say this because S.W.S. is entitled under the Act of Nova Scotia to register a financing statement of which part of the security could be a lease as described under the Act. [ 43 ] Rosenberg, J. of the Ontario Court of Justice (In Bankruptcy) in 1151162 Ontario; Re stated at para.2 “The reason that a PMSI has priority over a General Security Agreement (GSA) is that it would be unfair for the holder of the GSA to have added to the pool of its security an asset purchased with funds from the holder of the PMSI....”

[ 44 ] I find on the facts here there was no asset either new or improved added to Dixon Fuels pool of security assets as between it and MacPhee. Dixon Fuels already had possession of the asset before MacPhee became involved. [ 45 ] This motion is different on the facts than the case cited by Mr. Zatzman. S.W.S. in this case with its financial statement being filed, its security attached on the earlier date in accordance with the Act. GMAC for consideration passed the title of the vehicle to MacPhee. MacPhee, at no time had possession of the vehicle.

The affidavit evidence clearly indicates at all times, the vehicle remained in the possession of Dixon Fuels. Furthermore, there is no improvement in the enhancement of the buyers asset pool by the involvement of MacPhee on the evidence. [ 46 ] It appears to me MacPhee simply paid out GMAC and took a new lease from Dixon Fuels for the payment of the amount of money owing to GMAC. There was no evidence of any assignment of the old lease. When MacPhee took ownership of the vehicle there was already in existence, a properly filed financing statement by S.W.S..

MacPhee was either unaware of this or did not check the vehicle’s registration under the Act. [ 47 ] I am not satisfied MacPhee, in registering their security interest increased the asset pool of Dixon Fuels, nor did they finance a new asset. The vehicle, at all times, was in possession of Dixon Fuels and there was a valid security interest filed prior to MacPhee namely that of S.W.S. [ 48 ] I find here that it would be unfair to allow MacPhee in these circumstances to claim the protection of s.35 of the Act over the earlier security registration of S.W.S.

There is no evidence of an enhancement of Dixon Fuels’ assets, nor is this a case where there was any acquisition of new collateral by Dixon Fuels. [ 49 ] Consequently, I conclude and find MacPhee’s valid security interest filed under the Act is second to that filed by S.W.S. and find S.W.S. has a priority security interest in the vehicle over MacPhee. [ 50 ] S.W.S. shall have its costs on the Motion.

If the parties cannot agree on an amount within 10 days of this decision, either party may apply to the court to determine the amount. [ 51 ] I Order the following: 1) The General Security Agreement grants S.W.S. the first charge over a 2004 GMC truck, serial number 1GDP7C1C54F504191 (the “Vehicle”); 2) MacPhee’s security interest in the Vehicle be discharged as against S.W.S.; 3) That Service Nova Scotia register the Vehicle in the name of S.W.S. pursuant to the Motor Vehicle Act ; and 4) That any subsequent purchaser have an ownership free from any interest claimed under or through Dixon Fuels and Charles Eugene Dixon; 5) Any surplus funds obtained by S.W.S. over and above funds due them be remitted to MacPhee; 6) S.W.S. shall have its costs.

J.