The recent Supreme Court of Nova Scotia decision in Business Development Bank of Canada v D’Eon Fisheries Limited [2015 NSSC 160] dealt with the issue of whether fishing quota entitlements are personal property subject to the Personal Property Security Act (Nova Scotia) (the “PPSA”).
In 2008, the Supreme Court of Canada held in Saulnier v Royal Bank of Canada [2008 SCC 58] that because a fishing license gives the license holder the right to participate in fishing and a proprietary interest in the fishes caught by the license holder, it is a personal property for the purposes of the PPSA and the Bankruptcy and Insolvency Act (Canada) (the “BIA”). This leading case, however, did not address whether fishing quota entitlements are also personal property for the purposes of the PPSA and the BIA.
D’Eon Fisheries Limited (“D’Eon”) operated under a federally issued fishing license (the “License”) and held a quota in the total allowable catch of fishing hake on the East Coast (the “Quota”). D’Eon’s security agreements with the Province of Nova Scotia (the “Province”) and Nova Scotia Business Incorporated (“NSBI”) referenced the Quota as forming part of the collateral. The registrations under the PPSA made by the Province and NSBI, however, described the collateral as the License and any books, records or documents related to the License.
As the PPSA registrations made by the Province and NSBI did not explicitly mention the Quota, D’Eon’s trustee in bankruptcy argued that the security interest of the Province and NSBI in the Quota was unperfected, and pursuant to Section 21(2) of the PPSA, was not effective against the trustee. Section 21(2) of the PPSA provides that an unperfected security interest in collateral is not effective against a trustee in bankruptcy if the security interest is unperfected at the time of the bankruptcy.
The PPSA registrations made by other secured creditors of D’Eon described the collateral as either explicitly including the Quota or as “all present and after-acquired personal property” of D’Eon. These secured creditors also argued that the security interest of the Province and NSBI against the Quota was unperfected, and thus, pursuant to Section 36(1)(b) of the PPSA, was subordinate to the security interest of such other secured creditors. Section 36(1)(b) of the PPSA renders unperfected security interests subordinate to perfected security interests.
The Province and NSBI argued that the License and the Quota were so inextricably linked with each other as a matter of law and commercial practice that a reference to one in a PPSA registration amounts to a collateral description of both. That is, even though the PPSA registrations made by the Province and NSBI referred only to the License, it extended to the Quota as well.
The Court disagreed with the Province and NSBI, holding that the License and the Quota were not so inextricably linked such that a reference to one amounted to a description of both. The Court noted that the License and the Quota were administered under different regimes and are transferable separately; that is, D’Eon could have transferred the License without transferring the Quota. The Court, relying on the practice of other creditors of D’Eon who explicitly included the Quota as collateral on their PPSA registrations, also held that commercial practice did not support the Province and NSBI’s position. As such, the Province and NSBI’s PPSA registrations were held to be unperfected with respect to the Quota.
In addition to highlighting the importance of a considered description of collateral in a PPSA registration, the Court indicated a willingness to consider a quota entitlement, separate and apart from any license to which it is issued, as personal property under the PPSA and capable of being pledged as security. The Court, however, did not provide a detailed analysis of its willingness to consider quotas as personal property. Such an analysis is required, and ideally by an appellate court, before commercial lenders can have comfort in taking security in quota entitlements.
