LEGAL AFFAIRS What’s in a word?
Security interests in fishing licences and fishery quota entitlements By Roger Tangry A Vancouver lawyer with Bernard LLP Photo credit: Dave Roels
Importantly, had that single word been inserted into the PPSA documents, it would have avoided the necessity of litigation.
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recent dispute between numerous secured lenders claiming priority interests in the quota allotted to the debtor, a commercial fishery, resulted in the high court of Nova Scotia closely examining proprietary interests in fishery quota entitlements. It is common practice in the commercial fishing industry for a fishing licence, including the quota, to be used as collateral by secured lenders when filing security agreements under the Personal Property Security Act (“PPSA”). In Re D’Eon Fisheries Limited, 2016 NSCA 30, the Nova Scotia Court of Appeal was confronted with an appeal of a decision which held that a reference to a fishing licence in a financing statement was not sufficient to perfect a lien on the fishery quota entitlements under the Nova Scotia PPSA. Ultimately, the case resulted in the finding that the term “licence” in the financing documents also included the related quota entitlements despite the lack of a specific reference to the quota. The facts of the case are that D’Eon borrowed money from time to time to support its operations. Pursuant to a fishing licence assignment agreement dated September 23, 2013, the 54 BC Shipping News June 2016
Province of Nova Scotia, represented by the Minister of Economic and Rural Development and Tourism (the “Province”) loaned $500,000 jointly to D’Eon and its affiliate, Blue Wave. That document provided D’Eon would pledge all of its interest in the ‘Licence Assets’ which was defined as the fishing licences and all quota and enterprise allocation. However, the description of general collateral in the financing statements filed pursuant to the PPSA by the Province registered against D’Eon referred only to “groundfishing licence No. 304715.” The word ‘quota’ was omitted. The loans made to D’Eon were subject to security interests granted in favour of two banks. In December 2013, D’Eon declared bankruptcy. The Trustee in Bankruptcy took the position that the Province and the other creditors had failed to perfect their security interest against the quota. That decision was appealed to the Supreme Court of Nova Scotia in Bankruptcy and Insolvency (2015 NSSC 160) which held that the lack of specific wording in the security agreement meant the Province and the other creditors did not have a secured
position in relation to the proceeds of sale of the fishery quota entitlement under the licence. The court held that the licence and the quota were not so inextricably linked such that a reference to one amounted to a description of both. Consequently, the licence was sold, together with the quota, to a single purchaser resulting in a surplus of $1,426,248 remaining with the Court to be distributed. The Province and the other creditors, as appellants, appealed the decision to the Court of Appeal seeking to recover the amounts they advanced in full as a secured creditor thereby avoiding the risk of recovering only a portion of their loans amongst other unsecured creditors. The question of whether a fishing licence can be effectively pledged as security has been well settled since the Supreme Court of Canada’s decision in Saulnier v. Royal Bank of Canada, 2008 SCC 58 (“Saulnier”). Justice Binnie widened the definition of “licence,” specified how to give notice of seizure to the grantor of the licence, and provided expressly that realization against a licence is limited by the terms and conditions of the licence and the applicable law. The Supreme Court of Canada made it clear that while a fishing licence may not be property in the fullest sense, it still gives the licence holder enough rights of the right kind to qualify it as property under the Nova Scotia PPSA and the NSBI. In D’Eon, Justice Scanlan at the Nova Scotia Court of Appeal was cognizant of