Assistance to Auto Finance Community – Courts Consider the Meaning of the Phrase ‘Brought In' in the Context of the Personal Property Security Act

Financial Services

12/01/2016       By Jonathan Fleisher

The recent case Hughes Re., 2016 ONSC 6832, provides auto finance companies with some clarity as to certain provisions of the Ontario Personal Property Security Act (the PPSA) relating to perfection of security interests in collateral that has been ‘brought in’ to Ontario. Section 5 of the Ontario PPSA requires that when goods are ‘brought in’ to Ontario, a secured creditor must register its security interest in Ontario within a certain number of days in order to maintain its security. This section had previously been subject to little judicial consideration and interpretation.

Facts

David Joseph Hughes purchased a vehicle in Alberta and obtained financing through Snap Auto Finance Corp. (Snap). Snap perfected its security interest in the vehicle by registering a financing statement in accordance with the Alberta PPSA. Mr. Hughes then moved to Ontario with the vehicle, but did not inform Snap. Mr. Hughes continued to work in Alberta for 20 days each month and continued to have an Alberta driver’s license. After Mr. Hughes’ move to Ontario, he made an assignment in bankruptcy. Snap filed a secured proof of claim in Mr. Hughes’ bankruptcy, but the claim was disallowed by the trustee in bankruptcy (the Trustee) on the grounds that Snap had not registered its security in the vehicle in accordance with the Ontario PPSA and should therefore be treated as unsecured.

Arguments

The Trustee took the position that the vehicle was ‘brought in’ to Ontario, and that Snap failed to perfect its security interest in the vehicle by failing to register its financing statement pursuant to Section 5 of the Ontario PPSA. Snap did not agree with the Trustee that the goods were ‘brought in’ pursuant to the proper interpretation of the Ontario PPSA. The case turned on the meaning of the words ‘brought in’ and the facts in the case.

Analysis

The Court took a purposive approach to the interpretation of the Ontario PPSA. Interestingly, the Registrar deciding the case stated:

“…in my view, Section 5(2) of the Ontario PPSA is not meant to frustrate secured creditors, it is meant to facilitate financing and the security of financing. It is against this backdrop that I am making my decision.”

The Court determined that the vehicle was not ‘brought in’ to Ontario. The Court held that, in order to find that a vehicle has been ‘brought in’, there must be evidence of both the residence of the owner and the physical presence of the vehicle in Ontario. In making a finding that the vehicle was not ‘brought in’ to Ontario, the Court considered the following facts: 

  1. Mr. Hughes did not obtain permit and license plates for the vehicle within the time period required under the Ontario Highway Traffic Act;
  2. Mr. Hughes did not obtain a driver’s license in Ontario within the time period required under the Highway Traffic Act;
  3. The automobile continued to be registered in Alberta;
  4. Mr. Hughes continued to have an Alberta driver’s licence;
  5. The vehicle was purchased in Alberta;
  6. Mr. Hughes continued to work in Alberta and spent at least 60% of his time there; and
  7. The vehicle was in Ontario purely as a matter of convenience because Mr. Hughes did not need the vehicle in Alberta. 

The importance of this case to financiers and in particular, auto finance companies is that the Court’s determination as to when a secured creditor may become unperfected will be responsive to the particular circumstances.

For more information, please contact Jonathan Fleisher, Hilary Fender or any member of the Financial Services Group.