Bank of Montreal v. Hall, 1990 CanLII 157 (SCC), [1990] 1 SCR 121
Bank of Montreal Appellant
v.
Arthur Hall Respondent
and
The Attorney General of Canada,
the Attorney General for New Brunswick,
the Attorney General for Saskatchewan and
the National Farmers Union Interveners
indexed as: bank of montreal v. hall
File No.: 20373.
1989: February 28; 1990: February 1.
Present: Wilson, La Forest, L'Heureux-Dubé, Sopinka and Cory JJ.
on appeal from the court of appeal for saskatchewan
Banks and banking ‑‑ Secured loans ‑‑ Security interest created under ss. 178 and 179 of Bank Act ‑‑ Security seized ‑‑ Provincial legislation requiring judicial approval for seizure of security ‑‑ Whether or not acts constitutional ‑‑ Whether or not bank required to comply with provisions of provincial act when enforcing security interest created under federal act ‑‑ Banks and Banking Law Revision Act, 1980, S.C. 1980‑81‑82‑83, c. 40, ss. 178, 179 (formerly Bank Act, R.S.C. 1970, c. B‑1, ss. 88, 89; now Bank Act, R.S.C., 1985, c. B‑1, s. 178, 179) ‑‑ Limitation of Civil Rights Act, R.S.S. 1978, c. L‑16, ss. 19, 27.
Constitutional law ‑‑ Division of powers ‑‑ Paramountcy ‑‑ Federal power over banks and banking and provincial power over property and civil rights ‑‑ Security interest created under ss. 178 and 179 of Bank Act ‑‑ Security seized ‑‑ Provincial Limitation of Civil Rights Act requiring judicial approval for seizure of security ‑‑ Whether or not acts constitutional ‑‑ Whether or not acts conflicting so as to render provincial act inoperative.
Respondent, a Saskatchewan farmer, contracted loans from appellant bank and granted two mortgages on his real property in favour of the Bank and a security interest in a swather pursuant to s. 88 of the Bank Act (subsequently s. 178 of the Banks and Banking Law Revision Act, 1980 and now s. 178 of the Bank Act). Respondent defaulted and in August 1984, the Bank, acting pursuant to the Bank Act, seized the swather and commenced an action to enforce its real property mortgage loan agreement. By way of defence to the foreclosure proceedings, respondent alleged that the Bank had not served the Notice of Intention to Seize required under Saskatchewan's Limitation of Civil Rights Act and sought to have the foreclosure proceedings dismissed. He also brought action seeking cancellation of the security agreement and to recover all monies paid on it as provided by this Act. The Bank countered by alleging that it was not subject to the Act in respect of proceedings taken under the Bank Act.
In November 1985 the parties applied by way of Notice of Motion for a determination by the Court of Queen's Bench of the question whether a chartered bank was required to comply with The Limitation of Civil Rights Act in enforcing a security interest under the Bank Act. The Chambers Judge held that the Bank was not required to comply with the provincial legislation. The Court of Appeal, by majority, reversed that decision. The principal issue here was whether a security interest created pursuant to ss. 178 and 179 of the Bank Act may constitutionally be subjected to the procedures for enforcement of security interests prescribed by the Saskatchewan Limitation of Civil Rights Act. Also at issue was the constitutional validity of the relevant provisions of both the federal and provincial Acts. The constitutional questions before this Court queried: (1) whether ss. 19 to 36 of The Limitation of Civil Rights Act were ultra vires the province in whole or in part; (2) whether ss. 178 and 179 of the Banks and Banking Law Revision Act, 1980 were ultra vires Parliament in whole or in part; and, (3) whether ss. 178 and 179 of the Banks and Banking Law Revision Act, 1980 conflicted with ss. 19 to 36 of The Limitation of Civil Rights Act so as to render inoperative ss. 19 to 36 in respect of security taken pursuant to s. 178 by a chartered bank.
Held: The appeal should be allowed. The first and second constitutional questions should be answered in the negative. As to the third, ss. 19 to 36 of The Limitation of Civil Rights Act are inapplicable to a security taken pursuant to ss. 178 and 179 of the Bank Act.
Sections 19 to 36 of The Limitation of Civil Rights Act, questions of paramountcy apart, come within property and civil rights in the province.
The federal banking power empowers Parliament to create an innovative form of financing and to define, in a comprehensive and exclusive manner, the rights and obligations of borrower and lender pursuant to that interest. Parliament, in the exercise of this power, can both create the ss. 178 and 179 security interest qua interest, and define the rights and obligations of the bank and its borrowers pursuant to that interest. The rights, duties and obligations of creditor and debtor are to be determined solely by reference to the Bank Act.
The security interest in question here was designed to allow the banks to lend money and make advances to certain classes of borrowers on the security of certain specified goods, including loans and advances to any farmer for the purchase of agricultural implements, on the security of such agricultural implements. The effect of the interest created by s. 178 was to vest title to the property in question in the bank when the security interest is taken out. Section 179 authorized the bank to sell all or any part of that property and provides that the proceeds of the sale shall be applied against the debt in question. These provisions complement the bank's right under s. 178(3) to take possession of secured property on default.
There can be no hermetic division between banking as a generic activity and the domain covered by property and civil rights. A spillover effect is inevitable. The fact that a given aspect of federal banking legislation cannot operate without having an impact on property and civil rights in the provinces cannot ground a conclusion that that legislation is ultra vires as interfering with provincial law where the matter concerned constitutes an integral element of federal legislative competence.
The security interest created by ss. 178 and 179, while at a variance with provincial law, was intra vires Parliament because of the policy reasons behind the creation of this security interest. This security interest met the pressing need to provide, on a nationwide basis, for a uniform security mechanism so as to facilitate access to capital by producers of primary resources and manufacturers. It freed borrower and lender from the obligation to defer to a variety of provincial lending regimes and facilitated the ability of banks to realize on its collateral. This in turn translated into important benefits for the borrower: lending became less complicated and more affordable.
The manner in which a bank is permitted to realize on its s. 178 security interest is not a mere appendage or gloss upon the overall scheme of the Act but rather the very linchpin of the security interest. It is integral to, and inseparable from, the legislative scheme. Severing the realization provisions would defeat the specific purpose of the Bank Act security interest for the banks would then be forced to contend with all the idiosyncracies and variables of the various provincial schemes.
There is an actual conflict in operation between ss. 178 and 179 of the Bank Act and ss. 19 to 36 of The Limitation of Civil Rights Act and accordingly ss. 19 to 36 are inoperative in respect of security taken pursuant to s. 178 by a chartered bank. The legislative purpose of Parliament would be displaced if the bank were required to defer to the provincial legislation in order to realize on its security.
The Bank Act provides that a lender may, on default of the borrower, seize the security; The Limitation of Civil Rights Act forbids a creditor from immediately repossessing the secured article on pain of determination of the security interest. The unqualified right of seizure granted to the bank by the federal legislation is restricted by the provincial legislation to situations where leave has been granted by judge, who will apply criteria formulated by the Province as to when and under what circumstances seizure can take place. It is not open to a provincial legislature to qualify in this way a right given and defined in a federal statute even though the sole effect of the provincial legislation would be to delay the bank's ability to take possession of its security.
Dual compliance is impossible when application of the provincial statute can fairly be said to frustrate Parliament's legislative purpose. The section 178 security interest would no longer be cognizable as such the moment provincial legislation might operate to superadd conditions governing realization over and above those found within the confines of the Bank Act.
Cases Cited
Applied: Multiple Access Ltd. v. McCutcheon, [1982] 2 S.C.R. 161 (https://www.minicounsel.ca/scc/1982/1705); Tennant v. Union Bank of Canada, [1894] A.C. 31; considered: Landry Pulpwood Co. v. Banque Canadienne Nationale, [1927] S.C.R. 605 (https://www.canlii.org/en/ca/scc/doc/1927/1927canlii75/1927canlii75.html); Royal Bank of Canada v. Workmen's Compensation Board of Nova Scotia, [1936] S.C.R. 560 (https://www.canlii.org/en/ca/scc/doc/1936/1936canlii39/1936canlii39.html); Flintoft v. Royal Bank of Canada, [1964] S.C.R. 631 (https://www.canlii.org/en/ca/scc/doc/1964/1964canlii89/1964canlii89.html); distinguished: Canadian Pioneer Management Ltd. v. Labour Relations Board of Saskatchewan, [1980] 1 S.C.R. 433 (https://www.canlii.org/en/ca/scc/doc/1979/1979canlii180/1979canlii180.html); referred to: Abitibi Power & Paper Co. v. Montreal Trust Co., [1943] A.C. 536 (https://www.canlii.org/en/ca/ukjcpc/doc/1943/1943canlii303/1943canlii303.html); Canada Trust Co. v. Hanson (1949), [1950] 1 D.L.R. 375 (https://www.canlii.org/en/on/onca/doc/1949/1949canlii299/1949canlii299.html), aff'd [1951] S.C.R. 366 (https://www.canlii.org/en/ca/scc/doc/1950/1950canlii14/1950canlii14.html); Merchants' Bank of Canada v. Smith (1884), 8 S.C.R. 512 (https://www.canlii.org/en/ca/scc/doc/1884/1884canlii1/1884canlii1.html); Bank of Montreal v. Guaranty Silk Dyeing & Finishing Co. (1935), 4 D.L.R. 483 (https://www.canlii.org/en/on/onca/doc/1935/1935canlii110/1935canlii110.html); Canadian Imperial Bank of Commerce v. R. (1984), 52 C.B.R. 145; Attorney‑General for Canada v. Attorney‑General for Quebec, [1947] A.C. 33 (https://www.canlii.org/en/ca/ukjcpc/doc/1946/1946canlii354/1946canlii354.html); Attorney‑General for Alberta v. Attorney‑General for Canada, [1947] A.C. 503 (https://www.canlii.org/en/ca/ukjcpc/doc/1947/1947canlii347/1947canlii347.html); Reference re Alberta Statutes, [1938] S.C.R. 100 (https://www.canlii.org/en/ca/scc/doc/1938/1938canlii1/1938canlii1.html); Construction Montcalm Inc. v. Minimum Wage Commission, [1979] 1 S.C.R. 754 (https://www.canlii.org/en/ca/scc/doc/1978/1978canlii18/1978canlii18.html); Attorney‑General for Alberta and Winstanley v. Atlas Lumber Co., [1941] S.C.R. 87 (https://www.canlii.org/en/ca/scc/doc/1940/1940canlii33/1940canlii33.html).
Statutes and Regulations Cited
Act Respecting Incorporated Banks, C.S.C. 1859, c. 54.
Bank Act, R.S.C. 1970, c. B‑1, ss. 86(2), 88.
Bank Act, R.S.C., 1985, c. B‑1, ss. 178, 179.
Banks and Banking Law Revision Act, 1980, S.C. 1980‑81‑82‑83, c. 40, ss. 178, 179.
Constitution Act, 1867, ss. 91(15), 92(2).
Limitation of Civil Rights Act, R.S.S. 1978, c. L‑16, ss. 19 to 36.
Mercantile Amendment Act, R.S.O. 1887, c. 122.
Personal Property Security Act, S.S. 1979‑80, c. P-6.1.
Authors Cited
Anstie, R. H. "The Historical Development of Pledge Lending in Canada", Part I, The Canadian Banker 74, 2 (Summer 1967): 81-89; Part II, The Canadian Banker 74, 3 (Autumn 1967): 35-44.
Falconbridge, John Delatre. Banking and Bills of Exchange, 4th ed. Toronto: Canada Law Book, 1929.
Falconbridge, John Delatre. Crawford and Falconbridge Banking and Bills of Exchange, vol. 1, 8th ed. By Bradley Crawford. Toronto: Canada Law Book, 1986.
Galbraith, John Alexander. Canadian Banking. Toronto: Ryerson Press, 1970.
Lederman, W. R. "The Concurrent Operation of Federal and Provincial Laws in Canada" (1963), 9 McGill L.J. 185.
Moodie, William. "Accounts Receivable, Section 88 Of the Bank Act, And Inventory Financing ‑‑ A Banker's View", Meredith Memorial Lectures, 1967 Series, McGill University Faculty of Law. Security in Moveable Property. Montreal: Wilson & LaFleur Ltd., 1967.
Moull, William D. "Security Under Sections 177 and 178 of the Bank Act" (1986), 65 Can. Bar Rev. 242.
APPEAL from a judgment of the Saskatchewan Court of Appeal (1987), 54 Sask. R. 30, 36 D.L.R. (4th) 523, [1987] 3 W.W.R. 525 (https://www.canlii.org/en/sk/skca/doc/1987/1987canlii4845/1987canlii4845.html), allowing an appeal from Matheson J. in Chambers (1985), 46 Sask. R. 182 (https://www.canlii.org/en/sk/skqb/doc/1985/1985canlii2904/1985canlii2904.html). Appeal allowed. The first and second constitutional questions should be answered in the negative. As to the third, ss. 19 to 36 of The Limitation of Civil Rights Act are inapplicable to a security taken pursuant to ss. 178 and 179 of the Bank Act.
William Softley and Dale Doan, for the appellant.
Gary Semenchuck, Q.C., for the respondent.
T. B. Smith, Q.C., and James Mabbutt, Q.C., for the intervener the Attorney General of Canada.
Robert G. Richards, for the intervener the Attorney General for Saskatchewan.
Bruce Judah, for the intervener the Attorney General for New Brunswick.
Audrey Brent, for the intervener the National Farmers Union.
//La Forest//
The judgment of the Court was delivered by
LA FOREST J. -- The principal issue in this appeal is whether a security interest created pursuant to ss. 178 and 179 of the Bank Act may constitutionally be subjected to the procedures for enforcement of security interests prescribed by the Saskatchewan Limitation of Civil Rights Act. It also raises the constitutional validity of the relevant provisions of both the federal and provincial Acts.
Facts
The respondent, Arthur Hall, a farmer in Saskatchewan, contracted loans from the appellant Bank of Montreal in the early 1980s. As collateral, Mr. Hall granted two mortgages on his real property in favour of the Bank. The loans were also secured by a security interest in a piece of farm machinery, a 1980 Versatile swather, pursuant to s. 88 of the Bank Act, R.S.C. 1970, c. B-1, subsequently s. 178 of the Banks and Banking Law Revision Act, 1980, S.C. 1980-81-82-83, c. 40, now s. 178 of the Bank Act, R.S.C., 1985, c. B-1.
Mr. Hall defaulted on his loan, and in August 1984, the Bank, pursuant to the provisions of the Bank Act, seized the swather and commenced an action to enforce its real property mortgage loan agreement. By way of defence to the foreclosure proceedings, Mr. Hall alleged that the Bank had not served the Notice of Intention to Seize required under the provisions of The Limitation of Civil Rights Act, R.S.S. 1978, c. L-16, and accordingly sought to have the foreclosure proceedings dismissed. He also brought action for cancellation of the security agreement and to recover all monies paid thereon as provided by this Act. The Bank of Montreal countered by alleging that it was not subject to the Act in respect of proceedings taken under the Bank Act.
In November 1985, the parties, by Notice of Motion filed before the Court of Queen's Bench for Saskatchewan, applied for a determination of the question whether the plaintiff, as a chartered bank, was required to comply with The Limitation of Civil Rights Act in enforcing a security interest under the Bank Act.
Judicial History
Court of Queen's Bench
The Chambers Judge, Matheson J., held that the Bank was not required to comply with The Limitation of Civil Rights Act. He expressed the opinion that the amended definition of "security interest" in s. 19 (f) of The Limitation of Civil Rights Act was not meant to extend to a security interest under s. 178 of the Bank Act, but was solely intended to bring The Limitation of Civil Rights Act into line with the personal property security interests provided for in Saskatchewan's Personal Property Security Act, S.S. 1979-80, c. P-6.1.
Matheson J. nonetheless went on to deal with the case on the assumption that the Act did apply to chartered banks. He opined that it was "entirely possible", in view of the development of financial and commercial institutions that are subject to provincial consumer protection, that s. 178(3) of the Bank Act, though purporting to be enacted under the federal power to regulate banking, might be ultra vires as trenching on provincial jurisdiction over property and civil rights. He noted, however, that this question had not been properly put in issue before him and proceeded on the assumption that the provision had been validly enacted. He went on to draw attention to the fact that the Bank, if required to comply with the provincial legislation, would be subject to the penalty provision of s. 27 whereby failure to give the requisite Notice of Intention to Seize results in the termination of the security agreement and the release of the debtor from all further obligations. In Matheson J.'s view, the provincial legislature did not have authority to enact legislation which had the effect of negating a federally created security agreement, even if the provincial legislation were held competent to limit the manner in which it could be enforced.
The Court of Appeal
The Court of Appeal, by majority, reversed the decision of the Chambers judge; (1987), 54 Sask. R. 30 (https://www.canlii.org/en/sk/skca/doc/1987/1987canlii4845/1987canlii4845.html). Writing for the majority, Sherstobitoff J.A., rejected the notion that the definition of "security interest" in The Limitation of Civil Rights Act would not extend to a s. 178 security interest taken by a chartered bank. Noting that the Legislature had expressly excluded other security interests created pursuant to federal legislation from the definition in s. 19, but had not done so in the case of s. 178 interests, he declined to accord any special significance to the fact that The Limitation of Civil Rights Act was only amended following the enactment of The Personal Property Security Act.
Sherstobitoff J.A. then turned to the question whether the doctrine of paramountcy applied so as to suspend the provincial legislation or render it inoperative. There was no question that s. 178 fell within the federal power respecting banks and banking. However, in his opinion, by application of the test for paramountcy laid down by this Court in Multiple Access Ltd. v. McCutcheon, [1982] 2 S.C.R. 161 (https://www.minicounsel.ca/scc/1982/1705), this was not a case where there was an express contradiction between the two enactments. The Limitation of Civil Rights Act could not be said to operate so as to affect the amount of a debtor's indebtedness or his liability for payment. It merely imposed an obligation on the bank to give notice prior to seizure so as to permit a debtor to make an application to the court for an order specifying the procedures to be followed for realizing on the security. This obligation might delay a bank's ability to realize on its security but this, in itself, did not imply an inconsistency or incompatibility between the federal and provincial enactments. He thus put it, at p. 40:
Paramountcy applies only where there is actual conflict in operation as where one enactment says "yes", the other "no", or compliance with one is defiance of the other. I can find no such conflict in this case. A bank may be delayed in realizing upon its s. 178 security, but it will not be denied its remedy so long as it follows the required procedure.
The dissenting judge, Wakeling J.A., agreed that the definition of "security interest" embraced security interests granted pursuant to s. 178 of the Bank Act. While conceding that there was logic behind the assumption that the amendment to the definition of "security interest" had been merely in the nature of a "housekeeping measure" designed to ensure that related legislation conformed to Saskatchewan's Personal Property Security Act, Wakeling J.A. nevertheless concluded that the language was so clear and unambiguous as to support the view that the Legislature had intended to include s. 178 security interests within the meaning of the definition.
On the question of paramountcy, however, Wakeling J.A. parted company with the majority. As he saw it, the crux of the matter lay in the fact that the provincial legislation purported to subject to the operation of provincial law a security interest created by federal legislation that gave a bank an unqualified right of seizure on the default of a loan. This restriction on an unqualified right to seize, concluded Wakeling J.A., satisfied the test for paramountcy set out by this Court in Multiple Access Ltd. v. McCutcheon. Compliance with the legislation of the one jurisdiction would necessarily entail defiance of the other. He stated, at p. 35:
This test must be applied within a specific time frame, and in this case that time is when a bank has made a decision to seize as a result of default. When that decision is made, the clear fact is the Bank Act provides that the bank can do so while the Limitation of Civil Rights Act indicates it can not. I perceive this to be a conflict sufficient to meet the test previously described as the right of seizure given under federal legislation cannot be exercised without being in defiance of provincial legislation.
The Appeal to this Court
Leave to appeal to this Court was then sought and granted, and the following constitutional questions were stated:
Are ss. 19 to 36 of The Limitation of Civil Rights Act, R.S.S. 1978, c. L-16, ultra vires the Legislature of Saskatchewan in whole or in part?
Are ss. 178 and 179 of the Banks and Banking Law Revision Act, 1980, S.C. 1980-81-82-83, c. 40, ultra vires the Parliament of Canada in whole or in part?
Do ss. 178 and 179 of the Banks and Banking Law Revision Act, 1980, S.C. 1980-81-82-83, c. 40, conflict with ss. 19 to 36 of The Limitation of Civil Rights Act, R.S.S. 1978, c. L-16, so as to render inoperative ss. 19 to 36 in respect of security taken pursuant to s. 178 by a chartered bank?
The Attorneys General of Canada, New Brunswick and Saskatchewan intervened. Those of Ontario, Quebec, Manitoba and British Columbia also intervened but later withdrew. As well, the National Farmers Union applied for and was granted leave to intervene.
Sections 19 to 36 of The Limitation of Civil Rights Act
Apart from the possible conflict with federal legislation (a matter I shall deal with later), no argument was made in the courts below or in this Court challenging the constitutionality of ss. 19 to 36 of The Limitation of Civil Rights Act and, in my view, no such challenge could be seriously mounted. It is not necessary to reproduce these provisions here. Suffice it to say that they confer on a debtor the right to seek court supervision of the realization of a secured debt, and thus may have the effect of suspending the right of a secured creditor to realize on its security. They allow a debtor an opportunity to redeem or reinstate a security agreement. In particular, s. 21 requires a secured creditor to give notice to the debtor of its intention to take possession of secured property, and if it fails to do so, the security agreement (by s. 27) is terminated and the debtor is released from all liability under the agreement and is entitled to recover any monies already paid. I have no difficulty holding, questions of paramountcy apart, that such legislation may fairly be said to come within property and civil rights in the province, and thus intra vires the provincial legislature; see Abitibi Power & Paper Co. v. Montreal Trust Co., [1943] A.C. 536 (https://www.canlii.org/en/ca/ukjcpc/doc/1943/1943canlii303/1943canlii303.html) (P.C.), and Canada Trust Co. v. Hanson (1949), [1950] 1 D.L.R. 375 (https://www.canlii.org/en/on/onca/doc/1949/1949canlii299/1949canlii299.html), aff'd [1951] S.C.R. 366 (https://www.canlii.org/en/ca/scc/doc/1950/1950canlii14/1950canlii14.html).
Sections 178 and 179 of the Banks and Banking Law Revision Act, 1980
The analysis of the question whether ss. 178 and 179 of the Bank Act are in any way ultra vires the Parliament of Canada begins with an examination of the federal banking power itself, s. 91(15) of the Constitution Act, 1867, which reads as follows:
. . . the exclusive Legislative Authority of the Parliament of Canada extends to all Matters coming within the Classes of Subjects next hereinafter enumerated; that is to say, ‑-
Banking, Incorporation of Banks, and the Issue of Paper Money.
The locus classicus as to the meaning of this provision is, of course, the pronouncement of Lord Watson in Tennant v. Union Bank of Canada, [1894] A.C. 31, where the Privy Council was called upon to consider "whether warehouse receipts, taken in security by a bank in the course of the business of banking" are matters falling within the provision. In the course of his judgment, Lord Watson, at p. 46, gave a broad interpretation of the federal banking power in the following passage:
The legislative authority conferred by these words is not confined to the mere constitution of corporate bodies with the privilege of carrying on the business of bankers. It extends to the issue of paper currency, which necessarily means the creation of a species of personal property carrying with it rights and privileges which the law of the province does not, and cannot, attach to it. It also comprehends "banking," an expression which is wide enough to embrace every transaction coming within the legitimate business of a banker.
Lord Watson's pronouncement echoes the view taken by this Court in Merchants' Bank of Canada v. Smith (1884), 8 S.C.R. 512 (https://www.canlii.org/en/ca/scc/doc/1884/1884canlii1/1884canlii1.html), where, at p. 541, Henry J. held that everything necessarily connected with banking fell within the powers of Parliament even though they might interfere, in some respects, with property and civil rights.
Given the broad sweep of his definition of banking, it was hardly necessary for Lord Watson to venture an exhaustive enumeration of the actual practices that fell within the ambit of the "legitimate business of a banker". But in remarks with immediate relevance to this case, he, again at p. 46, did make it clear that he took for granted that the business of banking would necessarily embrace the "lending of money on the security of goods, or of documents representing the property of goods".
The respondent did not directly challenge this proposition, but sought to qualify it somewhat. He conceded, rightly in my view, that the federal banking power extends to allowing Parliament to define a security interest and to permit borrowing on the strength of that interest. He submitted, however, that Parliament could not, pursuant to this power, legislate with respect to the requirements relating to the realization and enforcement of that interest. Such provisions, he argued, would trench on the exclusive jurisdiction of the provinces respecting property and civil rights.
Consideration of this proposition logically begins with a general outline of the nature of the ss. 178 and 179 security interest itself. In essence, as is apparent from s. 178(1)(a) to (j), the security interest in question here is designed to allow the banks to "lend money and make advances" to certain classes of borrowers on the security of certain specified goods, comprehensively defined in paras. (a) to (j), and including loans and advances "to any farmer for the purchase of agricultural implements, on the security of such agricultural implements".
By section 178(2), a bank may take security in property owned by the borrower at the time of the loan transaction, and any property acquired during the pendency of the security agreement. The rights and powers of the bank with respect to the secured property are set out in s. 178(2)(c). By the terms of s. 178(2)(c), these rights and powers are stated to be "the same rights and powers as if the bank had acquired a warehouse receipt or bill of lading in which such property was described". These powers are defined, in turn, in s. 186 of the Act where it is specified that any warehouse receipt or bill acquired by a bank as security for the payment of a debt, vests in the bank all the right and title to goods, wares and merchandise covered by the holder or owner thereof.
The nature of the rights and powers vested in the bank by the delivery of the document giving the security interest has been the object of some debate. Argument has centred on whether the security interest should be likened to a pledge or bailment, or whether it is more in the nature of a chattel mortgage. I find the most precise description of this interest to be that given by Professor Moull in his article "Security Under Sections 177 and 178 of the Bank Act" (1986), 65 Can. Bar Rev. 242, at p. 251. Professor Moull, correctly in my view, stresses that the effect of the interest is to vest title to the property in question in the bank when the security interest is taken out. He states, at p. 251:
The result, then, is that a bank taking security under section 178 effectively acquires legal title to the borrower's interest in the present and after-acquired property assigned to it by the borrower. The bank's interest attaches to the assigned property when the security is given or the property is acquired by the borrower and remains attached until released by the bank, despite changes in the attributes or composition of the assigned property. The borrower retains an equitable right of redemption, of course, but the bank effectively acquires legal title to whatever rights the borrower holds in the assigned property from time to time.
Section 179(4) sets out the general powers of the bank in the event of non-payment of the loan or advance secured by the property assigned to it by s. 178. In a word, this section authorizes the bank to sell all or any part of that property and provides that the proceeds of the sale shall be applied against the debt in question. These provisions complement the bank's right under s. 178(3) to take possession of secured property on default.
The Historical Record
I turn next to a consideration of the historical circumstances behind the creation of this security interest. For if the above remarks suffice to give a basic understanding of the operation of the s. 178 security interest, it is only in light of the historical record that one can appreciate the rationale for the creation of this particular security interest which, as noted in Crawford and Falconbridge Banking and Bills of Exchange (8th ed. 1986), vol. 1, is unique to Canadian banking legislation.
In "The Historical Development of Pledge Lending in Canada", Part I, The Canadian Banker 74, 2 (Summer 1967): 81-89, and Part II, The Canadian Banker 74, 3 (Autumn 1967): 35-44, Anstie traces the predecessors to the s. 178 security interest to pre-Confederation banking legislation of the Province of Canada. This legislation, enacted against a backdrop of severe economic depression, aimed at fostering commerce by doing away with prohibitions in the charters of banks which had effectively prevented them from making loans on the security of real or personal property. As put by Anstie, at p. 82:
The original authority for pledge lending goes back more than one hundred years and while the early legislation was not passed as banking legislation per se it was directed at and supported by the banks. Its principal aim was to encourage banks and other lenders to facilitate commercial transactions, a need felt by the business community. Parliamentary records show too that the same motive, public need, was behind subsequent developments of this feature of the banking system.
Anstie, at p. 83, quotes from a parliamentary report of the day dealing with a bill entitled "An Act Granting Additional Facilities in Commercial Transactions":
March 1, 1859
"Hon. Mr. Rose introduced a bill to grant additional facilities to commercial transactions. He said the object of the bill was to enable parties holding bills of lading to render these bills available as collateral security, in order to enable the holder to obtain advances of money. As the law now stands, a person having a cargo of flour, and holding bills of lading of such cargo, and wishing to obtain a discount to facilitate his progress, is obliged to place these bills in the hands of a consignee, because it is doubtful whether the banks can hold bills of lading as collateral security. He wished, therefore, by his bill to make such securities available for the means of obtaining advances without the aid of a third party".
Incorporated in the Consolidated Statutes of Canada under the title An Act Respecting Incorporated Banks, C.S.C. 1859, c. 54, this Act introduced a security interest that is immediately recognizable as the predecessor of its modern day counterpart in the Bank Act. By the terms of the 1859 statute, the holder of a bill of lading could endorse it to the bank as collateral security for the due payment of any bill of exchange or note discounted by the bank. The endorsement vested in the bank, from that date, all right and title of the endorser to the goods, subject to the endorser's right to redeem his bill.
The 1859 Act was the object of an important amendment in 1861. Any person engaged in the calling of a warehouseman, miller, wharfinger, master of vessel or carrier and authorized to issue receipts in that capacity, was empowered to give a bill of lading under the statute in respect of goods that he owned. In other words the amendment did away with the requirement that bills of lading could only be given by a person acting as bailee. As put by Anstie, at p. 84:
The effect of this amendment was to establish for the first time, the principle that the owner of the goods might practically give the bank a mortgage upon his goods in the form of a warehouse receipt or bill of lading. [Emphasis in original.]
The Bank Act of 1890 brought with it a significant broadening of the list of eligible borrowers and of acceptable collateral. In effect, the Act was recast in the form it bears to the present day. The nature of this transformation is thus summarized in the 4th edition of Falconbridge's Banking and Bills of Exchange (1929), at p. 222:
Instead of the former provision by which in effect certain specified classes of persons of a custodier character might give security upon their own goods in their own possession, it was enacted that any wholesale manufacturer of goods, and any whole purchaser or shipper of products of agriculture, the forest and mine, or the sea, lakes and rivers, or live stock or dead stock, might give security upon such goods, products or stock.
The rationale underlying these changes may be found in the remarks of Sir Edmund Walker who in the Bank Act Revision Proceedings (1933), at p. 236, made the following comment noted by Moull, op. cit., at p. 243, n. 3:
[T]he late Mr. Lash and myself framed [section 178] in the early days in this country . . . in order that the manufacturer [etc.] . . . could borrow from the bank without endorsers or anything of that kind, by pledging the material to the bank.
The remarks of Anstie, op. cit., at p. 81, round out the above comments. He points out that these changes, tailored to allow producers of primary products and manufacturers of finished goods to borrow on the strength of their seasonal inventories, were predicated on the recognition that problems of cash flow could cripple the ability of these sectors to "carry or cure their product until absorbed by the market". The legislation, therefore, was aimed at enabling producers to borrow, at reasonable rates of interest, more money than would otherwise have been possible. The following excerpt from Anstie, op. cit., at p. 88, which bears on the efforts of farming interests to be covered by the provisions of the 1890 Bank Act, speaks volumes about the deficiencies in the money market of the day addressed by the legislation:
The exclusion of farmers was upheld despite active representations by some of the champions of the farming interests, who felt strongly that a farmer should be able to borrow against the security of threshed grain and livestock. It was pointed out in debate that a farmer may be solvent but still find it difficult to borrow $300/$400 from a bank at harvest time. This resulted in private local bankers becoming the middlemen between the farmers and the chartered banks. It was stated that these lenders would charge 12, 15 to 24 per cent and at the same time borrow from the chartered banks at 7 per cent.
Almost a century has passed since the predecessor of the present day security interest was first incorporated into the Bank Act, and that period has seen a steady expansion in the categories of eligible borrowers. But the governing principle of the security interest, for all subsequent refinements to successive Bank Acts, remains to the present day essentially the same as that first defined by the 1859 statute. Today, as in 1859, an owner of goods assigns an interest in those goods as security for a loan or advance so as to permit the bank to sell the goods on default of payment.
In Crawford and Falconbridge Banking and Bills of Exchange, (8th ed. 1986), vol. 1, at pp. 403-7, the point is made that the need to introduce a uniform security interest, applicable nationwide, did not rest solely on the desire to abolish the restrictions that prevented banks from lending on the security of real and personal property. The introduction of a national security interest was also perceived as a means of obviating barriers to the lending of money attributable to the complexity and diversity of lending regimes in the nascent Canadian economy. In Crawford and Falconbridge, op. cit., it is stated, at p. 407:
The confused and complicated state of personal property security law at the time the provisions were introduced, and even when they were substantially revised in 1890 and 1923, was such that one obvious object must have been to encourage bank lending by making security more readily available. The complexity of the documentation required under provincial chattel security statutes, and the multiplicity of registrations and renewals required under their county registration schemes were considerable obstacles, where goods might be moved out of the county, or where the debtor carried on business in more than one county. The advantages of a single security document in the form of the schedule and a single place of registration, even for debtors having national operations, were inestimable advantages of the new regime evolved under the Bank Act.
Moodie in an article entitled "Accounts Receivable, Section 88 Of The Bank Act, And Inventory Financing -- A Banker's View", in Security in Moveable Property, Meredith Memorial Lectures, 1967 Series, notes, at p. 50, that the new lending regime had the advantage of enabling a borrower to "give security more easily, more quickly, and far more cheaply than by any other means".
It is generally agreed that this provision of Canadian banking legislation has, in large part, met its objective of providing natural resource and manufacturing industries nationwide with a readily available stimulus of capital that would otherwise not have been available, or available only at a much higher cost. Masten J.A. in Bank of Montreal v. Guaranty Silk Dyeing & Finishing Co. (1935), 4 D.L.R. 483 (https://www.canlii.org/en/on/onca/doc/1935/1935canlii110/1935canlii110.html) (Ont. C.A.), at pp. 489-90, commented:
It is to be borne in mind that the Parliament of Canada has enacted these sections not so much for the benefit of banks as for the benefit of manufacturers; but principally to provide a convenient and suitable means for the provision and application of capital to industry with the object that thus manufacturing and commercial enterprise in Canada may be encouraged. It is also to be noted that, originally enacted in 1890, they have with amendments from time to time been re-enacted during more than 40 years.
Masten J.A.'s view of the Bank Act security as intended to be for the benefit of the borrower is reflected in academic literature as well. Professor Moull, op. cit., at p. 243, cites Galbraith in that author's treatise Canadian Banking, published in 1970, to the effect that s. 178 often provides "the most effective, inexpensive, and convenient way of obtaining security for the eligible classes of borrowers", and goes on himself to add, at p. 244:
This concern for the borrower is perhaps why section 178 was broadened during the last decennial revisions to the Bank Act, at a time when other changes seemed to reflect a trend towards curtailing bank powers and privileges.
In a word, the creation of the Bank Act security interest has been a key factor in the evolution of banking in this country. As noted by Professor Moull, op. cit., at p. 243, the availability of the s. 178 security interest has been a prime factor in the evolution of the chartered banks into predominant national lending institutions. To quote again from Anstie's article, op. cit., at pp. 81-82:
Despite the controversy which has existed from time to time, each revision of the Bank Act invariably has resulted in further broadening of the scope of the legislation. The record is one of continuous expansion to meet the developing needs of the community . . . . These sections of the Bank Act have become an integral part of bank lending activities and are a means of providing support in many fields of endeavour to an extent which otherwise would not be practical from the standpoint of prudent banking. This applies particularly to what may be termed smaller business enterprises with limited financial resources, and is borne out by the very much more liberal lending practices of Canadian banks to small businessmen and producers.
The Cases
The above considerations establish, to my satisfaction, that the s. 178 security interest, which originated as a policy response to structural deficiencies in the lending regimes of the nascent Canadian economy, has, since its inception, played a primordial role in facilitating access to capital by several groups that play a key role in the national economy. One's instinctive reaction is that the federal banking power should extend to allowing Parliament to provide, on a nationwide basis, for just such an innovative form of financing. An examination of the judicial response to the creation of the s. 178 security confirms this view. The courts have consistently taken the position that the creation of the s. 178 security interest, and the definition of the rights and obligations of the bank and its borrowers pursuant to that interest, fall squarely within the limits of the federal banking power and is, accordingly, constitutionally valid. I turn to the decisions of this Court that bear on the matter.
The historical considerations I have touched on earlier have clearly left their mark on the following excerpts from the reasons of Mignault J. in Landry Pulpwood Co. v. Banque Canadienne Nationale, [1927] S.C.R. 605 (https://www.canlii.org/en/ca/scc/doc/1927/1927canlii75/1927canlii75.html). In Landry, this Court addressed the question whether the appellant could acquire ownership of a quantity of pulpwood "purchased" after the owner of the same had pledged it to the bank as security for a s. 88 loan, the predecessor to ss. 178 and 179. Mignault J., at p. 613, commented on the purpose behind the section:
As I read section 88, a bank, for its advances, may acquire a lien on the products of the forest (as defined) or on goods, wares and merchandise (also as defined) to be manufactured, or in process of manufacture, although the finished product will come into existence only after the process of manufacture is completed.
The present case affords an apt illustration of the object Parliament undoubtedly had in view when it enacted section 88, this object being to come to the assistance both of the manufacturer of goods, and of the bank which lends him money for the purposes of his business. Thus the owner of a timber license proposes to go into the forest, to cut down the trees and transform them into what is commercially known as pulpwood. Before the pulpwood is produced in its commercial form, considerable expense is necessary to cut the trees, peel off the bark and saw them into the required lengths. The manufacturer of pulpwood therefore requires financial assistance from the outset, and unless he can give the bank that assists him a lien on the finished product, although not then in existence, his business cannot be carried on. [Emphasis added.]
Noting that by s. 88(7) of the Bank Act the security conferred on the bank the same rights and powers in respect of the products as if it had acquired them by virtue of a warehouse receipt, Mignault J. concluded, at p. 615:
There is no doubt, however, that we must look solely to the Bank Act to determine the effect of a lien acquired by a bank by virtue of section 88.
In Royal Bank of Canada v. Workmen's Compensation Board of Nova Scotia, [1936] S.C.R. 560 (https://www.canlii.org/en/ca/scc/doc/1936/1936canlii39/1936canlii39.html), this Court again had occasion to deal with the provision. The issue there was far removed from that of the instant case, namely the question whether property assigned to a bank under a s. 88 security was meant to be exempt from provincial taxes exacted pursuant to s. 92(2) of the British North America Act, now the Constitution Act, 1867. It is important to note, however, that in rejecting that proposition this Court, in express terms, affirmed that the creation of a s. 88 security was intra vires the jurisdiction of Parliament. Crocket J. held at p. 563:
While we have no doubt that the provisions of s. 88 the Bank Act are provisions which strictly relate to banking, and are therefore within the competency of the Dominion Parliament under s. 91 (15) B.N.A. Act, we are of opinion that in enacting them Parliament did not intend to remove any property, which might be assigned to a bank by way of security thereunder, from the operation of any statute enacted by the legislature of the province, in which the property is situated, in the legitimate exercise of its power in relation to direct taxation for provincial purposes under s. 92 (2) B.N.A. Act.
In Royal Bank of Canada v. Workmen's Compensation Board of Nova Scotia, as in Landry Pulpwood Co. v. Banque Canadienne Nationale, this Court again took pains to underline that the s. 88 security interest, in and of itself, conferred on the bank the same rights and powers in respect of the goods pledged as if it had acquired them by virtue of a warehouse receipt. At page 567, Davis J. had this to say:
Section 88 set up by the Bank Act enables manufacturers, who desire to obtain large loans from their bankers in order to carry on their industrial activities, to give to the bank a special and convenient form of security for the bank's protection in the large banking transactions necessary in the carrying on of industry throughout the country. Until the moneys are repaid, the bank is the legal owner of the goods but sale before default is prohibited and provision is made for the manufacturer regaining title upon repayment. To say that Parliament did not use language to expressly provide that the bank shall have a first lien on the goods is beside the mark. The bank acquires ownership in the goods by the statute.
In Flintoft v. Royal Bank of Canada, [1964] S.C.R. 631 (https://www.canlii.org/en/ca/scc/doc/1964/1964canlii89/1964canlii89.html), this Court reiterated the point. The dispute in Flintoft v. Royal Bank of Canada centred on the claims of a trustee in bankruptcy to the unregistered book debts of a borrower who had sold goods covered by a security under s. 88 of the Bank Act. The Court gave short shrift to the submission that a lack of timely registration of the book debts on the part of the bank would entitle the trustee to collect them for administration under the Bankruptcy Act. Judson J., noting that ss. 88(2) and 86(2) of the Bank Act defined the property rights of the bank in the pledged goods so as to give a bank the same rights and powers as if it had acquired a warehouse receipt or bill of lading in which the property was described, went on to comment, at p. 634:
Section 88 is a unique form of security. I know of no other jurisdiction where it exists. It permits certain classes of persons not of a custodier character, in this case a manufacturer, to give security on their own goods with the consequences above defined. Notwithstanding this, with the consent of the bank, the one who gives the security sells in the ordinary course of business and gives a good title to purchasers from him. But this does not mean that he owns the book debts when he has sold the goods. To me the fallacy in the dissenting reasons is the assumption that there is ownership of the book debts in the bank's customer once the goods have been sold and that the bank can only recover these book debts if it is the assignee of them.
An apt summary of the conclusions that flow from the above authorities is to be found in the remarks of Muldoon J. in Canadian Imperial Bank of Commerce v. R. (1984), 52 C.B.R. 145 (F.C.T.D.) Muldoon J., citing the decision of this Court in Flintoft v. Royal Bank of Canada as a conclusive starting point for a determination of the "effect and force of the s. 178 security", stated at p. 159 of his judgment:
In the interpretation of the Bank Act security enunciated by the Supreme Court of Canada and latterly by Grant D.J., one can appreciate the great commercial utility and overriding importance which is inherent in Parliament's creation of that security. The bank obtains and may assert its right to the goods and their proceeds against the world, except as only Parliament itself may reduce or modify those rights. [Emphasis added.]
The case law thus fully supports the conclusion that Parliament, in the exercise of its power over banking, can both create the ss. 178 and 179 security interest qua interest, and define the rights and obligations of the bank and its borrowers pursuant to that interest. The reiteration in these cases of the point that the rights, duties and obligations of creditor and debtor are to be determined solely by reference to the Bank Act cannot be reconciled with the respondent's proposition that there has yet to be a pronouncement on the constitutional validity of the enforcement provisions of the Bank Act security interest. In truth, however, what I think the respondent really sought was a re-evaluation of the issues, and I shall now turn specifically to the arguments advanced by him.
As I noted earlier, the basis of the respondent's challenge to the constitutionality of ss. 178 and 179 is founded on the proposition that the federal banking power cannot extend to allowing Parliament to define the procedures for realization and enforcement of a federal security interest. The submission that such legislation trenches on the provinces' jurisdiction in property and civil rights invites closer scrutiny of the decision of the Privy Council in Tennant v. Union Bank of Canada, upon which I touched briefly earlier.
The issue in Tennant v. Union Bank of Canada turned on a conflict between provisions of the Bank Act and provincial legislation, the Ontario Mercantile Amendment Act, R.S.O. 1887, c. 122. In provisions that will be immediately familiar from the above discussion, the federal legislation essentially authorized a bank to acquire, and hold as security for loans, warehouse receipts which persons engaged in certain defined occupations might give in respect of their own goods. By the terms of the Act, any such receipt vested in the bank the right and title of the owner of the goods. The Ontario Act, which also dealt with warehouse receipts, incorporated a limitation not found in the federal Act. It provided that a warehouse receipt would only be effective to give right and title if the issuer was actually engaged in the business of a warehouseman. The Privy Council was called on to decide whether the federal legislation was ultra vires inasmuch as it allowed for right and title to be conveyed in circumstances not recognized by provincial law.
The Privy Council rejected this proposition, Lord Watson, at p. 47, holding that the federal banking power extended to allowing Parliament to confer upon a bank privileges which had "the effect of modifying civil rights in the province". In rejecting the notion that the federal banking power could not be exercised so as to have the effect of modifying civil rights in the provinces, the Privy Council, we saw, followed the lead given by this Court in Merchants' Bank of Canada v. Smith, supra. The principles that emerged in Merchants' Bank of Canada v. Smith and Tennant v. Union Bank of Canada have never been placed in doubt, and, indeed, have been consistently repeated. I would point to the decisions of the Privy Council in Attorney-General for Canada v. Attorney-General for Quebec, [1947] A.C. 33 (https://www.canlii.org/en/ca/ukjcpc/doc/1946/1946canlii354/1946canlii354.html), and Attorney-General for Alberta v. Attorney-General for Canada, [1947] A.C. 503 (https://www.canlii.org/en/ca/ukjcpc/doc/1947/1947canlii347/1947canlii347.html), as well as the decision of this Court in Reference re Alberta Statutes, [1938] S.C.R. 100 (https://www.canlii.org/en/ca/scc/doc/1938/1938canlii1/1938canlii1.html).
This unbroken line of authority is, of course, predicated on the basic premise that no practical effect could be given to the division of powers in the Constitution Act, 1867 if Parliament were "absolutely debarred from trenching to any extent upon the matters assigned to the provincial legislature by sect. 92", to borrow the phrasing of Lord Watson in Tennant v. Union Bank of Canada, supra, at p. 45. Thus it is clear that there can be no hermetic division between banking as a generic activity and the domain covered by property and civil rights. A spillover effect in the operation of banking legislation on the general law of the provinces is inevitable. Viscount Simon makes this very point in his judgment in Attorney-General for Alberta v. Attorney-General for Canada, supra, at p. 517. The fact that a given aspect of federal banking legislation cannot operate without having an impact on property and civil rights in the provinces cannot ground a conclusion that that legislation is ultra vires as interfering with provincial law where the matter concerned constitutes an integral element of federal legislative competence; see Construction Montcalm Inc. v. Minimum Wage Commission, [1979] 1 S.C.R. 754 (https://www.canlii.org/en/ca/scc/doc/1978/1978canlii18/1978canlii18.html), at pp. 768-69, per Beetz J.
Turning to the particular facts of this case, there is no difficulty in defining the interference or modification of provincial law that flows from the operation of the federal legislation. Sections 178 and 179 of the Bank Act provide for a procedure for the realization and enforcement of a security interest that is distinct from, and in conflict with, the applicable provincial legislation. Thus, as was the case in Tennant v. Union Bank of Canada, federal law confers a "right and privilege" which is not recognized by provincial law. This raises the question whether this derogation from the general law of the province is intra vires Parliament. By application of the principles I have just touched on, the answer must turn on whether the legislative provisions in which Parliament has defined the manner in which a chartered bank may seize and realize on secured property can be considered legislation that Parliament may legitimately enact in the exercise of its banking power or, whether, on the contrary, it must be viewed as legislation which, in pith and substance, has taken on the true identity of valid provincial legislation.
The answer to this question takes one back to the policy reasons behind the creation of the ss. 178 and 179 security interest. As we saw earlier, the creation of this security interest was predicated on the pressing need to provide, on a nationwide basis, for a uniform security mechanism so as to facilitate access to capital by producers of primary resources and manufacturers. Such a security interest, precisely because it freed borrower and lender from the obligation to defer to a variety of provincial lending regimes, facilitated the ability of banks to realize on their collateral. This in turn translated into important benefits for the borrower: lending became less complicated and more affordable.
It follows that the definition of the precise manner in which a bank is permitted to realize on its s. 178 security interest cannot be viewed as a mere appendage or gloss upon the overall scheme of the Act. Rather, the provisions by which the bank, on assignment of the security interest, effectively acquires legal title to the secured property must be viewed as the very linchpin of the security interest that Parliament, in its wisdom, has created. Far from being incidental, these provisions are integral to, and inseparable from, the legislative scheme. To sunder from the Bank Act the legislative provisions defining realization, and, as a consequence, to purport to oblige the banks to contend with all the idiosyncracies and variables of the various provincial schemes for realization and enforcement would, in my respectful view, be tantamount to defeating the specific purpose of Parliament in creating the Bank Act security interest.
In summary, I conclude that the definition of the exact manner in which a bank may realize on property secured pursuant to the s. 178 security interest is integral to the exercise by Parliament of the federal jurisdiction in the field of banking. The issue, in the final analysis, is really the same as that addressed by the Privy Council in Tennant v. Union Bank of Canada, and I think the same result must follow.
This conclusion is in no way undermined by the decision of this Court in Royal Bank of Canada v. Workmen's Compensation Board of Nova Scotia, supra. I do not share the view of the majority in the Court of Appeal that that decision in any way cuts down the ambit of the Privy Council's decision in Tennant v. Union Bank of Canada. As reflected in the excerpt I have cited above, Royal Bank of Canada v. Workmen's Compensation Board of Nova Scotia simply settled that, in applying a provincial tax on property, a bank, as a property owner in respect of property assigned to it by operation of the Bank Act security, must be treated like any other property owner. That has nothing to do with the issue here. There is no logical nexus between the conclusion that a bank is to be treated as an ordinary taxpayer in respect of property to which it holds title by virtue of the operation of a federally defined security interest, and the conclusion that legislation defining that security interest is ultra vires to the extent that it interferes with or modifies provincial law. Davis J., in the following excerpt (at pp. 568-69), puts it beyond dispute that Parliament enjoys sole jurisdiction to define such a security interest:
. . . I have reached the conclusion that the goods in question, though owned by the bank subject to all the statutory rights and duties attached to the security, were property in the province of Nova Scotia
used in or in connection with or produced in or by the industry with respect to which the employer (was) assessed though not owned by the employer
and became subject to the lien of the provincial statute the same as the goods of other owners . . . . It is a provincial measure of general application for the benefit of workmen employed in industry in the province and is not aimed at any impairment of bank securities though its operation may incidentally in certain cases have that effect. [Emphasis added.]
Nor do I see how the respondent can place any reliance on the decision of this Court in Canadian Pioneer Management Ltd. v. Labour Relations Board of Saskatchewan, [1980] 1 S.C.R. 433 (https://www.canlii.org/en/ca/scc/doc/1979/1979canlii180/1979canlii180.html). To begin with, that decision did not specifically address, nor was there need to address, the question whether a particular activity authorized by Parliament could be carried on by the banks as a legitimate exercise of the federal banking power. As I read Canadian Pioneer Management Ltd. v. Labour Relations Board of Saskatchewan, all it decided, for present purposes, was that the definition of what constitutes a bank is not to be gleaned merely from an examination of the particular activities carried on by an institution engaged in the provision of financial services, but rather depends on an institutional test, i.e., on the definition of a bank as fixed by Parliament. This is clear from the judgment of Laskin C.J., especially at p. 441, and the comments of Beetz J., at pp. 465 et seq.
It is true that Beetz J., at p. 468, went on to observe that the pronouncement of Lord Watson in Tennant v. Union Bank of Canada, supra, to the effect that "banking" was "wide enough to embrace every transaction within the legitimate business of a banker" could not be read literally. As he explained:
It cannot be read literally for it would then mean for instance that the borrowing of money or the lending of money, with or without security, which come within the legitimate business of a great many other types of institutions as well as of individuals, would, in every respect, fall under the exclusive legislative competence of Parliament. Such a result was never intended. But Lord Watson was then speaking of the federal legislative authority with respect to institutions which had been chartered as banks and his statement makes sense if understood in institutional terms. [Emphasis added.]
It is important to bear in mind that Beetz J.'s remarks were made with an eye to the transformation of the financial services industry that has taken place in this country; see also Laskin C.J., at p. 440. If at one time the lending of money in Canada was primarily the preserve of the chartered banks, this is, of course, no longer true. Myriad institutions now lend money on security, and engage in the enforcement and realization of their loans, among them trust companies, credit unions, finance companies, caisses populaires and department stores. The decision in Canadian Pioneer Management Ltd. v. Labour Relations Board of Saskatchewan addresses this reality and recognizes that it would be unrealistic to hold that federal jurisdiction extends to every entity engaged in transactions that might literally be described as coming within the "legitimate business of a banker". It is solely in this sense that the respondent is correct in its submission that not every transaction coming within the legitimate business of a banker is within the jurisdiction of Parliament.
This finding, however, cannot serve as a basis for the conclusion that a given aspect of the business of banking carried on by "institutions chartered as banks" no longer falls within the confines of the federal banking power. Such a result could only flow from a case in which the constitutionality of a given legislative provision bearing on banking had been specifically put in issue. The following remarks of Beetz J., in which he qualifies the limits to the application of this "institutional approach" to the definition of banking, make this abundantly clear, at p. 466:
. . . it is an approach which is particularly appropriate in a case where what has to be decided is whether a given institution falls within the concept of banking as a business, and not whether a legislative enactment is constitutionally depending on its relationship to banking within the meaning of s. 91.15 of the Constitution. The characterization of legislation and the characterization of a business are not identical processes. Legislation for instance, may be divisible whereas a business as a going concern is indivisible and must stand or fall as a whole on one side of the constitutional line or the other. The concept of banking as a business and the meaning of the word "banking" in s. 91.15 are not necessarily co-extensive; the meaning of "banking" in the section might very well be wider than the concept of banking as a business. [Emphasis added.]
In short, Canadian Pioneer Management Ltd. v. Labour Relations Board of Saskatchewan simply has no bearing on the question of the constitutionality of the security interest created by ss. 178 and 179, and can, therefore, in no way be taken as being in contradiction with Tennant v. Union Bank of Canada and the other authorities canvassed earlier.
I would thus answer the second question in the negative. Based on the unbroken line of authority stretching back to the decision in Tennant v. Union Bank of Canada, supra, I take it to be beyond dispute that the federal banking power empowers Parliament to create an innovative form of financing and to define, in a comprehensive and exclusive manner, the rights and obligations of borrower and lender pursuant to that interest.
The Question of Paramountcy
Do sections 178 and 179 of the Bank Act conflict with ss. 19 to 36 of The Limitation of Civil Rights Act so as to render inoperative ss. 19 to 36 in respect of security taken pursuant to s. 178 by a chartered bank?
The decision of this Court in Multiple Access Ltd. v. McCutcheon, supra, has delimited the circumstances that will justify application of the doctrine of paramountcy, whereby otherwise validly enacted provincial legislation will be held to be inoperative to the extent that it conflicts with federal legislation. In a widely quoted passage, Dickson J., as he then was, espoused the view that the doctrine of paramountcy would only need to be invoked in instances where it is impossible to comply with both legislative enactments. He stated, at p. 191:
In principle, there would seem to be no good reasons to speak of paramountcy and preclusion except where there is actual conflict in operation as where one enactment says "yes" and the other says "no"; "the same citizens are being told to do inconsistent things"; compliance with one is defiance of the other.
Multiple Access Ltd. v. McCutcheon was a case involving duplicative federal and provincial legislation. This Court rejected the view that such enactments could not operate concurrently simply because resort to the one would preclude resort to the other. On the contrary, Dickson J., borrowing the phrase coined by Professor Lederman in his seminal article "The Concurrent Operation of Federal and Provincial Laws in Canada" (1963), 9 McGill L.J. 185, expressed the view that in a federal system such legislation was expressive of the "ultimate in harmony". In the following excerpt Dickson J. provides a cogent and succinct rationale for this view, at pp. 189-90:
. . . the cases where overlapping provincial legislation has not been rendered inoperative cannot be validly distinguished on the basis that in each of them there were elements of difference between the provincial and the federal legislation; there is no true repugnancy in the case of merely duplicative provisions since it does not matter which statute is applied; the legislative purpose of Parliament will be fulfilled regardless of which statute is invoked by a remedy-seeker; application of the provincial law does not displace the legislative purpose of Parliament. [Emphasis added.]
On the basis of these principles, the question before me is thus reducible to asking whether there is an "actual conflict in operation" between the Bank Act and The Limitation of Civil Rights Act in the sense that the legislative purpose of Parliament stands to be displaced in the event that the appellant bank is required to defer to the provincial legislation in order to realize on its security. This calls for an examination of the provincial legislation.
As is apparent from s. 20, the purpose of ss. 21 to 35 of The Limitation of Civil Rights Act is to prescribe, in a comprehensive manner, the procedure which a secured creditor must follow in Saskatchewan in order to take possession of his security. Failure to follow the prescribed procedure results in the imposition of a sweeping penalty provision; s. 27 provides, in these circumstances, for the determination of the security agreement and the release of the debtor from all liability. I shall assume for the purposes of this appeal that the Court of Appeal correctly interpreted the provision as applying to federally created securities.
The most salient feature of the procedure set out in ss. 21 to 35 of the Act, as I understand it, is that it is designed to ensure that a judge determine the terms and conditions under which a creditor may repossess and seize articles. Section 33 makes this clear. It is a judge who is to decide if, when, and under what circumstances the pledged article is to be returned to the secured party.
The contrast with the comprehensive regime provided for in ss. 178 and 179 of the Bank Act could not be more striking. The essence of that regime, it hardly needs repeating, is to assign to the bank, on the taking out of the security, right and title to the goods in question, and to confer, on default of the debtor, an immediate right to seize and sell those goods, subject only to the conditions and requirements set out in the Bank Act.
On a comparison of the two enactments, can it be said that there is an "actual conflict in operation" between them, giving that phrase the meaning above described? I am led inescapably to the conclusion that there is. The Bank Act provides that a lender may, on the default of his borrower, seize his security, whereas The Limitation of Civil Rights Act forbids a creditor from immediately repossessing the secured article on pain of determination of the security interest. There could be no clearer instance of a case where compliance with the federal statute necessarily entails defiance of its provincial counterpart. The necessary corollary to this conclusion is that to require the bank to defer to the provincial legislation is to displace the legislative intent of Parliament. As the dissenting judge, Wakeling J., put it in the Court of Appeal, at pp. 34-35:
The provincial legislation obviously intends that the unqualified right of seizure granted to the bank is to be restricted. It does so by saying a bank may exercise the right of seizure given by s. 178(3) but only by leave of a judge, who will apply criteria formulated by the Province as to when and under what circumstances seizure can take place.
I do not think it is open to a provincial legislature to qualify in this way a right given and defined in a federal statute; see Attorney-General for Alberta and Winstanley v. Atlas Lumber Co., [1941] S.C.R. 87 (https://www.canlii.org/en/ca/scc/doc/1940/1940canlii33/1940canlii33.html), per Duff C.J., at p. 95.
I am not, with respect, dissuaded from this conclusion by the reasoning of the majority in the Court of Appeal to the effect that requiring a bank to defer to the provisions of The Limitation of Civil Rights Act would, in any given instance, have, in all likelihood, the sole effect of delaying the bank's ability to take possession of its security. As Sherstobitoff J.A. put it, at p. 40:
The Limitations [sic] of Civil Rights Act simply requires that a creditor give notice to a debtor before seizure of property so as to enable the debtor to make application to the court. The application and resulting order may have the effect of delaying the taking of possession by the creditor. It does not affect the amount of the indebtedness or liability for payment of same except in cases of noncompliance with the terms of the Act so as to bring s. 27 into play. Put simply, it requires the Bank to follow certain procedures before realizing upon its security, and nothing more.
The reasoning of the majority on this point cannot be determinative of the question of paramountcy. Such a view, with respect, rests on a misinterpretation of what was said in Multiple Access Ltd. v. McCutcheon. For, as we have seen, dual compliance will be impossible when application of the provincial statute can fairly be said to frustrate Parliament's legislative purpose. In this instance, as I have already noted, Parliament's legislative purpose in defining the unique security interest created by ss. 178 and 179 of the Bank Act was manifestly that of creating a security interest susceptible of uniform enforcement by the banks nationwide, that is to say a lending regime sui generis in which, to borrow the phrase of Muldoon J. in Canadian Imperial Bank of Commerce v. R., supra, at p. 159, the "bank obtains and may assert its right to the goods and their proceeds against the world, except as only Parliament itself may reduce or modify those rights" (emphasis added). This, of course, is merely another way of saying that Parliament, in its wisdom, wished to guard against creating a lending regime whereby the rights of the banks would be made to depend solely on provincial legislation governing the realization and enforcement of security interests.
I can only conclude that it was Parliament's manifest legislative purpose that the sole realization scheme applicable to the s. 178 security interest be that contained in the Bank Act itself. Again, as I pointed out earlier, I am firmly of the view that the security interest and realization procedure must, in essence, be viewed as a single whole in that both components of the legislation are fully integral to Parliament's legislative purpose in creating this form of financing. In other words, a s. 178 security interest would no longer be cognizable as such the moment provincial legislation might operate to superadd conditions governing realization over and above those found within the confines of the Bank Act. To allow this would be to set at naught the very purpose behind the creation of the s. 178 security interest.
Accordingly, the determination that there is no repugnancy cannot be made to rest on the sole consideration that, at the end of the day, the bank might very well be able to realize on its security if it defers to the provisions of the provincial legislation. A showing that conflict can be avoided if a provincial Act is followed to the exclusion of a federal Act can hardly be determinative of the question whether the provincial and federal acts are in conflict, and, hence, repugnant. That conclusion, in my view, would simply beg the question. The focus of the inquiry, rather, must be on the broader question whether operation of the provincial Act is compatible with the federal legislative purpose. Absent this compatibility, dual compliance is impossible. Such is the case here. The two statutes differ to such a degree in the approach taken to the problem of realization that the provincial cannot substitute for the federal.
I have dealt with this case on the basis of paramountcy to meet the arguments put forward by counsel. But the issue can, I think, be answered more directly. At the end of the day, I agree with counsel for the Attorney General of Canada that this is simply a case where Parliament, under its power to regulate banking, has enacted a complete code that at once defines and provides for the realization of a security interest. There is no room left for the operation of the provincial legislation and that legislation should, accordingly, be construed as inapplicable to the extent that it trenches on valid federal banking legislation.
In response to the third question, then, I would hold that ss. 19 to 36 of The Limitation of Civil Rights Act, if interpreted to include a s. 178 security, conflict with ss. 178 and 179 of the Bank Act so as to render ss. 19 to 36 inoperative in respect of the security taken pursuant to s. 178 by a chartered bank. To put it another way, ss. 19 to 36 of The Limitation of Civil Rights Act are inapplicable to security taken pursuant to ss. 178 and 179 of the Bank Act.
Disposition
I would allow the appeal and set aside the judgment of the Court of Appeal, and reply to the legal question put to the Chambers Judge in the same manner as he did, with costs throughout.
I would reply to the constitutional questions as follows:
- Are ss. 19 to 36 of The Limitation of Civil Rights Act, R.S.S. 1978, c. L-16, ultra vires the Legislature of Saskatchewan in whole or in part?
No.
- Are ss. 178 and 179 of the Banks and Banking Law Revision Act, 1980, S.C. 1980-81-82-83, c. 40, ultra vires the Parliament of Canada in whole or in part?
No.
- Do ss. 178 and 179 of the Banks and Banking Law Revision Act, 1980, S.C. 1980-81-82-83, c. 40, conflict with ss. 19 to 36 of The Limitation of Civil Rights Act, R.S.S. 1978, c. L-16, so as to render inoperative ss. 19 to 36 in respect of security taken pursuant to s. 178 by a chartered bank?
Sections 19 to 36 of The Limitation of Civil Rights Act are inapplicable to a security taken pursuant to ss. 178 and 179 of the Bank Act.
Appeal allowed with costs. The first and second constitutional questions should be answered in the negative. As to the third, ss. 19 to 36 of The Limitation of Civil Rights Act are inapplicable to a security taken pursuant to ss. 178 and 179 of the Bank Act.
Solicitors for the appellant: Balfour, Moss, Milliken, Laschuk & Kyle, Regina.
Solicitors for the respondent: Hleck, Kanuka, Thuringer, Semenchuk, Sandomirsky, Boyd & Baker, Regina.
Solicitor for the intervener the Attorney General of Canada: J. C. Tait, Ottawa.
Solicitor for the intervener the Attorney General for Saskatchewan: Brian Barrington‑Foote, Regina.
Solicitor for the intervener the Attorney General for New Brunswick: G. F. Gregory, Fredericton.
Solicitors for the intervener the National Farmers Union: Brent & Lamontagne, Saskatoon.
