Court File and Parties

COURT FILE NO.: CV-16-11291-00CL DATE: 20160601 ONTARIO SUPERIOR COURT OF JUSTICE COMMERCIAL LIST

BETWEEN:

1889072 Ontario Limited Applicant – and – Globealive Wireless Management Corp., Selectore Ltd., Sheriff Toronto Region, City of Toronto and Sheriff York Region Respondents

Counsel: Benjamin Salsberg, for the Applicant Allison Taylor, for the Respondent Globealive Wireless Management Corp. Glenn K.L Chu, for the City of Toronto

HEARD: May 25, 2016 Newbould J.

Endorsement

[1] The applicant applies for a declaration that amounts payable by the City of Toronto to Selectore Inc. are subject to a security interest previously granted by Selectore to the applicant and that the applicant’s security interest stands in priority to any interest that the respondents Globealive Wireless Management Corp. or the Sheriff may claim in respect of the funds.

[2] The applicant is a secured lender to Selectore under a loan agreement and a GSA. It was perfected under the Personal Property Security Act. The GSA provides for security over all of the assets of Selectore including amounts receivable by Selectore from third parties. The loan was due on January 31, 2015 but was extended under a standstill agreement with Selectore to January 31, 2016. As at February 9, 2016 Selectore was indebted to the applicant for approximately $2.6 million.

[3] On December 10, 2015 the applicant demanded payment from Selectore of the outstanding indebtedness. It is now acknowledged by the applicant that as there was a standstill agreement in place between the applicant and Selectore at the time, the demand for payment was not valid.

[4] Selectore has had a contract with Toronto under which Selectore has been providing certain goods and services to Toronto. There was outstanding as at November 18, 2015 a payable from Toronto to Selectore in the amount of $81,476. On December 31, 2015 Mr. Salsberg, the lawyer for applicant, wrote to Toronto demanding that any amounts due to Selectore be paid to the applicant.

[5] By further standstill agreement between the applicant and Selectore dated April 25, 2016, Selectore acknowledged that it was in default of its loan from the applicant. Selectore agreed to a standstill period to January 31, 2017 during which the applicant would not take steps to enforce its security. The agreement provided that the applicant would not attach or otherwise proceed against any assets or property of Selectore other than “the COT receivable”, COT being the acronym for City of Toronto.

[6] The respondent Globealive is a judgment creditor of Selectore. It obtained a judgment against Selectore for $1.026 million plus interest and costs on November 4, 2014. Globealive served a notice of garnishment on Toronto on February 13, 2015. Globealive objects to Toronto making any payment to the applicant. Globealive takes the position that as there has been no default in the loan agreements between Selectore and the applicant, the applicant has no right to the receivables owing to Selectore from third parties such as Toronto.

[7] Globealive says that the payable as at November 18, 2015 from Toronto to Selectore in the amount of $81,476 is caught by its prior garnishee notice of February 13, 2015 and should not be paid by Toronto to the applicant because at the time the payable became due to Selectore, there had been no loan default by Selectore on its loan from the applicant. Globealive says that Toronto should pay the money to it.

[8] The applicant says that with respect to that payable, it does not matter that the loan was not in default at the time that the payable became due from Toronto to Selectore because its security was perfected under the PPSA on February 5, 2013 before Globealive garnisheed Toronto. It relies on section 20(1)(a)(ii) of the PPSA which provides:

20. (1) Except as provided in subsection (3), until perfected, a security interest, (a) in collateral is subordinate to the interest of, (ii) a person who causes the collateral to be seized through execution, attachment, garnishment, charging order, equitable execution or other legal process…

[9] It is contended by the applicant that the inference from this provision of the PPSA is that once the security has been perfected, the collateral is not subordinate to the interest of a person who later issues a notice of garnishment. This is the view expressed in Cuming, Walsh and Wood, Personal Property Security Law, (2nd ed, 2012). It is also the view stated by Justice Lederman in Canada Mortgage & Housing Corp. v. Apostolou (1995), 22 O.R. (3d) 190. In that case, Lederman J. held that an unperfected security interest at the time of a garnishment notice did not have priority over the garnishment. He stated in obiter, however:

The purpose of s. 20(1)(a)(ii) of the Personal Property Security Act is to give court-authorized legal processes, such as garnishment, priority over unperfected security interests based upon private agreements between parties. This serves to emphasize the importance of registration as the foundation for the secured party to exercise priority.

[10] Globealive argues that under section 62(1) of the PPSA, a secured party has the right upon default under a security agreement to take possession of the collateral and that as there was no default at the time the receivable of $81,476 became due by Toronto to Selectore, the applicant had no right to require that receivable to be paid to it. That may be, depending on the terms of the security between the applicant and Selectore, but it is only a matter between the applicant and Selectore. It cannot affect the rights as between the applicant and Globealive.

[11] Globealive contends that the second forbearance agreement is not a “real” or valid agreement because it was not made at arm’s length and was made in an attempt to defeat the ability of Globealive to realize on its judgment against Selectore. I cannot make any such finding. The argument is based on speculation in the extreme. The second forbearance agreement states that the loan is in arrears by virtue of the previous forbearance expiring, and that statement is supported by the facts in the record. In any event, by virtue of section 20(1)(a)(ii) of the PPSA, the security of the applicant takes priority over the garnishment rights of Globealive.

[12] I accept the purport of section 20(1)(a)(ii) of the PPSA that once perfected, the security of a lender takes priority over a later notice of garnishment. It follows that even though there was no default under the Selectore loan to the applicant at the time the payable of $81,476 became due by Toronto to Selectore, the garnishment by Globealive served on Toronto was ineffective to require the payment of that receivable to Globealive. Toronto is to pay the $81,476 to Selectore.

[13] The same pertains to any other later payable from Toronto to Selectore so long as the security of the applicant remains perfected. The only evidence of perfection in the record is the perfection of February 5, 2013 which expired on February 5, 2016. It may be that it was renewed to prevent any lapse in the perfection. If it has not lapsed, the applicant is entitled to a declaration as requested.

[14] The applicant is entitled to its costs. It claims fees on a substantial indemnity basis of $12,900. I see no basis for fees on that higher scale. Its claim on a partial indemnity basis is $8,600. This compares to the cost outline of Globealive on a partial indemnity basis of $9,187.50. In the circumstances, the applicant is entitled to its costs of $8,600 plus HST.

[15] Toronto is entitled to its costs in the agreed amount of $3,750, to be paid by Globealive.

Newbould J. Released: June 1, 2016