Hughes (Re), 2016 ONSC 6832

CITATION: Hughes (Re), 2016 ONSC 6832

COURT FILE NO.: BK-16-02126339-0033

DATE: November 01, 2016

ONTARIO

SUPERIOR COURT OF JUSTICE

IN BANKRUPTCY AND INSOLVENCY

IN THE MATTER OF THE BANKRUPTCY OF

DAVID JOSEPH HUGHES

OF THE CITY OF KINGSTON

IN THE PROVINCE OF ONTARIO

BEFORE: Master Nathalie Champagne, Registrar in Bankruptcy

APPEARANCE: Edward M. Hyer, counsel for the Creditor, Snap Auto Finance Corp.

Christine Arcari, counsel for the Trustee, BDO Canada Limited

HEARD: October 21, 2016

REASONS FOR DECISION

1Oral reasons were given on October 21, 2016. The following are the written reasons in which the oral decision is incorporated.

2The matter before the court is an appeal under s. 135(4) of the Bankruptcy and Insolvency Act, R.S.C 1985, c B.3 from the disallowance by BDO Canada Limited (the trustee), of a claim by Snap Auto Finance Corp. (Snap) against David Joseph Hughes, who made an assignment in bankruptcy on May 24, 2016.

3The facts of this matter are not in dispute. Mr. Hughes purchased a vehicle in Alberta in July 2014 and was provided financing by Snap. Snap perfected its purchase money security interest in the vehicle by registering under the Alberta Personal Property Security Act, R.S.A. 2000, c P7 (Ontario PPSA) on July 17, 2014. The vehicle was registered with the Alberta Government to Hughes as the owner, on July 15, 2014. It is not disputed that Hughes worked in Alberta full time at the time and continues to do so to this day.

4Hughes states that he moved to Ontario in November 2015 and brought the vehicle with him. His affidavit states that the vehicle has remained in Ontario since that time. His affidavit says little more than the fact that he moved to 7 Ainsly Place in Kingston. He continues to this day to work in Alberta 20 days per month and he continues to have an Alberta driver’s license. It is not disputed that Snap was unaware of this purported move.

5On May 24, 2016, the trustee served Snap with a Form 69 Notice of Bankruptcy and a Form 79 Statement of Affairs which showed Hughes’ address to be 7 Ainsly Place, Kingston, Ontario. In the Statement of Affairs the vehicle is listed, but its location is not indicated. On May 27, 2016 Snap filed a proof of claim and on June 17, 2016, some 20 days after being served with Hughes’ Notice of Bankruptcy, Snap registered under Ontario’s Personal Property Security Act, R.S.O. 1990, C P-10 registration system. The trustee disallowed the secured claim on the ground that Snap had not registered its security within 15 days of the vehicle being “brought in” to Ontario as required by s. 5(2) of the Ontario PPSA. The vehicle, which remained registered in Alberta, has since been sold and the proceeds of sale remain in trust.

6It is uncontested that the vehicle, despite its presence in Ontario, remained registered in Alberta and had an Alberta licence plate until it was sold. It is also uncontested that despite Hughes’ purported move to Ontario, he continues to have an Alberta driver’s license.

ISSUE:

7The issue is whether the trustee is bound by the PPSA registration in Alberta or whether Snap lost its security when it failed to register its security in Ontario within the timeframe required by s. 5(2) of the Ontario PPSA.

8The applicable sections of the Ontario PPSA are the following:

Conflict of laws, location of collateral

5. (1) Except as otherwise provided in this Act, the validity, perfection and effect of perfection or non-perfection of,

(a) a security interest in goods; and

(b) a possessory security interest in an instrument, a negotiable document of title, money and chattel paper,

shall be governed by the law of the jurisdiction where the collateral is situated at the time the security interest attaches. R.S.O. 1990, c. P.10, s. 5 (1); 2006, c. 8, s. 125.

Perfection of security interest continued

(2) A security interest in goods perfected under the law of the jurisdiction in which the goods are situated at the time the security interest attaches but before the goods are brought into Ontario continues perfected in Ontario if a financing statement is registered in Ontario before the goods are brought in or if it is perfected in Ontario,

(a) within sixty days after the goods are brought in;

(b) within fifteen days after the day the secured party receives notice that the goods have been brought in; or

(c) before the date that perfection ceases under the law of the jurisdiction in which the goods were situated at the time the security interest attached,

whichever is earliest, but the security interest is subordinate to the interest of a buyer or lessee of those goods who acquires the goods from the debtor as consumer goods in good faith and without knowledge of the security interest and before the security interest is perfected in Ontario. R.S.O. 1990, c. P.10, s. 5 (2).

9Counsel for Snap argues that section 5(2) of the Ontario PPSA which requires it to register its security on the vehicle within 15 days of the vehicle being “brought in” does not apply, because the vehicle was “never brought in” to Ontario.

10The trustee’s position is that the vehicle was in fact “brought in” to Ontario in November 2015. The trustee points to Hughes’ evidence which states that he moved to 7 Ainsly Place, Kingston, Ontario in November 2015 and brought his vehicle to Ontario because he no longer needed it in Alberta.

11Both counsel agree that the only cases on this issue are the cases Steed, (Re), 2001 ABQB 157, 2001 CarswellAlta 184 and Arseneau, (Re), 2005 NSSC 26, 2005 CarswellNS 52.

12In Steed the vehicle in question was purchased in the Northwest Territories and was registered under the PPSA there. The owner of the vehicle moved to Alberta to work and live in Alberta, brought the vehicle with him and registered the vehicle in Alberta. The secured creditor in that case did not register its security under the Alberta PPSA in the time required by the Alberta PPSA.

13In Arseneau the would-be bankrupts bought a Jeep in Alberta where they lived at the time in 2003. The vehicle was registered in Alberta. In February 2004, the couple packed all of their belongings in a U-Haul and moved to Halifax because Mr. Arseneau was offered work there. They did not change the registration of the vehicle to Nova Scotia. Nonetheless, the registrar in that case found that because of the evidence that the Arseneaus demonstrated an intention to stay in Nova Scotia and did in fact stay, the vehicle had been “brought in” with them when they arrived in Nova Scotia in February 2004.

14Snap points to Steed for the proposition that the mere fact that a motor vehicle is physically present in a PPSA jurisdiction doesn’t mean that it is “brought in”. It argues that lenders financing vehicles do not expect to become un-perfected simply because a vehicle crosses borders.

15Snap further argues that section 5(2) of the Ontario PPSA is meant to facilitate financing, not frustrate it. It is its contention that the section is not meant to rob a creditor of its security and asks this court to overturn the disallowance.

16The trustee’s position in this case is that Mr. Hughes is a resident of Ontario by virtue of his address in Kingston but argues that even if this court finds that Mr. Hughes is not a resident, the judge in Steed made clear that a person’s residency is not the test for determining when a vehicle is “brought in” to jurisdiction for purposes of the PPSA.

17The trustee is relying on the fact that the vehicle is here in Ontario. The trustee argues that even if the court does not find that the vehicle was brought in in November 2015, Snap knew about Hughes’ bankruptcy on May 25, 2016 and therefore had 15 days to file their PPSA registration. Snap argues that while they received notice of the bankruptcy, the notice did not provide information as to location of the vehicle. Hughes says he called Snap on May 24, 2016 and told Snap that the vehicle would be dropped off at a location in Ontario. His affidavit states that he has no recollection of the location. I find his evidence in this regard vague. Snap, on the other hand, states that it had no knowledge that Hughes had moved to Ontario until Snap was served with the Notice of Bankruptcy.

18While neither Steed nor Arseneau are exactly on point, I am guided by them in coming to my decision. I am also guided by the principle set out in Calgary Regional Planning Commission v. Alberta Planning Board et al. (1986), 1986 ABCA 174, 71 A.R. 384 (C.A.) which states the following with respect to statutory interpretation:

“we should try to make statutes work by determining the object or scheme of the Act and then by giving the words the meaning which best advances that object or scheme, provided only that the actual words under review can reasonably bear that interpretation.”

19In this case, in my view s. 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.

20In the case before me, I find that the vehicle was not brought into Ontario. While the residence of the owner of a vehicle, on its own, is not determinative; and the physical presence of the vehicle in the non-PPSA jurisdiction, on its own, is not determinative, there should be evidence of both in order to conclude that a vehicle is “brought in”.

21In the present case, the only evidence to support the contention that the vehicle was “brought in” to Ontario is its physical presence here. That cannot be and is not the only factor in determining whether a vehicle is “brought in”.

22Mr. Hughes appears to maintain an address in Kingston but spends 20 days per month in Alberta and only 10 days per month in Ontario. His evidence of his connection to Ontario is scant. He did not obtain a permit and licence plates for the vehicle within 30 days of his arrival in Ontario as required under the Highway Traffic Act (HTA), R.S.O 1990, c H-8., nor did he obtain a driver’s license within 60 days of moving to Ontario, as required by the HTA.

23There is no strong evidence that Mr. Hughes resides in Ontario permanently as was the case in Arseneau. The evidence points to a much stronger connection to Alberta. He still has an Alberta driver’s license and the vehicle was still registered in Alberta when it was sold this past summer. He bought the vehicle in Alberta, he works in Alberta and spends at least 60 per cent of his time there. On the material before me, I find that the vehicle was simply located in Ontario as a matter of convenience because Mr Hughes didn’t need the vehicle in Alberta and it was therefore not “brought in” to Ontario.

24The appeal is allowed.

25The trustee shall pay Snap costs in the amount of $2,000.00 inclusive of HST and disbursements.

Master Champagne