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

Published: 04/28/2017

By Jonathan Fleisher, Hilary Fender

In December, 2016, we reported on the decision in Hughes Re, 2016 ONSC 6832 (Hughes 1), in which the Registrar (the Registrar) of the Ontario Superior Court (the Court) interpreted certain provisions in the Ontario Personal Property Security Act (the PPSA) relating to perfection of security interests in collateral that has been ‘brought in’ to Ontario. This decision was appealed, and on April 19, 2017, the Ontario Superior Court of Justice released its decision in Hughes (Re), 2017 ONSC 2421, overturning the lower decision of the Registrar.

Facts

David Joseph Hughes (Hughes) purchased a vehicle in Alberta, and had obtained financing through Snap Auto Finance Corp. (Snap). Snap perfected its security interest in the vehicle by registering a financing statement in accordance with the Alberta PPSA. Hughes moved to Ontario but did not inform Snap, and then made an assignment in bankruptcy (the Assignment). Snap filed a secured proof of claim in Hughes’ bankruptcy, but the claim was disallowed by the Trustee in Bankruptcy (Trustee) on the grounds that the vehicle was ‘brought in’ to Ontario, and Snap had not registered its security in the vehicle in accordance with the Ontario PPSA and therefore should be treated as unsecured.

Previous Registrar’s Decision

In Hughes 1, the Registrar overturned the Trustee’s decision, and found that the vehicle was not ‘brought in’ to Ontario. The Registrar held that in order for a vehicle to have been ‘brought in’ to Ontario, there must be evidence of both the residence of the owner and the physical presence of the vehicle in Ontario. The Registrar concluded that while there was physical evidence of the vehicle in Ontario, Hughes did not reside in Ontario based on a number of facts, including, among other things, that Hughes worked and spent 60% of his time in Alberta.

Decision on Appeal

On appeal, the Court held that the Registrar erred in its determination that the vehicle was not ‘brought in’ to Ontario, by failing to take into account certain evidence demonstrating Hughes’ residency in Ontario. As mentioned above, the second relevant factor, being the vehicle’s presence in Ontario had already been established by the Registrar in Hughes 1 and was not re-examined on appeal.

The Court overturned the Registrar’s decision and held that the vehicle had been ‘brought in’ to Ontario. The Registrar erred by failing to consider that Hughes filed his bankruptcy Assignment and swore his Statement of Affairs in Ontario. The evidence also pointed to Hughes’ intention to reside in Ontario and have the vehicle remain in Ontario (despite Hughes himself spending significant time in Alberta), as the vehicle remained parked in Ontario when not in use, gas was purchased solely in Ontario, and the vehicle was kept continuously in Ontario.  While Hughes worked full time in Alberta, his employer provided him with a vehicle to use in Alberta, and he brought all of his furniture to Ontario.

Snap failed to perfect its security interest by registration pursuant to the Ontario PPSA once the vehicle was ‘brought in’ to Ontario. The Court restored the Trustee’s decision to disallow Snap’s secured claim.

Although the Court came to a different conclusion than the Registrar, the Court’s decision reinforces the two-part analysis the court will take when determining if goods are ‘brought in’ to Ontario under Section 5 of the PPSA – namely, there must be evidence of both the residence of the owner and the physical presence of the vehicle in Ontario.

For further information regarding this matter, please contact Jonathan Fleisher, Hilary Fender or any other member of the Equipment & Asset Financing Group.