Priorities Outside The Alberta Personal Property Security Act (PPSA)

1. INTRODUCTION

   S4 of the PPSA, provides that "except as otherwise provided" in the PPSA, the PPSA does not apply to a number of enumerated liens, charges or other interests, including as set out in s4(a) "a lien, charge or other interest given by an Act or rule of law in force in Alberta".

   Also, s32 of the PPSA provides that where a person in the ordinary course of business furnishes materials or services with respect to goods, any lien that that person has with respect to the materials or services has priority over perfected or unperfected PPSA security interests in the goods unless the lien is given by an Act that provides that the lien does not have priority.

   This paper discusses some of the "liens, charges or other interests" where, save as otherwise provided under the PPSA, the PPSA priority rules do not apply or are of limited application. Unless otherwise stated, all references to the word "property" in this paper, refer to personal property.

2. COMMON LAW LIENS AND RIGHTS OF SET-OFF

   1. Common Law Liens

      The Master Funduk 1984 decision in Continental Bank of Canada v. Henry Morgensen Transport Ltd.2 ("Continental") contains a good summary of the common law lien broken down into two classes, namely a general lien that allows the lien claimant to retain possession of property to recover both claims relating to the property and not related to the property, and a particular lien, that gives the lien claimant the right to retain possession of property to recover liability relating only to the property.

      The more commonly encountered common law liens, consist of:

      (a) the repairer lien, that developed at common law, principally due to the fact that a legal owner under a conditional sales contract or chattel lease, or a secured party under a chattel mortgage or security agreement require the conditional sales purchaser, the lessee or debtor as applicable (collectively the "Debtor") to maintain the property in good repair; and as a result a repairer at common law provided it retains possession of the repaired personal property, was granted a lien in priority to a prior owner, lessor or secured creditor for recovery of the reasonable amounts payable by the Debtor to the repairer for its work and services to the applicable property; and

      (b) the solicitor's lien that consists of either:

      (i) retaining lien3, namely the right of a solicitor to retain documents and other personal property in his possession to recover outstanding fees payable in respect of services performed in respect of such documents or property (including money, as long as such funds are not held in trust for a third party); and

      (ii) a general charging lien4, which attaches to property (including money, again as long as such funds are not held in trust for a third party) as an immediate consequence of the work performed by the lawyer for his client in recovering such property, to pay all amounts payable by the client to the solicitor for services relating to, or not relating to, the recovered property.

      A common law lien gives the lien claimant the right to hold the property in question, but no further rights5. Essentially, the lien claimant may hold the property as "hostage" until the lien claim is paid, but the common law lien does not give the lienholder the right to dispose of the property, without a court order. If a common law lienholder needs to assert its rights vis-à-vis a PPSA security interest, the writer is of the opinion that a court order disposing of the property free and clear of a PPSA security interest, most likely could be obtained by application of the common law lienholder, on notice to the debtor and other affected secured parties, pursuant to ss64 and 69 of the PPSA.

   2. Common Law Rights of Set-Off

      In those instances where the competition is between the holder of money not subject to a trust in favour of a third party (the "Fundholder") and the owner of the money and/or the holder of a lien, charge or security interest in the funds, the Fundholder, has a common law right of set-off to pay from such funds monies owed by the owner to the Fundholder before releasing the balance of the funds to the owner or otherwise entitled competing secured creditor6.

      The common law set-off rights depend upon when the Fundholder received notice of the competing security interest, when the debt to be set-off became payable, and whether the debt to be set-off arose from Fundholder services or obligations related to the funds, or is a collateral debt not related to the funds5.

      A solicitor in the case of Canadian Commercial Bank v. Parlee McLaws7, was found to have the right to set-off outstanding fees payable by his client against money held by a solicitor for his client (not subject to any trust in favour of a third party) regardless of whether or not the fees owed to the solicitor were in respect of fees for services that pertain to the monies held by the solicitor, or other fees owing to the solicitor that did not relate to the monies held by the solicitor.

3. OTHER ALBERTA STATUTORY LIENS, CHARGES OR OTHER INTERESTS

   There are a number of "liens, charges or other interests" given by Alberta statutes other than the PPSA, where the PPSA is limited, or of no help, in determining the priority afforded to these other liens, charges or interests.

   What follows, is a summary of a number of the liens, charges or other interests given by other Alberta statutes and their priority, on the assumption that the owner or party in possession of the property is not in bankruptcy, or has not filed proposal proceedings, governed by the Bankruptcy and Insolvency Act8 ("Bankruptcy Act").

   1. Garage Keepers' Lien Act9 (the "GKLA")

      S2 of the GKLA provides that in addition to every other remedy that a garage keeper has for the recovery of money owing to the garage keeper for the storage, repair or maintenance of all or any part of a "motor vehicle" or a "farm vehicle" as defined in the GKLA ("vehicle"), or for the price of accessories or parts furnished to all or any part of the vehicle, a garage keeper has a lien ("GKLA Lien") on the vehicle or part of it for the sum to which the garage keeper in entitled. Unlike the common law repairer's lien that for the most part ceases upon the repairer surrendering possession of the repaired property, the GKLA allows the GKLA Lien to be maintained by a garage keeper on the vehicle after possession of the vehicle is given up by the garage keeper, provided that:

      (a) the garage keeper obtains from the person who authorized the storage, repair and maintenance or the person who ordered the accessories or parts to be furnished for the vehicle, an acknowledgment of indebtedness by requiring such person, or that person's agent, to sign an invoice or other statement; and

      (b) the garage keeper registers the GKLA Lien at the Alberta Personal Property Registry ("APPR") within the time period provided for in the GKLA.

      The following is a summary of other pertinent GKLA provisions:

      (a) s2(2) provides that a GKLA Lien cannot be claimed for the price of fuel, oil or grease furnished to an applicable vehicle;

      (b) s3 provides that the GKLA Lien terminates on the 21st day after possession of the vehicle is surrendered, or after repairs were completed to the vehicle at a time when the garage keeper was not in possession of the property, or after the accessories or parts to the motor vehicle or farm vehicle were furnished, unless prior to such time, the garage keeper registers at APPR a...