Fishery quota as personal property revisited in Nova Scotia

7 minute read
01 October 2015

Commercial lenders to Canada’s agricultural and commercial fishing industries are, by now, well aware of the ever-present uncertainties surrounding the use of quota entitlements, a valuable and indeed vital component of many farming and fishing businesses across Canada, as collateral security. The Supreme Court of Canada’s decision in Saulnier1 told us that while a commercial fishing licence may not be property in the fullest sense, it still gives the licence holder enough rights of the right kind2 to qualify it as property under the Nova Scotia PPSA3 and the BIA4. This decision may have lit a candle for jurisprudence in this area, but it has not been the lightbulb moment that many commercial bankers, and lawyers alike, had hoped it would be. Over time, jurisdictional variation has resulted from a number of provinces specifically legislating on the subject to permit pledges of certain types of quota as collateral security. Other provinces (and certain markets within a province) lack a similar structure that those laws provide, leaving lenders in those provinces on their own to investigate and then stumble through the unique practices of the various marketing and licensing boards across Canada.

Although a high court decision on the status of quota as personal property remains to be seen, lower court decisions are sprinkled throughout the Canadian jurisprudence and occasionally provide some insight into the proprietary nature of quota in the agricultural and fishing sectors. This past spring, the Supreme Court of Nova Scotia gave its decision in Business Development Bank of Canada v. D’Eon Fisheries Limited,5 a case in which the Court had a unique opportunity to juxtapose a commercial fishing licence, so thoroughly examined by the Supreme Court of Canada in Saulnier, and a quota in a fishery’s total allowable catch, all in the context of a dispute between a number of secured lenders that were claiming prior interests in the quota allotted to the debtor company, D’Eon Fisheries Limited (“D’Eon”).

At the time of filing for bankruptcy, D’Eon operated under a federally issued fishing licence and held a quota in the total allowable catch of silver hake on the East Coast. D’Eon’s security agreements with the Province of Nova Scotia (“Province”) and Nova Scotia Business Incorporated (“NSBI”) clearly referenced D’Eon’s quota allocation as forming part of the collateral. The registrations under the Nova Scotia PPSA filed by the Province and NSBI, however, were not as clear and referred to D’Eon’s rights and interests under its fishing license as well as the books, records and documents related to that license. The quota rights were not expressly mentioned. D’Eon’s other secured creditors argued that neither the Province nor NSBI described the quota in their Nova Scotia PPSA registrations by item or type and, without a general “all property” registration, their registrations could not be held to extend to the quota. The Province and NSBI countered that, due to the legal relationship between the licence and the quota and the standard commercial practice that treated quotas and licences as inseparable items for the purposes of transferring such rights, the licence and the quota were of the same type such that a reference to the licence in their registrations included and gave notice of their security interest in D’Eon’s quota.

The Court disagreed with the Province and NSBI. The evidence did not support the conclusion that the quota was so “inextricably linked” to the licence that a reference to one amounted to a collateral description of both. The quota and the licence were administered under distinct regulatory regimes and were capable of being transferred separately. The reference to the licence in the registration could not, in the Court’s view, be read as a general term encompassing the quota entitlements.6 Without a specific reference to the quota, the registration was seriously misleading as to the Province’s and NSBI’s collateral and the Court affirmed that the statutory procedures available to third parties to request particulars of the collateral could not save the description by making its otherwise misleading language acceptable. The Court further suggested that, in the context of the other registrations against D’Eon, certain of which referenced both the licence and the quota, the misleading nature of the filings in question would have been reinforced.

In addition to further espousing the importance of a considered description of specific collateral in a Nova Scotia PPSA registration, the Court’s decision in D’Eon indicates a willingness on the part of the Court to consider a quota entitlement, separate and apart from any licence to which the quota is issued, as personal property in its own right, capable of being treated as property under the Nova Scotia PPSA and capable of being pledged as security in the ordinary course. What the decision regrettably foregoes however, is a detailed analysis which might have shed some light on the Court’s willingness to consider quota as personal property. Such an analysis is needed, preferably at an appellate court level and with some consensus across our provinces, before commercial lenders should have comfort taking security in quota without also following closely the mandated procedures of the governing marketing or licensing board.

1 Saulnier v. Royal Bank of Canada, 2008 SCC 58, [2008] 3 S.C.R. 166. [“Saulnier”]

2 The Supreme Court of Canada found a commercial fishing licence to be akin to a common law profit à prendre (i.e. an interest in land that gives the holder a right to enter upon another’s land and take away something of value, namely, natural resources).

3 Personal Property Security Act (Nova Scotia) [“Nova Scotia PPSA”]

4 Bankruptcy and Insolvency Act (Canada) [BIA]

5 2015 NSSC 160.

6 Distinguishing Re Hickman Equipment (1985) Ltd, 2003 NLSCTD 47, [2003] NJ No 86.

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