Imagine this: One big bank, a truck leasing company, and a wood products wholesaler walked into a courtroom. Sounds like the start of a joke, right? It kind of is, but instead of a punchline, the result was a serious lesson about protecting assets under lease.
A ruling from earlier this year in the Court of Appeal for Ontario provides critical insights for businesses that enter long term leases, particularly for those who lease vehicles to other companies or independent drivers. The case in question is Royal Bank of Canada v. Cutler Forest Products Inc., 2024 ONCA 118 (“Cutler”). Understanding the outcome and implications of Cutler is essential to protecting your assets in disputes between multiple claimants.
The Background of the Case
The focal point of contention was the claim over several commercial trucks that the wholesaler had leased from the leasing company. Critically, the leases were all for either three or seven years. Following 2007 amendments to Ontario’s Personal Property Security Act (“PPSA”), such leases are classified as a “security interest” under the PPSA because they are “a lease for a term of more than one year.” When the wholesaler fell behind on payments to the bank, a court-appointed receiver sought to sell the trucks to raise funds to re-pay the bank.
The Bank’s Argument: Registration Defeats Ownership
The court’s determination accepted the argument advanced by the bank, which hinged upon a crucial aspect of asset management and debt security known as “perfecting a security interest.” In essence, this is a legal process by which a company asserts a public claim over its assets. In this case, the leasing company had not completed this step. As a result, the court decided in favor of the bank, allowing the receiver to sell the trucks, despite everyone agreeing that the owner of the trucks prior to the bank enforcing its security was the leasing company.
Conclusion
The decision in Cutler underscores the necessity of appreciating that common assumptions about “ownership” do not necessarily apply in complex commercial disputes. And where the law has changed, not staying up-to-date can have profound and unexpected impacts.
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This note is intended to illuminate the legal implications of the referenced case. This should not be taken as explicit legal advice. For an in-depth understanding tailored to your specific circumstances, please consult with a legal professional.
Michael Crampton