Saulnier – Is There Security in a Licence to Fish?

On January 23, 2008, the Supreme Court of Canada (“SCC”) heard the case Saulnier v Royal Bank of Canada, [2008] 3 SCR 166. on appeal from the Nova Scotia Court of Appeal, 2006 NSCA 91 . This bankruptcy law case (which has been discussed by Brad Caldwell at on January 23, 2008 in a post entitled, “Fishing Licenses as Security for Loans – An Incremental Step Forward by the Nova Scotia Supreme Court”) examines if fishing licenses granted under the Fisheries Act, RSC 1985, c F-14 should be considered “property” under the administration of a trustee in bankruptcy under the Bankruptcy and Insolvency Act, RSC 1985, c B-3 [BIA], or whether the rights of a holder of one of these licenses should be considered a receiver under the Personal Property Security Act, RSO 1990, c P.10 [PPSA].

In April, 1999, Mr. Saulnier, a 45-year old fisherman who is the president and sole shareholder of Bingo Queen Fisheries Limited (“Bingo”), signed a General Security Agreement (GSA) to the Royal Bank. He held four fishing licenses issued by the Department of Fisheries and Oceans under s. 7 of the Fisheries Act. In January of 2003, Saulnier signed a guarantee limited to $215,000 for the debts of Bingo to the Royal Bank and Bingo signed a GSA to the Royal Bank. Pursuant to Saulnier’s GSA, Royal Bank received security over “all of Debtor’s present and after acquired personal property, including, without limitation…intangibles…and in all proceeds and renewals thereof…(herinafter collectively called ‘Collateral’).”

In July 2004, RBC claimed over $120,000 owed by Saulnier and over $177,000 owed to the Bank by Bingo from Saulnier under the Guarantee, demanding payment and giving notice to Saulnier of its intention to enforce security. Later that month, RBC appointed a receiver for Saulnier and Bingo pursuant to the GSAs. Saulnier then made an assignment in bankruptcy, signing a “Lease and Royalty Agreement” with a corporation granting the corporation the use and benefit of his lobster license. His common law wife was the principal of this corporation.

In March 2005, the receiver and trustee signed a Purchase Agreement with the agent of a man who agreed to purchase the assets of Bingo and Saulnier, including the fishing licenses for $630,000 plus sales tax. The agreement was conditional on the receiver being able to “effect a transfer of the licenses… to an eligible fisherman” designated by the buyer. Saulnier, however, refused to sign the necessary documents to reissue the fishing licenses to the buyer’s designate and the Department of Fisheries and Oceans refused to reissue the licenses. The Receiver and the Royal Bank then applied to the Supreme Court of Nova Scotia, seeking a declaration that Saulnier’s fishing licenses are: 1) “personal property” according to the PPSA in the form of an intangible and 2) “property” for the purposes of the BIA, which allows a trustee or receiver to demand that the bankrupt transfer.

The Supreme Court of Nova Scotia granted the declaration, declaring that the fishing licenses were property according to the BIA and personal property under the PPSA. In coming to this decision, the applications judge identified the federal fishing licenses according to the “reality of the commercial arena,” taking into consideration the potential marketability and value of the licenses. The judge found that it was unnecessary that the holder of these rights must have the “complete power of exclusion” in order to allow the rights to be considered property. By ignoring the commercial reality, creditors would lose the opportunity to have access to security that may be valuable, which could lead to inequities.

The Nova Scotia Court of Appeal, however, allowed the appeal in part, concluding that property here only included the rights respecting fishing licenses, that being the right to apply for renewal of the license or reissuance to a designate, as well as the right to resist an arbitrary denial; the license itself, however, was not considered a property interest. In coming to this decision, the Court of Appeal rejected the Superior Court’s characterization of property by its “commercial reality of market value.” Instead the Court of Appeal explained that if the law allows a license holder to resist an arbitrary non-renewal of the license, the rights of a license holder are not “transitory or ephemeral”; rather, they have a legally recognized right, although limited, that comprises intangible personal property.

I agree with the Court of Appeal’s decision in this case. Fishermen commonly sell their licenses. The rights associated with these licenses are quite valuable, as evident by the price that the 2005 buyer was willing to pay. If this decision were to stand in the SCC, commercial fishing licenses would properly be used as security for bank loans, allowing fishermen to lever the valuable licenses in exchange. For many fisherman, these licenses represent a valuable asset; in allowing them to be pledged as security for bank loans, fishermen are able to obtain required funding, which may assist them in expanding their business and lead to growth in the fishing industry. Further, as expressed by Fichaud J.A. for the Nova Scotia Court of Appeal,

The transfer of his beneficial interest in the licenses apparently was Mr. Saulnier’s object with the “Lease and Royalty Agreement” of November 18, 2004. Mr. Saulnier purported to ‘grant…the use and benefit of [his] lobster license control number 111686 to a company controlled by his common law spouse. Mr. Saulnier neglected to include his trustee in bankruptcy and receivers as grantors.

If the rights associated with these fishing licenses were not considered to be property, creditors would miss opportunities to collect perhaps the most valuable security in return for unpaid loans. Bankrupt fishermen, such as Saulnier, would be able to circumvent the repayment of these loans by transferring the rights to their licenses to family members or friends, as evidenced by Saulnier’s actions. As a result, to protect the interest of creditors and to facilitate commercial lending within the fishing industry, the rights associated with these licenses must be considered property under the BIA and the PPSA.

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