A governmental licence is property for bankruptcy and personal property security purposes

Yesterday's Supreme Court of Canada decision in Saulnier v. Royal Bank of Canada, 2008 SCC 58 holds that a governmental licence, even when granted in the discretion of the government, is property under the Bankruptcy and Insolvency Act ("BIA') and the Personal Property Security Act ("PPSA"). This is a very important decision with implications broadly in civil law and family law especially in terms of collection issues.

A case summary follows.

Saulnier held four fishing licences. In order to finance his fishing business, he signed a General Security Agreement ("GSA") with a bank, as well as a guarantee for the debts of his company. The company entered into a parallel GSA. The GSAs gave the bank a security interest in "all . . . present and after acquired personal property including . . . Intangibles . . . and in all proceeds and renewals thereof". In 2004, the fishing business faltered and Saulnier made an assignment in bankruptcy. The following year, the receiver and the trustee in bankruptcy signed an agreement to sell the four licences and other assets to a third party for $630,000, but Saulnier refused to sign the necessary documents. The trustee in bankruptcy and the bank brought an application for declaratory relief. Saulnier claimed that the commercial fishing licences did not constitute "property" available to a trustee under the federal BIA, or to a creditor who has registered a GSA under the PPSA.

The Court's task was to interpret the definitions of "property" in s. 2 of the BIA and of "personal property" in s. 2 of the PPSA in a purposeful way having regard to their entire context, in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament. A fishing licence is unquestionably a major commercial asset. The holder of such a licence, issued at the discretion of the Minister of Fisheries and Oceans under s. 7(1) of the Fisheries Act, obtains a good deal more than merely permission to do that which would otherwise be unlawful. A s. 7(1) licence confers to the holder a right to engage in an exclusive fishery under the conditions imposed by the licence, and a proprietary right in the fish harvested and the earnings from their sale. The subject matter of the licence, coupled with a proprietary interest in the fish caught pursuant to its terms, bears a reasonable analogy to a common law profit à prendre which is undeniably a property right. While these elements of the licence do not wholly correspond to the full range of rights necessary to characterize something as "property" at common law, the issue is whether they are sufficient to qualify the "bundle of rights" conferred on S as property for the purposes of the BIA and PPSA.

In an industry where holding one of a very restricted number of licences is a condition precedent to participation, the licence unlocks the value in the fishers' other marine assets. While "commercial realities" cannot legitimate wishful thinking about the notion of "property" in the BIA and the PPSA, these statutes are largely commercial instruments which should be interpreted in a way best suited to enable them to accomplish their respective commercial purposes.

The BIA is intended to achieve certain objectives in the event of a bankruptcy which require, in general, that non-exempt assets be made available to creditors. The s. 2 definition of "property" in the BIA should be construed accordingly to include a s. 7(1) licence. Parliament unambiguously signaled an intention to sweep up a variety of assets of the bankrupt not normally considered "property" at common law, and this intention must be respected if the purposes of the BIA are to be achieved. It is important to look at the substance of what is conferred, namely a licence to participate in the fishery coupled with a proprietary interest in the fish caught according to its terms and subject to the Minister's regulations. While it is true that the proprietary interest in the fish is contingent on the fish first being caught, the existence of that contingency is contemplated in the BIA definition and is no more fatal to the licence's proprietary status for BIA purposes than is the case with an equivalent contingency arising under a profit à prendre. It follows that the trustee was entitled to require S to execute the appropriate documentation to obtain a transfer of the fishing licences to the third party purchaser.

A holding that a fishing licence is property in the hands of the holder for limited statutory purposes does not fetter the Minister's discretion under the Fisheries Act to issue, renew or cancel a fishing licence, according to the exigencies of the management of the fisheries.

The fishing licence is also "personal property" within the meaning of s. 2 of the PPSA. The definition of "intangible" in that section includes an interest created by statute having the characteristics of a licence coupled with an interest at common law. The grant by the Minister of a licence, coupled with a proprietary interest in the fish caught, is thus sufficient to satisfy the PPSA definition. The registration is therefore valid to include the s. 7(1) licence and, in the absence of any other PPSA defence, the bank is entitled to proceed with its PPSA remedies.