Among its major functions the Supreme Court of Canada is to resolve conflicts among lower courts on difficult issues of law and, in the commercial sphere and other areas of consensual law, to develop rules and doctrines that promote predictability of outcomes and enhance the free-flow of goods and services among contracting parties.
But in one of the case last month Saulnier vs. Royal Bank of Canada the court will disappoint many, not because of what the court said but because of what it failed to say. The immediate issues before the court were whether a bank can acquire a valid security interest in a commercial fishing license issued by the federal Department of Fisheries and Oceans and held by a Nova Scotia fisher, and whether a trustee in bankruptcy acquires the fisher’s interest in the license if the fisher becomes bankrupt.
It is said that fishing licenses are only a small subset of a much larger realm of licenses issued by a multitude of government agencies — federal, provincial and municipal. The main hurdle in all these cases is the great uncertainty surrounding the legal status of the licenses and, in particular, whether the licenses can be transferred, whether they can be used as collateral for a loan from a bank and whether the license vests in the trustee if the licensee becomes bankrupt.
Experts informed that literally, this minimalist view means, that a lender cannot acquire a valid security interest in a license unless legislation provides otherwise. Consequently, a prudent lender will not lend on the security of the license because the borrower, or the borrower’s trustee if the license holder goes bankrupt, would always be free to argue that the security agreement was ineffectual.
