The Crown challenged an order of the Alberta judge in CCAA proceedings regarding the Canada North group of companies that “priming charges” pursuant to s. 11 of the CCAA for counsel fees, costs of the monitor and financing charges of an interim lender would rank in priority to all other security interests and charges, arguing that this priority was contrary to s. 227(4.1). The Crown argued that (1) s. 227(4.1) created a proprietary interest in the debtors’ assets and a court could not attach a super-priority charge to assets that were not the debtors’ property, and (2) in any event, s. 227(4.1) created a security interest that had statutory priority over all other security interests, including super-priority charges.
In the course of rejecting the first ground, Côté J noted that, in addition to the “indeterminacy” of which specific assets were covered by the deemed trust (para. 44), ”the fact that assets subject to the deemed trust are indeterminate makes the trustee’s role effectively impossible to play” (para. 45), so that the deemed trust did not accord with the Civil Law concept of a trust. Similar considerations indicated that s. 227(4.1) did not create a trust that accorded with common law concepts, and the Crown was not significantly assisted by the reference in s. 227(4.1) to the amount covered by the deemed trust being “property beneficially owned by Her Majesty.” In this regard, she noted:
- (at para. 46) that "[i]n the common law, a trust arises when legal ownership and beneficial ownership of a particular property are separated (see Valard Construction Ltd. v. Bird Construction Co., 2018 SCC 8" and that: “As Rothstein J. wrote, because of this fiduciary relationship,’“[t]he beneficial owner of property has been described as ‘the real owner of property even though it is in someone else’s name’ ‘ (Pecore v. Pecore, 2007 SCC 17 … ) .”
- (at para. 49) that: “Another core attribute of beneficial ownership is certainty as to the property that is subject to the trust … .”
- (at para. 52) that: “Traceability is another key aspect of a beneficial interest, since it allows the beneficial owner to enjoy the benefits of ownership, such as income from the property. It also ensures that the beneficial owner is responsible for the costs of ownership."