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Decision challenges PPSA priority orthodoxy

Counsel will have to change the way they think about priority under the Personal Property Security Act (PPSA) after a decision that favoured a solicitor’s charging order over a perfected security under the Act, says Toronto corporate and commercial lawyer Marlin Horst.

Horst, a partner with the Toronto office of Shibley Righton LLP, teaches a course on the PPSA at Queen’s University’s law school and says he always tells students that the Act applies to any security interest unless it is specifically exempted in the law’s wording.

However, in a recent case, an Ontario Superior Court judge sided with the lawyers for a general contractor, giving it first dibs on bonds posted into court.  

That was despite the claim of a specialty insurer with a registered perfected PPSA security over the contractor's entire assets that it should be first in line, ahead of any solicitor's charging order.

"Many people will look at the decision on its face, and say it’s wrong because the PPSA does not specifically exempt this particular type of charging order,” Horst tells AdvocateDaily.com. “But after a second or third reading, they might come around, as I did, to the judge’s reasoning that to rule otherwise could have a chilling effect on lawyers taking on this type of work.”  

The case has its roots in a plan to expand a seniors apartment building in Mount Albert, Ont., under the auspices of the general contractor. 

The contractor's surety insurer registered its perfected PPSA security over the company’s assets in 2010 and claimed it should get priority over a bond posted in court by the project landowner.

But the contractor's lawyers argued none of the money held in court would be there without its efforts, and that it should be paid for its work before anyone else lay claim to the cash.

In his decision, the judge sided with the lawyers, finding that the special purpose and nature of a solicitor’s charging order required it to take priority.  

“Solicitors’ charging orders are a unique right granted to solicitors by statute, common law and law of equity to protect solicitors’ services and to encourage and facilitate legal representation of persons who cannot necessarily afford to pay for legal services as these services are incurred,” he wrote.

Horst says he will add the case to his course reading at Queen’s, but notes that its application will be relatively narrow.

“It’s a bit of an outlier. The charging order will have to be related to the subject matter of that particular litigation,” he says. “Construction liens seem to me the only real context where it will be relevant because that’s the place where there’s a procedure for paying money into court.”  

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