The Law Related to Priority - Moot or Not Moot?

The Alberta Court of Appeal will hear the appeal of Transportaction Lease Systems Inc on the issue of whether a previous judge:

  1. ruled that the appeal in a CCAA matter was not moot; and
  2. concluded, in any event, that the appeal was not moot.

This confusing issue stems from the lease from Transportaction of vehicles and other equipment to Skyreach under a Master Lease Agreement. Companies leasing equipment will want to follow this appeal closely, as it may ultimately change how Courts will view priority.

Transportaction leased equipment to Skyreach under a Master Lease Agreement. Although registered at the Personal Property Registry, the agreement did not list the serial numbers of the leased equipment. The respondent, GE Commercial Distribution Finance Canada Inc. was Skyreach’s main secured creditor. At the same time a monitor was appointed, Transportaction amended its security interest to list the serial numbers of several leased items. Transportaction then asserted its priority over these items.

Decisions Below

The monitor found that Transportaction did not have priority. Transportaction filed an appeal, which was adjourned by consent. The monitor then amended its decision, holding that Transportaction had priority over any serial number goods listed. In a further amendment, the monitor determined that Transportaction was not a true lessor.

Through the proceedings, Transportaction discovered Skyreach sold some of the leased equipment. Transportaction sued GE, claiming that the proceeds were used to reduce Skyreach’s debt to GE. A stay was granted pending a determination of Transportaction’s priority claim. The order, however, provided that Transportaction would not be precluded from arguing that the appeal was moot.

Skyreach has been restructured, and GE paid in full, without recourse to the leased equipment. On appealing the monitor’s decision, Transportaction argued that, since GE was paid in full without recourse to the leased materials, the appeal was moot. GE, on the other hand, argued the appeal could be determinative of Transportaction’s law suit, and therefore was not moot.

Potential Significance

Should the Court of Appeal side with GE and determine the appeal should be heard, equipment rental companies and secured creditors will both want to pay very close attention: it may change the manner in which security in Alberta operates.

Case Information

Transportaction Lease Systems Inc. v. G.E. Commercial Distribution Finance Canada Inc., 2011 ABCA 255

ABCA Docket Number: 1103-0199-AC

Date Leave Granted:  September 16, 2011

Alberta Court of Appeal equipment rental leased equipment Master Lease Agreement monitor mootness priority secured creditors security

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