)

SEClJR1TY REALIZATION ­NOTICE REQUIREMENTS

These•ma,terials were pr$paredbyRandy H6oke,of McDougall Ready law firm Saskatoon,Saskatchewan for the Saskatchewan Legal. Education Society Inc.. serninar, Debtor/Creditor Update;November,·1999.

TABLE OF CONTENTS

SECURITY REALIZATION -NOTICE REQUIREMENTS

Page No.

I.II.A.

B.C.

INTRODUCTIONDEMAND FOR PAYMENTTYPES OF LOANS1. The Demand Loan2. The Term LoanREASONABLE NOTICESERVICE OF DEMANDS FOR PAYMENT

1222234

A556677

4III. BANKRUPTCYAND INSOLVENCYACT (CANADA)NOTICE OF INTENTION TO ENFORCE SECURITY

·A. " .. cPREREQUISr.fES<F0RNOtICE(~.·· <.' ·<i~:"~'·;;<i:"B. CONTENtS OP'TImNOTICE"C. SERVICE OF NOTICE OF INTENTION TO ENFORCE SECURITYD. CONCURRENT SERVICE WITH DEMAND FOR PAYMENTE. NOTICE OF RECEIVERF. RECEIVER'S STATEMENTG. OTHER BIA NOTICES

IV.A.

B.

THE SASKATCHEWAN FARM SECURITYACT (THE "SFSA"),.POS~ESSI0NOF FARM EQUIPMENT1.' App1ica.tion of Section472. Notice Required3. Concurrent Service of Notice4. The Limitation ofCivil Rights ActFORECLOSURE/CANCELLATION PROCEEDINGS1. Applications of Sections 11 to 21 of the SFSA2. Notice Requirement3. Concurrent Service ofNotice4. Fee to Accompany Notice

88899

101011121213

V.A.B.C.

THE FARMDEBTMEDIATIONACTAPPLICATION OF THE FARM DEBT MEDIATIONACTNOTICE REQUIREMENTSCONCURRENT SERVICES OF NOTICES

14141617

VI. CONCLUSION 20

APPENDIX "A"

APPENDIX "B"

APPENDIX "C"

APPENDIX "D"

APPENDIX "E"

APPENDIX "F"

APPENDIX "G"

DEMAND FOR PAYMENT

SECTIONS 243 TO 250 -Bankruptcy and InsolvencyAct

NOTICE OF INTENTION -Bankruptcy and Insolvency Act

NOTICE OF RECEIVER -Bankruptcy and Insolvency Act

RECEIVER'S STATEMENT -Bankruptcy and Insolvency Act

INTERIM REPORT -Bankruptcy and Insolvency Act

RECEIVER'S FINAL REPORT AND STATEMENT OF ACCOUNTS-Bankruptcy and Insolvency Act

APPENDIX "H" NOTICE OF POSSESSION -FORM C -Farm Implement -Saskatchewan.,... ,--~_-FarmSecul'ityAct,··.· ....

APPENDIX "I"

APPENDIX "J"

APPENDIX "K"

APPENDIX "L"

APPENDIX "M"

APPENDIX "N"

APPENDIX "0"

APPENDIX "P"

NOTICE OF POSSESSION -FORM D -Farm Implement -SaskatchewanFarm Security Act

NOTICE OF POSSESSION -FORM E -Fann Implement -SaskatchewanFarm Security Act

NOTICE OF INTENTION -Farm Land -Saskatchewan Farm SecurityAct

NOTICE OF MOTION -Saskatchewan Farm Security Act

NOTICE OF INTENT TO REALIZE ON SECURITY -Farm Debtj}/ediation Act

FARM DEBT MEDIATIONACT (CANADA)

FARM DEBT MEDIATION ACT -REGULATIONS

M & D FARM LTD. v. MANITOBA AGRICULTURAL CREDITCORP. -Supreme Court of Canada

)

SECURITY REALIZATION -NOTICE REQUIREMENTS

I. INTRODUCTION

Ever since the decision of the Supreme Court of Canada in Ronald Elwyn Lister Ltd. v. Dunlop

Canada Ltd. (1982), 41 C.B.R. (N.S.) 272 (S.C.C.) ("Lister v. Dunlop"), the world of security

realization has become much more complex. Lister v. Dunlop and the cases that followed

completely modified what was thought to be the common law that little or no time was required

between the date of demand for payment on an on demand loan and the date of security

.enforcement"'To add some certainty to the: an~a" theG()yernment of C~adapa$sedametid.ments

to the Bankruptcy and Insolvency Act (Canada) in 1992 which, in the case of an insolvent

debtor, required a minimum of 10 days notice prior to a secured creditor enforcing its security.

In response to the crisis in agriculture in the 1980's, the Government of Canada passed the Farm

Debt Review Act in 1986 which required a secured creditor to give a farmer at least 15 business

days'notlce befb'retaking any action to realize on its security. In 1998, the Farm Debt Review

Act (Canada) was replaced by the Farm Debt 111ediation Act which resulted in a broadening of

the circumstances under which notice is to be given. As Saskatchewan practitioners are well

aware, the Government of Saskatchewan has long been an active player in security enforcement

with such legislation as The Land Contracts (Actions) Act, The Limitation of Civil Rights Act,

and The Saskatchewan Farm Security Act. This paper will examine both the common law

notice requirements and the requirements legislated by the Government of Saskatchewan and

the Government of Canada in order to give practitioners a better understanding of the notices that

,must be served on a borrower prior to security enforcement.

2

II. DEMAND FOR PAYMENT

A. TYPES OF LOA1~S

There are two main types of loans, the demand loan and the term loan.

(1) THE DElVlAND LOAN

A loan is considered to be repayable on.demand when there is no fixed term specified for the

repayment of the loan and the loan instrument actually states that repayment of the indebtedness

is to be "on demand". In order to be in a position to enforce repayment of a demand loan,

., <deman.d forpayinent must·be Illade. It isJlot .unusualforidemandloanstoalsospecifyvarious

provisions which, if not complied with, will cause the borrower to be in default and entitle the

lender to demand payment. However, with a demand loan, it is ahvays possible for a lender to

demand payment from the borrower even though the borrower is not in default of any obligations

under the credit facility. A typical form of demand letter is attached as Appendix "A" hereto.

(2) tHE TERM LOAN

In contrast to a demand loan, the term loan is repayable by a fixed date and usually specifies

payments of principal and interest that are to be made on a regular basis during the term of the

loan. Because a term loan is a contract between the lender and the borrower that the lender will

lend the borrower the funds for a fixed period of time at a given interest rate, it is not unusual for

a lender to impose certain requirements on the borrower, the breach of which will entitle the

lender to demand payment. It is also not unusual for the loan agreement to specify that notice

must be given of a particular default prior to the lender being in a position to enforce its security.

In such circumstances, the lender is required to give notice of the particular default and a

reasonable opportunity for the borrower to rectify the default. Once notice of default has been

3

given, and after a reasonable period of time has passed for the borrower to rectify the default, the

lender is then in a position to demand payment and enforce its security. It is usual, however for

both the notice of default and the demand for payment to be given at the same time and usually

in the same document.

B. REASONABLE NOTICE

Since the Supreme Court decision in Lister v. Dunlop, every practitioner is aware that prior to

enforcing any security against a borrower, a secured creditor must give a reasonable period of

time between the date of the demand for payment and the date of security enforcement. What

will be considered·areasonahleperiod oftimehasbeen.thesnbject ofmuch·litigation. ' Each case

will depend upon its own facts. With the passage of the Bankruptcy and Insolvency Act in

1992, in circumstances where you have an insolvent borrower, the Bankruptcy and Insolvency

Act (Canada) will require that a 10 day notice period be given to the borrower. Accordingly, it

would seem safe to presume that in the case where the borrower is insolvent, a 10 day notice

period should be sufficient. However, although many authors suggest that in most

circumstances, the demand period can be quite short, it has always been my recommendation to

error on the side of caution. For instance, if you are required to give at least 10 days notice to an

insolvent person, would it not be reasonable to presume that a borrower who is not insolvent

within the meaning of the Bankruptcy and Insolvency Act should be given at least as much

notice prior to security enforcement? Case law has determined, however that in some cases, less

than one day's notice may be sufficient prior to security enforcement. I would suggest, however

that such cases will be very rare and that a prudent practitioner will be inclined to advise his

client to give more notice than less. If circumstances come to the attention of the lender that

suggest that the borrower is absconding with assets or that the security is deteriorating, it might

4

be more prudent to apply for an interim receiver under the Bankruptcy and Insolvency Act (in

the case of an insolvent debtor) or apply to Court for a property preservation order. For an

excellent discussion on the case law that has developed since the Lister v. Dunlop decision, I

would refer you to Bennett on Receiverships, second edition at page 101.

C. SERVICE OF DEMANDS FOR PAYMENT

In the event the loan agreement specifies how a demand is to be given, the method of service

specified in your agreement should be followed. However, because the demand for payment is

such a critical component of the process for commencing security enforcement, it has always

been my -recommendation: that personalservice be effected on an individual or, ,in the case of a

corporation, that the registered office or a director of the corporation be served with your demand

for payment in addition to any alternate method of service that may be specified in your loan

agreement or security agreement. Although serving your demands for payment in more than one

fashion may be more expensive for your client initially, it will usually preclude any suggestion

that prop~tca.e~andhas not been given and will thereby avoid the argumenf thaFyo'llr clie~t

might be trespassing when it proceeds with security enforcement.

III. BANKRUPTCY AND INSOLVENCY ACT (CANADA) NOTICE OF INTENTION

TO ENFORCE SECURITY

A. PREREQUISITES FOR NOTICE

According to Section 244 of the Bankruptcy and Insolvency Act (Canada) (the "BIA"), a

secured creditor who intends to enforce certain security is required to give notice under the Act.

!/

5

A copy of Sections 243 to 250 of the BIA are attached as Appendix "B" hereto. In order to fall

within Section 244 of the Act, the following criteria must be applicable to your situation:

(i) You must be a secured creditor;

-

(ii) Your security must include all or substantially all of the inventory,- accounts

receivable or the other property of your borrower;

(iii) The borrower must be an insolvent person within the meaning of the BIA;

(iv) The property that you are enforcing against must have been acquired for or used

in relation to a business carried on by the insolvent person.

If all the prereqllisites are met, a Notice of InteIition toEnforce.Security mustbe served on the

borrower and the secured creditor will not be entitled to enforce any security against the

borrower until the expiry of 10 days after the sending of the notice. The borrower can consent to

the security enforcement prior to the expiry of the notice period, however, that consent can only

take place after the sending of the requisite notice.

B. CONTENTS OF THE NOTICE

The Notice is to be in prescribed form and is to specify the name and address of the insolvent

person; the name of the secured creditor; the property against which the secured creditor holds

security; the particulars of the security; the particulars of the indebtedness and a statement that

the secured cannot enforce the security until after the expiry of the 10 day period after the notice

is sent. A copy of a precedent Notice of Intention to Enforce Security is attached as Appendix

"C" hereto.

C. SERVICE OF NOTICE OF INTENTION TO ENFORCE SECURITY

Rule 113.1 of the Bankruptcy and Insolvency Act Rules specifies that a Notice of Intention to

Enforce Security that is required by subsection 244(1) of the BIA is to be sent in the manner

6

provided in the security agreement, or, in the absence of any provision in the security agreement,

shall be served, or sent by registered mail or by courier. In most circumstances, the security

agreement that you are enforcing will have an address for service. However, care must be taken

in circumstances where the borrower has made a change of address or is no longer carrying on

business at the address specified in the security agreement. In such circumstances, it is my

preference to serve both the address specified in the security agreement and the borrower.

Again, although the rules specify that an alternate means of giving the notice is by either

registered mail or by courier, it is still recommended that the documents be served personally on

. the botroweror, if the borrower is a corporation,ontheregistered office and on a director of the

borrower.

D. CONCURRENT SERVICE WITH DEMAND FOR PAYMENT

As the BIA is not very clear, some secured creditors are serving the demand for payment first,

followed by the BIA Notice. In the case of Delron Computers Inc. v. Peat Marwick Thome Inc.,

[1995] 5 W.W.R. 174 (Sask Q.B.), Justice Gerein held that in certain circumstances,the BIA

Notice can be served at the same time as a demand for payment. The court was dealing with a

term loan, however, and suggested that different considerations may apply to a demand loan as it

might be argued that a secured creditor has no intention to enforce its security until· after the

expiry of the demand.

E. NOTICE OF RECEIVER

If the secured creditor has taken possession or control pursuant to a security agreement or Court

order of all or substantially all of the inventory, accounts receivable, or other property of an

insolvent person or a bankrupt, or appointed someone to do so on its behalf, then, in that event,

the secured creditor or its agent will become a "receiver" within the meaning of section 243 of

7

the BIA and will be required to give notice not later than 10 days after becoming a receiver in

prescribed form to the Superintendent in Bankruptcy, to the Trustee (where you are dealing with

a bankrupt) or, in the case of an insolvent person, to the insolvent person and to all of the

creditors of the insolvent person. Although it has been my practice to service such notices by

registered mail on the Superintendent's office and on any Trustee in Bankruptcy, I would suggest

that all creditors of the insolvent person could be sent the notice by ordinary mail. A copy of a

precedent Notice of Receiver is attached as appendix "D" hereto.

F. RECEIVER'S STATEMENT

In addition to the Notice of Receiver, Section 246 of the BIA requires that a Receiver prepare

and forward to the Superintendent, to the insolvent person or the Trustee (in the case of a

bankrupt) and to any creditor who requests a copy a statement setting out the names and the

amounts owed to each creditor; the description of the assets that the Receiver has seized and their

book value; and the details of the intended plan of action during the receivership. A precedent

Receiver's Statement is attached as Appendix "E" hereto. The Notice of Receiver and the

Receiver's Statement may be combined into one document (BIA Rule 113.4).

G. OTHER BIA NOTICES

In addition to the Notice of Receiver and the Receiver's Statement, a Receiver is also required to

file interim reports every six months and, after completion of his duties as Receiver, is required

to prepare a final report and statement of account in the prescribed form and containing the

prescribed information relating to the receivership. Both the interim and fmal reports are to be

given to the Superintendent in Bankruptcy; to the insolvent person or the Trustee (in the case of a

bankrupt); and to any creditor who requests a copy of such reports. A precedent of an Interim

8

Report is attached as Appendix "F" hereto and a precedent of a Receiver's Final Report and

Statement of Accounts is attached as Appendix "G" hereto.

IV. THE SASKATCHEWAN FARM SECURITYACT (THE "SFSA',

The two most significant notice requirements in the SFSA are the notice requirements dealing

with the possession of Farm Equipment and the notice provisions relating to the commencement

of foreclosure or cancellation proceedings by a secured creditor.

A. POSSESSION OF FARM EQUIPMENT

(1) APPLICATION OF SECTION 47

Under Section 47 of the SFSA, a secured party is prevented from taking possession of a farm

implement except in accordance with the SFSA. The provisions in question only apply to a

farmer, defined as a producer who or an agricultural corporation that owes payment or other

performance of a secured obligation, whether or not he or it owns or has rights in the article arid

includes the personal representative of a farmer. The provisions likewise only apply to any

implement, equipment or machine that is used or intended for use by a producer on a farm for the

purpose of farming or a motor vehicle classified in regulations made pursuant to THe Vehicles

Act, 1983 or The Highway Traffic Act as a farm vehicle. The sections only apply where a

farmer has failed to make a payment under an agreement or contract and an implement is, in

whole or in part, the security under the agreement or contract. The provisions do not apply to the

Bank Act security and accordingly, many banks continue to hold security on farm equipment

pursuant to Section 427 of the Bank Act.

)

9

(2) NOTICE REQUIRED

Pursuant to Section 48 of the SFSA, any secured party intending to take possession of an

implement shall serve the notice prescribed in the regulations on the farmer. A typical form of

the Notice of Possession for a farm implementis attached as Appendix "H" hereto,_ The SFSA

provides that within 30 days of the date on which a notice is served on the farmer, the farmer

may apply for a hearing by the Court. The hearing will eventually determine whether or not the

secured creditor will be entitled to obtain possession of the implement in question. In the event

the Court orders that the secured creditor is entitled to obtain possession of the farm implement

from the farmer, a Notice of Possession of Implement in Form D is required to be served on the

farmer. A precedent of such notice is attached as Appendix "I" hereto. On the other hand, in the

even the farmer does not apply for a hearing and the secured creditor takes possession of the

farm implement, a Notice of Possession of Implement in Form "E" is required to be served on

the farmer and the secured creditor is unable to dispose of the implement until a period of 40

days has elapsed from the date of service of such notice. The farmer still has an opportunity of

applying to Court in order to obtain possession of the farm implement and must apply for a

hearing within 30 days of the service of such notice on him. A precedent copy of a Notice of

Possession ofImplement in Form E is attached as Appendix "J" hereto.

(3) CONCURRENT SERVICE OF NOTICE

The Saskatchewan Court of Appeal has concluded in the decision of Royal Bank of Canada v.

Wagner (1989) 70 Sask. R. 228 that a Notice of Intention pursuant to Section 21 of The

Limitation of Civil Rights Act (Saskatchewan) was "the taking of an action to realize on

security" within the meaning of Section 22 (2) of the Farm Debt Review Act (Canada). We

would suggest that nothing has changed with the repeal of the Farm Debt ReviewAct (Canada)

10

and its replacement with the Farm Debt Mediation Act (Canada). Accordingly, the practice

should still be followed that in situations where a secured creditor wants to seize security from a

farmer in circumstances where Section 47 of the SFSA or Section 21 of The Limitation of Civil

Rights Act (Saskatchewan) apply, the notice under the Farm Debt Mediation Act should be

served and the time period should expire prior to the service of the requisite notices under either

such statute.

(4) THE LIMITATION OF CIVIL RIGHTS ACT

The foregoing comments concerning Section 47 of the SFSA would be equally applicable to any

notice given pursuant to Section 21 of the Limitation of Civil Rights Act. Section 21 of the

Limitation of Civil Rights Act will only apply to the repossession of an "article" which is

defined as meaning a washing machine, a stove, a heater, a sewing machine or a refrigerator or

freezer. Apart from the usual circumstances where a purchase money security interest is taken

on the sale of such items, this section becomes very relevant in circumstances where a secured

creditor is foreclosing on an apartment building owned by one or more individuals and, as

collateral security to the mortgage, the secured creditor has taken security on all of the appliances

situated in the premises. Care must be taken to ensure that the appropriate notices are given

under Section 21 of the Limitation of Civil Rights Act and that the procedures set but in the

subsequent sections are followed in order to ensure that the secured creditor does not become

subject to the penalty provisions contained in Section 27.

B. FORECLOSURE/CANCELLATION PROCEEDINGS

Pursuant to Section 9 (1) (d) of the SFSA, a secured creditor is precluded from commencing an

action with respect to farm land save and except where the secured creditor complies with

Section 11 to 21.

]

11

(1) APPLICATION OF SECTIONS 11 TO 21 OF THE SFSA

Section 9(1)(d) and Sections 11 through 21'of the SFSA significantly restrict the ability of a

secured creditor to realize on farm land in the Province of Saskatchewan. These sections

prohibit the commencement of an action with respect to farm land by a mortgagee-Unless an

application is made and an order granted allowing the proceedings to commence. An action is

defined as an action in Court with respect to farm land by a mortgagee for foreclosure of the

equity of redemption; sale or possession; recovery of money payable under a mortgage; specific

performance or cancellation of an agreement for sale; sale or possession of the farm land sold

under and agreement for sale or any other relief that may be granted under the agreement for

sale. Farm land is defined as any real property in Saskatchewan situated outside a city, town,

.village, hamlet or resort village that is used for the principal purposes of farming but excludes

certain mineral exceptions. A mortgagee is defined so as to include a vendor under an agreement

,} for sale, his successors and assigns.

Section 12 (1) of the SFSA precludes a mortgagee from applying for such an order until after the

expiry of 150 days from the date of service of a Notice of Intention on the Farm Land Security

Board and the farmer specifying the intention of the mortgagee to apply for an order under

Section 11 of the SFSA that Clause 9(1)(d) of the Act does not apply to the mortgage in

question. A precedent Notice of Intention is attached as Appendix "K" hereto. It is the purpose

of the Notice of Intention to inform the Farm Land Security Board of the current state of the

mortgage including payments made in the last three years preceding the date of the notice. A

copy of the mortgage is to be forwarded to the Board. After service of the notice, a mediator is

appointed and the Board has a period of 60 days to complete a report on the financial affairs of

the farmer. The report is provided to the farmer, the mortgagee and the mediator at which time

12

the mediator attempts to mediate between the farmer and the mortgagee. The mediation period is

.to be completed on or before the expiry of 105 days following the service of the Notice of

Intention. If the matter has not been resolved, the Board will thereafter prepare a report for the

consideration of the Court. The report is to be provided to the farmer and the mortgagee at

which time the mortgagee is then in a position to make an application to the Court of Queen's

Bench in Saskatchewan by Notice of Motion for an order under Section 11 of the SFSA that

Clause 9(1)(d) of the Act does not apply to the mortgage in question. A sample Notice of

Motion is attached as Appendix "L" hereto.

On the Court application, the burden ofproof is on the mortgagee to establish that the farmer has

no reasonable possibility of meeting his obligations under the mortgage or that the farmer is not

making a sincere and reasonable effort to meet his obligations under the mortgage.

(2) NOTICE REQUIRED

Section 12(1) of the SFSA requires that no application to Court can be made until after the

expiry of 150 days from the date of service of the Notice of Intention on both the farmer and the

Farm Land Security Board. Although Section 103 of the SFSA provides that service can be

effected on a farmer by registered mail, it is still advisable to personally serve the notice.

Provision is also made for service on the lawyer of the farmer provided that the requirements of

Section 103 (2) are complied with. For the most part, it has been our practice to service the

Notice ofIntention on the Farm Land Security Board by registered mail.

(3) CONCURRENT SERVICE OF NOTICE

There has been much judicial debate in the Province of Saskatchewan as to the concurrent

service of the SFSA Notice of Intention for Foreclosure and the Notice of Intention under the

Farm Debt Review Act. This matter was resolved by the Saskatchewan Court of Appeal in the

13

case of Watson Credit Union v. Fedderson (unreported -Saskatchewan Court of Appeal ­

November 28, 1990, file 573) where it was resolved that the Notice ofIntention under the Farm

Debt Review Act (Canada) and the Notice of Intention under Section 12 of the SFSA could be

served concurrently. It would appear that the Court of Appeal focused on the factthat after the

expiry of the 150 day notice period, the mortgagee still has to apply to Court for an order that

Section 9(1)(d) does not apply. Accordingly, the process prior to the Court application is simply

an expression of an intention to take an action and that it is only at a subsequent time that the

intention will actually transferred into the actuality of an action and then only if the mortgagee

decides to proceed. This would appear to still be the current state of the law. I would draw to

your attention, however my comments under the Farm Debt Mediation Act (Canada) and in

particular, my comments on the recent Supreme Court decision in M & D Farm Ltd. v. Manitoba

Agricultural Credit Corporation [unreported -reasons delivered September 2, 1999] ("M & D

Farm Ltd. v. MACC").

(4) FEE TO ACCOMPANY NOTICE

Please note that when sending Notice of Intention to the Farm Land Security Board under

Section 12(1) of the SFSA, a fee in the amount of $250 is to accompany the notice. When more

than two notices are served on the Board at the same time respecting the same mortgagor, the

maximum fee to charged for all notices is $500. Your cheque should be payable to the

Saskatchewan Minister of Finance.

I\

14

v. THE FARM DEBTMEDIATIONACT

Proclaimed into effect on April 1, 1998, the Farm Debt Mediation Act replaced and repealed the

Farm Debt Review Act. The new legislation appears to have expanded and updated the

legislation in a number of relevant areas.

A. APPLICATION OF THE FARMDEBT MEDIATION ACT

The provisions of the Act are only available to insolvent fanners. A farmer is defined as any

individual, corporation, co-operative, partnership or other association of persons that is engaged

in fanning for commercial purposes. The definition of a secured creditor is quite broad and

appears to include a lease contract. Any lawyers acting on behalf of clients that lease equipment

to farmers should carefully review the definition section. Section 21 (1) provides that every

secured creditor who intends to:

(i) enforce any remedy against the property of a fanner, or

(ii) commence any proceedings or any action, execution or other proceedings, judicial

or extra-judicial for the recovery of a debt, the realization of any security or the

taking of the property of a fanner

shall give the fann written notice of the creditors intention to do so, and in the notice shall advise

the fanner of the right to make an application under Section 5.

Please note the expansion of the circumstances under which notice is required. The Farm Debt

Review Act simply required that every secured creditor "who intends to realize on any security of

a fanner" shall give notice. The Farm Debt Mediation Act appears to be much broader and will

cover the circumstance where a secured creditor is proceeding to sue on a debt or take any other

action against a fanner. Under Section 5 of the Act, a fanner may apply for a stay of

15

proceedings, a review of his financial affairs and mediation with his creditors or, in the

alternative, the farmer may simply apply for a review of his financial affairs and mediation. The

legislation only applies to insolvent farmers. The same definition of insolvency as is contained

in The Bankruptcy and Insolvency Act is applied in the Farm Debt Mediation:Act. Upon

receipt of an application pursuant to Section 5, notice of the application is given to all of the

creditors of the farmer and, if a stay has been requested, a 30 day stay of proceedings against the

farmer and all of the farmer's creditors is issued. When a farmer is determined to eligible under

the legislation, a detailed review of the farmer's affairs is completed and a report prepared. Once

the report has been prepared, a mediator is appointed and given a copy of the report. The

mediator then meets with the farmer and his creditors for the purposes of assisting them to reach

a mutually acceptable arrangement.

The Farm Debt Review Board has been replaced by an administrator appointed under the Act.

.The administrator can extend the stay for a maximum of three further periods of 30 days each if

the administrator considers an extension of the stay to be essential to the formulation of an

arrangement between a farmer and the farmer's creditors. However, the administrator must also

be satisfied that the value of the farmer's assets will not significantly diminish during the period

of the extension; the majority of the farmer's creditors will not be unduly prejudice by the

extension; and there is no indication of bad faith by the farmer (Regulation No.3). If the

mediator decides to terminate the stay or not extend the stay, there is an appeal process that can

be followed.

Similar to the Farm Debt Review Act, in circumstances where the administrator issues a stay of

proceedings, the administrator is also required to appoint a guardian of the farmer's assets. The

16

guardian can be the farmer, if heis qualified to be a guardian and in any other case, can be the

person nominated by the secured creditor or the administrator.

B. NOTICE REQUIREMENTS

The notice required to be given by a secured creditor must be given in the prescribed-manner at

lease 15 business days before the secured creditor takes any action. Pursuant to Regulation 17,

the notice may be given as follows:

(i) In the case of a farmer who is an individual:

(a) by leaving a copy ofth:e notice with them;

(b) by leaving a copy of the notice in a sealed envelope addressed to the

farmer with anyone who appears to be an adult and who resides at the

farmer's place of residence, and on the same day or the following day,

mailing another copy of the notice to the farmer at the place of residence;

or

(c) by sending a copy of the notice by priority post, courier or registered mail

addressed to the farmer;

(ii) In the case of a farmer who is a corporation, co-operative, partnership or other

association

(a) by leaving a copy of the notice with an officer, director, partner or agent of

the corporation, co-operative, partnership or other association;

(b) by leaving a copy of the notice with a person at any place of business of

the farmer who appears to be in control or management of the place of

business; or

-

17

(c) by sending a copy of the notice by priority post, courier or registered mail

addressed to the last known address of the head office or principal place of

business of the farmer.

It should be noted, however that in any case where personal service is not effected, t)1e:Notice is

only deemed to be served seven business days after the day on which the notice is sent. Please

also note that there is no provision for serving the registered office of a corporation, except by

priority post, courier or registered mail. It would seem to suggest that the service of the notice

on the head office of a corporation by bailiff might not be sufficient to effect immediate service

on the corporation but in all probability would be deemed to be effective seven days later.

A copy of a Notice of Intention under the Farm Debt Mediation Act is attached as Appendix

"M" hereto; a copy of the Farm Debt Mediation Act is attached as Appendix "N" hereto and a

copy of the regulations to the Farm Debt Mediation Act are attached as Appendix "0" hereto.

C. CONCURRENT SERVICE OF NOTICES

With the passage of the Farm Debt Mediation Act, practitioners undoubtedly were somewhat

concerned as to whether or not the expansion of the circumstances under which a secured

creditor is required to give notice under the Farm Debt Mediation Act would some how impact

on the decision of our Court of Appeal in Watson Credit Union v. Fedderson (supra). The

Fedderson decision held that concurrent service of the Notice of Intention to commence

foreclosure proceedings under Section 12 of the SFSA and the service of the Notice ofIntention

under the Farm Debt Review Act were quite acceptable. Although the broadening of the scope

of Section121 of the Farm Debt Mediation Act would not appear to have any sigriificant impact

on the decision of our Court of Appeal in Fedderson, consideration now has to be given to the

expanded wording in light of the decision of our Supreme Court in M & D Farms Ltd. v. MACC.

18

As this is a recent decision of the Supreme Court, a copy of the decision is attached as Appendix

"p" hereto.

The M & D Farm decision involved an application for leave under Section 8(1) of the Family

Farm Protection Act (Manitoba). Very simply, after M & D Farm Ltd. had obtained a stay

under the Farm Debt Review Act and during the continuance of the stay period, Manitoba

Agricultural Credit Corp. applied for leave to commence foreclosure proceedings before the

Manitoba Court of Queen's Bench. It should be noted that the application for leave was a Court

process somewhat similar to our application under The Land Contracts (Actions) Act

(Saskatchewan). During the course of the leave process, it is available for the farmer to file an

affidavit and appear. The Supreme Court of Canada held that it was artificial to isolate the leave

application from the foreclosure process. Speaking for the majority, Justice Binnie stated in

paragraph 28 as follows:

"A Court proceeding places a drain on the farmers resources at the very momentall parties should have their focus on a potential arrangement. A leave applicationdoes not itself result in dispossession, but it requires the farmer to put together adefence and this will likely involve hiring a lawyer (despite that the farmer is exhypothesi insolvent) to assist in the cross-examination on affidavits, preparingopposing affidavits and dealing with adjournments, and the cost and disruption oflitigation. All of this is done at the very time that the Board is attempting to assistin putting together an arrangement with creditors that would render such litigationsuperfluous."

In paragraph 29, Justice Binnie also suggests that as the leave application was clearly "prepatory

to" the ultimate dispossession of the farmer of his or her land, that it was in fact prohibited by the

legislation. Furthermore, in paragraph 34 of the decision, the Supreme Court considered the

decision of O'Connor 1. in Farm Credit Corp. v. Wade (1994), 28 C.B.R. (3 rd) 203 (Ont.

Gen.Div.). In the Wade case, a farmer complained about the concurrent service of notice under

Section 22 of the Farm Debt Review Act and Section 244(1) of the Bankruptcy and Insolvency

19

Act at a time when there was a stay under Section 23 of the Farm Debt Review Act. O'Connor J.

suggested that the giving of such notices during the stay were acceptable as such notices were

merely advisory and passive in nature requiring no responding action by the recipient that would

significantly enhance the position of the plaintiff if not taken. As the Supreme Com:t had not

heard any argument on that particular point, it did not make any distinction between a step that

required an active response as opposed to a passive response. The Supreme Court determined

that the leave application did require a response by the recipient and would enhance the position

of the secured creditor unless it was successfully opposed.

As a result of the decision of the Supreme Court of Canada in the M & D Farm 'case, careful

consideration must be given to determine whether or not any of the notice requirements under

the Bankruptcy and Insolvency Act or the SFSA would be precluded. It is suggested that the

notice under Section 244 under the Bankruptcy and Insolvency Act is really a codification of the

appropriate amount of notice to be given to an insolvent person by a secured creditor and

accordingly, should be considered a passive type of notice, somewhat similar to a demand for

payment. However, the same cannot be said for a Notice of Intention to Commence Foreclosure

Proceedings pursuant to Section 12 of the SFSA. That process would require a response by the

farmer in that the farmer would be required to participate in the mediation process with or

without the benefit of legal counsel. If the farmer chose not to participate in the process, it

would significantly enhance the position of the secured creditor. By not participating, the

mediator appointed pursuant to the SFSA could file a mediation certificate with the Farm Land

Security Board stating that in the opinion of the mediator, the farmer was not mediating in good

faith. Pursuant to Section 14, the Court "may" grant. th~ application of the secured creditor

where such a certificate is filed. Accordingly, the failure of the farmer to respond could result in

20

a significant enhancement of the position of the secured creditor to the detriment of the farmer.

Accordingly, it is quite possible that the. Supreme Court of Canada might consider Notices of

Intention pursuant to Section 12 of the SFSA to be a proceeding that is precluded by.Section 21

of the Farm Debt Mediation Act unless the appropriate 15 business day notiCe p~riod has

expired.

VI CONCLUSION

With the decision of the Supreme Court of Canada, practitioners are cautioned to re-think

circumstances under which concurrent service might be effected, particularly in the

circumstances of an insolvent farmer. Practitioners may wish to consider whether or not it might

be prudent to wait for the expiry of the notice period under the Farm Debt Mediation Act prior

to serving any notices under the SFSA. Although it has always been the practice in

Saskatchewan to serve the notice under the Farm Debt Review Act before serving the Notice of

Possession of a farm implement under the SFSA, consideration should also be given as to

whether or not a similar practice should be adopted for the Notice of Intention under Section 12

of the SFSA.

It is quite likely that a Notice of Intention pursuant to Section 21 of the Farm Debt Mediation

Act can be served concurrently with a properly drafted demand for payment. However, you may

also wish to consider whether a Notice of Intention pursuant to Section 244 of the Bankruptcy

and Insolvency Act should be served concurrently with your demand for payment and any Farm

Debt Mediation Act notice that is required to be served, .or whether you should wait and serve it

concurrently with a subsequent notice given in Circumstances where notice is required under the

21

SFSA. Each practitioner should carefully consider the ramifications of the decision of the

Supreme Court of Canada in M & D Farms before adopting any such procedure.

Although this paper has reviewed some of the more significant notices that are requ~red to be

given by secured creditors prior to security enforcement, it is not intended to be exhaustive of all

of the notices that are necessary. In particular, notices are required under The Land Contract

(Actions) Act in and for the Province of Saskatchewan and under the disposition and receivership

provisions of The Personal Property Security Act, 1993 (Saskatchewan). For a more

comprehensive review of some of these additional notice provisions, resort may be had to the

Bar Admission Course materials on The Personal Property Security Act, 1993, Bankruptcy,

Receivership, and Mortgage Foreclosures.

GORDON J. KUSKI, a.c.ROBERT N. MILLARR SHAWN SMITH. a.c.MICHAEL W. MIlANIAARONA. FOX. a.c.WAYNE L BERNAKEVlTCH­BRIAN M. BANILEVlCJAMES A. MORRISON"KEVIN A. LANGJAMES N. KORPANSTUART J. WlCIJOWSKIJAMES F. RYBCHUKJOSEPH T. SCHUCKAMANDA M. CHOBATEROWENM. RICE

TERENCE G. GRAF. a.c.LYNN A. SMITH­KENNETH A. READY. ac.W. RANDALL ROOKE"PHILIP J. GALLETRONALD L MILLER, O.C."MURRAY R. SAWATZKYSUSAN B. BARBER­BRENT D. BARILLA"ERIN M. S. KLEISINGERDARYL E. LABACH·JAYNE C. KRUEGERSHEILA E. CASTON"G. BRETT LEDINGHAM

APPENDIX "A"

Jltc9Jott;?all~38~&Yo&a~

300 ~rl !iJCMl,h: <%ui~//0 - 2/:>1 .5'Zeet (fadY~.Yad.

Y5anadaS7K OB6

TELEPHONE (306)653-1641FACSIMILE (306)665-8511

Date

COUNSELELMERYOUCK

RETIRED COUNSELWILLIAM F. READY. a.c.. LLD.

*

ATTENTION:

Dear Sir;

RE: ROYAL BANK OF CANADAOUTSTANDING INDEBTEDNESS

WRRW" RANDALL ROOKE

Further to the above captioned, please be advised that we are the solicitors acting on behalfof the Royal Bank of Canada (the "Royal Bank"). As of the * day of*, *, you are jointly andseverally indebted with * to the Royal Bank in the amount of * which has been made up asfollows:

Loan Name OutstandingPrincipal

Term Loan *

Demand Loan

Accrued Interestto *, *

$*

InterestRate

*%

Please be advised that you are in default in making the instalments required to be paid to theRoyal Bank. As a result of such default, the Royal Bank hereby accelerates payment of thetotal indebtedness due and owing by you to the Royal Bank and hereby makes formaldemand for payment in full of your indebtedness to the Royal Bank in the amount of $*,together with interest accruing thereon as and from the * day of *, *, at the rate of *% perannum until paid.

• RESIDENT IN SASKATOON- MEDIATOR

...~"DIT/O",

tl8B;~REGINA OFFICE:700 ROYAL BANK BUILDING.2010 11111 AVENUE, REGINA. SASK S4P (I

TEUEPHONE (306) 757.1641 FACSIMIUE {INTERNET E·MAlL mcdougaJI.rga@sk.symp

- 2 -

In the event payment has not been received by the Royal Bank on or before f2:00 o'clocknoon on *, the * day of *, *, then, in that event, the Royal Bank will take such actions as itdeems necessary in order to enforce repayment of the aforementioned indebtedness,reserving the right to immediately take whatever action it deems necessary if, at any time,the Royal Bank determines that its security position has become impaired, eroded, orcompromised in any way.

Payment should be made to the Royal Bank at the following address:

*

Yours truly,

W. RAt~DALL ROOKEWRRJlg

P; \SEC. ENF\DEMJUID.TLS. doc

APPENDIX "B"

PART XISECURED CREDITORS AND RECEIVERS -- SSe 243 to 252

Definition of"court" in certain places -- s. 243(1)

243. (1) In paragraphs (2)(b) and 250(2)(a) and (b), "court" means

(a) any court other than a court as defined in section 2; and

(b) a court as defined in section 2 when not exercising jurisdiction in bankruptcy.

Definition of "receiver" -- s. 243(2)

(2) Subject to subsection (3), in this Part, "receiver" means a person who has beenappointed to take, or has taken, possession or control, pursuant to

(a) an agreement under which property becomes subject to a security (in this Partreferred to as a "security agreement"), or

(b) an order of a court made under any law that provides for or authorizes theappointment of a receiver or receiver-manager,

of all or substantially all of

(c) the inventory,

(d) the accounts receivable, or

(e) the other property

of an insolvent person or a bankrupt that was acquired for, or is used in relation to, abusiness carried on by the insolvent person or bankrupt.

Idem -- s. 243(3)

(3) For the purposes of subsection 248(2), the defmition "receiver" in subsection (2) shallbe read without reference to paragraph (b) thereof.

1992, c. 27, s. 89.

Advance notice -- s. 244(1)

244. (1) A secured creditor who intends to enforce a security on all or substantially all of

(a) the inventory,

(b) the accounts receivable, or

(c) the other property

of an insolvent person that was acquired for, or is used in relation to, a business carriedon by the insolvent person shall send to that insolvent person, in the prescribed"fonn andmanner, a notice of that intention. -

Period of notice -- s. 244(2)

(2) Where a notice is required to be sent under subsection (1), the secured creditor shallnot enforce the security in respect of which the notice is required until the expiry of tendays after sending that notice, unless the insolvent person consents to an earlierenforcement of the security.

No advance consent -- s. 244(2.1)

(2.1) For the purposes of subsection (2), consent to earlier enforcement of a security maynot be obtained by a secured creditor prior to the sending of the notice referred to insubsection (1).

Exception -- s. 244(3)

(3) This section does not apply, or ceases to apply, in respect of a secured creditor

(a) whose right to realize or otherwise deal with his security is protected bysubsection 69.1(5) or (6); or

(b) in respect of whom a stay under sections 69 to 69.2 has been lifted pursuant tosection 69.4.

Idem -- s. 244(4)

(4) This section does not apply where there is a receiver in respect of the insolventperson.

1992, c. 27, s. 89; 1994,c.26,s.9.

Receiver to give notice -- s. 245(1)

245. (1) A receiver shall, as soon as possible and not later than ten days after becoming areceiver, by appointment or otherwise, in respect of property of an insolvent person or abankrupt, send a notice of that fact, in the prescribed fonn and manner, to theSuperintendent, accompanied by the prescribed fee, and

(a) in the case of a bankrupt, to the trustee; or

(b) in the case of an insolvent person, to the insolvent person and to all creditors ofthe insolvent person that the receiver, after making reasonable efforts, has ascertained.

Idem -- s. 245(2)

(2) A receiver in respect of property of an insolvent person shall forthwith send notice ofhis .becoming a receiver to any creditor whose name and address he ascertains -aftersending the notice referred to in subsection (1). -

Names and addresses of creditors -- s. 245(3)

(3) An insolvent person shall, forthwith after being notified that there is a receiver inrespect of any of his property, provide the receiver with the names and addresses of allcreditors.

1992, c. 27, s. 89.

Receiver's statement -- s. 246(1)

246. (1) A receiver shall, forthwith after taking possession or control, whichever occursfirst, of property of an insolvent person or a bankrupt, prepare a statement containing theprescribed information relating to the receivership, and shall forthwith provide a copythereof to the Superintendent and

(a) to the insolvent person or the trustee (in the case of a bankrupt); and

(b) to any creditor of the insolvent person or the bankrupt who requests a copy at anytime up to six months after the end of the receivership.

Receiver's interim reports -- s. 246(2)

(2) A receiver shall, in accordance with the General Rules, prepare further interim reportsrelating to the receivership, and shall provide copies thereof to the Superintendent and

(a) to the insolvent person or the trustee (in the case of a bankrupt); and

(b) to any creditor of the insolvent person or the bankrupt who requests a copy at anytime up to six months after the end of the receivership.

Receiver's final report and statement of accounts -- s. 246(3)

(3) A receiver shall, forthwith after completion of duties as receiver, prepare a final reportand a statement of accounts, in the prescribed form and containing the prescribedinformation relating to the receivership, and shall forthwith provide a copy thereof to theSuperintendent and

(a) to the insolvent person or the trustee (in the case of a bankrupt); and

(b) to any creditor of the insolvent person or the bankrupt who requests a copy at any

time up to six months after the end of the receivership.

1992, c. 27, s. 89.

Good faith, etc. -- s. 247

247. A receiver shall

(a) act honestly and in good faith; and

(b) deal with the property of the insolvent person or the bankrupt in a commerciallyreasonable manner.

1992, c. 27, s. 89.

Powers of court -- s. 248(1)

248. (1) Where the court, on the application of the Superintendent, the insolvent person,the trustee (in the case of a bankrupt), a receiver or a creditor, is satisfied that the securedcreditor, the receiver or the insolvent person is failing or has failed to carry out any dutyimposed by sections 244 to 247, the court may make an order, on such terms as itconsiders proper,

(a) directing the secured creditor, receiver or insolvent person, as the case may be, tocarry out that duty, or

(b) restraining the secured creditor or receiver, as the case may be, from realizing orotherwise dealing with the property of the insolvent person or bankrupt until that dutyhas been carried out, or both.

Idem -- s. 248(2)

(2) On the application of the Superintendent, the insolvent person, the trustee (in the caseof a bankrupt) or a creditor, made within six months after the statement of accounts wasprovided to the Superintendent pursuant to subsection 246(3), the court may order thereceiver to submit the statement of accounts to the court for review, and the court mayadjust, in such manner and to such extent as it considers proper, the fees and charges ofthe receiver as set out in the statement of accounts.

1992, c. 27, ~. 89.

Receiver may apply to court for directions -- s. 249

249. A receiver may apply to the court for directions in relation to any provision of thisPart, and the court shall give, in writing, such directions, if any, as it considers proper inthe circumstances. 1992, c. 27, s. 89.

Right to apply to court -- s. 250(1)

250. (1) An application may be made under section 248 or 249 notwithstanding any orderof a court as defined in subsection 243(1).

Where inconsistency -- s. 250(2)

(2) Where there is any inconsistency between an order made under section 248, ()r adirection given under section 249, and

(a) the security agreement or court order under which the receiver acts or wasappointed, or

(b) any other order of the court that appointed the receiver,

the order made under section 248 or the direction given under section 249, as the casemay be, prevails to the extent of the inconsistency.

1992, c. 27, s. 89.

APPENDIX "c"

BANKRUPTCY AND INSOLVENCY ACTFORM 86

NOTICE OF INTENTION TO ENFORCE SECURITY(SUBSECTION 244(1))

TO: *, AN INSOLVENT PERSON.

*

TAKE NOTICE THAT:

1. Royal Bank of Canada, a secured creditor, intends to enforce its Security on the insolventperson's property described below:

All property referred to in the attached Schedule "A" .

2. The Security that is to be enforced is in the form of the following:

Security Name

*

Security Date

*

Security Description

*

3. The total amount of the Indebtedness secured by the Security is as follows:

Loan Name

*

Outstanding Interest to thePrincipal * day of *, 19*

$*

InsurancePremiums

InterestRate

RBC Prime +*%

)

4. The secured creditor will not have the right to enforce the Security until after the expiryof the ten (10) day period after this notice is sent, unless the insolvent person consents toan earlier enforcement.

DATED at Saskatoon, Saskatchewan, this __ day of *, *.

ROYAL BANK OF CANADA

Per:(W. Randall Rooke)Solicitor and Agent

P:\SEC.ENF\BANKINS.l1S.doc

11111111111111111111111111111111111111111111111111111111111111

APPENDIX "D"

Form 116

NOTICE OF RECEIVER(Subsection 245 (1))

Bankruptcy and Insolvency Act

In the matter of the receivership of the property of *

TAKE NOTICE that:

1. On the * day of *, 199*, * became a receiver in respect of the property of *, a bankrupt,that is described below:

* (Fill in description ofproperty)

2. The undersigned became a receiver in respect of the property described above pursuant toSection 245(1) of the Bankruptcy and Insolvency Act (Canada) and by virtue of the seizure of allpresent and after-acquired property of * pursuant to the terms and provisions of the followingsecurity:

SECURITY NAME

*

SECURITY DATE

*

SECURITY DESCRIPTION

*

3. The undersigned took possession and control of the property described above on the * dayof*, 199*.

4. The following information relates to the receivership:

Address of bankrupt:

Principal line of business

Locations of business:

*

*

*

Amount owed by bankrupt to each creditor who holds a security on the property described above:

NAME OF CREDITOR

*

Contact person for receiver:

AMOUNT OWED

*

* (Name, Address, Telephone No.: and Fax No.:)

DATED at *, Saskatchewan, this * day of *, 199*.

*

Per: -------------:---Per: --------------

P:\SEC.ENF\NOTICREC.116.DOC

APPENDIX "E"

RECEIVER'S STATElVIENT

(Subsection 246(1))Bankruptcy and Insolvency Act

IN THE MATTER OF THE RECEIVERSHIP OF THE PROPERTY OF

TAKE NOTICE that:

1. The name of each creditor of the bankrupt, the amount owed to each creditor, and the totalamount owing to the creditors of the bankrupt is listed on the annexed Schedule "A" hereto.

2. Schedule "B" attached hereto lists the assets in the possession or under the control of theReceiver. The book value of the assets is as follows:

DESCRIPTION OF ASSETS BOOK VALUE

3. The details of the intended plan of action during the receivership are as follows:

(Here put in details of any plan for the sale of the assets that you may have knowledge of)

DATED at the City of *, in the Province of Saskatchewan, this * day of *, 199*.

*

Per: -----------Per: -----------

P:\SEC.ENF\RECEIVER.STM.DOC

111111111111111111111111111111111111111111111111111111111111111111

APPENDIX "F"

INTERIM REPORT

Section 246(2)Rule 113.5

Bankruptcy and Insolvency Act

In the matter of the receivership of the property of *.

1. INTERIM STATEMENT OF RECEIPTS A1~D DISBURSEMENTS:

(a) Receipts:_

(i) Sale of Equipment/Inventory by Auction $ *

-:(b) Disbursements:

(i) Paid GST(ii) Paid to Auctioneer(iii) Paid Bailiffs Fees(iv) Paid Legal Fees - McDougall, Ready *

$ ***

2. ALL PROPERTY 0lI WHICH THERECEIYER HAS TAKENPgSSESSION ORCONTROL THAT HAS NOT YET BEEN SOLD OR REALIZED:

(a)(b)(c)

3. ANY OTHER SIGNIFICANT OPERATION ABOUT THE OPERATION OF THERECEIVERSIDP:

(a) There is no other significant information.

DATED at the City of Saskatoon, in the Province of Saskatchewan, this __ day of *, *.

ROYAL BANK OF CANADA

Per: ------------

P:\SEC.ENF\INTERIM.REP.DOC

APPENDIX "G"

RECEIVER'S FINAL REPORT AND STATEMENT OF ACCOUNTS

SECTION 246(3)BANKRUPTCY AND INSOLVENCY ACT

IN THE MATTER OF THE RECEIVERSHIP OF THE PROPERTY OF

*

TAKE NOTICE that:

(a) A Final Statement of Receipts and Disbursements in Form 66 of Schedule 3 of theBankruptcy and Insolvency Act (the "Act") is attached as Schedule "A" hereto.

(b) ..... ,The Proceeds rea1izedfromt1l~<p.ropertyWl).i~.htheReceiY~r.hadtaken possession orcontrol were distributed as follows: .'. . . ..... . 'C.--· .' .

*

(c) Details of the disposition of any property of which the Receiver had taken possession orcontrol that is not accounted for in the Final Statement of Receipts and Disbursementsis as follows: -

*

(d) Any other significant iriformationabolltthe'operation of the Receivership.

*

DATED at the City of Saskatoon, in the Province of Saskatchewan this * day of *, *.

*

Per: ------------Per: ------------

P:\SEC.ENF\RECEIVER.FIN.DOC

SCHEDULE "AI

FINAL STATEMENT OF RECEIPTS AND DISBURSEMENTS

Section 246(3)Bankruptcy and Insolvency Act

Rule 113.6

FORM 66

RECEIPTS

1.2.3.

4·5.

6.

Cash in hand and in BankRealization of assets: Book debts and Bills receivableRealization of assets: Stock, Fixtures, Machinery and FurnitureRealization of assets: RealtyOperation Receipts less purchases and operating expenses:(a) ()peraHngiReceipts . *(b) Operating Expenses *(c) Net ProfitMiscellaneous - Bank interest, etc. (specify)

TOTAL RECEIPTS

$*

***

**

DISBURSEMENTS

TOTAL DISBURSEMENTS

15. AMOUNT AVAILABLE FOR DISTRIBUTION

Total10. Notices and Reports

(a) Postage *(b) Other Expenses *Total

11. Postage on general correspondence12. Miscellaneous

(a) Itemize(b) Loss on operations

13. Receiver's Remuneration14. Legal Fees and Costs

(a) Solicitor acting for Receiver

\

\

7.8.9.

Fee paid to Official ReceiverStocktaking and possession (actual-expenses only)Auctioneer: Commission $ *

Expenses $ *

$70.00

*

*

**

***

*

*

P:\SEC.ENf'lFINSTMT.DOC

APPENDIX "H"

d:\preceden\saskfarm.sa\form-cTHE SASKATCHEWAN FARM SECURITY ACT

FORMC

Part I

NOTICE OF INTENTION TO TAKE POSSESSION(Section 48)

TO:

TAKE NOTICE:

1. THAT on account of your failure to make the payment due under the security

agreement, particulars of which are set out in paragraph 6, I intend to take possession of the

implement (or implements) that are collateral under the security agreement.

2. THAT if you object to my taking possession of the implement (or implements) and

apply for a hearing by a judge of Her Majesty's Court of Queen's Bench for Saskatchewan (the

court), I am prohibited by The Saskatchewan Farm Security Act from taking possession of the

implement until authorized to do so by the court.

3. THAT an application for a hearing by the court shall be made by serving Part II

of this notice, completed and executed by you within 30 days after the date on which this notice

is served on or received by you, on the local registrar at the judicial centre that is nearest to the

place where the secured party resides or carries on business.

4. THAT unless you apply for a hearing by the court I may, after the expiration of

40 days from the date on which this notice is served on you, take possession of the implement.

5. THAT if I take possession of the implement after the period of time mentioned in

2

paragraph 4 without a hearing by the court, you may apply for a hearing by the court in the

manner mentioned in paragraph 3 within 30 days after the date on which a notice of possession

is served on or received by you.

6. (a) Date of execution of Security Agreement by farmer:

(b) Total amount owing under the Security Agreement as at , 19:

Principal $Interest $Costs and other charges i

Total indebtedness under theSecurity Agreement $

(c) Arrears owing under the Security Agreement as at *, 19*:

Principal $Interest $Costs and other charges i

Total arrears $

(d) Interest rate:

FURTHER TAKE NOTICE that 1 intend to take possession of the following

implement (or implements) referred to in the security agreement:

FURTHER TAKE NOTICE that my address for service of a notice of hearing is

c/o McDougall, Ready, Barristers and Solicitors, 300 Royal Bank Building, 110 - 21st Street East,

SASKATOON, Saskatchewan, S7K OB6 Attention: *

DATED at the City of Saskatoon, in the Province of Saskatchewan, this * day of

*, 19*.

3

PER:~ _

Solicitor for

4

Part II

APPLICATION FOR HEARING(Section 50)

TO: The Local Registrarof the Court of Queen I s Benchat the Judicial Centre of *

YOU ARE HEREBY requested to fIx a time and place for a hearing by the court

with respect to the notice of intention set out above.

At the time the Security Agreement was executed by me I resided at

I now reside at ----------------

DATED at the City of Saskatoon, in the Province of Saskatchewan, this day

of , 19*.

(Farmer)

APPENDIX "I"

d:\preceden\saskfarm.sa\form-dTHE SASKATCHEWAN FARM SECURITY ACT

FORMD

NOTICE OF POSSESSION OF IMPLEMENTAFTER COURT ORDER

(Section 57)

TO:

TAKE NOTICE that pursuant to an Order of a judge in Her Majesty's

Court of Queen's Bench for Saskatchewan at the judicial centre of *,acopy ofwhich

Order is hereby enclosed, I have taken possession of the following implement (or

implements):

DATED at the City of Saskatoon, in the Province of Saskatchewan, this

* day of *, 19*.

*

PER:-----------

Solicitor for *

APPENDIX "J"

d: \preceden\saskfarm. sa\form-eTHE SASKATCHEWAN FARM SECURITY ACT

FORME

Part I

NOTICE OF POSSESSION OF IMPLEMENTIN ANY OTHER CASE

(Section 57)

TO:

TAKE NOTICE:

1. THAT a Notice of Intention to take possession of the implement (orimplements) hereinafter mentioned was served on you personally (or received by you byregistered mail) on the * day of *, 19*.

2. THAT a period of 40 days has elapsed since the day on which the Noticeof Intention mentioned in paragraph 1 was served onyou.

3. THAT as no Notice of an Application by you for a hearing by the court hasbeen served on me during that period of 40 days, I hereby take possession of the followingimplement (or implements) and I will remove them forthwith:

*

4. THAT if you object to my taking possession of the implement (orimplements) and apply for a hearing by the court within a period of 30 days after the dateon which a Notice of Possession is served on or received by you, The Saskatchewan FarmSecurity Act prohibits me from disposing of the implement (or implements) untilauthorized to do so by the court.

5. THAT in order to take advantage of the protection of The SaskatchewanFarm Security Act, you must make an application for a hearing by the court within 30 daysafter the date on which this notice is served on you in the case of personal service thereof,or on which the notice is received by you if it is served by registered mail, by serving PartII of this notice, completed and executed by you, on the local registrar at the judicial centrethat is nearest the place where you reside or, if you do not reside in the province, at thejudicial centre that is nearest to the place where the secured party resides or carries onbusiness.

6. THAT unless you apply for a hearing I may, after the expiration of a periodof 40 days after the date on which this notice is served on you or received by you, disposeof the implement (or implements).

7. THAT particulars of your indebtedness to me are as follows:

(a) Date of execution of Security Agreement by farmer:

*

(b) Total amount owing under the Security Agreement as at *, 19*:

Principal $*Interest $*Costs and other charges ~

Total indebtedness under theSecurity Agreement $*

(c) Arrears owing under the Security Agreement as at * , 19*:

Principal $*Interest $*Costs and other charges $*

Total arrears $*

(d) Interest rate:

*

8. THAT my address for service of a notice of hearing is c/o McDougall,Ready, Barristers and Solicitors, 300 Royal Bank Building, 2010 - 11th Avenue,SASKATOON, Saskatchewan, S7K OB6 Attention: *

DATED at the City of Saskatoon, in the Province of Saskatchewan, this *day of *, 19*.

*

PER: _

*Solicitor for *

Part II

APPLICATION FOR HEARING AFTER NOTICE OF POSSESSION(Section 58)

TO: The Local Registrarof the Court of Queen's Benchat the Judicial Centre of---------

YOU ARE HEREBY requested to fIx a time and place for a hearing by thecourt with respect to the notice of intention set out above.

At the time the Security Agreement was executed by me I resided at

I now reside at ----------------

DATED at , in the Province of Saskatchewan, thisday of , 19_.

(Farmer)

)

APPENDIX "K"

d: \preceden\saskfarm. sa\intentQ.B. No. * of 19*

IN THE MATTER OF THE SASKATCHEWAN FARMSECURITYACT, S.S. 1988 c.S-17.1, AND THEINTENTION OF ROYAL BANK OF CANADA TOAPPLY FOR AN ORDER UNDER SECTION 11 OF THEACT THAT CLAUSE 9(1)(d) DOES NOT APPLY WITHRESPECT TO A CERTAIN MORTGAGE COVERINGFARM LAND MADE BY ** IN FAVOUR OF ROYALBANK OF CANADA

IN THE COURT QUEEN'S BENCH FOR SASKATCHEWAN

JUDICIAL CENTRE OF SASKATOON

BETWEEN:

ROYAL BANK OF CANADA,

APPLICANT- and-

*

RESPONDENT

=====================

NOTICE OF INTENTION

-===================~=

McDOUGALL, READYBarristers and Solicitors300 Royal Bank Building

110 - 21st Street EastSASKATOON, Saskatchewan

S7KOB6

NOTICE OF INTENTION

TAKE NOTICE that the Royal Bank of Canada, at the * of *, in the

Province of Saskatchewan, intends to apply to the Court of Queen's Bench, after the

expiration of 150 days following service of this Notice of Intention upon *, farmer and

upon the Farm Land Security Board, for an Order under section 11 of The Saskatchewan

Farm Security Act, S.S. 1988 c.S-l?I, that clause 9(1)(d) of the said Act does not apply

with respect to the mortgage hereinafter described.

In compliance with the said Act and Regulations thereunder the required

particulars are as follows:

(i)

(ii)

The Judicial Centre where theapplication is proposed tobe made

The Mortgagee's nameand address Royal Bank of Canada

(iii) The Mortgagor's name andaddress

(iv) The property descriptionof the farm land coveredby the mortgage

(v) Mortgage particulars

(a) date of execution

(b) amount of mortgage

(c) mortgage balance outstanding

(d) interest rate

(e) instalments payable

(f) arrears of principal

(g) arrears of interest

(h) total arrears

(i) amount and dates of allinstalments paid duringthe three years immediatelypreceding the date of thisNotice

(j) the mortgage renewal date

(vi) A copy of the said mortgage is attached.

DATED at the City of Saskatoon, in the Province of Saskatchewan, this *day of *, 19*.

ROYAL BANK OF CANADAby McDougall Ready

Per:----------(W.Randall Rooke)

Solicitor for the Applicant,Royal Bank of Canada.

This Notice of Intention was delivered by

McDougall, ReadyBarristers and Solicitors300 Royal Bank Building110 - 21st Street EastSASKATOON, SaskatchewanS7K OB6Address for service: as aboveLawyer in charge of file: *Telephone: (306) 653-1641

TO:

AND TO: The Farm Land Security Board

jjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjJ

APPENDIX ilL"

d: \preceden\saskfarm. sa\section9 .notQ.B. No. ** of 19**

IN THE MATTER OF THE SASKATCHEWAN FARM SECURITYACT, S.S. 1988 c.S-l?I, AND THE INTENTION OF ROYAL BANKOF CANADA TO APPLY FOR AN ORDER UNDER SECTION 11 OFTHE ACT THAT CLAUSE 9(1)(d) DOES NOT APPLY WITH RESPECTTO A CERTAIN MORTGAGE COVERING FARM LAND MADE BY** IN FAVOUR OF ROYAL BANK OF CANADA

IN THE COURT OF QUEEN'S BENCH FOR SASKATCHEWAN

JUDICIAL CENTRE OF SASKATOON

BETWEEN:

ROYAL BANK OF CANADA,

APPLICANT

- and-

*,

RESPONDENT(S)

NOTICE OF MOTION

TAKE NOTICE that an application will be made to the presiding Judge in

Chambers at the Court House in **, Saskatchewan, on **, the ** day of **, 19**, at **

0' clock in the **noon or so soon thereafter as counsel can be heard on behalf of the

Applicant for an Order under section 11 of The Saskatchewan Farm Security Act, S.S.

1988 c.S-l?I, that clause 9(1)(d) of the said Act does not apply to the mortgage described

in the within action.

2

AND FURTHER TAKE NOTICE that in support of the said application

will be read:

(a) The Notice of Intention with proof of service upon the Respondents and the

Farm Land Security Board;

(b) Affidavit of Bank Officer;

(c) The Report of the Farm Land Security Board;

(d) Certified copy of Certificate of Title;

(e) General Registration Certificate;

(D Such further and other material as counsel may advise and this Honourable

Court allow;

(g) Draft Order.

DATED at Saskatoon, Saskatchewan, this ** day of **, 19**.

McDOUGALL, READY

Per:----------(**)

Solicitors for the Applicant,Royal Bank of Canada.

This Notice of Motion was delivered byMessrs. McDougall, ReadyBarristers and Solicitors300 Royal Bank Building110 - 21st Street EastSaskatoon, SaskatchewanS7K OB6Address for service:' as aboveLawyer in charge of file: **Telephone: (306) 653-1641

1+1 Agriculture andAgri-Food CanadaFarm DebtMediation Service

Agriculture etAgroalimentaire CanadaService de mediation enmatiere d'endettement agricole

APPENDIX "M"

) NOTICE OF INTENT TO REALIZE ON SECURITY

As required under Section 21 of the Farm Debt Mediation Act, youare hereby notified that it is the intent of:

Conformement a I'article 21 de la Loi sur la mediation en matiered'endettement agricole, vous etes, par la presente, avise qu'i1 est

dans I'intention de:

To realize on security given against the assets of:De realiser sur la surete contre les biens de:

ofdomicilie au:

The security being:La surete qui est:

(type(s) of security 1genre(s) de sOretel

and you are hereby notified of your right to make application underSection 5 of the Farm Debt Mediation Act for a review of yourfinancial affairs, mediation with your creditors, and to obtain a stayof proceedings against this action provided you are eligible and:

a) unable to meet your obligations as they generally become due;or

)v) have ceased paying your current obligations in the ordinary

course of business as they generally become due; or

c) the aggregate of your property is not, at fair valuation,sufficient, or if disposed of at a fairly conducted sale under legalprocess would not be sufficient, to enable payment of all yourobligations, due and accruing due.

Any application must be received by an administrator within 15business days of receipt of this notice, failing which a securedcreditor may take action to realize on the security,

You may apply for a stay of proceedings by making an applicationto the Farm Debt Mediation Act administrator at:

PREAVIS DE REALISATION DE SORETE

(name of creditor I nom du creancier)

(name of farmer 1nom de I'agriculteur(trice))

(address 1 adresse)

on I sur

(asset(s) 1bien(s))

et vous etes, par la presente, avise de votre droit de deposer une demand'examen en vertu de I'article 5 de la Loi sur la mediation en matied'endettement agricole pour un examen de votre situation financialmediation entre vous et vos creanciers, et d'obtenir une suspensiontoutes procedures, a condition que vous soyez admissible a fairedemande et:

a) qu'il vous soit impossible d'acquitter vos obligations au fur et a mesude leurecheance; ou

b) que vous ayez cesse d'acquitter vos obligations courantes danscours ordinaire de vos affaires au fur et amesure de leur echeance; 01

c) que la totalite de vos biens ne soit pas suffisante, d'apras une jusestimation, ou ne sUffirait pas, s'il en etait dispose lors d' une yenregulierement effectuee par autorite de justice pour permettI'acquittement de toutes vos obligations echues et aechoir.

Toute demande doit litre deposee devant I'administrateur(trice) dans les 1jours ouvrables suivant la reception de cet avis, faute de quoi un creancigaranti peut prendre des mesures afin de realiser une sCirete.

II vous est possible de demander une suspension de cette actiondeposant une demande a I'administrateur de la Loi sur la mediationmatiere d'endettement agricole a:

Dated thisDate ce

day ofjour de

801-1 800 Hamilton StreetRegina, SKS4P 4K7

1-800-667-7158 or (306) 780-5544Fax: (306) 780-7353

ata

Signature of Secured Creditor or authorized representativeSignature du creancier garanti ou du representant autorise

Creditor Phone NumberNumero de telephone du creancier

The information you provide on this document is collected by Agriculture and Agri-FoodCanada under the authority of the Farm Debt Mediation Act for the purpose of facilitatingfinancial arrangements between farmers and their creditors. Personal information will beprotected under the provisions of the PrivlCY Act and will be stored in Personal InformationBank AAFC-PPU·227. Information may be accessible or protected as required under theprovisions of the Access to Information Act.

Les renseignements que vous fournissez dans Ie pr~nt document sont recueillis pat AgriculturlAgroalimentaire Canada en vertu de II Loi sur la ml!diation en mati~re d'endettement agricole afi~

faciliter la conclusion d'arrangernents financiers entre res agriculteurs(trices) et leurs cr~anciers.renseignemems personnels seront pr~~ en vertu de II Lai sur ... protection des renseignem.personnels et serom vers~ au FleNer de renseignements personnels AAC-PPU·227.renseignements peuvent ~tre accessibles ou prott!g~ selon ce que prescrit II Lei sur J'acdI'lnformltion.

AAFC I AAC4805 (97/11)Copy:Copie:

FarmerAgriculteur(trice)

2 AdministratorAdministrateur

3 CreditorCreancier Canad

\

\

APPENDIX "N"

FARM DEBT MEDIATION ACT

1997, Chap. 21; brought into force April 1, 1998 by 81/98-52, Can. Gaz., Part II,April 15, 1998

Coming into Force

36. This Act comes into force on a day to be fixed by order of the Governor in Council.

*[Note: Act in force April 1, 1998 by S1I98-52]

(No cases and no amendments)

Administered by the Department of Agriculture and Agri-Food

An Act to provide for mediation between insolvent farmers and their creditors, to amendthe Agriculture and Agri-Food Administrative Monetary Penalties Act and to repeal theFarm Debt Review Act

[Assented to 25th April, 1997J

Her Majesty, by and with the advice and consent of the Senate and House of Commons ofCanada, enacts as follows:

SHORT TITLE -- s. 1

Short title -- s. 1

1. This Act may be cited as the Farm Debt Mediation Act.

INTERPRETATION -- s. 2

Definitions -- s. 2

2. The definitions in this section apply in this Act.

"farmer"

"farmer" means any individual, corporation, cooperative, partnership or other associationof persons that is engaged in farming for commercial purposes and that meets anyprescribed criteria.

"farming"

"farming" means

(a) the production offield-grown crops, cultivated and uncultivated, andhorticultural crops;

(b) the raising of livestock, poultry and fur-bearing animals;

(c) the production of eggs, milk, honey, maple syrup, tobacco, fibre, wood fromwoodlots and fodder crops; and

(d) the production or raising of any other prescribed thing or animal.

"Minister"

"Minister" means the Minister of Agriculture and Agri-Food.

"prescribed"

"prescribed" means prescribed by regulation.

"secured creditor"

"secured creditor" means

(a) any creditor holding a mortgage, hypothec, pledge, charge, lien, privilege,priority claim or other security interest on or against the property of a farmer or anypart thereof as security for a debt due or accruing due from the farmer; .

(b) any individual, corporation, cooperative, partnership or other association ofpersons with which a farmer has entered into an agreement for sale or hire-purchaseor, in the Province of Quebec, leasing, or a conditional sales contract, relating to anyproperty used or occupied by the farmer or to which such an agreement or contracthas been assigned; and

(c) any bank to which security on the property of a farmer or any part thereof hasbeen given under section 427 of the Bank Act.

HER MAJESTY -- s. 3

Binding on Her Majesty -- s. 3

3. This Act is binding on Her Majesty in right of Canada or a province.

ADMINISTRATORS -- s. 4

Appointment -- s. 4(1)

4. (1)· Subject to subsection (2), administrators shall be appointed for the purposes of this

)

Act in accordance with the Public Service Employment Act.

Designation -- s. 4(2)

(2) The Minister may, in accordance with the regulations, if any, and on such terms andconditions as the Minister may specify, designate any person, other than an employeewithin the meaning of the Public Service Employment Act, as an administrator for thepurposes of this Act.

Agreements -- s. 4(3)

(3) For the purposes of this Act, the Minister may enter into an agreement with anyindividual or body in relation to the remuneration and travel and living expenses ofadministrators designated under subsection (2).

Mediators, experts -- s. 4(4)

(4) An administrator may enter into agreements

(a) for the services of mediators, subject to the regulations, and

(b) for the services of experts

relating to applications made under section 5, and such agreements may include provisionfor remuneration and travel and living expenses.

APPLICATIONS -- ss. 5 to 8

Application to administrator -- s. 5(1)

5. (l) Subject to section 6, a farmer may apply to an administrator for either

(a) a stay of proceedings against the farmer by all the farmer's creditors, a review ofthe farmer's financial affairs, and mediation between the farmer and all the farmer'screditors for the purpose of assisting them to reach a mutually acceptablearrangement; or

(b) a review of the farmer's financial affairs, and mediation between the farmer and allthe farmer's secured creditors for the purpose of assisting them to reach a mutuallyacceptable arrangement.

Names of creditors -- s. 5(2)

(2) An application under subsection (1) must include the names and addresses of all thefarmer's creditors.

Farmer must be insolvent -- s. 6

6. Only farmers

(a) who are for any reason unable to meet their obligations as they generally becomedue,

(b) who have ceased paying their current obligations in the ordinary course ofbusiness as they generally become due, or

(c) the aggregate of whose property is not,at a fair valuation, sufficient, or if disposedof at a fairly conducted sale under legal process would not be sufficient, to enablepayment of all their obligations, due and accruing due

are eligible to apply under section 5.

Administrator's duties on receiving application -- s. 7(1)

7. (1) On receipt of a duly completed application under section 5, the administrator shallforthwith

(a) give notice of the application to

(i) each person whose name is listed as a creditor in the application, in the case ofan application under paragraph 5(1)(a), or

(ii) each person whose name is listed as a secured creditor in the application, inthe case of an application under paragraph 5(1)(b);

(b) in the case of an application under paragraph 5(1)(a), issue a thirty day stay ofproceedings against the farmer by all the farmer's creditors, and give notice thereof toeach person whose name is listed as a creditor in the application; and

(c) determine whether the farmer is eligible under this Act to make that application,which determination may be based on, among other things, a preliminary review ofthe farmer's financial affairs.

Certain decisions final-- s. 7(2)

(2) In the case of an application under paragraph 5(1 )(b), a determination by theadministrator under paragraph (1)(c) is final and is not subject to appeal.

Amendment of application -- s. 8(1)

8. (1) A farmer who has made an application under paragraph 5(1)(a) or (b) may, at anytime before the termination of the mediation, request permission from the administrator toamend the application to be an application under paragraph 5(1)(b) or (a), as the case maybe, and the administrator may grant that permission if satisfied that the farmer is eligibleto apply under paragraph 5(1)(b) or (a), as the case may be.

Two year period -- s. 8(2)

(2) For the purposes of section 20, an application that has been amended pursuant tosubsection (1) is deemed to have been made as an application under paragraph 5(1)(b) or(a), as the case may be, on the day when the original application was made.

FINANCIAL REVIEW -- s. 9

Financial review -- s. 9(1)

9. (1) Where the administrator determines that the farmer is eligible to make theapplication, the administrator shall as soon as possible undertake, or cause an expertreferred to in subsection 4(4) to undertake, a detailed review of the farmer's financialaffairs.

Nature of review -- s. 9(2)

(2) The review mentioned in subsection (1)

(a) must include the preparation of

(i) an inventory of all the assets of the farmer, and

(ii) financial statements of the farmer's farming operation;

(b) may, in the case of an application under paragraph 5(1)(b), include arecommendation, notwithstanding that paragraph, that one or more creditors who arenot secured creditors participate in the mediation; and

(c) may include the preparation of recovery plans for the purpose of reaching financialarrangements with creditors.

Preparation of recovery plans -- s. 9(3)

(3) Where a farmer requests the administrator that the recovery plans referred to inparagraph (2)(c) be prepared by a person of the farmer's choice, the administrator may, inaccordance with the regulations, if any, enter into an agreement for that purpose.

Report -- s. 9(4)

(4) The results of a review under this section must take the form of a report prepared byor on behalf of the administrator.

MEDIATION -- ss. 10 to 11

Appointment of mediator -- s. 10(1)

10. (1) Forthwith after the report mentioned in subsection 9(4) has been prepared, theadministrator shall

(a) in accordance with the regulations, appoint as a mediator any person who isunbiased and free from any conflict of interest relative to the application in question;

(b) inform

(i) the farmer and all the creditors listed in the application, in the case of anapplication made under paragraph 5(1)(a), or

(ii) in the case of an application made under paragraph 5(1)(b), the farmer, all thesecured creditors listed in the application, and any creditors mentioned in arecommendation under paragraph 9(2)(b),

as the case may be, of the appointment of the mediator; and

(c) provide a copy of the r~port mentioned in subsection 9(4) to the mediator and tothe persons who will be participating in the mediation.

Duties of mediator -- s. 10(2)

(2) In accordance with the regulations, the mediator shall examine the report mentionedin subsection 9(4) and meet with the persons referred to in subparagraph (1)(b)(i) or (ii),as the case may be, for the purpose of assisting them to reach a mutually acceptablearrangement, but shall not provide advice to the farmer or a creditor.

Termination of mediation -- s. 11(1)

11. (1) In the case of an application under paragraph 5(1)(a), the mediation terminates

(a) when a termination of the stay ofproceedings pursuant to subsection 14(2) takeseffect pursuant to subsection 14(4); or

(b) on a termination of the stay of proceedings by virtue of subsection 14(5).

Termination of mediation -- s. 11(2)

(2) In the case of an application under paragraph 5(1 )(b),

(a) if the administrator is ofthe opinion, based on information received from themediator or from any other source, that

(i) either the farmer or the majority of the creditors referred to in subparagraph10(1 )(b)(ii)

(A) refuse to participate in the mediation, or

(B) refuse to continue to participate in good faith in the mediation, or

(ii) the mediation will not result in an arrangement between the farmer and themajority of the creditors referred to in subparagraph 10(1)(b)(ii),

the administrator may direct that the mediation be terminated and, where theadministrator so directs, the mediation terminates; and

(b) the mediation terminates on the signing of an arrangement under section 19.

Notice of termination -- s. 11(3)

(3) Where the mediation terminates pursuant to subsection (1) or (2), the administratorshall so inform the farmer and all the creditors who were eligible to participate inthemediation.

STAY OF PROCEEDINGS -- ss.12 to 14

)

Effect of stay of proceedings -- s. 12

12. Notwithstanding any other law, during any period in which a stay of proceedings is ineffect, no creditor of the farmer

(a) shall enforce any remedy against the property of the farmer; or

(b) shall commence or continue any proceedings or any action, execution or otherproceedings, judicial or extra-judicial, for the recovery of a debt, the realization ofany security or the taking of any property of the farmer.

Extension of stay of proceedings -- s. 13(1)

13. (1) Where the administrator considers an extension of the thirty day period referred toin paragraph 7(1 )(b) to be essential to the formulation of an arrangement between afarmer and the farmer's creditors, the administrator may, subject to the regulations, extendthat period for a maximum of three further periods of thirty days each.

Interim extension of stay -- s. 13(2)

(2) Where

(a) there is an appeal under section 15 from a decision of the administrator not toextend a stay of proceedings, and

(b) the stay of proceedings expires before the appeal is decided,

the administrator shall, on that expiration, extend the stay of proceedings until the appealis decided.

Notice to creditors -- s. 13(3)

(3) The administrator shall give notice of any extension granted under subsection (1) or(2) to the farmer and to each person whose name is listed as a creditor in the farmer'sapplication.

Where appeal successful -- s. 13(4)

(4) Where, pursuant to an Appeal referred to in paragraph (2)(a), the Appeal Boardreverses the administrator's decision, the resulting thirty day extension of the stay ofproceedings starts at the expiration of the original stay of proceedings, or at the expirationof the previous thirty day extension thereof, as the case may be.

Obligatory termination of stay of proceedings -- s. 14(1)

14. (1) If the administrator determines, pursuant to paragraph 7(1)(c), that the farmer isnot eligible to make the application, the administrator shall direct that the stay ofproceedings be terminated.

Discretionary termination of stay of proceedings -- s. 14(2)

(2) If the administrator is of the opinion, based on information received from the mediatoror from any other source, that

(a) either the farmer or the majority ofthe creditors listed in the application

(i) refuse to participate in the mediation, or

(ii) refuse to continue to participate in good faith in the mediation,

(b) the mediation will not result in.an arrangement between the farmer and themajority of the creditors listed in the application,

(c) the farmer has contravened any directive issued to the farmer by the administratorpursuant to subsection 17(1), or

(d) the farmer has, by any act or omission, jeopardized his or her assets or obstructedthe guardian in the performance of the guardian's duties under subsection 17(2),

the administrator may direct that the stay of proceedings be terminated.

Notice of termination -- s. 14(3)

(3) Where the administrator directs, pursuant to subsection (1) or (2), that a stay ofproceedings be terminated, the Administrator shall so inform the farmer and all thecreditors listed in the application.

When termination takes effect -- s. 14(4)

(4) Where the administrator directs, pursuant to subsection (1) or (2), that a stay ofproceedings be terminated, the termination takes effect

(a) on the expiration of the time prescribed for making an appeal under section 15; or

(b) where an appeal is made under section 15, if and when the appeal is dismissed.

Automatic termination of stay of proceedings -- s. 14(5)

(5) A stay of proceedings terminates on

(a) the signing of an arrangement under section 19; or

(b) the farmer's making an assignment under the Bankruptcy and Insolvency Act.

APPEAL BOARDS -- s. 15

Appeal Boards -- s. 15(1)

15. (1) The Minister may, in accordance with the regulations, constitute one or moreAppeal Boards and designate the members thereof, and may enter into agreements for theservices of the members, which agreements may include provision for remuneration andtravel and living expenses.

Appeals -- s. 15(2)

(2) A farmer or a creditor may, in accordance with the regulations, appeal to an AppealBoard a decision of an administrator relating to

(a) the eligibility of a farmer to make the application under paragraph 5(1 )(a); or

(b) the extension or termination of a stay of proceedings.

Regulations -- s. 15(3)

(3) The Appeal Board shall deal with an appeal in accordance with the regulations.

Stay not affected -- s. 15(4)

(4) The making of an appeal does not affect a stay of proceedings that is in effect.

Board's decision final-- s. 15(5)

(5) A decision of an Appeal Board is final and is not subject to appeal.

GUARDIAN OF FARMER'S ASSETS -- SSe 16 to 18

Administrator to appoint guardian -- s. 16(1)

16. (1) Where the administrator issues a stay of proceedings under paragraph 7(1)(b), theadministrator shall forthwith appoint one of the following persons as guardian of thefarmer's assets:

(a) the farmer, where the farmer is qualified to be the guardian; or

(b) in any other case,

(i) any other qualified person nominated by any secured creditor or securedcreditors listed in the application, or

(ii) any other qualified person chosen by the administrator.

Informing farmer and creditors -- s. 16(2)

(2) The administrator shall forthwith inform the farmer, and all the creditors listed in theapplication, of the appointment of the guardian.

Expenses of guardian -- s. 16(3)

(3) Where the administrator appoints a person referred to in subparagraph (l)(b)(i) asguardian, the expenses of the guardian shall be paid by the secured creditor or securedcreditors who nominated that person.

Expenses of guardian -- s. 16(4)

(4) Where the administrator appoints a person referred to in subparagraph (l)(b)(ii) asguardian, the expenses of the guardian shall be paid by the administrator.

Duties of guardian -- s. 17(1)

17. (1) The administrator may issue directives to the guardian, and the guardian shallcomply with any such directives.

Duties of guardian -- s. 17(2)

(2) The guardian shall, in addition to the obligation under subsection (1),

(a) prepare an inventory of all the assets ofthe farmer;

(b) verify periodically the presence and condition of those assets; and

(c) advise the administrator of any act or omission that would jeopardize those assets.

Termination of guardianship -- s. 18

18. The appointment of a guardian under section 16 terminates on the expiration ortermination of the stay of proceedings.

ARRANGEMENTS -- s. 19

Arrangement to be put in writing -- s. 19

19. Where a farmer enters into an arrangement with any creditor as a result of the·mediation, the administrator shall see to its signing by the parties thereto.

NEW APPLICATIONS -- s. 20

New applications under paragraph 5(1)(a) -- s. 20(1)

20. (1) Notwithstanding any other provision of this Act, where a farmer makes anapplication under paragraph 5(1)(a), that farmer, or any person who is related to thatfarmer within the meaning of the regulations, is not entitled to make a new applicationunder that paragraph in respect of substantially the same farming operation for a period oftwo years after

(a) the date on which the first application was made, where the farmer did not enterinto an arrangement with the creditors during the stay of proceedings, or

(b) the date on which the arrangement was signed, where the farmer entered into anarrangement with the creditors,

unless, before making the new application, the person seeking to apply obtains the writtenconsent of the administrator.

New applications under paragraph 5(1)(b) -- s. 20(2)

(2) Notwithstanding any other provision of this Act, where a farmer makes an applicationunder paragraph 5(l)(b), that farmer, or any person who is related to that farmer withinthe meaning of the regulations, is not entitled to make a new application under thatparagraph in respect of substantially the same farming operation for a period of two yearsafter

(a) the date on which the first application was made, where the farmer did not enterinto an arrangement with the creditors within the period prescribed for the mediation,or

(b) the date on which the arrangement was signed, where the farmer entered into anarrangement with the creditors,

unless, before making the new application, the person seeking to apply obtains the writtenconsent of the administrator.

NOTICE BY SECURED CREDITORS -- s. 21

Notice by secured creditors -- s. 21(1)

21. (1) Every secured creditor who intends to

(a) enforce any remedy against the property of a farmer, or

(b) commence any proceedings or any action, execution or other proceedings, judicialor extra-judicial, for the recovery of a debt, the realization of any security or thetaking of any property of a farmer

shall give the farmer written notice of the creditor's intention to do so, and in the noticeshall advise the farmer of the right to make an application under section 5.

Time of notice -- s. 21(2)

(2) The notice referred to in subsection (1) must be given to the farmer in the prescribedmanner at least fifteen business days before the doing of any act described in paragraph(l)(a) or (b).

GENERAL -- ss. 22 to 28

Contravention by creditor -- s. 22(1)

22. (1) Subject to subsection (2), any act done by a creditor in contravention of section 12or 21 is null and void, and a farmer affected by such an act may seek appropriateremedies against the creditor in a court of competent jurisdiction.

Innocent parties protected -- s. 22(2)

(2) Subsection (1)

(a) does not affect the title to property of a person who purchased the property in good

faith from the creditor and who was not then related to the creditor within themeaning of the regulations; and

(b) does not confer on the farmer any remedy against a person described in paragraph(a).

Disputes -- s. 23

23. Nothing in this Act prevents any party to an arrangement made under this Act fromtaking a dispute arising therefrom to a court of competent jurisdiction for disposition.

Communication of information -- s. 24(1)

24. (1) Except as authorized by subsection (2), no person shall knowingly communicateor knowingly allow to be communicated to any person any information obtained underthis Act from a farmer or from any creditor of a farmer, or knowingly allow any person toinspect or have access to any such information. .

Exception -- s. 24(2)

(2) A person engaged in the administration of this Act may communicate or allow to becommun,icated, or allow inspection of or access to, any information referred to insubsection (1) to or by any other person engaged in the administration of this Act or anyperson otherwise legally entitled thereto.

Protection of witness -- s. 24(3)

(3) A person engaged in the administration of this Act, including a mediator or expertreferred to in subsection 4(4), is not compellable to answer questions concerning theinformation, or to produce records or other documents containing the information, asevidence in any proceedings not directly concerned with the enforcement or interpretationof this Act or the regulations.

Personal liability -- s. 25

25. No person engaged in the administration of this Act is personally liable for acts oromissions done in good faith in the performance of their duties under this Act.

Regulations -- s. 26(1)

26. (1) The Minister may make regulations

(a) respecting the designation of persons as administrators pursuant to subsection4(2);

(b) for permitting a farmer or creditor to request the administrator to replace themediator or guardian with a different mediator or guardian;

(c) respecting the entering into of agreements under subsection 9(3);

(d) respecting the qualifications and appointment of mediators, and respecting themanner in which and the period within which mediators must perform their dutiesunder subsection 10(2);

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(e) respecting the time by which an administrator must decide whether or not toextend a stay of proceedings pursuant to subsection 13(1);

(t) respecting the number and constitution ofAppeal Boards, the designation of themembers thereof, and the manner in which and the period within which appeals undersubsection 15(2) shall be made and dealt with;

(g) respecting the meaning of "related" for the purposes of section 20 and for thepurposes of subsection 22(2);

(h) prescribing anything that by this Act is to be prescribed; and

(i) generally for carrying out the purposes and provisions of this Act.

Forms and their content -- s. 26(2)

(2) The Minister may establish forms and other documents for carrying out the purposesand provisions of this Act and may determine the information to be included in suchdocuments, and, without limiting the generality of the foregoing, may determine themanner of

(a) amending an application; and

(b) informing or notifying persons, where such is required by this Act.

Offence -- s. 27

27. Any person who contravenes a provision ofthis Act or the regulations is guilty of anoffence and liable on summary conviction to a fine not exceeding fifty thousand dollarsor to a term of imprisonment not exceeding six months, or to both.

Review of Act after two years -- s. 28(1)

28. (1) As soon as possible after the second anniversary of the coming into force of thisAct and every three years thereafter, the Minister shall undertake a review of theoperation of this Act, and may for that purpose consult with representatives of suchorganizations as the Minister considers appropriate.

Review by Minister -- s. 28(2)

(2) In conducting the review under subsection (1), the Minister shall review the operationof any program or service that is created after this section comes into force for thepurpose of undertaking a detailed review of the financial affairs of a farmer in financialdifficulty, at the farmer's request.

Report to Parliament -- s. 28(3)

(3) As soon as possible after completing the review referred to in subsection (1), theMinister shall cause a report of the results of the review to be laid before each House ofParliament.

RELATED AMENDMENTS -- s. 29

29. to 30. [Amendments]

REPEAL -- s. 31

31. [Repeal]

TRANSITIONAL PROVISIONS .- ss. 32 to 35

Definitions -. s. 32

32. In sections 33 to 35,

(a) "old Act" means the Farm Debt Review Act; and

(b) "new Act" means the Farm Debt Mediation Act.

Applications made under Farm Debt Review Act -- s. 33

33. For the purposes of section 44 of the Interpretation Act,

(a) an application made under section 16 of the old Act shall be dealt with as ifit hadbeen made under paragraph 5(1)(b) of the new Act, regardless of whether the farmerin question would be eligible to apply under paragraph 5(1)(b) of the new Act, butsection 8 of the new Act does not apply unless the farmer in fact meets therequirement of section 6 of the new Act; and

(b) an application made under section 20 of the old Act shall be dealt with as if it hadbeen made under paragraph 5(1)(a) of the new Act, regardless of whether the farmerin question would be eligible to apply under paragraph 5(1)(a) of the new Act.

Two year rule -- s. 34(1)

34. (1) Subsection 20(1) of the new Act applies, with such modifications as thecircumstances require, in respect of farmers whose previous application was undersection 20 ofthe old Act.

Two year rule -- s. 34(2)

(2) Subsection 20(2) of the new Act does not apply in respect of farmers whose previousapplication was under section 16 of the old Act.

Members of Farm Debt Review Boards -- s. 35

35. Chairmen and other members of the Farm Debt Review Boards who hold office undersection 4 of the old Act cease to hold office on the coming into force of the new Act.

COMING INTO FORCE - s. 36

Coming into force -- s. 36

36. This Act comes into force on a day to be fixed by order of the Governor in Council.

*[Note: Act in force April 1, 1998 by SI/98-52]

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APPENDIX "0"

Farm Debt Mediation Regulations -- SOR/98-168

In force April 1, 1998

FARM DEBT MEDIATION REGULATIONS

INTERPRETATION -- s. 1

1. (1) The definitions in this subsection apply in these Regulations.

"Act" means the Farm Debt Mediation Act;

"business day" means a day that is not a Saturday or a holiday;

"Service" means the Farm Debt Mediation Service of the Department of Agricultureand Agri-Food.

(2) For the purposes of section 20 and subsection 22(2) of the Act, a person isrelated to a farmer or a creditor if

(a) in the case of a farmer or a creditor who is an individual, the person is

(i) the spouse of the farmer or the creditor,

(ii) a natural or adopted child of the farmer or the creditor or of the farmer's orthe creditor's spouse,

(iii) a brother, sister, mother, father, grandmother or grandfather of the farmeror the creditor or of the farmer's or the creditor's spouse, or

(iv) an employee or employer of the farmer or the creditor at the time theoriginal application for mediation was filed with the Service; or

(b) in the case of a farmer or a creditor that is a corporation, cooperative,partnership or other association, the person

(i) was an officer, director, partner or employee of the farmer or the creditor atthe time the original application for mediation was filed with th~ Service, or

(ii) directly owns or indirectly owns, controls or holds 25 per cent or more ofthe shares of the corporation or cooperative.

APPOINTMENT OF MEDIATORS -- s. 2

2. An administrator may appoint a person as mediator pursuant to paragraph10(1)(a) of the Act if the person is knowledgeable about or has experience with themediation of disputes.

EXTENSION OF STAY OF PROCEEDINGS -- s. 3

3. An administrator who considers it essential to the formulation of an arrangementbetween a farmer and the farmer's creditors may extend the period of a stay ofproceedings referred to in paragraph 7(1 )(b) or subsection 13(1) of the Act if

(a) the value of the farmer's assets will not significantly diminish during the periodof the extension;

(b) the majority of the farmer's creditors will not be unduly prejudiced by theextension; and

(c) there is no indication of bad faith by the farmer.

METHOD OF NOTIFICATION -- s. 4

4. (1) An administrator shall, where required by the Act or these Regulations tonotify or inform a farmer or a farmer's creditor of anything, notify or inform them inperson or by means of telephone, priority post, courier service or, subject tosubsection (3), facsimile or electronic mail.

(2) A farmer or a farmer's creditor is deemed to be notified or informed by anadministrator at any of the following times:

(a) on the day they are so notified or informed in person or personally bytelephone by the administrator;

(b) on the next business day after the day on which the notice or information issent by facsimile or electronic mail; or

(c) on the second business day after the day on which the notice or informationis sent by priority post or a courier service to their residence or place of business.

(3) A farmer may be notified or informed by an administrator by means of facsimileor electronic mail only if they have indicated in writing to the administrator that theywill accept information in this manner.

APPEAL BOARDS -- ss. 5 to 7

5. For the purpose of dealing with appeals pursuant to subsection 15(2) of the Act,an Appeal Board is constituted in respect of each of the following regions:

(a) Alberta, British Columbia, Yukon Territory and the Northwest Territories;

(b) Manitoba and Saskatchewan;

(c) Ontario;

(d) Quebec; and

(e) New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland;

6. (1) Each Appeal Board is composed of a Chairperson and up to four othermembers designated by the Minister.

(2) Each member of an Appeal Board shall provide services in accordance with theterms of an agreement referred to in subsection 15(1) of the Act.

(3) Each agreement referred to in subsection 15(1) of the Act shall provide that themember is entitled to, in accordance with any directives of the Treasury Board,

(a) remuneration for services; and

(b) travel and living expenses incurred by the member in the performance of themember's duties while absent from the member's ordinary place of residence.

(4) A member shall not accept or hold any office or employment inconsistent withthe member's duties, including performing any of the duties of an expert, mediator oradministrator under the Act.

(5) Where it is necessary for the proper conduct of business, the Chairperson of anAppeal Board of one region may appoint a member of that Appeal Board to serve asa temporary member of an Appeal Board of another region.

7. (1) The Chairperson of each Appeal Board shall preside at all meetings of theAppeal Board or a panel referred to in subsection 12(1) and has the superVisionover, and direction of the work of, that Appeal Board including

(a) the establishment ofpanels of members to deal with appeals;

(b) the allocation of work equally among the members;

(c) the temporary appointment of members to an Appeal Board of anotherregion; and

(d) generally, the conduct of the work of the Appeal Board and its internal affairs.

(2) The Chairperson of each Appeal Board shall designate one of the othermembers as an interim Chairperson.

(3) In the event of the absence or incapacity of the Chairperson, the interimChairperson may exercise all the powers, duties and functions of the Chairperson.

(4) In the event of the absence or incapacity of an interim Chairperson or if theinterim Chairperson is unwilling to act as Chairperson, the remaining members ofthe Appeal Board shall by a majority vote elect a member to act as temporaryChairperson.

(5) A temporary Chairperson elected in accordance with subsection (4) mayexercise all the powers, duties and functions of the Chairperson.

APPEAL PROCEDURE -- SSe 8 to 10

8. (1) A farmer or a farmer's creditor may appeal a decision referred to in subsection15(2) of the Act by filing, within the time prescribed by section 11, a Notice of Appealin the form established by the Minister.

(2) The Notice of Appeal shall be filed with the same office of the Service where theoriginal Application for Mediation was submitted.

(3) A Notice of Appeal or the statement in writing referred to in paragraph 9(3)(b)may be filed with the administrator in the form of an original document, a facsimilecopy or an electronic version.

9. (1) On the filing of a Notice of Appeal, the administrator, in accordance withsection 4, shall inform the farmer or the farmer's creditors, as the case may be, thatan appeal has been filed. .

(2) A farmer or a farmer's creditor is deemed to be informed that an appeal hasbeen filed at the applicable time set out in subsection 4(2).

(3) A farmer or farmer's creditor, after having been informed of an appeal, may,where the appeal relates to a termination of a stay of proceedings pursuant toparagraph 14(2)(c) or (d) of the Act, within one business day or, in any other case,within three business days

(a) request the administrator to send them a copy of the Notice of Appeal; and

(b) file with the administrator a statement in writing that clearly sets out theirobjections to the appeal together with any other relevant information.

10. After a farmer or farmer's creditor has been given the opportunity in accordancewith subsection 9(3) to respond to the appeal, the administrator shall send to theChairperson of the applicable Appeal Board

(a) all the information upon which the decision of the administrator under appealwas based; and

(b) any statements in writing and other relevant information from a farmer orfarmer's creditor that have been filed.

TIME FOR FILING OF APPEALS -- s. 11

11. (1) An appeal relating to the eligibility of a farmer to make an application formediation or the granting of an extension of a stay of proceedings shall be made bya person within four business days after the day on which the person is given noticeof the initial stay of proceedings or is informed of the extension in accordance withsection 4.

(2) An appeal relating to the termination of a stay of proceedings shall be made

(a) where the termination is directed by the administrator pursuant to paragraph14(2)(c) or (d) of the Act, within one business day after the day on which thefarmer or farmers creditor was informed of the termination; or

(b) in any other case, within four business days after the day on which the farmeror farmer's creditor was informed of the termination.

CONDUCT OF APPEALS -- ss.12 to 16

12. (1) Each appeal shall be heard by a panel of the Appeal Board that consists ofthe Chairperson and two other members selected by the Chairperson.

(2) Each panel shall decide each appeal expeditiously and with a minimum offormality on the basis of

(a) the information sent to it pursuant to section 10; and

(b) such other information as it considers relevant to deal with the appeal, if a

farmer or a farmer's creditor, as the case may be, has been informed of, andgiven a reasonable opportunity to respond to that other information.

13. Every appeal shall be decided by a majority of the members of the panel.

14. A member of the panel may participate in an appeal by means of telephone orother means of effective communication.

15. A panel may dismiss an appeal or reverse the decision of an administrator.

16. Every person who files an appeal or a statement in writing referred to inparagraph 9(3)(b) shall be informed by the administrator of the decision of theAppeal Board by means of a Record of Appeal in a form established by the Minister.

NOTICE BY SECURED CREDITORS -- s.17

17. (1) The notice required to be given by a secured creditor to a farmer undersubsection 21(1) of the Act may be given

(a) in the case of a farmer who is an individual

(i) by leaving a copy of the notice with them,

(ii) by leaving a copy of the notice in a sealed envelope addressed to thefarmer with anyone who appears to be an adult and who resides at thefarmer's place of residence, and on the same day or the following day mailinganother copy of the notice to the farmer at that place of residence, or

(iii) by sending a copy of the notice by priority post, courier or registered mailaddressed to the farmer; and

(b) in the case of a farmer who is a corporation, cooperative, partnership or otherassociation

(i) by leaving a copy of the notice with an officer, director, partner or agent ofthe corporation, cooperative, partnership or other association,

(ii) by leaving a copy of the notice with a person at any place of business ofthe farmer who appears to be in control or management of the place ofbusiness, or

(iii) by sending a copy of the notice by priority post, courier or registered mailaddressed to the last known address of the head office or principal place ofbusiness of the farmer.

(2) The giving of the notice in the manner described in subparagraph (1)(a)(ii) or (iii)or (b)(iii) is deemed to be effected seven business days after the day on which thenotice is sent.

(3) A person who gives the notice to a farmer need not produce an originaldocument or have it in their posse~sion.

PROOF BY AFFIDAVIT -- s. 18

18. The giving of any notice or information required by the Act or these Regulationsmay be proved by the affidavit of the person who gave it.

COMING INTO FORCE -- s. 19

19. These Regulations come into force on the day on which the Farm DebtMediation Act, chapter 21 of the Statutes of Canada, 1997, comes into force.

<3. c. C!..., APPENDIX "P"

M & D Farm Ltd. v. Manitoba Agricultural Credit Corp. page 1

** Preliminary Version **Indexed as:

M & D Farm Ltd. v. Manitoba Agricultural Credit Corp.

M & D Farm Limited, Marcel Robert Desrochersand Darlene Erma Desrochers, appellants;

v.The Manitoba Agricultural Credit Corporation, respondent.

[1999] S.C.J. No.4

Supreme Court of CanadaFile No.: 26215.

Hearing and judgment: January 26, 1999.Reasons delivered: September 2, 1999.

Present: Lamer C.J. and Gonthier, Cory, McLachlin,Iacobucci, Major and Binnie JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR MANITOBA(49 paras.)

Constitutional law - Division of powers - Paramountcy - Application to foreclose grantedunder provincial act during course of stay of proceedings under federal act ~ Whether order givenunder provincial act and all subsequent proceedings null through operation of doctrine of federalparamountcy - Family Farm Protection Act, C.C.S.M, c. F15, ss 8(1), (4) - Farm Debt Review Act,R.S. c., 1985, c. 25 (2nd Supp.), s. 23.

The mortgage held by the respondent on the appellants' family farm was in arrears. Therespondent gave notice under the federal Farm Debt Review Act that it intended to commenceproceedings to recover the amounts outstanding. The appellants responded by obtaining a 30-day stayof proceedings under the same act. The stay was subsequently extended for the total 120-day·periodpermissible. While the federal stay was still in effect, the respondent sought leave under the province'sFamily Farm Protection Act and was granted an order by the Court of Queen's Bench authorizing thecommencement of immediate foreclosure proceedings. The court was unaware of the federal stay.The appellants immediately advised the respondent that in their view the provincial order was of noeffect and that subsequent proceedings were invalid. The respondent took no action on the grant ofleave until after the expiry of the federal stay and thereafter proceeded in a measured pace to obtain, aftersome years, a certificate of title. The appellants then successfully moved to have the initial ordergranting the respondent leave to proceed and all subsequent proceedings declared nullities. The Courtof Appeal reversed the order declaring the nullity. At issue was whether the order granting leave underthe provincial act contravened the federal act thereby creating a nullity through the operation of thedoctrine of federal paramountcy.

Held: The appeal should be allowed.

The federal Farm Debt Review Act provides a short standstill period during which the farmer can

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M & D Farm Ltd. v. Manitoba Agricultural Credit Corp. page 2

demonstrate long-term viability to creditors. An insolvent farmer can apply under s. 23 for a stay,proceedings which, given the statutory scheme read as a whole, and particularly given the scheme'sshort time frames, prohibits making a leave application directed to the end result of debt collection ordepriving the farmer of his or her land or other security. It is artificial to isolate the leave applicationfrom the multi-faceted foreclosure process and contend that it is exempt from the s. 23 stay. A leaveapplication under s. 8 of the Family Farm Protection Act is so intimately connected with the proceedingslisted in s. 23 that the leave application itself is prohibited during the currency of a s. 23 stay. This"purposive" interpretation of s. 23 should not unduly prejudice dissatisfied creditors for they can moveagainst the extension of the initial 30-day stay and they can reinstitute collection activity after the stayexpIres.

Whether or not the leave application under the provincial act was a "proceeding" within themeaning of that Act was not material to this case. The issue, given that the appellants' case rested on s.23 of the federal Act, was the proper interpretation of "proceeding" in the federal Act. In that contextthere was no absurdity in requiring a suspension of collection activities for the length of the stay.

The constitutional objection arose because the order made under the provincial statutepurportedly authorized the very litigation that the federal stay purportedly prohibitedthereby creating an operational incompatibility in the two orders. Given this "expresscontradiction", the doctrine of federal paramountcy was triggered. Since the validity ofthe leave order has to be determined as of the date it was made, and cannot depend onthe respondent's decision not to act on it until expiry of the stay, the order issuedpursuant to the inoperative provincial authority was invalid.

The invalidity was in the nature of a nullity and not an irregularity. The Court, in considering thedistinction between mandatory (where non-compliance results in invalidity) and directory (wherenon-compliance may in certain cases be relieved against) requirements, must be guided by the object ofthe statute and the effects of ruling one way or the other. Here, the provincial Family Farm ProtectionAct was clear as to the consequences of failure to comply. The Court has no authority to breathe lifeinto a leave order rendered inoperative by the doctrine of federal paramountcy.

Cases Cited

Distinguished: Farm Credit Corp. v. Wade (1994),28 C.B.R. (3d) 203; Calvert v. Salmon (1994),113 D.L.R. (4th) 156; referred to: Multiple Access Ltd. v. McCutcheon, [1982] 2 S.C.R. 161; R. v. Z(D.A.), [1992] 2 S.C.R. 1025; Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R. 27; Vachon v. CanadaEmployment and Immigration Commission, [1985] 2 S.C.R. 417; Farm Credit Corp. v. Lebrun,Manitoba Court of Queen's Bench, St. Boniface Centre, File No. 487-88, March 6, 1990 (unreported);

. Davies v. Canadian Imperial Bank of Commerce, [1987] B.C.J. No. 632 (QL); Nelson's Lazy H Ranches(1984) Ltd. v. Canadian Imperial Bank of Commerce, [1992] 3 W.W.R. 574; Bank of Montreal v. Hall,

"--. [1990] 1 S.C.R. 121; Crown Grain Co. v. Day, [1908] A.C. 504; Reference re Manitoba LanguageRights, [1985] 1 S.C.R. 721; British Columbia (Attorney General) v. Canada (Attorney General); AnAct respecting the Vancouver Island Railway (Re), [1994] 2 S.C.R. 41; Blueberry River Indian Band v.Canada (Department ofIndian Affairs and Northern Development), [1995] 4 S.C.R. 344; Eaton v. BrantCounty Board of Education, [1997] 1 S.C.R. 241.

Statutes and Regulations Cited

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page 3M & D Farm Ltd. v. Manitoba Agricultural Credit Corp.

) Family Farm Protection Act, C.C.S.M., c. F15, ss 8(1), (4).

Farm Debt Review Act"R.S.C., 1985, c. 25 (2nd Supp.), s. 16, 17(1), 18,20(1),22(1), (2), 23,24,26,28,29(1), (2).

Interpretation Act, R.S.C., 1985, c. 1-21, s. 12.

Authors Cited

Canada. House of Commons Debates, Vol. X, 1st sess., 33rd Parl., June 20,1986, p. 14790.

Colvin, Eric. ilLegal Theory and the Paramountcy Rule" (1979), 25 McGill L.J. 82.

Colvin, Eric. Comment on Multiple Access Ltd. v. McCutcheon (1983), 17 U.B.C.L. Rev. 347.

Farlinger, Brian A. "The Farm Debt Review Act" (1988),2 B.F.L.R. 223.

Hogg, Peter W. Constitutional Law of Canada, 4th ed. Scarborough, Ont.: Carswell,1997.

Le Grand Robert, 2nd ed., Vol. 7. Paris: Le Robert, 1986, "pour".

Oxford English Dictionary, 2nd ed." Vol 6. Oxford: Clarendon Press, 1989, "for".

Weinczok, Michael A. liThe Farm Debt Review Act" (1991), 18 Can. Bus. L.J. 43.

APPEAL from a judgment of the Manitoba Court of Appeal (1997), 118 Man. R. (2d) 174, 149W.A.C. 174, 13 C.P.C. (4th) 33, [1997] M.J. No. 444 (QL), allowing an appeal from an order ofClearwater J. declaring a previous order by Clearwater 1. granting leave to commence foreclosureproceedings to be a nullity. Appeal allowed.

John A. Myers and Ken G. Mandzuik, for the appellants.

B. Patrick Metcalfe and Robert 1. Graham, for the respondent.

Solicitors for the appellants: Taylor, McCaffrey, Winnipeg.

Solicitors for the respondent: D'Arcy and Deacon, Winnipeg.

)

)

The judgment of Court was delivered by

~ 1 BINNIE J.:- At what point do legislators give up the struggle to keep defaulting farmers onthe farm? For the last 28 years, the Desrochers family has worked a homestead on 160 acres of landnear Pilot Mound, Manitoba. (M & D Farm Limited is a family corporation owned by the individualappellants, which took title in 1979.) The farm was mortgaged to the Manitoba Agricultural CreditCorporation ("MACC") for $39,500 in 1972 and payments were made on this mortgage with varyingdegrees of punctuality and sufficiency of amount until 1989. As a result of "poor crops, bad weatherand high farming expenses", the appellants' farm slid into insolvency in the early 1990s. For the past 8years, MACC has made efforts, at times desultory, to realize on its security. It has had to navigatesimultaneously the provisions of the federal Farm Debt Review Act, R.S.C., 1985, c. 28 (2nd Supp.),and the Manitoba Family Farm Protection Act, C.C.S.M., c. F15. The question on this appeal is whetherthe respondent inadvertently navigated itself onto the shoals of the federal paramountcy doctrine, andthereby obtained a remedy which is now to be pronounced a nullity.

~ 2 More specifically, on January 17, 1994, MACC obtained from the Manitoba Court of Queen'sBench leave under the Manitoba legislation to commence foreclosure proceedings. The appellants say

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M & D Farm Ltd. v. Manitoba Agricultural Credit Corp. page 4

that the leave application under the provincial Act contravened the federal legislation and is invalid, an(.that MACC's subsequent foreclosure sale and possession proceedings based on the invalid grant of leaveare equally invalid. At the conclusion of the hearing of the appeal, we gave judgment for the appellantswith reasons to follow. These are the reasons.

Facts

~ 3 Marcel and Darlene Desrochers have had their home on the land at issue since 1971. The landwas purchased from members of Mrs. Desrochers' family using the proceeds of a $39,500 mortgage loanfrom MACC. The loan was broken into two parts, namely an "intermediate" loan of $14,500 that waspaid off by May 1983 and the balance of $25,000 under a long-term mortgage maturing in 2002. Thefarm seems to have experienced more bad years than good. The most recent mortgage payment wasmade almost 10 years ago in August 1989. The appellants say they paid $42,643.53 over the years inrespect of principal and interest on the $25,000 portion of the debt, and still owed $28,681.00. MACCsays they owed more than that.

~ 4 On December 1, 1992, MACC demanded payment of arrears owing under the mortgage andalso gave notice under s. 22 of the Farm Debt Review Act that it intended to commence proceedings torecover the amounts outstanding if the arrears were not paid. The appellants quickly applied for a stayof proceedings under s. 23 of the federal Farm Debt Review Act, as they were entitled to do, and thisstay was granted on January 4, 1994. The stay was continued to May 4, 1994 by virtue of threeextensions of 30 days each obtained by the appellants, the maximum number obtainable under thelegislation.

~ 5 The General Manager of the federal Farm Debt Review Board (the "Board") established und,the Farm Debt Review Act mailed a copy of the stay of proceedings to MACCon or about January 4,1994. The evidence is not clear as to when this federal notice was actually received but the fact is thatMACC appeared before the Manitoba Court of Queen's Bench on January 17, 1994, on notice to theappellants, seeking leave under the provincial Act to commence mortgage foreclosure proceedings andto apply for an order for possession of the appellants' farm. The appellants failed to appear because,they say, they assumed that MACe would not try to proceed under the provincial Act in the face of thefederal stay of proceedings. It is common ground that the Motions Judge was not aware of the federalstay of proceedings, and the leave order issued on January 17, 1994 as requested, plus costs.

~ 6 The terms of the January 17, 1994 order purport to authorize immediate commencement ofmortgage foreclosure proceedings, application to the District Registrar for an order for sale and for anorder of foreclosure, together with leave to apply for possession of the mortgaged land and premises.On learning of the purported grant of leave under the provincial legislation in March 1994, theappellants made it known to MACC that, in their view, the order of January 17, 1994 was of no effect,and subsequent proceedings were invalid.

~ 7 MACC refrained from taking any action on the grant of leave until after the expiry of thefederal stay of proceedings in May of 1994. Thereafter it moved forward at a measured pace until itobtained a certificate of title to the mortgage property on August 20, 1996. A demand for possessionwas forwarded to the appellants on October 8, 1996.

~ 8 At that point the Desrochers, who were still in residence, moved to have the initial oro-granting MACC leave to proceed and all subsequent proceedings declared nullities. Their Notice

\

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M & D Farm Ltd. v. Manitoba Agricultural Credit Corp. page 5

) Motion was dated January 14, 1997, almost three years after the issuance of the original order, andalmost eight years since their last mortgage payment.

Relevant Legislative Provisions

~ 9 Farm Debt Review Act, R.S.C., 1985, c. 25 (2nd Supp.)

16. Any farmer who is in financial difficulty may apply, in the prescribed formcontaining the prescribed information, to the Board established for the province orregion of Canada in which the farmer resides for a review of the farmer's financialaffairs or for assistance in facilitating an arrangement with his creditors.

17. (1) Subject to subsection (2), where a Board receives an application madeunder section 16, the Chairman of the Board shall appoint a review panel with respectto the application in accordance with section 12.

18. A review panel appointed under section 17 shall examine the financialaffairs of the farmer concerned and may offer advice, meet with the farmer and any' ofthe farmer's creditors and assist the farmer and his creditors to enter into anarrangement.

)

20. (1) Any insolvent farmer may apply, in the prescribed form containing theprescribed information, to the Board established for the province or region of Canada inwhich the farmer resides for a review of his financial affairs and for a stay of anyproceedings against the farmer by his creditors.

22. (1) Every secured creditor who intends to realize on any security of a farmershall give the farmer written notice, in the prescribed form containing the prescribedinformation, of his intention to do so and in the notice shall advise the farmer of theright of an insolvent farmer to make an application under section 20.

(2) The notice referred to in subsection (1) shall be given to the farmer in theprescribed manner at least fifteen business days before the taking of any action by thesecured creditor to realize on the security.

23. Subject to sections 26, 29 and 32, and notwithstanding any other law, onreceipt by a Board of an application made by a farmer under section 20, no creditor ofthe farmer shall, for a period of thirty days after the receipt of the application by theBoard, have any remedy against the property of the farmer or shall commence orcontinue any proceedings or any action, execution or other proceedings, judicial or

)

extra-judicial, for the recovery of a debt, the realization of any security or the taking ofany property out of the possession of the farmer.

26. If a farmer contravenes or is negligent in complying with any directivesissued to the farmer by a Board pursuant to subsection 25(1) or if the Board is of theopinion that the farmer has, by any act or omission on his part, jeopardized his assets or

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obstructed the guardian in the performance of the guardian's duties and functions undersubsection 25(2), the Board may direct that the period referred to in section 23, as itmay have been extended under section 29, be terminated and, where the Board sodirects, that period shall terminate.

29. (1) Where a Board considers an extension of the period referred to in section23 to be essential to the formulation of an arrangement between a farmer and hiscreditors, the Board may extend that period for a period of thirty days.

(2) Where a Board considers an extension of the period referred to in section 23,as extended under subsection (1), to be essential to the formulation of an arrangementbetween the farmer and his creditors, the Board may extend that period for a maximumof two further periods of thirty days each.

The Family Farm Protection Act, C.C.S.M., c. F15

8 (1) No person shall commence or continue any action or proceeding to realizeupon or otherwise enforce

(a) a mortgage, an encumbrance, a security agreement or an agreement for saleof farmland, or any provision contained therein; or

(b) a judgment or an attachment obtained on the basis of a mortgage, anencumbrance, a security agreement or an agreement for sale of farmland, orany provision contained therein;

whereby a farmer could be deprived of the ownership or the possession of farmland ofwhich the farmer is the registered owner or of which the farmer is the purchaser underan agreement for sale, without first obtaining leave of the court under this Part.

...,.-.. '-" ~

page 6

8 (4) Any action or proceeding which is commenced or continued after the cominginto force of this Act without first obtaining leave of the court as required by this Part isa nullity.

Judgments

Manitoba Court of Queen's Bench

~ 10 Clearwater l, who had granted the initial leave application, made a further order on March 20,1997, declaring his initial order a nullity, and all proceedings taken pursuant to his initial order also to benullities. He noted that the stay had been granted pursuant to the federal Farm Debt Review Act 13days before he had granted the leave application. He accepted that MACC may not have been aware ofthe stay when its motion for leave was brought on January 17, 1994, but he found that MACC definitelywas aware of it by March of the same year. While nothing had been done in the intervening three yearsto vary or set aside the order granting leave, Clearwater l found that the appellants had at all times madeit clear to MACC that, in their view, the order of January 17 was of no force or effect. He commente,r'

.. , it is difficult to see why, with the issue being put to it, not only by the Desrochers,

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but at least to some extent by representatives of the Farm Debt Review Board as itappears from the affidavit, a rather simple and not too costly motion might have beenbrought at a point in time when all stays granted by the federal board had expired.

page 7

~ 11 The issue before Clearwater 1 was whether the stay of proceedings granted under s. 23 of thefederal statute prohibited MACC from seeking leave under s. 8 of the provincial Act to commenceproceedings to enforce its mortgage. MACC submitted that a s. 23 stay was not a prohibition againstany proceedings, but only prohibited proceedings "against the property" or otherwise "for the recoveryof a debt, the realization of any security or the taking of any property out of the possession of thefarmer". It was MACC's position that a mere application for leave did none of these things. MACCcharacterized the motion for leave as a condition precedent to any realization or foreclosure proceedings,and as such was collateral to and distinct from the proceedings prohibited under the federal Act. In anyevent, MACC argued that the obtaining of leave during the stay was a mere irregularity that had notprejudiced the appellants in any way and therefore could and should be cured by subsequent judicialorder. Clearwater 1 ruled, however, that the terms of the stay issued under s. 23 of thefederal Act wereclear and that the steps taken under the provincial statue were of no effect. MACC, as a knowledgeablelender, should have brought a motion to obtain leave to commence proceedings after the stay and itsextensions had expired. Clearwater 1 found that MACC's failure to do so irretrievably flawed thesubsequent proceedings.

~ 12 Clearwater J. considered the delay by the Desrochers as "almost inexcusable" and "almostunconscionable", but considered that nothing could be done for MACC to save a nullity.

Court of Appeal of Manitoba (1997), 118 Man. R. (2d) 174 (Helper lA., Huband and Lyon JJ.A.concurring)

~ 13 The Manitoba Court of Appeal was persuaded by MACC's argument that the January 17, 1994order was not a proceeding prohibited by the stay but only a "condition precedent" to such a proceeding.Helper lA. considered that the appellants' argument to the contrary would lead to an absurdity for if theapplication for leave itself is an "action or proceeding", a lender could never realise on its securitybecause an application for leave without prior leave being obtained would itself be prohibited under s. 8of the provincial statute.

~ 14 Therefore, Helper J.A. concluded that MACC's interpretation of the relevanflegislation was tobe preferred and that a leave application is not a "proceeding". More importantly, even if a leaveapplication could be characterized as a proceeding, it was not a "remedy against the property of thefarmer", and nor did "it constitute the commencement or the continuation of 'any proceedings ... ' for therecovery of a debt". Accordingly, Helper lA. concluded, at p. 176, that "MACC was entirely justifiedin making its application for leave during the continuance ofthe stay order. It acted in accordance withthat order by taking no steps to commence proceedings to realize upon its mortgage until the stay wasexhausted in May, 1994".

~ 15 It is the Manitoba Court of Appeal's reversal of the order of Clearwater 1 granted March 20,1997 that is the subject of this appeal.

Analysis

~ 16 At the root of this appeal is the doctrine of federal paramountcy. The appellants say that

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MACC's steps under the provincial Family Farm Protection Act brought it into conflict with the sta~

issued under the federal Farm Debt ReviewAct. The order made under the provincial Act gave a greenlight to commence foreclosure and sale proceedings at a time when the federal stay still showed red.Neither MACC nor the Desrochers challenged the validity of either the federal or provincial statute.

~ 17 Crucial to the argument is the scope and application of the federal Farm Debt Review Act.Once that is determined, the provisions of the provincial Act must be examined to see whether "therewould be an actual conflict in operation" when the two statutes purport to function side by side. (SeeMultiple Access Ltd. v. McCutcheon, [1982] 2 S.C.R. 161, per Dickson J. (as he then was), at p. 191).In the event of an express contradiction, the federal enactment prevails to the extent of the inconsistency.

The Federal Scheme

~ 18 It seems clear that the federal Farm Debt Review Act taken as a whole was intended to create astandstill period or moratorium of short duration. The initial stay of 30 days can only be extendedwhere the Board considers it "essential to the formulation of an arrangement" (s. 29) and even then themaximum period is 120 days. The farmer is given a breathing space in which to attempt to reorganizehis or her financial affairs. He or she is provided with the assistance of a neutral panel to mediate withcreditors (ss. 17, 18). The function of the Board is to assist the viable farmer to stay on the farm, not topreside over the liquidation of his, her or its assets.

~ 19 When the Farm Debt Review Act was being considered by Parliament in 1986, the Minister ofAgriculture, the Hon. John \Vise, described the aim of the legislation in the following terms:

This legislation, in any way, shape, or form, will not solve all the problems in Canadianagriculture. It will not address difficult questions about international pricing, nor willit address difficult questions about international markets. It will not erase the past. Itis intended to and will help farmers with the potential to be viable and remain inbusiness. [Emphasis added]

(House of Commons Debates, June 20,1986, p. 14790.)

Farmers without the protection of a marketing board or other price stabilization schemes face volatilemarkets and volatile prices. The legislation recognizes that temporary financial embarrassment is partof a farmer's lot, and does not necessarily signal lack of long-term financial viability. The. Act providesa short standstill period within which the farmer has an opportunity to demonstrate long-term viability tocreditors.

~ 20 The federal scheme has two branches. Under the first branch, any farmer - solvent orinsolvent - who claims to be in financial difficulty may apply to the Federal Farm Debt Review Board"for a review of the farmer's financial affairs or for assistance in facilitating an arrangement with hiscreditors" (s. 16). On receipt of such an application, the Chairman ofthe Board is directed to appoint a"review panel" (s. 17) whose responsibilities consist of examining the farmer's financial affairs, offeringadvice on these affairs to the farmer, meeting with the farmer and his or her creditors and assisting thefarmer and his or her creditors to enter into an "arrangement" (s. 18). If the creditors are satisfied ofthe farmer's viability, they will likely make an arrangement rather than sue. However, it is important toemphasize that the federal scheme does not stay proceedings against a solvent fanner. Any protectionfor such farmers is found in the provincial legislation.

~ 21 The second branch of the federal scheme addresses the plight of the farmer who is insolvent.

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)

Section 20 allows an insolvent farmer to apply for "a review of his financial affairs and for a stay of anyproceedings". Where a creditor wishes to exercise its right to sue, s. 22 requires written notice at least15 business days before taking any action to realize on its security. Section 22 also requires such asecured creditor to notify the insolvent farmer of his or her right under s. 20 to apply to the Board for astay. The initial stay is automatic, but is balanced by the requirement that a "guardian of the assets ofthe farmer" be appointed to meet any concerns of creditors about the interim preservation of assets (s.24).

~ 22 Once a stay of proceedings has been imposed pursuant to s. 23, a panel is appointed by theBoard under s. 28 to "review the financial affairs of the farmer concerned and ... meet with the farmerand his creditors for the purpose of facilitating an arrangement between them." Extensions of the initial30-day stay are discretionary, and may only be granted by the Board in 30-day segments. This allowsthe Board, if it reaches the conclusion after any segment that the mediation is unproductive, to terminatethe standstill period.

Effect ofthe Federal Stay

~ 23 MACC contends that the leave it obtained under the provincial Act does not violate the termsof the federal stay. The leave application, it says, is a step preliminary to one of the proceedingsprohibited by the federal Act. It does not itself achieve "the recovery of a debt, the realization of anysecurity or the taking of any property out of the possession of the farmer". It is merely a conditionprecedent to initiation of such proceedings. MACC says that s. 23 does not stall all litigation againstthe farmer, only the specific types of proceedings listed in s. 23 itself. It offers the somewhat facetioussuggestion that the s. 23 stay would not prohibit divorce proceedings against the farmer, for example.

~ 24 Here, however, we are not dealing with something as remote as a divorce proceeding. MACCwanted this farmer's land. It served notice on December 8, 1993 that it was seeking foreclosure, saleand possession. The requirement of leave imposed by the Manitoba legislature was a necessary step todepriving the farmer of his land. Helper lA., of the Manitoba Court of Appeal, concluded at p. 176that:

... the leave application is not a proceeding as envisaged by s. 23 of the FDRA. Anapplication for leave is not a "remedy against the property of the farmer", nor does itconstitute the commencement or the continuation of "any proceedings or any action,execution or other proceedings" for the recovery of a debt. It is a condition precedentto [their] commencement ....

~ 25 Whether s. 23 should be read narrowly (as did the Manitoba Court of Appeal) or more broadly(as was done by Clearwater l) turns, I think, on the overall purpose of the federal Farm Debt ReviewAct, which is to be given "such fair, large and liberal construction and interpretation as best ensures theattainment of its objects": Interpretation Act, R.S.C., 1985 c. 1-21, s. 12. The applicable principle ofstatutory interpretation was expressed by Lamer C.J. in R. v. Z.(D.A.), [1992] 2 S.C.R. 1025, inconsidering the Young Offenders Act, at p. 1042, as follows:

In interpreting the relevant provisions of an Act, the express words used by Parliamentmust be interpreted not only in their ordinary sense but also in the context of thescheme and purpose ofthe legislation....

See also Iacobucci J. in Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R. 27, at para. 23:

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Although the Court of Appeal looked to the plain meaning of the specificprovisions in question in the present case, with respect, I believe that the court did notpay sufficient attention to the scheme of the [Employment Standards Act], its objects orthe intention of the legislature; nor was the context of the words in issue appropriatelyrecognized. .

page 10

~ 26 Applying that approach, I agree with the appellant that the Manitoba Court of Appeal in thepresent case unduly narrowed the scope of s. 23 of the federal Act without adequately taking intoconsideration the broader federal scheme of which s. 23 is a part. The Minister of Agriculture, inintroducing the Farm Debt Review Act, as previously mentioned, characterized it as being enacted to"help farmers with the potential to be viable and remain in business". The significance of the federalscheme is pointed out by B. Farlinger in "The Farm Debt Review Act" (1988), 2 B.F.L.R. 223, at p. 231:

The Act is significant in that it is based on creditors and applicant farmers coming to avoluntary arrangement.... The government has recognized that many insolvent farmersmust leave the industry and that only commercially-viable farmers will be assisted bythis Act. All applicants are provided with an opportunity to receive third-party expertadvice on these financial affairs and relationships with their creditors.

See also M. A. Weinczok, "The Farm Debt Review Act" (1991), 18 Can. Bus. L.J. 43. Thus, althoughthe Farm Debt Review Act does offer some protection to all farmers in financial difficulty, it was trulyenacted to assist farmers who are commercially viable in the long term, and whose problems aretemporary and solvable with the cooperation of the creditors. The Board cannot coerce a settlement. T·

has very limited time within which to work. In the end, the farmer remains subject to whatev.voluntary arrangements he or she can make with the creditors.

~ 27 In light of the statutory scheme read as a whole, and particularly the short time frames, myview is that the s. 23 moratorium prohibits the J?.Jlking of a leave application which is directed to the endresult of debt collection or depriving the farmer of his or her land or other security. The foreclosure,possession and sale of mortgaged farm land will involve numerous steps and (as the respondent'soriginal Notice of Motion illustrates), multiple proceedings. It is artificial to ~late the leaveapplication from this multi-faceted process and, having isolated it, contend that it is e~pt from the S.23 stay.

~ 28 A court proceeding places a drain on the farmer's resources at the very moment all partiesshould have their focus on a potential arrangement. A leave application does not itself result indispossession, but it requires the farmer to put together a defence and this will likely involve hiring alawyer (despite the fact that the farmer is ex hypothesi insolvent) to assist in the cross-examination onaffidavits, preparing opposing affidavits and dealing with adjournments, and the cost and disruption oflitigation. All of this is to be done at the very time the Board is attempting to assist in putting togetheran arrangement with creditors that would render such litigation superfluous.

~ 29 A leave application under s. 8 of The Family Farm Protection Act is so intimately connectedwith the proceedings listed in s. 23 that, giving the section a purposive interpretation, the leaveapplication itself is also prohibited during the currency of a s. 23 stay. I should add, parenthetically,that in my view even a literal reading of the text of s. 23, isolated from the larger context, does ,­necessarily support MACC's position. Great stress is placed by MACC on the words "for the recover; ,

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),

etc., but the ordinary meaning of the word "for" includes "[w]ith a view to; with the object or purpose of:as preparatory to.... [c]onducive to ..." (The Oxford English Dictionary (2nd ed. 1989), Vol. 6, pp.23-24). The word "pour" used in the French text has a similarly elastic meaning, including "[e]n ce quiconcerne .. , marquant la destination figuree ... , Ie but, l'intention ... [e]n vue de ..." (Le Grand Robert(2nd ed. 1986), Vol. 7, p. 659). T,lle leave aEPlication is cle':E!Y.::oreQar~<m' to.... [sJonducive to ..." the~ltimate disposse.§§ion of the farmer from hi;or her land. y.rhen this language is then placed in t4.,econtext of the federal scheme, the conclusion is inescapable that a leave application comes within the

'tlooo== ...,.

~ition of "any proceedings or any action, execution or other proceedings, judicial or extra-judicial,for the recovery of a deb!.. the realization of any security or the taking of any property out of the~ssession of the farmer". ..

-~ 30 This conclusion is, I think, consistent with what was said by Beetz 1. in connection with acomparable stay provision in the Bankruptcy Act in Vachon v. Canada Employment and ImmigrationCommission, [1985] 2 S.C.R. 417, at p. 426:

The Bankruptcy Act governs bankruptcy in all its aspects. It is thereforeunderstandable that the legislator wished to suspend all proceedings, administrative orjudicial, so that all the objectives of the Act could be attained.

A period of "suspension" is similarly contemplated under the federal Farm Debt Review Act.

~. 31 The foregoing analys~s is consistent not only with the view of Clearwater J. in the present casebut also with that of Barkman 1. in Farm Credit Corp. v. Lebrun, Manitoba Court of Queen's Bench, FileNo. 487-88, March 6, 1990 (unreported), where he considered whether s. 23 stayed a leave applicationand concluded, as did Clearwater 1., that it did:

Although this [leave] application is a preliminary application ... it is of necessity bystatute the proceedings to commence or continue the rights under the securities held bythe Farm Credit Corporation, and in that regard, it is, in my opinion, a proceeding thatis covered by Section 23 because it is a necessary prerequisite to be authorized tocommence or continue any proceeding. I'm of the opinion that the stay affects not onlythe actual commencement or continuation of the foreclosure proceedings, but also refers

I to anl nreliminarY..llioceedings from which authority is granted or obtained from theCourt to commence or continue the foreclosure proceedmg.-

Other Actions by Creditors

~ 32 It is worth noting that courts have considered the taking of other 'collection activity bycreditors during the currency of a s. 23 stay and have generally pronounced them invalid.

~ 33 In Davies v. Canadian Imperial Bank of Commerce, [1987] B.C.J. No. 632 (QL) (S.C.),Provenzano L.J.S.C. concluded that an examination of the farmer in aid of execution falls within thescope of a s. 23 stay:

The Shorter Oxford English Dictionary - 3rd Edition at p. 1677 defines "proceedings"as a legal action or process, any act done by authority of a Court of Law or any steptaken in a cause by either party. I would, therefore, interpret the words "otherproceedings" to include any step, action or process taken relative to or for the purposeof execution of a judgment. Accordingly, an examination in aid of execution fits intothese meanings. It is a step in the execution of the judgment and therefore is caught by

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the prohibition in the Section. The intent of the Section is, in my view, to prohibit notonly the final act of execution but also all the steps and processes to achieve that result.[Emphasis added.]

page 12

See also Nelson's Lazy H Ranches (1984) Ltd. v. Canadian Imperial Bank of Commerce, [1992] 3W.W.R. 574 (Alta. C.A.), where an order confirming a sale and vesting order made during the currencyof a s. 23 stay was found to be null and void as being contrary to that section of the Farm Debt ReviewAct, per Foisy lA., at p. 576.

~ 34 MACC attempts to uphold its litigious steps by reference to cases that deal with other types ofsteps that are not litigious at all. In particular it cites the decision of O'Connor J. in Farm Credit Corp.v. Wade (1994), 28 C.B.R. (3d) 203 (Ont. Gen. Div.). ~here a farmer complained about service ofnotices under s. 22 of the Farm Debt Review Act and s. 244(1) of the Bankruptcy and Insolvency Actadvising him of his creditor's intention to realize on its security. These notices were servednotwithstandmg the existence of a s. 23 stay, and the farmer argued they were nullities. Therefore, heargued, any subsequent action was also a nullity because it had been commenced without the propergiving of the statutory notices. O'Connor J. rejected this argument, finding at p. 207 that giving notice"is merel adviso and assive in nature re uirin no res onding action b the reci ient that wouldsignificantly enhance the position of the plaintiff if not taken". Even if O'Connor J. is correct m edistinction he draws at p. 207 between steps that require~s distinguished from E§tssiv~ responses,~nt~n which,3e he~o argument. a ~eave application does require "responding action by therecipient" and would "significantly enhance the position of the plaintiff' unless successfully opposedFarm Credit Corp. v. Wade is therefore of no assistance.

~ 35 As a practical matter, this "purposive" interpretation of s. 23 should not unduly prejudicedissatisfied creditors who, for example, can make known their view to the Board that the initial 30-daystay ought not to be extended. Collection activity taken in ignorance of the federal stay may bereinstituted immediately after the stay expires if no arrangement is made. The problem here arises notbecause of the stay, as such, but because MACC refused to return to the court for leave once the stay hadexpired, as Clearwater J. pointed out.

The Manitoba Legislation

~ 36 There are significant differences between the federal scheme and the provincial scheme. Thestay imposed by the former is absolute. The latter does not impose a stay at all. It simply imposes thecondition precedent of leave to commence or continue "any action or proceeding" to realize upon orenforce various procedures "whereby a farmer could be deprived of the ownership or the possession offarm land". The former creates a standstill of no more than 120 days. The latter has no such limitationas to time.

~ 37 The Manitoba Court of Appeal concluded that a leave application could not be a "proceeding"within the meaning of s. 8 of the provincial Act because otherwise MACC would require prior leave inorder to bring a leave application, which means creditors would be effectively stymied. They held at p.176 (quoting from MACC's written submission):

"." one could not bring an application for leave, if it were the commencement of aproceeding, because one could not have the required leave to bring that application."

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)

)

~ 38 With respect, the issue is not the meaning of the word "proceeding" in s. 8 of the provincialAct. The appellants' case rests not on s. 8 of the provincial Act but on s. 23 of the federal Act. Theissue is the proper interpretation of "proceeding" in the federal Act, and in that context there is noabsurdity in requiring a suspension of collection activities for up to four increments of 30 days. This isparticularly so when one remembers the guardianship arrangement to prevent any dissipation of thefarmer's assets during the currency of the stay. (The scope of the word "proceeding" under theprovincial Act is not material to the outcome of this case, although the juxtaposition of the concepts of"leave" and "proceeding" in that Act does, as the Manitoba Court of Appeal suggests, necessitate readingdown the ordinary meaning of the word "proceeding" to exclude leave applications themselves from thes. 8 leave requirement.) The question here is not whether leave is itself a "proceeding" under s. 8 of theprovincial Act, but whether any such action can be taken against the farmer in the face of a stay issuedunder s. 23 of the federal Act. For reasons already given, my view is that the federal stay prohibits theleave application.

The Constitutional Issue

~ 39 The constitutional objection to the order of January 17, 1994, and to the decision in this caseof the Manitoba Court of Appeal, can be briefly stated. The order of JanuaryOl7, 1994, issued pursuantto the provincial statute, purported to authorize MACC to commence mortgage foreclosure proceedings,apply to the District Registrar for an order for sale and an order of foreclosure and apply for an order forpossession of the farm land at issue. The order purported to be effective January 17, 1994. Under theterms of this order, MACC was authorized to move forthwith against the appellants' land and to realizeon the appellants' debt. An order had been made under a provincial statute that purported to authorizethe very litigation that the stay issued pursuant to s. 23 of the federal statute purported to prohibit. Inshort, there is an operational incompatibility in the orders issuing under the two statutes.

~ 40 It was suggested on behalf of the respondent MACC that the "incompatibility" did not arise infact in this case because MACC did not act on the grant of leave until after expiry of the federal stay.The leave order was permissive, not mandatory. By keeping the leave order "in its back pocket",MACC suggests, it satisfied both federal and provincial requirements. The argument advocates a "waitand see" approach. The January 17, 1994_ order mayor may not be constitutionally valid, according tothis view, depending on what MACC chose to do with it. Dickson 1. (as he then was), discussed thenature of a legislative conflict requiring the application of the paramountcy doctrine in the followingterms in Multiple Access Ltd., supra, at p. 191:

In principle, there would seem to be no good reason to speak of paramountcy andpreclusion except where there is actual conflict in operation as where one enactmentsays "yes" and the other says "no"; "the same citizens are being told to do inconsistentthings"; compliance with one is defiance of the other.

~ 41 My view is that the validity of the leave order has to be determined as of the date it was madeand cannot depend on MACC's subsequent conduct. The order of Clearwater 1. dated January 17, 1994,granted pursuant to a provincial statute, purports to give leave to commence immediately or continuewithout delay the sale, foreclosure and possession proceedings. On the other hand, the stay grantedunder the federal statute on January 4, 1994, prohibited the commencement or continuation of exactlythese types of proceedings. The legal system cannot simultaneously provide that MACC is entitled tocommence mortgage foreclosure proceedings (under provincial law) and that MACC is prohibited from

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commencing mortgage foreclosure proceedings (under federal law). See Bank of Montreal v. Hal[1990] 1 S.C.R 121, per La Forest J., at pp. 152-53. In Crown Grain Co. v. Day, [1908] A.C. 504, thePrivy Council was called upon to consider a comparable issue, namely an alleged operationalincompatibility between the federal Supreme Court Act, RS.C. 1960, c. 139, and a provincialMechanics' and Wage Earners' Lien Act, R.S.M. 1902, c. 110. The federal statute provided that anappeal lay to the Supreme Court of Canada "from any final judgment of the highest Court of final resortnow or hereafter established in any province of Canada". The provincial statute, on the other hand,purported to make the judgment of the Manitoba Court of Appeal "final and conclusive" in cases relatingto liens. The Privy Council found that the two statutes were in conflict and therefore, through theapplication of the paramountcy doctrine, that the federal statute must prevail to the extent of theinconsistency. While the reasoning of Lord Robertson in that case is somewhat succinct, it has beenhelpfully (and I believe correctly) rationalized by Professor P. Hogg in Constitutional Law of Canada(4th ed. 1997), as follows, at pp. 428-29:

... on a superficial analysis, the dual compliance test is not satisfied: the two lawsimposed no duties on the parties to litigation, and both laws could be complied with bythe losing litigant in a mechanics lien case not takin~ an appeal to the Supreme Court.But if the laws are recast as directives to a court that has to determine whether or not anappeal to the Supreme Court is available, the contradiction emerges. A court cannotdecide that there is a right of appeal (as directed by federal law) and that there is not aright of appeal (as directed by provincial law). For the court, there is an impossibilityof dual compliance and therefore an express contradiction.

See also E. Colvin, "Legal Theory and the Paramountcy Rule" (1979), 25 McGill L.J. 82, and Commenlon Multiple Access Ltd. v. McCutcheon (1983), 17 U.B.C. L. Rev. 347.

~ 42 In summary, we have here an "express contradiction" within the extended meaning of therelevant jurisprudence. The doctrine of federal paramountcy is triggered. The order of January 17,1994, issued pursuant to an inoperative provincial authority, was invalid.

Effect of Invalidating the January 17, 1994 Order

~ 43 MACC contends that even if the order granting leave dated January 17, 1994 is invalid, theinvalidity is in the nature of an irregularity rather than a nullity, and can therefore be relieved against bythe court. MACC points out that: (1) the Desrochers did not lose their farm while the stay was ineffect; (2) the Desrochers delayed for 3 years in moving against the grant of leave, without explanation;and (3) the respondent should not have to "retrace all steps in the proceedings" given the sorry financialhistory of this mortgage. Moreover, MACC argues, a finding that subsequent orders made pursuant to afaulty leave application are nullities would create "a shield behind which an unscrupulous farmer wouldhide". In this connection, MACC relies on Calvert v. Salmon, [1994] 17 O.R (3d) 455 (C.A.), whichheld that failure to give notice under s. 22 of the federal Farm Debt Review Act to a farmer debtor whowas already aware of his or her rights did not invalidate subsequent foreclosure proceedings. I thinkMACC's argument on this point must also be rejected.

~ 44 The distinction is well established between legislative provisions that are mandatory (in thesense that non-compliance results in invalidity) and directory (where non-compliance may in certaincircumstances be relieved against): Reference re Manitoba Language Rights, [1985] 1 S.C.R 721, at 1­737. In determining whether a statutory directive is mandatory or directory, this Court must be guided

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)

)

by the object of the statute and the effects of ruling one way or the other: British Columbia (AttorneyGeneral) v. Canada (Attorney General); An Act respecting the Vancouver Island Railway (Re), [1994] 2S.C.R. 41, at pp. 123-24. Indeed, these are the most important considerations: Blueberry River IndianBand v. Canada (Department of Indian Affairs and Northern Development), [1995] 4 S.C.R. 344, perMcLachlin J., at para. 42. .

, 45 In the case of the provincial Family Farm Protection Act, however, the Manitoba legislaturehas left no doubt about the consequences of failure to comply with its leave requirement. Section 8(4)provides that:

8 (4) Any action or proceeding which is commenced or continued after the cominginto force of this Act without first obtaining leave of the court as required by this Part isa nullity.

, 46 The Court has no authority to breathe life into a leave order issued pursuant to a jurisdictionunder a provincial statute which the doctrine of federal paramountGY had rendered inoperative. TheJanuary 17, 1994 leave order was made in excess of any constitutionally effective jurisdiction. Section8 of the provincial Act (which is where the requirement of leave is imposed) is not satisfied by an ultravires order. I should add that under the new federal Farm Debt Mediation Act, S.C. 1997, c. 21, inforce April 1, 1998 (SI/98-52), which replaced the Farm Debt Review Act at issue in this case, s. 22(1)declares that "any act" done by a creditor in contravention of a stay is null and void. "Any act" wouldinclude a leave application.

, 47 The Calvert decision does not support MACC's position. The Ontario Court of Appeal inCalvert, supra, took the view that a debtor who is already aware of his or her right to make applicationfor relief under the Farm Debt Review Act cannot successfully complain about failure to receive formalnotice from his or her creditor of what the debtor already knew. The decision is quite consistent withcharacterising the notice requirement as mandatory. In Eaton v. Brant County Board of Education,[1997] 1 S.c.R. 241, Sopinka 1. referred at para. 54 to the possibility of a "de facto notice which is theequivalent of a written notice" in the context of a mandatory requirement. In any. event, the Calvertcase had under review s. 22 of the federal Act, not (as here) a provision of the provincial Act whichdeclares the legal result of failure to comply with the leave requirement to be a nullity.

Conclusion

, 48 MACC showed impressive sang-froid in pressing on with this litigation after the appellants inMarch 1994 made clear their legal position on the January 17, 1994 leave order. In the end, however,the appellants' legal position has been upheld and despite having paid nothing on the mortgage since1989, they are entitled to remain on the farm unless and until MACC obtains a valid court order to thecontrary.

Disposition

, 49 For the foregoing reasons, the appeal is allowed, the order of the Manitoba Court of Appeal isset aside, and the order of Clearwater J. dated March 20, 1997 is restored. The appellants are awardedtheir costs against the respondent at all levels on a party and party basis.

QL Update: 990902cp/d/nnb/hbb

QUICKLAW Thursday October 28, 1999

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