At OP Lawyers LLP, our civil litigation lawyer in Calgary represented a client in the transportation industry on a case where liens were wrongfully registered on several vehicles. The client does business as a broker in the transportation industry which connects its customers with transportation companies for transportation services required by the customer. Part of the client’s scope of work is to conduct due diligence or audit on the transportation companies, i.e. driver verification and vehicle appropriateness and provide the customer with the appropriate transportation.
The client subcontracted its due diligence or audit services to a third-party corporation. Due to ongoing concerns with the services provided by this third-party service provider, the client decided to cease working with this third-party. Being aggrieved by the loss of business, the third-party decided to place liens on the vehicles they audited on behalf of the client and demanded a sum of money as allegedly unpaid sums of money.
The registration of the liens was placed with the Alberta Personal Property Registry, and registered under the class “security agreement”.
Typically, such registrations are filed by banks or other lenders who finance the purchase of vehicles and will have a security agreement creating a lien or encumbrance over the vehicle. This allows the lender to maintain priority over other unsecured lenders, and use the enforcement mechanisms permitted by statute to repossess and sell the vehicle to recover outstanding amounts under the loan agreement if the vehicle owner stops repaying the loan.
The registration filed by the third-party auditor company in this case was illegal for a number of reasons such as:
- There was no security agreement between the parties. The classification was a misrepresentation and misleading altogether;
- There were no outstanding dues;
- The vehicles did not even belong to the client. They belonged to the transportation companies that provided the services to the client’s customers.
It was evident that the third-party auditor was abusing the process under the Alberta Personal Property Registry to create bargaining leverage, to create undue pressure on the client, to affect their relationship and reputation with the transportation companies and the industry in general. The strategy was to create such pressure on the client so that they have no alternative to pay the third-party auditor in order avoid tarnishing its reputation.
The registration did in fact create tension between the client and several transportation companies the client worked with. The transportation companies were understandably upset by having registrations placed on their vehicles by a third-party auditor they did not know or have any business relationships with.
THE LAW ON VEXATIOUS REGISTRATIONS
Such registrations are legally referred to as vexatious registrations. The law of vexatious registrations under the Personal Property Security Act (PPSA) of Alberta and its regulations is primarily governed by sections 57.1 to 57.7 of the Personal Property Security Regulation. These provisions define vexatious registrations, outline the powers of the Registrar and the Court, and provide remedies for affected parties.
A "vexatious registration" is defined as a financing statement or associated document registered without a legal claim or interest in relation to the debtor, and for the purpose of annoying or harassing the debtor. A "vexatious party" is a person who registers such a document under these circumstances.
Affected parties may apply to the Court for relief. The Court, upon being satisfied that a registration is vexatious, may order the Registrar to discharge the registration, prohibit the vexatious party from making further registrations without Court permission, or authorize the Registrar to discharge subsequent registrations made in violation of such a prohibition. The Court may also issue other directions, including awarding costs.
The strategy that our Calgary business and civil litigation lawyer OP Lawyers LLP deployed in this case was filing a Statement of Claim against the third-party auditor and filing an application with court for discharge of the registrations. Given that the registration was evidently illegal and there was no legally arguable option to challenge the application, the third-party auditor decided to discharge the registrations even before our Calgary civil litigation lawyer took the matter to court.
A common strategy our Calgary business lawyers and civil litigation lawyers at OP Lawyers LLP deploy in such cases is to give fair warnings to opposing parties of impending court applications and cost consequences. This allows for quicker remedies where the facts are less complicated and avoids the need for taking matters to court unnecessarily. To speak with a civil litigation lawyer in Calgary, please contact our direct line for OP Lawyers LLP by calling (587) 857-4684.
CONSIDERATIONS FOR BUSINESS CREDITORS
The lesson for those working in the transportation industry is very clear. It is unwise to place collateral registrations on vehicles unless there is an actual agreement between the parties that create the security interest over the vehicle. This process cannot legally be used as a pressure tactic. The vehicle owner can easily file an application for a court order discharging the registration.
If the registration holder is unable to produce a security agreement, the court will consider the registration to be vexatious, order discharge of the registration and award costs to the vehicle owner.
If amounts are due to any party, such party should follow the normal course of recovery of outstanding dues by filing a claim in Court. If you are in the transportation industry and have unpaid dues owed to you, contact our Calgary business and civil lawyers for a consultation for advice and representation on the best strategies for legally recovering outstanding dues.
CONSIDERATIONS FOR VEHICLE OWNERS
For owners of vehicles in the transportation industry, it is important to be mindful of situations where a registration could be legitimate and situations where a registration may be vexatious. Legitimate registrations are where the parties agree ahead of any transaction that there should be collateral granted to one of the parties to the transaction. This could be under a loan transaction or even any other business transaction where one party wishes to have the security of payment by having a collateral over a vehicle.
If you are entering a transaction where there is a condition for registration of a collateral over a vehicle, our Calgary business and civil lawyers can help with advice on such issues and drafting of proper security agreements.
When you are facing a registration over your vehicle or any other personal property that you suspect is intended to harass or cause annoyance, our Calgary business and civil litigation lawyers at OP Lawyers LLP can help with taking swift actions to take the matter to Court as soon as possible, if the registration holder continues to act unreasonably and refuses to remove the registrations. Our Calgary business and civil litigation lawyers at OP Lawyers LLP are experienced in litigation and can assist expeditiously.
Some common cases where it would be important to speak with a lawyer and consider legal action are where:
- A person with no real creditor relationship lodging multiple PPS registrations across unrelated registries (or against many unrelated individuals) to extort payments or force settlements.
- Registering a security interest that falsely describes collateral (e.g., claiming ownership of a vehicle or equipment the registrant knows they do not have rights to) to prevent a transaction.
- Filing a financing statement claiming a large, fabricated debt against a former business partner solely to block that partner from selling or refinancing assets.
- A vexatious third party repeatedly registering identical minor claims against the same person purely to harass (e.g., dozens of small, spurious charges).
If you are facing any situation like it, contact our Calgary business and civil litigation lawyers at OP Lawyers for a consultation. Our Calgary business and civil lawyers are experienced in handling disputes within the transportation industry and other industries on commercial disputes and can help expeditiously for the quickest possible resolution to your commercial disputes.
Disclaimer: This blog post is intended for informational purposes only and does not constitute legal advice. For advice specific to your circumstances, please consult a qualified calgary litigation lawyer at OP Lawyers LLP or another legal professional.