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What kinds of PPSA claims does LAWPRO see?

Problems with registrations under personal property security legislation (such as the Ontario Personal Property Security Act (PPSA)) are common causes of claims against corporate/commercial lawyers, and indemnity costs associated with these claims can be high. Approximately ten claims involving allegations of PPSA-related mistakes are reported to LAWPRO each year.

Most PPSA errors are preventable. Careful attention to detail when preparing filings and proper diarization of registration expiry dates can go a long way toward helping lawyers avoid PPSA-based claims. Here are the five errors we see most often:

  1. Failure to register at all: The most common PPSA-related allegation we see – accounting for at least 25 per cent of all PPSA-related claims – is that a lawyer failed to file a financing statement at all. This can happen out of simple inadvertence, because the lawyer believes someone else is required to make the registration, or because the lawyer fails to recognize that a registrable interest has been created.
  2. Clerical errors: Mistakes when filling out key information, such as vehicle identification numbers (VINs) and debtors’ personal or corporate names can invalidate registrations. Claims have also arisen from a failure to register interests for the appropriate term.
  3. Bungled discharges: Failing to discharge the correct registration, failing to follow through with instructions to discharge, discharging the wrong number of registrations, or discharging a registration instead of registering an extension to it can lead to claims against a lawyer.
  4. Failure to renew: Whether because expiry dates were not properly diarized, because confusion arose over who was responsible for renewals, or because attempted renewals were botched, lawyers have faced claims related to expired registrations.
  5. Search errors:Failure to identify registrations due to searches based on inaccurate information (wrong names, birthdates, or jurisdictions) is a common cause of claims.

Despite being perceived as a significant risk by lawyers, failing to register in a relevant jurisdiction is an uncommon cause of claims. In other words, while lawyers worry about missing a jurisdiction, they are much more likely to run into trouble by making a clerical, technical, timing or communication (following client instructions) error while registering interests in the correct jurisdiction.

There are efforts underway across Canada to simplify the task of identifying the jurisdictions in which registrations must be made. In Ontario, legislative amendments came into effect in late 2015 that bring clarity to the issue of where to register an interest in intangible assets (for example, contractual rights) and goods used in multiple jurisdictions (for example, trucks). In a nutshell, changes to s. 7(3) of the PPSA aim to bring certainty to the question of the debtor’s location. For a summary of these provisions, including a useful chart, see “Dude, Where’s my Debtor?: Changes to Ontario’s Personal Property Security Act” by Simon Williams and Daniel Doubilet of Torys LLP.

These changes came with transitional provisions that allowed registrations made prior to 2016 to be governed by the “old” debtor location rules until expiry as defined. To maintain priority beyond those expiry dates (December 31, 2020 or earlier, depending on original terms), registrations will need to be perfected under the NEW rules before the end of 2020.

Clearer debtor location rules are welcome; but as our claims analysis shows, avoiding PPSA claims comes down to establishing good work habits, obtaining and following instructions, properly training and supervising clerks, and maintaining careful attention to detail.

Nora Rock is Corporate Writer and Policy Analyst at LAWPRO.

Categories: Real Estate