SK Court of Appeal Holds SK Farm Security Act Inapplicable to SK Agricultural BIA Receiverships


This post was written prior to our January 2017 merger, under our previous firm name, MacPherson Leslie & Tyerman LLP.

A recent decision of the Saskatchewan Court of Appeal has clarified and confirmed that Part II of The Saskatchewan Farm Security Act, S.S. 1988-89, c. S-17.1 (the “SFSA”) does not apply to applications for Orders to appoint a receiver of Saskatchewan agricultural enterprises which are commenced under section 243 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (the “BIA”).

In Lemare Lake Logging Ltd. v. 3L Cattle Company Ltd. and The Attorney General For Saskatchewan, 2014 SKCA 35, a secured creditor applied for an Order appointing a receiver of a Saskatchewan cattle ranching corporation pursuant to section 243 of the federal BIA. The ranch enterprise argued that the receivership application was a nullity, owing to the fact that, prior to commencing the section 243 BIA interim receivership application, the secured creditor had failed to comply with Part II of the provincial SFSA.

Part II of the SFSA is an elaborate provincial legislative regime which governs actions with respect to Saskatchewan farmland. Section 11(1) of the SFSA provides that no person may commence an action with respect to a mortgage on Saskatchewan farmland without first obtaining leave of the Court to do so.

In order to obtain section 11(1) SFSA leave, a secured creditor is required to participate in a process requiring: (a) the secured creditor to serve a 150-day notice of intention on the mortgagor and on the Farm Land Security Board (the “FLSB”); (b) the secured creditor to participate in mandatory mediation with the mortgagor; (c) the FLSB to prepare a Report addressing whether the mortgagor has a reasonable possibility of meeting its obligations under the mortgage and whether it is making a sincere and reasonable effort to meet its obligations under the mortgage; (d) the Court hearing the leave application being required to start from a presumption that the mortgagor has a reasonable possibility of meeting its obligations under the mortgage and has been making a sincere and reasonable effort to meet its obligations under the mortgage; (e) the secured creditor being required to prove that the mortgagor has no reasonable possibility of meeting its obligations under the mortgage or that the mortgagor has not been making a sincere and reasonable effort to meet its obligations under the mortgage, failing which the leave application will be dismissed; and (f) even if the secured creditor meets this burden of proof, if the Court is not otherwise satisfied that it was just and equitable according to the purpose and spirit of the SFSA to make the Order, the Court is required to dismiss the SFSA leave application.

In the Court of Queen’s Bench For Saskatchewan, the secured creditor’s section 243 BIA application to appoint a receiver of the ranch was dismissed on grounds that (among other things) the secured creditor had failed to comply with Part II of the SFSA.

The Saskatchewan Court of Appeal held that Part II of the SFSA was rendered inoperative because of the doctrine of federal paramountcy. Specifically, the Saskatchewan Court of Appeal held that Part II of the SFSA frustrated the purpose of section 243 of the BIA. The Court ruled that “the effectiveness, and ultimately the purpose, of s. 243(1) of the BIA is undermined very substantially by Part II of the SFSA”. The result was that the Court of Appeal concluded that Part II of the SFSA is inoperative in circumstances where an application is made to appoint a receiver pursuant to s. 243(1) of the BIA.

The Court of Appeal ultimately dismissed the appeal on grounds that, on the merits, the Court of Queen’s Bench Judge had not erred in her ultimate decision to refrain from appointing a receiver on grounds that it was not “just or convenient” to do so. The Court of Appeal concluded that the secured creditor should proceed against the mortgagor by means of foreclosure.

The Saskatchewan Court of Appeal decision in Lemare Lake Logging Ltd. establishes conclusively that secured creditors commencing section 243 BIA applications to appoint receivers of Saskatchewan agricultural enterprises are not required to comply with Part II of the SFSA.

The Attorney General For Saskatchewan has applied for leave to appeal the decision to the Supreme Court of Canada.