The Corporate Trust Deed under
Quebec Law: Article 2692 of the
Civil Code of Quebec
John B. Claxton*
With the repeal of the Special Corporate Powers Act in
1994, the Quebec financing institution known as the corporate
trust deed was left without a textual grounding in the Civil Code
of Quebec. The single reference to the corporate trust deed in
the new Code is an oblique one, touching only on form, and the
absence of regulation has led some to declare the institution
dead. The author argues to the contrary, noting that the new,
general law of trusts in the Civil Code of Quebec is a more sat-
isfying basis than was the exceptional regime under the Special
Corporate Powers Act and the Civil Code of Lower Canada.
The author traces the development of the corporate trust
deed from its inception as a creature of special, private bills
through to its enactment as a general regime in a special statute
for all corporations. The author notes the difficulty that Quebec
courts and jurists had in applying the English concept of the
trust to the civilian notions of ownership and mandate, espe-
cially with regard to the role of the trustee. Overall, despite its
general nature for all corporations, the corporate trust deed re-
mained very much an exception under the Civil Code of Lower
Canada.
As they emerged from reform, trusts have become part of
the droit commun and no longer stand in such opposition to the
civilian tradition. In his canvassing of the essential elements of
the new civilian trust, the author finds an affinity between the
general regime and the special needs of the corporate trust deed.
The author argues that this synergy is present not only with re-
spect to new corporate trust deeds, but also with respect to out-
standing deeds concluded prior to 1994 that now come to be
interpreted under the Civil Code of Quebec. It is his submission
that reform has brought about a synthesis of the once disparate
elements of common-law terms, civilian traditions, and financ-
ing objectives within the confines of the Quebec trust.
Suite h l’abrogation de la Loi sur les pouvoirs spiciaux
des corporations, l’institution financi&re connue sous le nom de
fiducie corporative s’est retrouv6 sans base lgale en vetu du
Code civil du Quibec. La seule mention de la fiducie corpora-
tive dans le nouveau Code est une rdfdrence oblique, qui touche
simplement a, la forme. Cette absence de rdglementation en a
amen6 plusieurs a affirmer que ctte institution 6tait ddsormais
ddfunte. L’auteur affirme le contraire, notant que le nouveau
rdgime gdndral du droit des fiducies constitue une base plus so-
lide que ne l’dtait le rfgime exceptionnel pr6vu par la Loi sur
les pouvoirs spiciaux des corporations et le Code civil du Bas-
Canada.
L’auteur trace le ddveloppement de ]a fiducie corporative
depuis ses ddbuts en tant que crdation de lois privdes, At travers
son adoption comme rdgime gdndral dans une loi spdciale tou-
chant les corporations. L’auteur souligne les difficultds rencon-
tres par les juges et les juristes qudbdcois, qui se devaient
d’appliquer le concept anglais de fiducie aux notions civilistes
de propridt6 et de mandat, en particulier en ce qui a trait au rble
du fiduciaire. En ddfinitive, et malgr sa nature glnrale appli-
cable A toutes les corporations, la fiducie corporative est demeu-
rie une exception sous le Code civil du Bas-Canada.
Suite A la rdforme, les fiducies ont cess6 de s’opposer a la
tradition civiliste et font ddsormais partie du droit commun. En
faisant le survol des 616ments essentiels de la nouvelle fiducie
civiliste, ‘auteur note certaines affmitds entre le rgime gdndral
et les besoins sp6ciaux de la fiducie corporative. L’auteur af-
firme que cette synergie est prsente, non seulement en ce qui a
trait ii la nouvelle fiducie corporative, mais 6galement pour les
documents fiduciaires rddigds avant 1994 qui doivent mainte-
nant dtre interprdtds en vertu du Code civil du Quibec. I1 con-
clut que la rdforme a men6 As une synthsse, A l’intdrieur des pa-
ram~tres de la fiducie qudbdcoise, des 61ments autrefois dispa-
rates qu’6taient la terminologie de common law, la tradition
civiliste et les objectifs de financement.
. Of Lafleur Brown of Montreal. I am most grateful to my son Edward B. Claxton of Stikeman, El-
liott, also of Montreal, for his most helpful and constructive editing. I also wish to thank Professor
John E.C. Brierley, of McGill University, for his critical and helpful review. The opinions expressed
are my own.
McGill Law Journal 1997
Revue de droit de McGill
To be cited as: (1997) 42 McGill L.J. 797
Mode de r~f&ence : (1997) 42 R.D. McGill 797
798
MCGILL LAW JOURNAL / REVUE DE DROITDE MCGILL
[Vol. 42
Introduction
A. The Corporate Trust Deed and Civil-Code Reform
1. Development of the Law of Hypothecs
2. Future of the Corporate Trust Deed
B. The Contract
1. The Scope Generally
2. Creation of the Securities
3. Administrative Functions
4. Security and Remedies
I. Corporate Trust Deeds before 1994
A. Development of Debentures and Corporate Trust Deeds
1. Origins
2. Legislative Experimentation in Quebec
3. Development Contemporaneous with U.S. and U.K.
4. The Evolution of Security Devices
B. Juridical Treatment of the Corporate Trust Deed: Four Fundamental
Problems
1. Debentures Are Governed by the Civil Law
2. Characterization of Trust-Deed Charging Language
a. Pre-S.C.PA.
b. Post-S.C.RA.
3. Trustee’s Right to Sue
a. Trustee for Creditors of an Insolvent
b. Trustee for Debentureholders
4. Characterization of the Relationship between the Trustee, the
Issuer and the Debentureholder
a. Trustee As Veritable Creditor
b. Trustee As Mandatary
c. Attempted Reconciliation
C. Judicial Characterization of the Trustee Unsatisfactory
1. Trustee As Veritable Creditor Unsatisfactory
2. Trustee As Mandatary Unsatisfactory
3. Double Mandatary Unsatisfactory
4. Other Incidents Where Mandate Unsatisfactory
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J.B. CLAXTON – THE CORPORATE TRUST DEED IN QUEBEC
799
II. Corporate Trust Deeds after 1994
A. Civil-Code Reform and the Trust
Introduction
1.
2. What Is a Trust?
B. The Trust and the Corporate Trust Deed
1. What Is Property?
2. Property and the Corporate Trust Deed
C. Interlude: Alternative Juridical Analysis of the Corporate Trust Deed
D. The Principal Consequences of a Trust
E. The Consequences of the Corporate Trust Deed Resulting in a Trust
1. Resulting Relationships
a. The Company and the Bondholders
b. The Company and the Trustee
c. The Trustee and the Bondholders
2. Effects Generally
3. Terminology
4. Form
5. Responsibility of the Trustee
Conclusion
Appendix
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Introduction
The adoption of the Civil Code of Quebec (“C.C.Q.”), on January 1, 1994, did not
expressly resolve the characterization under Quebec law of the corporate trust deed,
particularly the position of the trustee as the representative of the holders of the
bonds, debentures or other securities. The C.C.Q. now calls such trustee the ‘fondd de
pouvoir” of the debentureholders (2692).’
Prior to the adoption of the C.C.Q., and in the absence of general provisions of
law permitting trusts, there was much litigation that hinged upon the characterization
of the corporate trust deed, the charges thereunder and the position and the powers of
the trustee. These problems originally arose because bonds and debentures and the
trust deed securing them were authorized under special legislation, which sanctioned
the form and the charges (often using language borrowed from the common law) but
failed to characterize them under known concepts of civil law. Some of these prob-
lems were settled satisfactorily by the jurisprudence and, in my submission, will re-
main so settled under reform. The position of the trustee as representative of the
bondholders was not adequately settled by the jurisprudence and remains unsettled
following the adoption of the C.C.Q.
It is my position that the new law of trusts is not only adequate to embrace the
corporate-trust-deed concept of financing (including financing by unsecured deben-
tures), but it was designed with the corporate trust deed in mind, as a normal evolu-
tion of the law regulating these contracts As such the termfond de pouvoir is broad
enough to include “trustee” and, I submit, was intended to do so.
In this study I propose to examine the need and origin of debenture financing in
Quebec. I will briefly review some seventy-five years of legislative experimentation
with a variety of security devices; these experiments culminated in the adoption in
1914 of the statutory provisions of what became the Special Corporate Powers Act of
1925 (“S.C.P.A.”)’ The ensuing seventy-five years reflect a period of judicial inter-
pretation and characterization of such devices in an attempt to reconcile them with the
‘ Numbers in brackets in the text, without more, refer to article numbers of the Civil Code of Que-
bec.
2 In Security on Property and the Rights of Secured Creditors under the Civil Law of Quebec
(Cowansville, Que.: Yvon Blais, 1994) [hereinafter Security on Property], I devoted part of a chapter
to the same subject (at 225ff.). Subsequently some senior practising lawyers have expressed opinions
at variance with mine which have given me cause for further thought and analysis. Although my
views remain essentially the same, it is this further analysis of this subject that underlies the present
paper.
‘ These provisions were originally enacted as S.Q. 1914, c. 51, which added sections 6119a-d to
The Quebec Companies Act, R.S.Q. 1909, title XI, c. Il, sec. JIfM As amended from time to time, and
in particular by An Act respecting the Powers of Certain Companies to Issue and Re-Issue Bonds,
Debentures and Other Securities, S.Q. 1924, c. 63, these provisions became the Special Corporate
Powers Act in 1925 (R.S.Q. 1925, c. 227). The successor act is now R.S.Q. c. P-16 [hereinafter
S.C.P.A.]. To assist in an understanding of certain judicial interpretations, sections 27 to 31, as they
existed in 1977 (the last integrated printing of the traditional sections), are reproduced in an appendix.
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J.B. CL4XTON – THE CORPORATE TRUST DEED IN QUEBEC
801
traditional Quebec civil-law concepts. This synthesis, which in many respects still
provides the basis for the reconciliation of the contractual effects of a corporate trust
deed with general principles of our civil law, was also, I submit, in part artificial and
not entirely satisfactory. Finally, I intend to explain how the adoption of the C.C.Q.
completed the evolution of this part of our law and permitted the continued use of the
corporate trust deed securing bonds or debentures, while resolving the unsatisfactory
constructions reflected by the jurisprudence.
A. The Corporate Trust Deed and Civil-Code Reform
It is most curious that with the wide reforms brought about by the adoption of the
C.C.Q., the legislature failed to clarify the characterization of the position of the trus-
tee under the corporate trust deed. Only four articles of the C.C.Q. make even tangen-
tial reference to the structures ordinarily found in the corporate trust deed. The first
states that if the object of a trust is to secure the performance of an obligation, the
trustee shall in case of default follow the rules respecting hypothecs (1263). The sec-
ond asserts that a hypothec is valid if granted in anticipation of the creation of the ob-
ligation and makes express reference to lines of credit and the issue of bonds (2688).
The third provides that a hypothec securing the payment of bonds shall, on pain of
nullity, be passed before a Quebec notary public (2692). The fourth provides that im-
moveable hypothecs securing various obligations including those securing bonds or
other evidences of indebtedness cannot be cancelled by the registrar as of right
(3060).
Article 2692 makes the most direct reference. It provides:
2692. L’hypoth~ue qui garantit le paiement des obligations ou autres titres
d’emprunt, 6mis par le fiduciaire, la soci6t6 en commandite on la personne mo-
rale autoris~e A le faire en vertu de la loi, doit, A peine de nullit6 absolue, etre
constitude par acte notari6 en minute, en faveur du fond6 de pouvoir des
cranciers.
2692. A hypothec securing payment of bonds or other tifles of indebtedness is-
sued by a trustee, a limited partnership or a legal person authorized to do so by
law shall, on pain of absolute nullity, be granted by notarial act en minute in fa-
vour of the person holding the power of attorney of the creditors.
The termfondg de pouvoir could mean a mandatary, a trustee or some other in-
nominate form of representative having no particular characterization that the formal
law identifies. It could also mean a trustee under the new Quebec law of trusts. The
English expression does not convey any of these concepts, nor is the use of the term
“power of attorney” in the context consistent with the ordinary meaning of these
words.
Many, perhaps most, practitioners of commercial law feel that the particular char-
acterization or qualification of a contract is unimportant. If the contract is clear and
enforceable, why bother to fit it or force it into a given concept of our civil law. Un-
fortunately, the contract is not always clear. It does not always anticipate every devel-
opment. The rights that could arise from it, particularly when third parties are in-
volved, are sometimes in apparent conflict. Whether or not the result is enforceable,
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and the way in which ambiguities or conflicts are resolved, may well depend on its
basic characterization. Both the courts and academics invariably resort to characteri-
zation as a means of finding a solution. As Professor Madeleine Cantin Cumyn has
said:
The civil law is an organized system of interrelated principles, distinctions and
definitions which aims at coherence and consistency between its constituent
parts. To be effective, an innovation must find its proper place within the sys-
this objective, civilians resort to the process of
tem. To accomplish
“qualification”. “Qualification” seeks to determine the juridical nature of a le-
gal relationship in order to classify it within pre-existing categories and to ap-
ply to it the rules of the chosen category.”
In this paper I have preferred to use the term “characterization” rather than
“qualification”.
1. Development of the Law of Hypothecs
The corporate trust deed providing for the creation and issue of bonds, debentures
or other securities has been one of the most popular financial instruments in Quebec
and elsewhere in North America in this century, and indeed earlier. Through a corpo-
rate trust deed, a corporation duly empowered to do so could, by way of exception to
the general civil law, raise debt capital for its own corporate purposes, evidenced by
bonds, debentures or other securities, secured by a fixed charge (a hypothec or pledge
without possession) on any or all of its property, both immoveable and moveable and
present and future, in favour of a trustee. A form of floating charge could also be in-
cluded.
The corporate trust deed which enabled the granting of such security was first
generally permitted in Quebec, not under the Civil Code of Lower Canada of 1866
(“C.C.L.C.”), but through the adoption of provisions now found in the S.C.P.A. as ex-
ceptional statutory amendments to the Quebec companies law in 1914. Although
there were a number of severe technical restrictions’ under this statutory scheme, the
principal limitation was that all four elements (a corporation, a debt evidenced by se-
curities, a charge, in favour of a trustee) had to be present for the instrument to qualify
under the statute.
The security device provided for under the S.C.P.A. proved so popular that re-
form introduced to the C.C.Q. itself analogous security devices as part of the general
civil law of the province.” The C.C.Q. now permits any enterprise (1525(3)) or trustee
‘M. Cantin Cumyn, “The Trust in a Civilian Context: The Quebec Case” [1994] 2 J. Int. P. 69 at 70.
-See J. Ttrault, “Pitfalls Under Trust Deeds” in Meredith Memorial Lectures 1976-77: Corporate
Debt Financing (Toronto: Richard De Boo, 1978) [hereinafter Corporate Debt Financing] 17.
6 See Commnentaires du ministre de la Justice, vol. 2 (Qubec: Publications du Quebec, 1993) at
1669, 1719-21 [hereinafter Commentaires]. The Commentaires also identify as a source of the re-
formed law the Bills of Lading Act, R.S.Q. c. C-53, now repealed, which permitted a pledge of inven-
tory without possession. See also Y. Caron, “La loi des pouvoirs spciaux des corporations et les rec-
ommendations de l’office de rdvision du Code civil” in Corporate Debt Financing, ibid, 81.
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J.B. CLAXTON – THE CORPORATE TRUST DEED IN QUEBEC
803
carrying on an enterprise (2684) to secure any obligation (1371, 2661) by a hypothec
or charge on moveable or immoveable property (2660), both corporeal and incorpo-
real (899), including a universality or class of property (2665), both present and future
(2684), by way of fixed charge, or by way of floating charge (2715) and, where
moveables are concerned, without dispossession or delivery of such property (2696).
The principal limitations imposed by the S.C.PA. have been eliminated.
However, in implementing reform, the Government of Quebec replaced the op-
erative provisions of the S.C.P.A. sanctioning the corporate trust deed by the single
article of the C.C.Q. (2692) quoted above. The operative provisions expressly sanc-
tioned, but did not define, the terms “trust deed” and “trustee” in relation to issues of
debentures. This express legislative sanction for corporate trust deeds has now gone.’
The S.C.PA. has been amended to give the same rights to foreign corporations and to
not-for-profit corporations. These provisions reflect an attempt to settle doubts that
arose under the S.C.P.A. concerning the power of not-for-profit and foreign corpora-
tions to grant security. They also clarify the capacity of corporations that have the
power to borrow and to hypothecate property, to assure that they can grant security by
availing themselves of all the provisions of the C.C.Q. on hypothecs, including those
only available to an “enterprise”.
The standard form of security device is now the hypothec (2660).’ Many security
devices which were developed by statute prior to the adoption of the C.C.Q. to ad-
dress particular lacunae in the C.C.L.C. have been abolished.! However, the basic
principle that security devices are exceptional and can be employed only where the
law expressly permits them has been preserved (2644).
With reform, the Quebec legal concept of trust (previously restricted to gratuitous
and testamentary trusts) has also expanded (1260), permitting appropriation of prop-
erty to a purpose (1260, 1261) and also to secure an obligation (1263). But neither the
provisions related to trust nor any other provisions of the C.C.Q. make express refer-
ence to the corporate trust deed.
The remedies previously afforded by the corporate trust deed (through the ena-
bling statute and practice) have also been made available for any hypothec. Today a
hypothec of any kind on any type of property permits the holder, in the event of de-
fault, to obtain surrender of the property (2763) and elect to take possession for pur-
poses of administration (2773), to take-in-payment (2778), to sell privately (2784), or
7 S.C.PA., supra note 3, ss. 27 to 34 were repealed and replaced by the Act Respecting the Imple-
mentation of the Reform of the Civil Code, S.Q. 1992, c. 57, ss. 642 to 648 [hereinafter Implementa-
tion Act].
‘Tile retention devices employed as security for performance of an obligation, such as conditional
sales, leases and cridit bail, may still be employed. One limitation remains: “[O]nly a person or trus-
tee carrying on an enterprise may grant a hypothec on a universality of property, moveable or im-
moveable, present or future, corporeal or incorporeal” (2684).
9 With reform, special provisions of the law permitting grants of security (pledges) without posses-
sion on inventories, on commercial machinery and equipment, and on forest products and crops and
agricultural property, were all commuted to moveable hypothecs and the special provisions were re-
pealed (see Implementation Act, supra note 7, s. 134).
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to sell under judicial authority (2791). When accounts receivable or claims are hy-
pothecated, a special procedure permits the creditor upon notice after default to col-
lect directly (2743, 2745). A number of procedural restrictions and restraints on the
uses of such remedies (which are not relevant to this paper) have been introduced,
but, except for the taking-in-payment remedy, the remedies now available are essen-
tially those which have historically been contracted for under the standard corporate
trust deed.
2. Future of the Corporate Trust Deed
The reforms enacted by the C.C.Q. represent a radical departure from the former
law, one that has caused some practitioners to observe that the use of the corporate
trust deed is likely to diminish substantially, if not disappear. There is no doubt that
the use of the corporate trust deed as a vehicle to afford a security interest will dimin-
ish. In financings which do not involve the holding of security interests by a wide
number of creditors (“close-held” issues), the security interests achieved through the
use of the corporate trust deed can now be achieved more simply and at lower costs
by means of a direct hypothec in favour of a creditor, without the intervention of a
trustee.
However, there remain a significant number of circumstances where the corporate
trust deed will continue to be used. Thousands of such deeds are outstanding and will
remain outstanding for many years. Furthermore, the corporate trust deed provides
various advantages over a simple hypothec. First, no other vehicle can serve as well
for the issue of bonds or debentures that are to be widely held, whether in registered
or bearer form, and that are to be freely tradeable in the securities markets, either lo-
cally or throughout the world’s financial markets. Second, even for close-held issues,
the trust deed is a very common investment device employed in other jurisdictions
and the most acceptable conventional device where the security exists or may in the
future exist in several jurisdictions. Deeds in dual form are well known to the practi-
tioner. This technique involves a deed executed in notarial form for Quebec and an-
other before witnesses for the rest of Canada, both containing the different charging
clauses required by the various provinces and a declaration asserting that all forms are
to be treated as one and the same instrument. Third, in a close-held issue, it is easy to
change one lender for another where a corporate trust deed is used, by a simple trans-
fer of the bond from the former lender to the new one without any re-registration of
security. This is often a cheaper and more flexible way to substitute creditors than are
the alternatives. Fourth, frequently a bank acts as initial and lead lender, with the right
to grant loan participations (after the security is initially put in place) to other banks or
other financial institutions. The corporate trust deed is still recognized as the vehicle
that can most easily achieve this objective, since each bank, as it becomes a lender,
can receive a debenture for its share of the security interest and all debentures rank
pari passu. Fifth, some institutional lenders have taken the view that, although they
commit to invest in an entire issue of long-term debenture securities (usually to fi-
nance a major project such as a building), they must retain the right to resell their in-
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J.B. CLAXTON – THE CORPORATE TRUST DEED IN QUEBEC
805
vestment on the public markets if they find it necessary or desirable to do so. Thus
they want their investment secured as of the date of the loan but in a marketable form.
Following reform, the issue of bonds, debentures and other securities pursuant to
a corporate trust deed has continued, but under the general rules of contract and the
common law of the province (the jus commune)” rather than under express legisla-
tion. Under reform, a good number of questions remain unanswered.
B. The Contract
It is important to understand the practical nature of the arrangement between the
issuer, the trustee and the debentureholder. The arrangement is reflected by the trust
deed, which is essentially a bilateral contract between the issuer and the trustee pro-
viding for the issue of the debentures. The debentureholder is never a party.
The use of a trust deed to create debentures that are to be widely-held is the pre-
ferred way of creating and issuing debentures and has many advantages over other
methods. First, if there is any security to be charged, the relevant hypothecs cannot be
vested in thousands of future and often unknown bearer debentureholders, but can be
vested in a trustee in trust on their behalf. If shares of subsidiary companies or other
securities are involved, they can be registered and delivered to the trustee, who can
vote such securities as may be directed by the trust deed. Second, the trustee, acting
alone and reasonably impartially, can watch over the debentureholders’ interests, the
security and, to the extent determined by the trust deed, the performance by the com-
pany. Generally, he alone can intervene if such interests are imperilled. The alternative
of leaving any such action to a widely dispersed and divergent group of creditors is
generally unsatisfactory both to the company and to some of such creditors. Indeed,
the existence of an impartial and professional trustee makes it possible for an under-
writer, who is to sell the debentures and who anticipates their interests, to negotiate
with the issuer further obligations as to disclosure, to filing reports, and to compliance
with certain tests of performance. This would prove unsuitable where there is a large
number of debentureholders. Finally, in extreme cases of default and in cases of am-
biguity under the terms of the trust deed, the trustee can convene meetings of the de-
bentureholders and seek their concurrence with a proposed course of action that will
be binding on all debentureholders.
1. The Scope Generally
The corporate trust deed has become one of the longest and most complex con-
tracts used in corporate law. The relationship between issuer, trustee and debenture-
holders is entirely the product of contract. This is in marked contrast to the relationship
between the issuer and its shareholders, which is today largely governed by statute.”
” The “preliminary provision” of the C.C.Q. declares that it comprises a body of rules that lays
down the'”jus commune, expressly or by implication”.
“The Canada Business Corporations Act, R.S.C. 1985, c. C-44, s. 82 and the similar acts of some
provinces merely contain provisions (modelled on those of the U.S. Trust Indenture Act of 1939, 15
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The corporate trust deed must provide, among other things, for the issue of deben-
tures, perhaps in series or in classes, their rank, their parity and equitable treatment,
their registration, evidence and transfer, the consents of debentureholders to material
changes in capital structure and other fundamental changes, and the rules of meetings
of debentureholders and the voting majorities required. It may also provide for the re-
payment terms of the debenture, which may be complex. It may provide for the
charging of property as security, for the substitution of properties charged, for the
good administration of the charged property and for a measure of supervision of the
issuer’s operations. The corporate trust deed often, by covenants monitored by the
trustee, provides for measures to protect the debentureholder against actions by the
borrower which might jeopardize any security or the borrower’s ability to repay the
debt. It must also provide the procedures for collective action of the debentureholders
in the event of default. Reform has not changed the need for these provisions.”
A typical open-ended corporate trust deed (one where there is no stated limit for
the principal amount of debentures that may be issued) of a large corporation for the
creation and issue of bonds in series secured upon present and future property, both
moveable and immoveable, corporeal and incorporeal, or the prospect of property, in
Quebec and more than one other province may run to 150 printed pages, excluding
property descriptions. The main groups of clauses fall into three categories. The first
is the group of clauses providing for the creation of the bonds and their terms. The
second embraces that group of administrative clauses permitting dealing with the
bonds, their registration and their transfer while they are outstanding. The third estab-
lishes the rights and powers of the trustee for the bondholders and also of the bond-
holders individually. It involves the security, if any, and its enforcement.
2. Creation of the Securities
In the first group of clauses, one finds the framework for the issue of the initial
debentures and of every subsequent series, including the tests as to assets, security,
earnings and debt ratio that the company must meet to support each issue of a series
of debentures. Compliance with the tests for the issue of a new series of debentures is
usually attested to by the delivery to the trustee of signed detailed certificates of com-
pany officers, auditors and counsel. The fact that the debentures of each series rank
U.S.C. 77aaa if.) prescribing minimal qualifications, duties and a standard of care for the trustee
for public issues of securities under trust indentures.
2 It is true that many clauses of corporate trust deeds are initially the same in all corporate trust
deeds. These are commonly referred to as “boilerplate” (see e.g. American Bar Foundation, Sample
Incorporating Indenture and Model Debenture Indenture Provisions (Chicago: American Bar Asso-
ciation, 1965) at 1 [hereinafter Model Provisions]). Much is to be said for standardization of clauses
and of language. Indeed in the United States, under the Model Provisions, much has been achieved to
this end. However the variations attaching to each type of issue (financial features, closed/open issue,
security, substitution and dealing with security, first or subordinate charges (if any), jurisdictions,
close held/widely held, negotiable/non-negotiable, financial tests, restrictive covenants, other issuer’s
covenants, convertibility, etc.) dictate that the practitioner review all clauses and often modify and in-
tegrate them for the issue at hand.
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J.B. CLAXTON – THE CORPORATE TRUST DEED IN QUEBEC
807
either pari passu or in some other manner is provided for. The form and basic text of
each debenture is included. Standard provisions for redemption or for sinking funds,
if they apply generally or to a series, are provided for.
These provisions, created by contract, are the “constating document” of the se-
curities to be issued. They regulate the security, the. title constituting the bondholder’s
claim. They could be constituted merely by a by-law of the issuer. However, with
their provision in the corporate trust deed, the trustee has a role to play conjointly with
the company. Although issued on the decision of the company, bonds must be certi-
fied by the trustee, who acts with the company (but only in strict compliance with the
corporate trust deed). In so acting the trustee authenticates the debentures. The deben-
tureholder thus derives an assurance from a third party that the debenture complies
with and reflects truly the terms attaching to that class of securities issued by the cor-
poration.
3. Administrative Functions
In the second group –
those clauses that permit dealings with outstanding deben-
tures – one finds the provisions for the maintenance of registers and for transfers and
their effect. Paying-agent functions provide for the mechanics of payments including
payment of coupons, often upon mere presentation at any branch of a major desig-
nated bank in the bond-market area, and payment of principal on redemption or by
operation of the sinking fund.
All of these functions are essentially of an administrative nature and could also be
performed by the company itself. They are in practice vested in the trustee as a pro-
fessional with the necessary expertise and independence. They could in fact be dele-
gated to a fourth party who would act as mandatary of the company as would a stock-
transfer agent. In Eurodollar unsecured issues of bonds, debentures, notes or other se-
curities, often based in Luxembourg and issued by Canadian companies or banks on
the London markets, these administrative functions are in fact performed by the pay-
ing agent who is simply called “paying agent”. The relevant provisions of that agree-
ment are remarkably like the administrative provisions found in the corporate trust
deed. In this sense the debenture trustee performs as would a mandatary of the com-
pany. But although these administrative functions are an appropriate subject for man-
date (2130), they are also an appropriate subject for a contract of services (2098) or
for a trust (1260). These provisions are also complementary or corollary to the
“constating” terns of the debentures. They can be vested in a trustee to be performed,
not as mandatary of the company, but as part of the trustee’s duties. Where a trust is
involved these powers can be transferred by the issuer company irrevocably as can
any other property.
4. Security and Remedies
The third group of corporate-trust-deed clauses is of a different character again.
They reflect rights and powers that in the absence of a corporate trust deed would be
vested in the creditors alone. They include the initial grant of security, if any, the
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charging of any additional property and the administration, uses and release of secu-
rity. They include accessory contractual obligations or covenants (similar to those
found in commercial loan agreements) which if not observed lead to a default, and all
the rights and remedies exercisable upon default. They also include all the rights and
remedies and the attached powers that are normally accessory to the status of a credi-
tor. Of these, by far the most important is the right to take legal proceedings. In an un-
secured debenture issue the right to institute proceedings is still essentially vested in
the trustee. I have used the term “essentially”, for in practice the debentureholder’s
right to sue is extensively circumscribed by the trust deed. Generally, the holder may
sue only after a clear default, after due notice to the trustee and with provision of se-
curity for the trustee’s costs and only if, after reasonable delays, the trustee has failed
to act after being duly requested to do so by a specified majority of the debenture-
holders. Even then, the debentureholder’s right to sue is subject to the consent and di-
rection of a given majority of debentureholders. Most authority supports this position
but also questions whether the debentureholder can be totally deprived of the right to
take proceedings.” The rigid circumscription of the debentureholder’s right to sue,
however, has been supported by the strongest authority.”
From the point of view of debentureholders, their rights are limited to those de-
fined in the trust indenture. By buying the debenture in the marketplace or by lending
money evidenced by a debenture, they become creditors holding a security and ac-
cepting as a term of such security that: (i) initially all rights to enforce its payment are
vested in the trustee; (ii) should the trustee fail to act, the debentureholders may force
the trustee to sue but only on posting security and with the approval of a specified
majority of the other debentureholders; and (iii) in the alternative and where the trus-
tee fails to act, the debentureholders may sue to compel the trustee to act or they may
act obliquely in the name of the trustee. In all events such proceedings must be for the
benefit of all debentureholders. This is how the standard trust deed is written. Effec-
tively, and with perhaps only one exception,'” all proceedings against the issuer are to
be on behalf of the trustee for the benefit of all debentureholders.
Note particularly that there is a clear separation of the remedy (the right to sue)
from the right (the criance). The debenture represents the debt, the crdance, and its
holder alone is the creditor. In creating the debentures, however, the right and power
to sue on such crdance is ordinarily vested in the debenture trustee. This separation of
the right to receive payment from the right to sue has posed serious challenges to the
courts in Quebec. The trouble began more than one hundred years ago in respect of
” See V. Mitchell, A Treatise on the Law Relating to Canadian Commercial Corporations
(Montreal: Southam, 1916) at 1334; A. Tophaw, ed., Palmer’s Company Precedents, 12th ed., vol. 3
(London: Stevens and Sons, 1920) at 472 [hereinafter Palmer]; Caledonian Insurance Co. v. Gil-
mour, [1893] A.C. 85; Spurier v. La Cloche, [1902] A.C. 446; Perron v. L’Eclaireur (Ltde) (1934),
57 B.R. 445; see also art 1590 C.C.Q.
” See LalibertJ v. Larue (1930), [1931] S.C.R. 7, (sub nom. Lafontaine Apts. v. Larue) [1931] 2
D.L.R. 12 [hereinafter cited to S.C.R.].
‘ The exception is where suit is taken on detached bearer interest coupons (see Morrison v. Grand
Trunk Railway Company of Canada (1861), 5 L.C.J. 313 (C.S.) [hereinafter Grand Trunk Railway]
and Connolly v. Montreal Park and Island Railway Co. (1902), 22 C.S. 322 (C.R.).
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J.B. CLAXTON – THE CORPORATE TRUST DEED IN QUEBEC
809
railroad and other special act debentures, long before the enactment of the S.C.RA.
Nor was it settled by the S.C.P.A.
I. Corporate Trust Deeds before 1994
A. Development of Debentures and Corporate Trust Deeds
In order to understand the corporate trust deed and its likely judicial treatment
under the C.C.Q., it is useful to understand how the debenture and the corporate trust
deed evolved.
1. Origins
Governments that have evolved from the British tradition have issued negotiable
debentures for centuries in order to pay their bills or to evidence their borrowings.
Many of their agencies, including municipal governments, have received similar
powers. Palmer makes the following comment:
This word [debenture] was the first in the form of acknowledgment of indebt-
edness used by the Crown in old days and given by it to creditors of the Crown,
to soldiers, and to the King’s servants, for payment of their wages. Thus the
Parliamentary Rolls of 3 Henry V. (1415) mention a petition by a citizen of
London praying that he might be paid for certain goods supplied to Henry IV.,
and alleging that the commission appointed to investigate claims and provide
for payment of that king’s debts, “ne voillent paier la somme suis dit a dit
suppliant due, a cause q’il ne demonstre pas billes de Debentur, desouth la seal
du clerk du spicere du nit nadgairs Roy [i.e., Hen. IV], tesmoignauntz la dette
suit dit.”‘ 6
The term “debenture”, according to Palmer, has been around for many centuries.’7 It is
derived from the latin debentur (“there are owing”). Mitchell states: “Debenture is not
a term of art, and has no definite legal meaning. It imports a debt; it involves some
obligation of repayment, or promise to pay; but apart from that central idea it may
take many shapes and cover many different contractual obligations.””
One important element of the debenture emerges consistently from a reading of
all authorities. Gower states: “Primarily, the expression ‘debenture’ is applied not to
the indebtedness itself but to the document evidencing it.”” Today a debenture is a
6 Palmer, supra note 13 at 1.
“See Palmer, ibid.
“Mitchell, supra note 13 at 1274 [footnotes omitted]. See also W. Lindley, The Law of Companies,
6th ed., vol. 1 (London: Sweet & Maxwell, 1902) at 300; W.T. White, Canadian Company Law
(Montreal: C. Th~oret, 1901) at 383; H. Reid, Dictionnaire du droit qudbecois et canadien (Montreal:
Wilson & Lafleur, 1974); and Chitty J. in Levy v. Abercorris Slate & Slab Co. (1888), 37 Ch.D. 260
and in Edmunds v. Blaina Furnaces Co. (1887), 36 Ch.D. 215.
9 L.C.B. Gower, The Principles of Modern Company Law, 3d ed. (London: Stevens & Sons, 1969)
at 347. A debenture is usually issued as a document under seal: British India Steam Navigation Co. v.
Inland Revenue Commissioners (1881), 7 Q.B.D. 165; a security for money: Bank of Toronto v. Co-
MCGILL LAW JOURNAL/ REVUE DE DROITDE MCGILL
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document, a title evidencing a right to payment, a valeur mobilikre or security. In the
absence of an express term to the contrary, it is negotiable. If it is payable to bearer, or
to order but unregistered, it is transferable by delivery. Thus it is not merely a crdance
or a receivable, but a “title” evidencing a claim.”0 Since it is a documentary title, in
some respects it has the characteristics of a corporeal moveable.
In Canada, the term “debentures” is often used interchangeably with “bonds”. In
the past, if the document was under seal it was usually referred to as a debenture in
England but as a bond’ in common law Canada. In the United States, debenture has
come to mean an unsecured obligation, while the term bond identifies a secured obli-
gation.’ Modem Canadian terminology tends to follow this American practice. In
England, the term “debenture” is now used for both secured and unsecured obliga-
tions. Legally, the terms “debenture” (in both French and English in Quebec) and
“bond” (in French “obligation” or “bon”) have the same meaning. In this study I use
the terms “bond” and “debenture” interchangeably.
Although the term “debenture” dates back centuries, the practice of granting se-
curity by a single charge on a class or classes of property for the repayment of a multi-
tude of debentures is much more recent. It arose in the nineteenth century in the fol-
low-up to the industrial revolution. It must be remembered that this was a period
(1825 – 1900) of construction of great public-service undertakings, requiring substan-
tial subscription of capital – more than any individual entrepreneur or banker could
provide. It was the period of the building of trunk roads, bridges, canals, improved
waterways and especially railways, not only in Quebec, but in all of North America
and Europe. Electric-power companies, communications companies and industrial
companies followed. The industrial revolution had brought growth and middle-class
prosperity; many could lend a thousand pounds while few could lend a million.
Moreover, the principal markets for investment were London and New York, and
many issues of Quebec companies were sold in those markets. The securities offered
were designed to comply with the practices of those markets.
This period also gave rise to the development of the limited-liability corporation.
At first, these were the creatures of special statutes. In 1844 the British Parliament
passed An Act for the Registration, Incorporation, and Regulation of Joint Stock
Companies permitting incorporation as a stock company by registration. This act
was re-cast in 1862 permitting such incorporation with limited liability.2′ In Quebec,
bourg Railway Co. (1884), 7 O.R. 1; generally a negotiable instrument: MacFarlane v. St. Cisaire
(Corporation of) (1886), 2 M.L.R. 160 (B.R.) [hereinafter St. Cisaire]; Levy v. Abercorris Slate &
Slab Co., ibid.; various forms of instruments are called debentures: Edmunds v. Blaina Furnaces Co.,
ibid.2 See Y. Renaud & J. Smith, Droit quebicois des corporations commerciales, vol. 2 (Montreal: Ju-
dico, 1974) at 1027, 1029; Gower, supra note 19 at 347.
21 See Mitchell, supra note 13 at 1274.
22 See Model Provisions, supra note 12, “Introduction”.
(U.K.), 7 & 8 Vict., c. 110, cited in Mitchell, supra note 13 at 91.
24See Mitchell, ibid.; The Companies Act, 1862 (U.K.), 25 & 26 Vict., c. 89.
1997]
J.B. CLAXTON – THE CORPORATE TRUST DEED IN QUEBEC
811
the first general corporations clauses act was that of 1850.’ The borrowing power of
such early corporations was extremely restricted, if it existed at all, and generally had
to be expressly authorized by the special act of incorporation. Indeed the Quebec
companies legislation (re-enacted in 1868) contained no general borrowing power
until 1890.6
Investor-owned corporations encountered serious legal difficulties in raising
funds for these capital-intensive public services in all jurisdictions. Neither a mort-
gage in common law nor a hypothec in Quebec was readily divisible among a multi-
tude of debentureholders. Pledges of moveables or chattels involved dispossession
under both systems of law and did not serve the borrower’s interests. The assets of the
enterprise were likely to change over a period of years, and one of its most important
assets was usually its future revenues from operations. These were not readily charge-
able without dispossession. In Quebec the problems were especially acute, since se-
curity interests could be granted only by an express exceptional provision of law and
the devices permitted were inappropriate both for a charge on all assets, present and
future, and for their continued possession by the borrower. Moreover, charges on as-
sets could not be pooled among many creditors through the use of the English concept
of “trust”.
2. Legislative Experimentation in Quebec
In Quebec, as well as elsewhere, there was a long period of legislative experimen-
tation and evolution. The government of Quebec desired investor-owned enterprises
to complete these large undertakings. It had to adopt measures, exceptional to the or-
dinary law, in order to assure that the necessary capital for their construction could be
raised on the international markets. The list of attempted security devices is long and
reflects substantial ingenuity on the part of both the legislature and legal counsel. The
following developments are illustrative:”7
1.
In 1840, the Turnpike Road Trustees (note they are called “Trustees”) were
empowered by the Government of Lower Canada to issue debentures evi-
dencing a debt, loan or claim to be privileged over certain other claims
(Government subsidies) and to “have priority of lien upon the tolls and other
See Incorporated Joint Stock Companies Act, S.C. 1850, c. 28. According to Renaud & Smith,
supra note 20, vol. I at 22, this Act was virtually a copy of the state of New York’s statute of 1848.
Renaud & Smith provide a succinct history of company law in Quebec. See also F Wegenast, The
Law of Canadian Companies (Toronto: Burroughs, 1931).
2 6 See Quebec Joint Stock Companies General Clauses Act, S.Q. 1868, c. 24 and Incorporation of
Joint Stock Companies Act, S.Q. 1868, c. 25; these acts were amended to add the borrowing power by
S.Q. 1890 (54 Vict.), c. 35 and S.Q. 1902, c. 30.
27 For a more extensive examination of some of the debenture legislation after 1890, see S. Le Bel,
“Les 6missions d’obligations dans le droit de la province de Qudbec de 1890 A nos jours” (1980) 21
C. deD. 43.
812
2.
3.
4.
5.
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moneys which shall come into the possession and shall be at the disposal of
the said Trustees.””‘
In 1849, the Saint Lawrence and Atlantic Rail-Road Company was empow-
ered to create “mortgages or hypoth~ques” to secure debentures in statutory
form, the debentures to be registered at length to “perfect the mortgage or
hypoth~que”. Debentures were to be presented for endorsement by the regis-
trar to evidence cancellation. Registration in more than one office was con-
templated. To facilitate registration, numbered blank debentures could be
bound in books and presented to the registrar to serve as the register. Bearer
debentures were not contemplated.’
In 1851, The Railway Clauses Consolidation Act of the United Provinces of
Canada permitted companies governed by that Act to borrow on bonds, de-
bentures or securities and to hypothecate their “lands, tolls, revenues and
other property”.” It was silent as to who would hold such hypothecs.
The Gas and Water Companies Act of 1853 permitted companies incorpo-
rated thereunder to borrow, “to mortgage, secure and assign, real estate,
works, rates, revenues, rents and future calls on shareholders of the said
Company” for the securing of sums borrowed, and to issue “Bonds, Deben-
tures or other securities” so secured.’
In 1858, the legislature of the United Provinces enacted the Debenture Regis-
tration Act providing for the registration in the registry office of all munici-
pal and corporate debentures by presentation of the enabling by-law.”
Devices of greater precision and flexibility were also tried. The most notable of
all such devices were the following:
6.
In 1857, the St. Lawrence Warehouse, Dock and Wharfage Company was
incorporated to construct, finance and operate a harbour at L6vis and was
authorized to issue bonds, debentures or other securities which, upon their
registration in the land-titles office, were to become a “mortgage and hy-
poth~que, ranking according to the date of such enregistration, by special
privilege, upon all the property, real and personal, of the said Company, in-
28 Quebec Turnpike Roads Act, S.Q. 1853, c. 235, s. 7, expanding on S.Q. 1839, c. 31; see also S.Q.
1857, c.125, which divided the trust into two (north shore and south shore) and declared them to be
corporations.
9 See Saint Lawrence and Atlantic Rail-Road Company Act, S.C. 1849, c. 176, s. 7; see also Mont-
real and Lachine Rail-Road Company Act, S.C. 1849, c. 177, s. 4.
The Rail-way Clauses Consolidation Act, S.C. 1851, c. 51, s. 9.
3′ Gas and Water Companies Act, S.C. 1853, c. 173, s. 36, re-enacted by Gas and Water Companies,
R.S.Q. 1888, arts. 4874-79; see also River Navigation Improvement Act, S.C. 1853, c. 191, re-enacted
by Companies to Facilitate the Transmission of Timber down Rivers and Streams, R.S.Q. 1888, art.
4948; Joint Stock Companies Act, S.Q. 1870, c. 32, s. 28, re-enacted by Companies for Stoning
Roads, R.S.Q. 1888, art. 5091; Building Societies Act, S.Q. 1879, c. 32.
32 See Debenture Registration Act, S.C. 1858, s. 91; subsequently found in Registration of Deben-
tures, R.S.Q. 1888, arts. 4617ff.
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J. B. CLAXTON – THE CORPORATE TRUST DEED IN QUEBEC
cluding the revenues, rates, tolls, dues and duties thereof.'”‘ The amending
statute of 1869 is of interest. According to the recital in this Act, the com-
pany had issued debentures and desired legislative ratification of an issue of
mortgage bonds (in part issued in exchange for the debentures) under the
terms of a trust deed of 1866. The trust deed was a schedule to the Act. It
was a deed before a Quebec notary of four and one-half pages in length in-
cluding recitals. The deed professed to “hereby bind, mortgage, encumber
and hypothecate” in favour of the trustees (who were three of the directors of
the company – Sir John A. MacDonald was another director) “all and singu-
lar the property, estate and effects, of the company, both real and personal
whatsoever and wheresoever, including the revenues, rates, tolls, dues and
duties thereof’ and especially the immoveable property therein described. It
purported to give the trustees a power of sale of the charged property as well
as the power to collect revenues.
In 1869, the Richelieu, Drummond and Arthabaska Railway Company was
empowered to issue bonds or debentures “considered to be privileged claims
… and [that] shall bear hypothec upon the said railway without registration”.’
An Act relating to the V. Hudon Cotton Mills Company, Hochelaga, incorpo-
rated by letters patent in 1873, provided for the issue of bearer debentures
secured by “an equal privilege upon the immoveable or immoveables af-
fected for their payment” through the registration of the by-law of their crea-
tion authorizing their issue. The Act also defined as immoveable “all en-
gines, mills, looms and other machines used by the said company”.”
in reorganization – was
In 1880, the South Eastern Railway Company –
authorized “to convey its railway, franchise and all property, rights and inter-
est owned, possessed or enjoyed by it, and the tolls, income, profits, im-
provements and renewals thereof and all additions thereto to trustees in trust”
to secure its bonds.” (The South Eastern Railway Company Reorganization
Ace’ was judicially construed in 1898, as reviewed later in this study.)
In 1890, the Quebec companies general legislation was amended to provide
that secured bonds or debentures, after their registration in the registry office
where the immoveables described were located, constituted a “privileged
7.
8.
9.
10.
31 St. Lawrence Warehouse, Dock and Wharfage Company Act, S.C. 1857, c. 174, s. 25, as am. by
S.C. 1859, c. 106, S.C. 1861, c. 97, S.Q. 1869, c. 62; see also Lake Champlain and St. Lawrence
Railway Junction Co. Act, S.Q. 1876, c. 33.
Richelieu, Drummond and Arthabaska Railway Company Act, S.Q. 1869, c. 56, s. 17.
” V Hudon Cotton Mills Company, Hochelaga Debentures Act, S.Q. 1875 (39 Vict.), c. 66, ss. 5-6.
36 South Eastern Railway Company Reorganization Act, S.Q. 1880, c. 49, s. 1; see also Montreal
Steel Works Act, S.Q. 1903, c. 100, s. 10.
37 bid
. MCGILL LAW JOURNAL/REVUE DE DROITDE MCGILL
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claim” and gave “a right of preference over all other debts and claims against
the company, posterior to the issuing of such debentures.””8
In 1899, the Laurentian Water and Power Company was authorized to secure
its bonds in favour of trustees by “such mortgages, charges and incum-
brances, as may be necessary upon the property, concessions, rights, privi-
leges, advantages, rents and revenues of the company, present or future, or
present and future”.39
In the same year the Lake Magantic Pulp Company was empowered to se-
cure its bonds upon “the property and undertaking” of the company.’3
11.
12.
As regards the use of the term “trust” and “trustee” in Quebec, the legislative
history is similar. I have noted the reference to the “trustees” of turnpike roads in the
ordinance of 1839.’
In 1841 the legislature of the United Provinces of Canada
adopted an Act to Regulate Savings Banks providing for their administration by direc-
tors or “trustees” upon “trusts”, with vesting of moneys in the “trustees” in “trust” for
the purposes of the institution. 2 Other references to “trustees” are found in the list of
security devices, as has been noted above. In 1892 the Montreal Trust Company (then
operating under another name) charter was amended to permit it to segregate “money,
property or securities received, held or administered in trust.”‘ In the same year The
Royal Trust and Fidelity Company (subsequently The Royal Trust Company) was in-
corporated, inter alia, “to accept, fulfil and execute all such trusts … [and] [t]o act as
trustees for any debenture, bond or other security issued.”” A general trust-companies
act was first enacted only in 1912 and empowered such companies, inter alia, to act
as “trustee for holders of bonds or debentures.”‘
In 1879 an act of the legislature was
adopted to permit gratuitous and testamentary trusts. These provisions were incorpo-
rated in the Civil Code of Lower Canada (arts. 981a ff. C.C.L.C.) in 1888.” In none of
these enactments was the concept of trust defined, although in the latter legislation
trustees were “seized as depositaries and administrators for the benefit of the donees
or legatees of the property.”‘
Notwithstanding the absence of any definition of trust or trustee, the practice of
granting the security to a trustee as representative of the bondholders through the use
of a corporate trust deed had become established in Quebec by 1880. I have noted that
one was sanctioned by the legislature in 1869.’
In Quebec the trust deed is commonly
3 Quebec Joint Stock Companies Amendment Act, S.Q. 1890 (54 Vict.), c. 35, s. 1, amending
R.S.Q. 1888, art. 4705.
39Laurentian Water and Power Company Act, S.Q. 1899, c. 81, s. 13.
‘0 Lake Magantic Pulp Company Act, S.Q. 1899, c. 82, s. 5.
” See Quebec Turnpike Roads Act, supra note 28.
,2Act to Regulate Savings Banks, S.C. 1841, c. 32, ss. 3, 6 & passim.
,’ Montreal Safe Deposit Company Amendment Act, S.Q. 1892, c. 78, s. 5.
“The Royal Trust and Fidelity Company Act, S.Q. 1892, c. 79, s. 2.
41 Quebec Trust Companies Act, S.Q. 1912, c. 44, s. 1.
“6Act Respecting Trusts, S.Q. 1879, c. 29, re-enacted by R.S.Q. 1888, art. 5803.
“Art. 981b C.C.L.C.
,See text above, accompanying note 33.
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J.B. CLAXTON – THE CORPORATE TRUST DEED IN QUEBEC
815
referred to as a “corporate trust deed”, or simply a “trust deed” or sometimes a “trust
indenture”. The term “trust indenture” is usually employed in common-law Canada
and in the United States. 9 It is also employed in the Canada Business Corporations
Act.:
3. Development Contemporaneous with U.S. and U.K.
The development of the corporate trust deed in the United States occurred not
much earlier than in Quebec. One of the earliest corporate trust deeds on record was
that of The Morris Canal and Banking Company to an individual in Amsterdam, con-
veying “the chartered rights of the said company, and all tolls, incomes and revenues
and profits” in trust to secure loans from several individuals aggregating $750,000. In
the event of default, the trustee was empowered to take possession. The courts of
New Jersey considered proceedings of enforcement in 1843. In the 1840s, scores of
such deeds were entered into by railway companies. The deeds were often brief: per-
haps three or four pages with no covenants.’ The trustees were often officers of the
issuer company. By 1876, a form of bond much like the modem form had appeared. 2
In England, if one examines the texts and cases cited by Palmer,53 the commercial
practice of issuing debentures carrying terms not dissimilar to those of today was well
settled by the 1870s. So was the use of trustees under trust indentures to hold security.
We know that a charge on the “undertaking” was sanctioned by statute in 18455′ and
evolved to become the floating charge, first recognized by the courts in 1870 but only
fully defined by the House of Lords in 1904″ By then the trust indenture had become
the customary vehicle to secure such charges.’
Of English origin, “a word of art, [which] implies that this document is a deed, and sealed by the
parties” (P. Allsop, ed., Stroud’s Judicial Dictionary, 3d ed., vol. 2 (London: Sweet & Maxwell, 1952)
at 1434); “In business financing, a written agreement under which bonds and debentures are issued
…” (J. Nolan et al., eds., Black’s Law Dictionary, 6th ed. (St. Paul, Minn.: West, 1990) at 770).
“Indenture”, a term foreign to modem civil law, comes from the ancient practice of cutting or indent-
ing in a serrated or wavy line the margin of copies of a deed so that the copies could be proved the
same by matching the indentations of the cut.
Supra note 11, s. 82.
Rocky Mountain L. Rev. 71.
” See generally C.M. Draper, “A Historical Introduction to the Corporate Mortgage” (1930) 2
See C. Rodgers, “Corporate Trust Indentures” (1965) 20 Business Lawyer 55 1.
See Palmer, supra note 13 at 1-5.
The Company Clauses Consolidation Act (U.K.), 8 & 9 Vict., C. 16, s. 38; see R.R. Pennington,
“The Genesis of the Floating Charge” (1960) 23 Mod. L. Rev. 630.
” See Re Panama, New Zealand, and Australian Royal Mail Co. (1870), 5 L.R. Ch. App. 318, Gif-
ford L.J.; Illingivorth v. Houldsworth, [1904] A.C. 355 at 358, Lord Macnaghten L.J.; Pennington,
ibid.
, Mitchell, supra note 13 at 67ff.; Lindley, supra note 18 at 317-18.
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4. The Evolution of Security Devices
This period of legislative experimentation, which occurred in Quebec largely
prior to 1914, reflects several phases of development of security devices. They com-
prise a continuum, though a rigid chronological progression of phases is more diffi-
cult to trace. The phases are (i) unsecured debentures, (ii) debentures secured by a
statutory privilege on revenues, (iii) debentures secured by a statutory hypothec, with
or without some form of registration, (iv) security through registered fixed charges in
favour of trustees, (v) security by a conveyance and transfer to trustees embracing the
ideas of entry, possession and sale after default, and finally (vi) security on the corpo-
rate undertaking, or words to the effect that future property, including moveable prop-
erty (both corporeal and incorporeal), is to be included in the charge. By 1914, the last
three phases had evolved and were often found to exist together. The terms “trust”
and “trustees” were increasingly employed as these security devices developed. They
were terms borrowed from the common law but became very much a part of practice
in Quebec through the special legislation.
By 1914, hundreds of companies in Quebec had benefitted from such special en-
actments. There had also been some general enactments covering the powers of
whole classes of public-utility companies. Many ordinary commercial corporations
had applied for and obtained the same powers.” The scene was ripe for the enactment
of the provisions of the S.C.P.A.5 as general legislation, making these special security
devices available to all commercial corporations.
B. Juridical Treatment of
the Corporate Trust Deed: Four
Fundamental Problems
As reviewed above, corporate-trust-deed financing developed in Quebec almost
contemporaneously with its development throughout the English-speaking world. Its
development was co-extensive with the development of the limited-liability company
and the late-nineteenth-century financing of great public-utility projects. In Quebec,
the practitioner and the legislature had responded to these needs through special
(exceptional) legislation. The courts had to uphold these special laws. They responded
positively in that corporate trust deeds were invariably upheld and enforced, but con-
servatively, as the security devices were then forced to be characterized within the
concepts of Quebec’s general civil law.” Because the tripartite arrangement of “trusts”
37See E.B. Eddy Company Act, S.Q. 1895, c. 73; William Dow & Co. Act, S.Q. 1898, c. 79; Windsor
Hotel Company Act, S.Q. 1899, c. 87; La Presse Company Act, S.Q. 1900, c. 87; Great Northern Ele-
vator Company Act, S.Q. 1900, c. 82; General Trust Company Act, S.Q. 1912, c. 102; see also supra
note 31.
8 S.C.P.A., supra note 3. The steps immediately leading to the enactment of the S.C.P.A. provisions
and their form are also examined by Le Bel, supra note 27.
“‘ The only reported cases where the courts failed to enforce a corporate trust deed were those
where the form or the registration requirements were deficient (see Connolly v. Montreal Park and
Island Railway Co., supra note 15; Corporation du Village de la Pointe Gatineau v. Hanson (1901),
10 B.R. 346; Valin v. Lion Nead Rubber Company (1927), 65 C.S. 410; Dominion Textile Co. v. An-
gers (1909), 41 S.C.R. 185; Carter v. Fournier (1937), 75 C.S. 530).
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J.B. CLAXTON – THE CORPORATE TRUST DEED IN QUEBEC
817
employed under the special legislation was foreign to our civil law, the methods em-
ployed by the courts to integrate such devices were of even greater interest.
The courts had several major problems to overcome in reconciling Quebec’s civil
law with the three-party arrangement inherent in corporate-trust financing. Although
the arrangement had been sanctioned by legislation, the legislation did not address the
problems of reconciliation. One might say the courts had to effect a synthesis between
the new, legislated security devices and our existing concepts of law, to modify the
latter in order to accommodate the former. In the alternative, the courts would have
had to import concepts of foreign law, concepts which were not fully developed by
the special legislation and not readily compatible with Quebec law.
To reconcile the special legislation both before and after 1914 (which introduced
the S.C.P.A.) with the traditional concepts of the civil law of Quebec, the courts had to
deal with the following major problems:
1.
2.
3.
4.
The characterization of the debenture as a negotiable security and a title to be
governed strictly by the civil law of Quebec. If it had been found to be a bill
of exchange or similar commercial instrument, the federal Bills of Exchange
Act,’ or English law generally, might apply.
The characterization of the charges conveyed or granted to the trustee, where
the legislation used new terms, such as “mortgage”, “convey”, “cede!’ and
“transfer”, sometimes in combination with “hypothec”, “pledge”, “privilege”
and “as security”.
The separation of the crdance of the debentureholder from the right of en-
forcement exercised by the trustee.
The characterization of the relationship between the trustee and the issuer, on
the one hand, and the trustee and the debentureholder on the other.”
I will summarize briefly how the courts dealt with each problem.
1. Debentures Are Governed by the Civil Law
Quebec courts recognized the essential characteristics of a debenture as early as
1861.” There was, however, some early confusion after confederation: first, as to
whether the common law of England should apply to commercial matters generally;
and secondly, as to whether debentures qualified as negotiable promissory notes, and
in consequence whether the English law of bills of exchange (delivery by endorse-
” Bills of Exchange Act, now R.S.C. 1985, c. B-4.
6 The courts also had to reconcile many other problems raised by the terms of the corporate trust
deed with the concepts of our general civil law. It is my opinion that these other problems were not
truly problems of characterization, but rather problems of reconciliation of competing values: for ex-
ample, the scope of trust deed charges, the rank of competing interests, etc.
” See Grand Trunk Railway, supra note 15.
818
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ment, good faith, holder in due course, etc.) should apply.’3 In Young v. MacNider, in
the Supreme Court of Canada in 1896, Sir Elz6ar Taschereau J. (dissenting on the
question of good faith, but otherwise consistent with the majority), stated:
I have not seen a single case, or a single text book where such securities have
been called promissory notes, or considered as such. And if these debentures
are not promissory notes the case is governed exclusively by the French law
and the Quebec Code. As said by Sir Montague Smith, in the Privy Council, in
the case of Bell v. Corporation of Quebec [(1879), 5 A.C. 84], English and
American decisions are not governing authorities in the province.4
Our courts concluded that debentures would be governed by our existing concepts of
law and not by principles of foreign law. Although in theory a debenture could be
written so as to constitute it a promissory note governed by the Bills of Exchange
Act,’ I know of no Quebec case decidingso. The characterization in Quebec of a de-
benture as evidence of a debt governed by civil law has been generally accepted. The
view that a debenture should not generally be considered a promissory note or bill of
exchange is also consistent with its treatment under the common law.’
2. Characterization of Trust-Deed Charging Language
a. Pre-S.C.P.A.
By 1880, the use of trustees to hold the security granted to guarantee repayment
of debentures had become reasonably common in Quebec legal practice. But, as
noted, the Quebec statutes enabling such practice often used new terminology bor-
rowed from common-law jurisdictions. Perhaps because the securities were to be sold
in London or New York, they often spoke of a “mortgage”, “conveyance”, “cession”
or “transfer”, as well as a “pledge” or “hypothec”. Moreover, they never defined the
concept of trust, although they often spoke of a conveyance “in trust” and “to trus-
tees” and “as security” for bonds, debentures or other securities. Before 1914, the year
the general legislation that would become the S.C.P.A. was introduced,’ there were
several significant cases.
The first involved provisions of a special statute of 1880 for the reorganization of
the South Eastern Railway Company. The company was empowered to issue certain
bonds:
… and for the purpose of securing the payment of the same and the interest
thereon, to convey its railway, franchise and all property, rights and interest
owned, possessed or enjoyed by it, and the tolls, income, profits, improvements
63 See St. Cgsaire, supra note 19; White, supra note 18 at 386-87, suggests debentures are promis-
sory notes; Lindley, supra note 18 at 301, states they can be promissory notes.
Young v. MacNider (1896), 25 S.C.R. 272, citing also R. v. Belleau (1882), 7 A.C. 473, and Mont-
realAssurance Co. v. McGillivray (1858), 8 L.C.R. 401 at 423.
0 Bills of Exchange Act, supra note 60.
“See Levy v. Abercorris Slate & Slab Co., supra note 18 at 264; Palmer, supra note 13 at 3.
67See supra note 3.
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J.B. CLAXTON – THE CORPORATE TRUST DEED IN QUEBEC
819
and renewals thereof and all additions thereto, to trustees in trust for that pur-
pose.6
The Act went on to provide that the trustees could determine who could have posses-
sion, management and control of the railway, and how, in the event of such default
being made, “the company shall be absolutely divested of all interest, right of re-
demption, claim or title” and how “the same shall thereupon immediately be and be-
come vested absolutely in the said trustees or the holders and owners of the said
bonds”. The trustees were empowered, in the event of default, “to take possession of
and run, operate, maintain, manage and control the said railway”. The legislation ex-
pressly provided that “[t]he said conveyance shall be, to all intents, valid and create a
first lien, privilege and mortgage”.’ The authorized bonds were issued under a trust
deed of 1881 by which the railway was conveyed to the trustees as security for the re-
payment of the bonds. It was stipulated in the trust deed that the company should re-
main in full possession as if the deed had not been passed until 90 days after default.
If the bonds remained unpaid after six months, the trustees had the right to become
full owners of the railway after certain notices and delays. In 1883, the Company be-
came in default and, upon the request of the trustees, voluntarily gave them posses-
sion and control of the railway.
These provisions of the Act were no doubt inspired by the common-law concepts
of mortgage (with its concept of transfer of title and equity of redemption) and of
trusts, even though the railway in question operated solely in Quebec. It had been de-
clared a work for the general advantage of Canada7′ and subject to the Consolidated
Railway Act of Canada,” but upon terms under which the Quebec statute continued to
apply. There is no doubt that the interests of the trustees and the security of the bond-
holders remained governed by Quebec law.
The construction of this statute came before the courts on two occasions. The first
case was Redfield v. Wickham (Corporation of),” which held that the railway in the
hands of the trustees was not precluded from being seized and sold, subject to its
statutory mortgages, for the judgment debts of the company. Lord Watson, of the
Privy Council, stated:
Their Lordships do not doubt that the effect of the trust conveyance of the 12th
of August, 1881, followed by possession in terms of the deed, was to vest the
property of the railway and its appurtenances in the appellants, and to reduce
the interest of the South-Eastern Company to a bare right of redemption.”
He again stated:
On the one hand, the railway taken in execution by the respondents must, for
all the purposes of these proceedings, be deemed to be still the property and in
68South Eastern Railway Company Reorganization Act, supra note 36, s. 1.
69Ibid, ss. 5, 6, 7.
‘ See Constitution Act, 1867 (U.K), 30 & 31 Vict., c. 3, s. 92(10)(c).
” Consolidated Railway Act, S.C. 1879, c. 9, as am. by S.C. 1883, c. 24.
7 (1888), 13 A.C. 467.
” Ibid. at 473.
820
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the possession of the South-Eastern Railway Company; and, on the other hand,
the appellants, as representing the present holders of mortgage bonds, must be
taken as standing in the shoes of the bond holders whose debts were unpaid at
the passing of the Act.74
The status of the trustees was considered by the courts for a second time in two
cases heard together in the Supreme Court of Canada. They were Wallbridge v. Far-
well and Ontario Car and Foundry Company v. Farwell.7 The first involved a claim
against the company arising after the conveyance in trust, but prior to possession of
the railway by the trustees, and in consequence it involved the nature of the continued
possession by the company. The second involved a similar claim, allegedly secured
by a vendor’s privilege, and its rank after possession. The claimant had sold rolling
stock for which it had not been fully paid. The principal decision in each case was
given by Sir Elzfar Taschereau J. He said:
To follow Mr. Laflamme’s able argument for the appellant, I have so far con-
sidered the deed of trust of 1881, before the respondents came into possession,
either as creating a pledge or as an actual and complete sale of this railway, and
I have said why, in my opinion, admitting it to be either one or the other, the
appellant has no action against the trustees. I need hardly remark the contradic-
tion between these two grounds of reasoning. If a pledge, the railway company
remained the owners. If, a sale, the trustees became owners. Was that deed,
however, anything else than a mortgage or hypothec of of [sic] this railway, as
long as the company remained in possession, within of course the sense and
meaning that these words have in the Province of Quebec, where the hypothec
is a kind of pledge in which the pledger retains both ownership and possession
of the thing pledged, in contradistinction to the contract of pledge, pignus,
where the pledgee is put in possession, the title remaining in the pledger. It
seems to me impossible to see in that deed, as interpreted in the light of the
statute of 1880, anything else than a hypothecation of this railway in favour of
the bondholders, not precisely the hypothecation of article 2016, C.C., but with
the exceptional right, given by the statute, of the mortgagee to enter into pos-
session, in default of payment, after the exercise of which right the contract
between the parties became one of nantissement, with, of course, droit de rd-
tendon, till paid, joined to the hypothec. The term “sold” is used in the deed, it
is true. But the statute of 1880 authorizes only to convey as security. Trans-
porter, says the French version.”
After reviewing some French authority on the characteristics of a hypothec, he con-
cludes:
This is, in my opinion, precisely the nature of the contract that has taken place
between the parties here. The company were to remain in possession as long as
they satisfied, as accrued, their liabilities to the bondholders. They might never
have lost the possession, and have continued to work the railway themselves,
the railway, however, by the authority of this statute, all the time remaining
7’Ibid at 477.
” Wallbridge v. Farwell, Ontario Car and Foundry Co. v. Farwell (1890), 18 S.C.R. I [hereinafter
Farwel]. Much of Mr. Justice Taschereau’s judgment in French was quoted in Connolly v. Montreal
Park and Island Railway Co., supra note 15.
76Farwell, ibid at 11-12.
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J.B. CLAXTON – THE CORPORATE TRUST DEED IN QUEBEC
821
vested in the bondholders, or in the trustees for them, till the complete satisfac-
tion of their bonds, in 1901, as security therefor. I must confess that I can see
nothing else in this deed, before the trustees took possession, than a hypothe-
cation of the railway, which hypothecation took the character of an antichresis,
when the trustees took possession, or, to use the English law terms of their
Lordships of the Privy Council, in the Redfield case –
a conveyance by a
debtor to his creditor, coupled with possession, with right of redemption, in se-
curity of a debt.”
In the second case, Mr. Justice Taschereau disposed of the claim of the car company
on several grounds, including the following:
The railway company here were the buyers, not the trustees. The contention
that they, the company, acted merely as agent or negotiorum gestor for the
trustees is untenable. I have referred to this point in the previous case. The
railway company was then the owner in possession with a statutory mortgage
on the property in favour of the bondholders. When the statute gives to the
trustees a lien or mortgage on the railway, it clearly implies that the trustees
were not, at first, to be owners. One does not require a lien or mortgage on his
own property for the payment of his claims. Then the statute and the deed pro-
vide when and under what circumstances the trustees might become later abso-
lutely owners of the railway. This also implies that they were not yet owners,
and still further, there was no price of sale, so there was no sale; predfum is a
requisite of this contract, as much as res et consensus. The fact that trustees for
the bondholders, benefited by the sale of these cars to the railway company
does not help the plaintiffs. A hypothecary creditor always benefits from the
improvements made and expenses incurred by his debtor on the property hy-
pothecated.”8
One may draw several conclusions from the Court’s construction of this nine-
teenth-century statute. First, the hypothecation language of the statute considered was
similar to that of the S.C.P.A. It used the words “convey” as security to “trustees” so
as to constitute a “first lien, privilege and mortgage”. The S.C.P.A., as originally en-
acted in 1914,” employed the words “hypothecate, mortgage or pledge” to a “trustee”
“as security”; and, as amended in 1924,’ “cede and transfer” for the same purposes.
Accordingly, one must conclude that the trustee’s right of entry and possession under
the South Eastern Railway Company Act was similar to its right of entry and posses-
sion under the S.C.P.A.
Second, the conveyance in trust was not to be treated as a common-law mortgage
or a sale with a right of redemption or a conveyance in trust, but as equivalent to a
civil-law hypothec. “The grantor remained owner subject to the hypothecary charge.
The trustee did not become owner under the special statute until after default and pos-
session.
7Ibi& at 13.
78 IbiL at 19.
79 S.Q. 1914, c. 51, supra note 3, s. 1.
0S.Q. 1924, c. 63, supra note 3, s. 1.
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Third, the trustees were parties quite separate from the company and were not li-
able to the company or its creditors for debts incurred for the preservation of the
property. The trustees, by inference, formed a party quite separate from the bondhold-
ers, although their function was clearly to represent the interests of the latter and to
realize upon the security for their benefit.”
This approach to the construction of the statute had an earlier basis in our juris-
prudence. In Drummond (County of) v. South Eastern Railway Company,’ the Supe-
rior Court considered whether or not a railway (or part of it) could be seized and sold
at the hands of justice in satisfaction of defaulted bonds that benefitted from a statu-
tory “hypothec upon the said railway without registration” and yet by related act, a
“mortgage on any real estate.”” Mr. Justice Dorkin said:
[W]e have here to deal merely with the wording of a Quebec statute, and with
its application to the machinery of our Quebec Courts of law. In section 17 we
read “privileged claims” and “hypothec;” in form B, “do hereby mortgage and
hypothecate” rendered in French as “engage, mortgage and hypothue.” The
one word that has not for us a clear meaning of its own, is the word
“mortgage.” Was it used to convey the notion of a vente a rimir, the nearest
approach we have to a fair equivalent for the English mortgage? Had it been, it
could not have been put with the word hypothec, as it is. The two things are no
match. What is sold i rimr6 is not hypothecated; and what is hypothecated is
not sold & rimiro … The transaction thought of, whatever it may be, cannot at
once be both. In a word, for all ends of judicial interpretation, we have no
choice but to hold that the Legislature meant the word as a mere equivalent for
the word hypothec, and must confine ourselves, in our application of it, to that
meaning.”
This decision was overruled in the Quebec Court of Appeal on the question of
seizability of the railway but not as to the expression of the principles last noted. Mr.
Justice Ramsay, supporting Chief Justice Sir A. A. Dorion to the effect that the rail-
way was seizable, then added:
When the title “of obligations” was being prepared, the incorrect expression
mortgage was carefully excluded, as expressing something quite different from
hypothque, and there being no English word, the word “hypothec” was bor-
rowed from the Scotch law.’
s’ See also Hatherton v. Temiscouata Railway Co. (1896), 12 C.S. 481 [hereinafter Hatherton],
holding that debenture trustees are not merely agents and attorneys of debentureholders (ibid. at 489).
n Drummond (County of) v. South Eastern Railway Company (1878), 22 L.C.J. 25 (Sup. CL)
[hereinafter Drummond].
33Richelieu, Drummond andArthabaska Ry. Co. Act, S.Q. 1869, c. 56, s. 17.
Richelietu Drummond and Arthabaska Ry. Co. Amendment Act, S.Q. 1872, c. 51, s. 2, amending
South Eastern Counties Junction Railway Company Act, S.C. 1866, c. 100.
” Drummond, supra note 82 at 32.
16Drwnond (County of) v. South Eastern Railway Company (1879), 24 LC.J. 276 at 285 (C.A.).
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J.B. CLAXTON – THE CORPORATE TRUST DEED IN QUEBEC
823
b. Post-S.C.P.A.
In 1914, the provisions of the Quebec Joint Stock Companies, General Clauses
Act and The Quebec Companies’Act were expanded to empower a corporation gen-
erally to secure its bonds, debentures or other securities by hypothec, mortgage or
pledge of its properties, moveable and immoveable, present and future, by trust deed
in favour of a trustee. These particular powers were then recast as a special statute of
general application to most corporations; this became the S.C.P.A. in 1925.’ The
provisions did not define the characteristics of the trust deed, nor of the powers of the
trustee. In 1924, these provisions were amended with retroactive effect to empower
the borrower to “cede and transfer” his properties to the trustee “for the same pur-
poses”, permitting the trustee, in the event of default, to take possession, to administer
and sell the charged property “for the benefit of the bondholders”.’
The leading case on subsequent corporate-trust-deed construction is Lalibertg v.
Larue.” The facts are of interest. Les Appartements Lafontaine issued mortgage
bonds under a trust deed with the Sun Trust Company and subsequently became
bankrupt. The bankruptcy trustee, without opposition from the bond trustee, sold the
property as an asset of the bankrupt’s estate. Certain of the bondholders sued to set
aside the sale, alleging that the earlier “cession and transfer” under the trust deed had
removed the property from the issuer/bankrupt’s estate. On the direction of the Su-
preme Court of Canada, the bond trustee was named a party. The bond trustee attested
that in its discretion it did not oppose the bankruptcy sale, as such sale would clear a
number of prior-ranking privileges. The Quebec Court of Appeal had rejected the ac-
tion on the ground that, by the terms of the trust deed, only the trustee could take such
proceedings, unless holders representing at least twenty-five percent of the bonds
posted security for costs and possible damages; these conditions had not been met.’
In the circumstances, the status of the trustee and his power to take proceedings were
not at issue.
The principal decision of the Supreme Court was rendered by Mr. Justice Rinfret
(as he then was). The findings of the Supreme Court were extensive and may be
summarized as follows:
1.
The clause restricting the right of the bondholder to sue is normal and assures
the trustee the discretion to act in the best interests of all bondholders gen-
erally. The Court of Appeal’s finding that the appellant bondholders did not
fulfil the trust-deed conditions to permit them to sue in the stead of the trus-
tee was well founded (unless the appellant could show the property sold did
not form part of the debtor’s estate). The company contracts with the trustee
to this end:
Elles ont pour but d’assurer au fiduciaire la discretion convenue dans 1’exercice
de ses pouvoirs et surtout de concentrer entre ses mains I’institution des proc6-
‘7 See supra note 3.
“S.Q. 1924, c. 63, supra note 3, s. 1.
‘9 Laliberti v. Larue, supra note 14.
9Laliberti v. Larue (1930), 48 B.R. 390.
MCGILL LAW JOURNAL / REVUE DE DROITDE MCGILL
[Vol. 42
dures et 1’adoption contre la compagnie des recours exig6s par les circonstan-
ces, afin d’6viter pr6cis6ment que le bon fonctionnement de ]a fiducie ne soit
compromis par les activit~s d’une petite minorit6 ou meme d’un seul des por-
teurs d’obligations, dont le nombre et le personnel varient suivant le jeu des
n~gociations. II est reconnu que ces stipulations tendent A prot6ger l’int&& gd-
nral.9
2.
It is the contract (trust deed) that must determine the relationships between
the bankrupt, the trustee and the bondholders. Mr. Justice Rinfret stated:
3.
4.
5.
6.
[C]’est le contrat, et non le statut, qui doit determiner la nature des relations de
la faillie, du fiduciaire et des porteurs d’obligations.
I peut etre utile toutefois de r&6rer au statut pour mieux pln~trer le sens du
contrat, car il est av&r que ce dernier est calqu6 sur le premier …’
Quebec law does not admit of the common-law concept of the division of
property between beneficial ownership and legal title. Title in Quebec is sin-
gular and unique. On occasion it is subject to various real rights.”‘
The “hypothec, mortgage [nantissement in French] and pledge” of the
S.C.P.A. are purely the ordinary civil-law devices, with the innovation that
they extend to moveable property and to future property and leave the debtor
with their possession and use:
[CI’est l’hypothque telle qu’elle a toujours exist6, ce sont le nantissement et le
gage tels qu’ils ont toujours dt6 congus dans le droit frangais et dans le regime
16gal de la province de Quebec.9’
The term “mortgage” used in the English version of the S.C.P.A. is confusing
and inappropriate and does not introduce the common-law notion of mort-
gage.”
The permission to grant such charges by “trust deed” in favour of a “trustee”
does not introduce the common-law concept of trusts, but is merely the name
given to the contract:
Elles n’impliquent donc aucunement le “trust”, tel qu’on l’envisage en droit
anglais. Le statut dit que l’hypoth~que, le nantissement ou le gage “peuvent
8tre constitus” par “acte de fid~icommis” et la version anglaise s’exprime: “by
trust deed”. II est A peine besoin d’insister pour d~montrer que c’est seulement
un nor ou une dtiquette que l’on donne au contrat. Le “trust”, sauf dans la
forme restreinte oa on le trouve au chapitre de la fiducie (Code civil, livre troi-
si~me, titre deuxi~me, chapitre IVa), n’a jamais exist6 dans le syst me legal de
la province de Quebec, qui ne comprend d’ailleurs aucun m~canisme
(machinery) pour le faire fonctionner.”
9’Lalibertd v. Larue, supra note 14 at 14.
92 kid at 15.
” See ibid. at 16.
94Ibid at 17.
“See ibid.
9Ibid at 17-18.
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J.B. CLAXTON – THE CORPORATE TRUST DEED IN QUEBEC
825
7.
8.
9.
10.
The “conveyance” [“transporter” in French] in trust permitted by the Civil
Code of Lower Canada for dispositions of property by will and by gift (98 1a
C.C.L.C.) is different and less qualifiedY By inference this is not such a
transfer and the rules of such a trust do not apply.”
The right to “cede and transfer for the same purposes the said properties to
the trustee” means to guarantee payment of the bonds and does not involve
an absolute cession and transfer or alienation of the property. It does not exist
separately from “hypothecate, mortgage and pledge” as both are “for the
same purposes”, that is, to secure:
“Pour les mitmesfins” r~ffrent aux “fins mentionn~es auxdits articles”, qui les
prcWtent imm~diatement dans la meme phrase. Or, “les fins mentionn6es
auxdits articles” et pour lesquelles la compagnie est autorisde
“hypoth~quer,
nantir et mettre en gage” sont (art. 10): “pour garantir le paiement des bons,
obligations etc”. Ceder pour garantir, transporter pour garantir, c’est Ia meme
chose que c&ler ou transporter en garantie; et ce n’est pas c&Ier et transporter
d’une fagon absolue. Une cession ou un transport pur et simple est final et
constitue une alination d6finitive. Une cession ou un transport en garantie
implique une ide de retour. Les mots “cder et transporter” ne sont done pas
employ~s ici dans leur sens integral et ne signifient pas une alienation de Ta
pmpit6.”
The added right “to take possession of the property ceded and transferred to
administer and to sell them for the benefit of the bondholders” functions to
afford the trustee these powers when granted by the deed; these powers are
not normally available to the holder of a hypothec or pledge. These powers
affirm that the rights are hypothecary in nature.'”
The cession and transfer contemplated by the S.C.P.A. does not embody the
common-law concept of a transfer in trust. An analysis of the trust deed re-
veals clearly that the trust deed is a contract of loan and hypothec and not
one of alienation making the trustee owner.
Bien entendu, ce n’est pas le “trust” dans le sens du common law. Le texte
meme de l’article 13 le prouve. I1 est admis que jusque 1h le “trust” n’existait
pas dans la loi de Quebec. Or, l’article 13 est d~claratoire. II spcifie qu’il
n’institue aucun droit nouveau. I1 dit que ce qui est permis par cet article “est et
a toujours W loisible”. Ce ne peut dont [sic] etre le “mrst”.’01
In consequence, the charged property never ceased to be property of the
bankrupt.
9, See ibid at 20. The court held that on this point the Privy Council decision in Re O’Meara v.
98This effectively overruled the decision in Turgeon v. Vermette (1928), 31 R.P. 191 (Sup. Ct.).
Bennett, [1922] 1 A.C. 80 at 85 was instructive.
Lalibertj v. Larue, supra note 14 at 19.
0 See ibid
“‘ Ibid at 20.
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11.
The corporate trust deed is an enforceable sui generis contract. Mr. Justice
Rinfret made the following important general statement:
Par 14, il est devenu certain qu’un contrat de ce genre pouvait se faire. C’est un
contrat particulier avec des stipulations sp6ciales, en dehors de celles pr6vues
dans les chapitres du code relatifs au nantissement, au gage et A 1’hypoth~que,
mais restant quand meme subordonn6 aux r~gles du droit commun dans ses
principes g6n6raux et dans tout ce qui n’est pas ddclar6 y d&oger express6-
ment.”
This construction of the S.C.PA. and trust deeds written thereunder is entirely
consistent-with the pre-1914 judicial construction of the various special statutes exam-
ined earlier. Some of these statutes involved terminology borrowed from common-
law jurisdictions that presented much greater problems of synthesis with civil-law
concepts than did the language of the S.C.P.A. It is curious that the Supreme Court of
Canada made no reference whatsoever to these earlier decisions.
Lalibertj v. Larue is still the leading, and indeed the landmark, case on the char-
acterization of the security under the corporate trust deed as known to this day. It was
followed by the Supreme Court again in 1962 in General Trust of Canada v. Roland
Chalifoux Lte.,3 which also noted that property charged under the S.C.P.A. remained
part of the debtor’s assets and constituted the common pledge of its creditors.’ Lali-
berti v. Larue has been followed in every subsequent case.'”
Thus both before and after the adoption of the S.C.P.A. our courts determined that
the charges under the special legislation were to be equated to and construed as hy-
pothecs. Such charges represented not the strict hypothecary charge contemplated by
the Civil Code of Lower Canada, but a charge (not involving a transfer of title) on
property of whatever kind, without dispossession, and, if contracted for, the additional
right of entry into possession and sale after default. A further step had been taken in
synthesizing the provisions of the special legislation and the traditional institutions of
Quebec’s civil law.
The judicial characterization of the charges under a trust deed as a form of hy-
pothec or pledge without possession has proved to be an acceptable solution. Indeed,
the existing jurisprudence based on LalibertJ v. Larue should apply as regards the
status and effect of the charges under the many thousands of trust deeds that are now
outstanding. Following reform, the remedies resulting from such charges are now
commuted to those found for enforcement of hypothecs under the C.C.Q. Regardless
of the language of the charging clauses under outstanding trust deeds, the remedies
available to the trustee are to take possession of the charged property in order to ad-
minister it, to take it in payment of the claim, to have it sold by judicial authority or to
sell it by private sale (2748). The procedures prescribed by the C.C.Q. must be fol-
2 Ibid
103 [1962] S.C.R. 456.
” See ibid at 460.
,O A review of Quebec jurisprudence to the end of 1996 revealed there were at least 95 reported
cases that followed or cited Laliberti v. Larue.
1997]
J.B. CLAxTON – THE CORPORATE TRUST DEED IN QUEBEC
827
lowed and the effects decreed by the C.C.Q. will result. All such results will flow
from any outstanding trust deed where the charging language contains any of the
words “hypothecate”, “pledge”, “mortgage”, “charge”, “cede”, “transfer” or the
equivalent, provided that it is clear in the context that the conveyance or charge is al-
ways “as security” for an obligation.
3. Trustee’s Right to Sue
It is a fundamental maxim of law in the western world, both civil law and com-
mon law, that “there is no right without a remedy”.'” Article 20 of the Code of Civil
Procedure (“C.C.P.”) reflects this principle in providing that when the law expresses
no specific procedure at law for the exercise of any right, any proceeding may be
adopted which is not inconsistent with the C.C.P. or some other provision of law.
There are also several related principles, at least in Quebec civil law, that are per-
tinent here. The first is the reciprocal principle, that to bring an action at law one must
have sufficient interest (art. 55 C.C.P.). The second (art. 59 C.C.P.) is that one cannot
use the name of another to plead (personne ne plaide par procureur), except in spe-
cifically enumerated cases, all of which have been sanctioned by amendment over the
years.” A third related principle is that every person has the full enjoyment of, and is
fully able to exercise, his civil rights and cannot, in anticipation of the opening of
such right, renounce such rights (art. 1, 4, 8 C.C.Q.). Although newly framed by the
C.C.P., these principles are not new to our civil law. The courts have fairly consis-
tently found that, in the absence of express legislation, a person cannot transfer, or in
anticipation renounce, his right to take proceedings.'”
An obvious and essential aspect of the foregoing principles is that the remedy (the
right to take proceedings at law) is an inherent part of the right giving rise to the pro-
ceedings.”‘ Normally the one is not separated from the other and both vest in the same
party.
‘0’ “Ubi jus ibi remediun’. See L.-P. Pigeon, Ridaction et interpretation des lois (Quebec: Publica-
tions du Qubec, 1986) at 23; A. Mayrand, Dictionnaire de maximes et locutions latine utilisies en
droit, 3d ed. (Cowansville, Que.: Yvon Blais, 1994) at 518; E. Garsonnet, De procidure, 2d ed., vol. 1
(Paris: L. Larose, 1898) at para. 290; A.V. Dicey, Law of the Constitution, 9th ed. (London: MacMil-
lan, 1927) at 198-99; H. Manisty, ed., Broom’s Legal Maxims, 7th ed. (London: Sweet & Maxwell,
1900) at 150; Board v. Board, [1919] A.C. 957 at 962; American Cyanamid v. Novopharm Ltd,
[1972] C.F. 739 at 746 and at 770 n. 4 (C.A.).
‘o’ The exceptions are: the case of the State, class actions, the case of tutors, curators and others not
in the full exercise of their rights and the case of those administering the property of others in respect
of their administration. This last item was added by the Implementation Act, supra note 7, s. 190.
… This, more than another factor, led the Quebec courts to find compulsory arbitration clauses in-
valid (see P. Ferland, “La controverse au sujet de la validit6 de la promesse d’arbitrage” (1973) 33 R.
du B. 136). The invalidity was ultimately overcome by express legislation, completed only in 1986, in
An Act to amend the Civil Code and the Code of Civil Procedure in respect of arbitration, S.Q. 1986,
c. 73 (see art. 940ff. C.C.P.).
” In proceedings that are, to a degree, analogous, the Supreme Court held that the right to sue was
inherent in the federal law of bills of exchange, that it was a substantive right, and could not be inter-
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In Quebec law prior to reform, a significant exception to this principle evolved
through the jurisprudence. It involved the position of a “trustee” as one acting for “the
benefit of’ the creditor or creditors. There were two separate circumstances in which
the exception arose.
a. Trustee for Creditors of an Insolvent
The first circumstance concerned a number of cases where the power of a trustee
for creditors of an insolvent, who entered into a voluntary deed of assignment of all
assets of the insolvent to recover assets forming a part of the insolvent’s estate, was
put in question. It was repeatedly argued that the trustee was merely an agent or man-
datary for the creditors and could not sue in his own name while acting on behalf of
the creditors. The rule personne ne plaide parprocureur was invoked in each case.
Four such cases went to the highest courts. In Browne v. Pinsoneault”‘ and in
Burland v. Moffatt’ the Supreme Court of Canada applied the rule. In Porteous v.
Reynar,”‘ however, the Privy Council affirmed that a trustee for creditors, acting un-
der a voluntary contract, could sue in his own name for recovery of monies owing to
the insolvent.'” Lord FitzGerald, after expressly declaring that the two cases first
noted were wrongly decided by the Supreme Court (Sir Elz~ar Taschereau J.),
adopted by reference the decision of Dorion C.J.A. in the Quebec Court of Appeal in
Moffatt v. Burland (1884). There, the Chief Justice, after an extensive review of both
Quebec and French authorities, stated:
As far as we can refer back for precedents in the Courts of Lower Canada, we
find that assignees or trustees vested by voluntary agreements with the estate of
insolvent debtors, for the benefit of their creditors, have invariably with one or
two exceptional cases … been admitted to urge before Courts of Justice the
claims and rights of the estates which they represented as such assignees or
trustees.’
4
Lord FitzGerald in Porteous v. Reynar then said:
Their Lordships entertain the view that art.19 [now art. 59 C.C.P.] is applicable
to mere agents or mandatories who are authorized to act for another or others,
and who have no estate or interest in the subject of the trusts, but is not appli-
cable to trustees in whom the subject of the trust has been vested in property
fered with by provincial legislation (see A.G. Alberta v. Atlas Lumber Co. (1940), [1941] S.C.R. 87, 1
D.L.R. 625, Rinfret J.).
“.. (1879), 3 S.C.R. 102.
..’ (1885), 11 S.C.R. 76.
1,2 (1887), [1888] 13 A.C. 120, [1890] 16 Q.L.R. 37 (RC.) [hereinafter cited to A.C.].
‘”The trustee was acting under a voluntary deed of composition, joined in by the insolvent and the
official insolvency assignee under The Insolvency Act (S.C. 1875, c. 16).The trustee’s powers were
derived from the contract, not from the Act.
“‘ Moffatt v. Burland, [1884] 4 Q.B.R. Dorion 59 at 68-69.
1997]
J.B. CLAXTON – THE CORPORATE TRUST DEED IN QUEBEC
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and in possession for the benefit of third parties, and who have duties to per-
form in the protection or realization of the trust estate.”5
The question once again came before the Supreme Court in Mitchell v. Holland”‘
in 1889. Mr. Justice Taschereau then affirmed the right of a trustee for creditors
(pursuant to a voluntary general assignment by an insolvent) to sue for the recovery
of hypothecary debts for a balance of price of the sale of land.”7
The judgment of Chief Justice Dorion in the Quebec Court of Appeal in Moffatt
v. Burland is of further interest in that he attempted to characterize the position of a
trustee in these cases. In speaking of the deed of general assignment, he said:
This is not an ordinary Power of Attorney, it is a deed conveying to the Appel-
lant a title or at least an apparent title to the property therein mentioned, which
gave him a right to claim this property as his own from all other parties except
Gebhardt & Co. and their creditors, to whom he was bound by the trust created
by the deed, but to no others.
At most this was but an irrevocable mandate, resulting from a contract between
parties having adverse interests.
It would be a contradiction to say that the mandate is irrevocable, and yet that
those who gave it must sue to recover the assets which form the subject of it,
and thereby indirectly remove from the control of their agent, those assets,
while they cannot revoke his powers to deal with them. In the present case by
whom should the suits be brought; is it by Gebhardt & Co., but the deed was
passed for the very purpose of removing their estate from their control; is it the
creditors, but no transfer has been made to them of the estate. They have been
satisfied with accepting the delegation by which the Appellant agreed to realize
the estate conveyed to him, and pay them the proceeds to the extent of their re-
spective claims.
It is upon these grounds that voluntary assignments by insolvent debtors, for
the benefit of their creditors, have always been considered both in France and
in this country, as conferring to the assignees (cessionnaires) the right to sue
and be sued with reference to the assets and property assigned.”‘
” Supra note 112 at 131.
116 (1889), 16 S.C.R. 687 [hereinafter Holland]. These decisions were further examined at some
length by Mr. Justice Jean Martineau in the Court of Appeal in Cyr v. Weldon (1956), [1957] B.R. 477
at 487ff., as to the application of the principle personne ne plaide parprocureur.
,,7 Justice Taschereau, Holland, ibidc at 696, felt obliged to assert that the Privy Council had misun-
derstood the basis of his decisions in the earlier cases. He expressly noted that he had held in Burland
v. Moffatt (supra note 111) that the trustee could not sue in a creditor’s action to rescind a sale made
by the insolvent in fraud of the rights of the creditors since, being merely the assignee of the debtor
not under the Insolvency Act, he had no more rights than the assignor had. He then acknowledged that
the trustee, as assignee of the insolvent, could always take suit respecting the property rights trans-
ferred.
“‘ Moffatt v. Burland, supra note 114 at 80-82.
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Two noteworthy principles emerge from this line of cases. First, a trustee for
creditors under a voluntary assignment by an insolvent may sue in his own name. He
may do so even though he has no personal interest in the estate assigned since, by his
trust, he acts for the creditors. He may have ostensible title to the estate, but only as
representative of the creditors. Second, the instrument of assignment is constantly re-
ferred to as imposing a trust. The nature of the trust, its characteristics, and the charac-
teristics of the property rights vested in the trustee were not disputed. It was merely
assumed that the trustee had a fiduciary duty to discharge the trust according to the
terms of the contract. The trustee’s position, however, was likened to that of an ir-
revocable mandate conferred by the insolvent for the benefit of his creditors and, per-
haps by inference, by the creditors for the pro rata satisfaction of their claims to the
extent of the assets recovered and liquidated.
b. Trustee for Debentureholders
The second circumstance in which the exception arose was where both the right
constituting the crdance and the right to sue on the crdance arose under a trust deed
providing for the issue of debentures. The crdance is reflected by the debentures and
vests in the debentureholder. The right to take proceedings to enforce the debenture-
holder’s claim vests in the trustee under the trust deed.
The first such case was that of Hatherton v. Temiscouata Railway Co.”9 The rail-
way, authorized by special act'” to issue bonds secured by a conveyance (cession) of
the railway to trustees by trust deed, while remaining in possession defaulted on two
series of bonds issued in London. Suit for certain payments and possession was insti-
tuted by the trustees. The defence questioned their right to sue. Cimon J., of the Su-
perior Court, relying on Porteous v. Reynar,” based his decision entirely on a con-
struction of the contract. He stated:
Ces fid6icommissaires sont investis des titres A tous les droits, privil6ges et
cr6ances stipul6s aux dits actes (trust deeds) en faveur des porteurs de d6bentu-
res; et ils ont, notamment, le devoir d’agir en leurs nons, s-qualitds, pour insti-
tuer en justice les actions requises pour ]a bonne execution de leur fid~icom-
mis, et pour forcer la d6fenderesse d’accomplir les obligations qu’elle a assu-
mes dans ces deux actes.’
But the most significant decision relating to the bond trustee’s right to sue was
that of Trois Rivi~res (Citd de) v. Sun Trust Company.” The case went to the Supreme
Court of Canada on the question of the construction of a guarantee of the City of
Three Rivers (Trois Rivi~res).u However, it is the Quebec Court of Appeal decision
that is of particular interest. The Three Rivers Shipyards defaulted on payment of its
‘.. Supra note 81.
120 S.C. 1887, c. 71, ss. 14ff.
,’ Supra note 112.
‘2 Hatherton, supra note 81 at 483.
‘2’ (1922), [1923] 34 B.R. 351 (C.A.).
12. See Three Rivers (City of) v. Sun Trust Company, [1923] S.C.R. 496.
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J.B. CLAXTON – THE CORPORATE TRUST DEED IN QUEBEC
831
bonds, which were guaranteed by the city and issued under a trust deed pursuant to
the S.C.P.A. Suit by the trustee was contested by the city on the grounds that, in view
of article 81 (now article 59) C.C.P., the trustee, being the representative of the bond-
holders, had no right to sue. Chief Justice Lamothe disposed of this defence with the
following statement:
La convention des parties consacre le droit de la compagnie intim~e de deman-
der judiciairement l’accomplissement des obligations contractes. C’est envers
la Sun Trust Company, que la dite ville s’est obligde; c’est A cette compagnie
qu’elle doit payer le capital et les intr&ts en cas de dffaut du d6biteur principal;
c’est la Sun Trust Company qui est autorisfe
donner quittance. Ces sortes
d’actes sont devenus frequents. La jurisprudence a toujours consid&6r
le fidu-
ciaire choisi par les deux parties comme 6tant le veritable crfancier. Les por-
teurs des debentures sont inconnus; ils changent constamment par le simple
transport du document constatant l’obligation. Comme dans la cause de Por-
teous v. Raynor (sic], ce fiduciaire est le vritable crancier, c’est h lui seul que
le dfbiteur principal ainsi que la municipalit6 ont affaire.'”
The trust deed contained the usual clause restricting the bondholders’ right to sue to
circumstances where the trustee failed to do so. Here the court relied upon the con-
tractual right of the trustee to obtain payment from the guarantor.
Mr. Justice Martin, on the issue of the trustee’s power to sue, held as follows:
Since the decision of the Privy Council in the case of Porteous v. Reynard [sic],
overruling as it did the decisions of the Supreme Court in the cases of Browne
v. Pinsonneault and Burland v. Moffatt, and what was said by the Supreme
Court in the later case of Mitchell v. Holland, I do not think it has ever been se-
riously contended, except in the present case, that a trustee for bondholders
could not maintain an action as such trustee to enforce the provisions of the
trust deed. Later cases have followed these decisions. In Hatherton v. Temis-
couata Railway, the late Mr. Justice Caron, in his usual able and exhaustive
manner, dealt with this question. 12 6
Thus the courts reconciled the contractual scheme of the corporate trust deed with
Quebec’s civil law by recognizing the right of the trustee to sue, even though the
trustee is not the ultimate holder of the debt. One further large step of reconciliation
was achieved.
As noted earlier, the trustee’s right to sue was reaffirmed, to a degree, by sections
27 to 31 of the S.C.P.A. Through the various stages of reform, these provisions were
repealed.”7 But in the process the principle personne ne plaide par procureur was
modified. Article 59 C.C.P. now contains an exceptional paragraph expressly sanc-
tioning the right to sue of trustees, curators and others representing persons who are
not fully able to exercise their rights to plead. In particular, the following sentence
was added:
‘”Trois Rivi~res (Citg de) v. Sun Trust Company, supra note 123 at 352-53.
26 Ibid at 356 [footnotes omitted]. Mr. Justice Martin also cited Fysche v. Tombyll, [1900] 6 R. de I.
556 (C.S.); Levis County Railway Company v. Fontaine, [1904] 13 B.R. 523 [hereinafter Levis].
‘ See supra notes 3 and 7.
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MCGILL LAW JOURNAL! REVUE DE DROITDE MCGILL
[Vol. 42
I1 en est de meme de ‘administrateur du bien d’autrui pour tout ce qui touche A
son administration…
This also applies to an administrator of the property of others in respect of
anything connected with his administration ……
Thus the trustee’s power to sue on behalf of the debentureholders continues to be rec-
ognized following reform. However, to achieve certainty it is important that the trust
deed define these powers as well as the trustee’s responsibilities. In our history of
trust-deed litigation, the most constant theme developed by the courts is that the in-
tention of the parties governs their rights and that their intentions must be determined
by reference to the express language of the trust deed, as understood within the civil
law.'” Reform has not changed this principle.
4. Characterization of the Relationship between the Trustee, the
Issuer and the Debentureholder
The process of synthesizing the concept of three-party corporate trust financing
with the traditional institutions of Quebec’s civil law led inevitably to judicial consid-
eration of the trustee’s relationship to the issuer-debtor on the one hand, and the
bondholder, on the other.
a. Trustee As Veritable Creditor
In 1923, in Trois Rivikres (Citj de) v. Sun Trust Company,'” the Quebec Court of
Appeal held that jurisprudence had always considered the trustee the veritable credi-
tor.'”‘ More recently, in Zoltom Investments Inc. v. Rodgers,”‘ Mr. Justice Lamer (then
of the Quebec Court of Appeal) held that a Quebec trustee for foreign bondholders
need not post security for costs: “[q]uoique repr6sentant des obligataires le fid6i-
commissaire en sa qualit6 de cr6ancier d1616gu6 et le v6ritable demandeur.’ “‘ He also
stated:
‘ lmplementationAct, supra note 7, s. 190.
“9 See Hatherton, supra note 81; Drummond, supra note 82; Levis, supra note 126; Lalibertd v.
Larue, supra note 14; Perron v. l’Eclaireur (Lte) (1933), [1934] 57 B.R. 445; Quebec Productions
Corporation v. Lavigne (1971), [1972] C.A. 172; Ivey v. R., [1938] 76 C.S. 543, rev’d [1939] 66 B.R.
37, 1 D.L.R. 631.
‘” Supra note 123.
.’ Three subsequent Superior Court cases suggested strongly that he was not the creditor for pur-
poses of a 60-day notice under article 1040A C.C.L.C. The 60-day-notice question was decided in the
opposite sense in three further cases (see L. Payette, “La fiduciaire pour obligataires et l’avis de soix-
ante jours” (1971-72) 74 R. du N. 412 and the unreported judgments appended thereto; J.R. Hannan,
“Trust Deed Security and Competing Creditors” in Corporate Debt Financing, supra note 5, 29).
Contra: Snowlarks Ski School Inc. v. Mont Gabriel Lodge (1973) Inc., [1975] C.S. 790; Imneubles
Patenaude Lte. v. Trust Gingral du Canada, [1975] C.S. 983; Gauthier v. Banque canadienne na-
tionale, [1978] C.S. 875.
tions Epoxyde Beaudry Inc. (6 July 1984), Terrebonne 700-05-002009-821, J.E. 84-790 (Sup. Ct.).
‘ [1979] C.A. 534 [hereinafter Zoltom]; see also Sous-ministre du Revenu du Qudbec v. Formula-
33Zoltom, ibid at 536.
1
1997]
JB. CLAXTON – THE CORPORATE TRUST DEED IN QUEBEC
833
De l’ensemble de la jurisprudence il est depuis longtemps accept6 que le fid6i-
commissaire ne plaide pas au nom d’autrui mais en son propre nom s qualit~s
de repr~sentant de la masse des obligataires. I1 est, pour ainsi dire, en vertu de
l’acte de fid6icommis … de cr~ancier
fiduciaire>. Sans pour autant poss~der tous les attributs du
mon Law qui r~sultent du morcellement du droit de propridt6 en <
