The Supreme Court of Canada has upheld a case from the Quebec Court of Appeal and has ruled that RRSP contributions can be used as security for a loan.

The case, known as Caisse Populaire Desjardins de Val-Brilliant v. Blouin, centered on whether security may be taken against RRSP deposit certificates — a non-negotiable instrument. It involved two Caisse clients that signed a statement establishing the terms of the standard RRSP offered by the Caisse.

The contributions were to be deposited in a retirement savings account at the Caisse and four deposit certificates were issued in the name of Desjardins Trust, which could not be withdrawn before maturity and were non-negotiable and non-transferrable.

The certificates stated that the deposits could be given as security only to the Caisse and not to any other creditor.

Before maturity, the annuitants took a loan from the Caisse and signed over moneys accumulated in a retirement savings plan as security.

But subsequent to taking the loan, the annuitants went bankrupt. The Caisse then completed the RRSP withdrawal forms. After remitting the value of the loan to the Caisse, and withholding the proper amount of tax, Desjardins Trust issued tax statements regarding the use of the RRSPs as security and extinction of the security.

But the trustee rejected the Caisse’s claim as a secured creditor. The Superior Court ruled in favour of the Caisse, but the Court of Appeal restored the trustee’s decision.

The Supreme Court in a 4-3 split decision, ruled in favour of the Caisse. The court looked to the Quebec Civil Code for guidance. The requirements that must be met in order for a security to be set up against the debtor of the claim, said the court is found in the Code and “does not require that complex formalities be followed…”

“In this case,” wrote Justice Charles Gonthier for the majority, “in addition to handing over the certificates of deposit to the Caisse, the debtors agreed that the Caisse had sole authority to collect the claim from Desjardins Trust, and that the Caisse was irrevocably authorized to do so in the event of default. That contract was brought to the attention of Desjardins Trust’s representatives, who agreed to it.”

The dissenting S.C.C. judges argued that the Caisse did “not really have control of the security interest simply by holding the deposit certificates. The certificates set out the rights of Desjardins Trust and of the annuitants, but the Caisse does not, merely by holding them, acquire any right that would allow it to collect the capital at maturity without performing any formality.” Therefore, they argued the security interest in the deposit certificates is “not valid.”