Judgments

 [2012] 1 F.C.R. 197

A-490-09

 2010 FCA 174

Toronto-Dominion Bank (Appellant)

v.

Her Majesty the Queen (Respondent)

Indexed as: Toronto-Dominion Bank v. Canada

Federal Court of Appeal, Blais C.J., Noël and Trudel JJ.A.—Montréal, June 9; Ottawa, June 30, 2010.  

Customs and Excise — Excise Tax Act –– Appeal from Tax Court of Canada (T.C.C.) decision dismissing appellant’s appeal from assessment issued under Excise Tax Act (Act), s. 317 for failure to comply with requirement to pay — Quebec company owing Quebec Minister of Revenue $12 014.93 — Minister sending appellant requirement to pay pursuant to Act, s. 317(1), (3) but appellant not complying therewith — After company filing notice of intention to make bankruptcy proposal under Bankruptcy and Insolvency Act (BIA), appellant receiving notice to stay requirement to pay — Minister issuing appellant notice of assessment but appellant objecting thereto — Whether conflict existing between requirement to pay under Act, s. 317, BIA — Words “other than the [BIA]” in Act, s. 317(3) interpreted to resolve issue herein — Powers set out at Act, s. 317(3), Income Tax Act, s. 224(1.2), when validly exercised, having effect of transferring ownership to Crown of moneys subject to requirement to pay on receipt thereof by garnishee — While Parliament intending that unpaid source deductions identified at Income Tax Act, s. 224(1.2) be subject to power at all times—both before, after bankruptcy—also intending that equivalent power under Act, s. 317(3) only be exercised before bankruptcy — No conflict existing between Act, s. 317(3), BIA — In present case, since appellant receiving requirement to pay before notice of stay filed, T.C.C. rightly concluding that respondent becoming owner of moneys required before bankruptcy occurring, that moneys not part of tax debtor’s patrimony at time of bankruptcy — Appeal dismissed.

Construction of Statutes — Requirement to pay under Excise Tax Act (Act), s. 317(3) sent to appellant — Appellant subsequently receiving notice to stay that requirement from trustee in bankruptcy — Whether Bankruptcy and Insolvency Act (BIA), s. 70(1) giving priority to assignment of tax debtor’s property over requirement to pay — Meaning of words in Excise Tax Act, s. 317(3) “other than the [BIA]” determined — Legislative, jurisprudential context surrounding adoption of Act, s. 317(3) considered — Words “other than the [BIA]” not inserted in s. 317(3) to give precedence to BIA in event of conflict since no conflict possible — Purpose of this phrase to prevent Crown’s power set out in s. 317(3) from being exercised after bankruptcy.

This was an appeal from a Tax Court of Canada (T.C.C.) decision dismissing the appellant’s appeal from an assessment issued under section 317 of the Excise Tax Act (Act) for failure to comply with a requirement to pay. A Quebec company owed $12 014.93 to the Quebec Minister of Revenue (the Minister), which sent the appellant a requirement to pay in December 2007 pursuant to subsections 317(1) and (3) of the Act. The company had less than $9 000 deposited in its bank account with the appellant. The company thereafter filed a notice of intention to make a proposal to its creditors under the Bankruptcy and Insolvency Act (BIA). The trustee of the company’s proposal sent the appellant a notice to stay the requirement to pay. The appellant did not comply with the requirement to pay. In April 2008, the Minister issued a notice of assessment to the appellant and the appellant filed an objection thereto. While the objection was dismissed, the assessment was reduced. A reassessment was made in September 2008.

The appellant argued before the T.C.C. that because it still had not paid the amount claimed by the Minister when it received the notice of stay regarding the requirement to pay, subsection 70(1) of the BIA prevailed according to the very language of subsection 317(3) of the Act, rendering any prior seizure proceedings ineffective. The T.C.C. concluded that, according to the language of subsection 317(3) of the Act, the moneys subject to the requirement to pay were immediately relinquished to the Crown on the appellant’s receipt of the requirement. Those moneys were no longer part of the company’s patrimony when the notice of stay issued under section 69 of the BIA was filed and therefore, there was no conflict between the BIA and the requirement to pay, which remained fully applicable.

The issue was, when the Minister issues a requirement to pay under subsection 317(3) of the Act before a notice of stay under section 69 of the BIA is filed and, on the date of that notice, the payment owing in respect of the requirement to pay still has not been made, does subsection 70(1) of the BIA give priority to the assignment of the tax debtor’s property over the Minister’s requirement to pay.

Held, the appeal should be dismissed.

The issue’s resolution depended on the meaning to be given to the words “other than the [BIA]” as they appear at subsection 317(3) of the Act. The legislative and jurisprudential context surrounding the adoption of the Act’s subsection 317(3) in 1990 and the amendment to subsection 224(1.2) of the Income Tax Act in that same year were considered. The powers set out at subsections 317(3) of the Act and 224(1.2) of the Income Tax Act, when validly exercised, both have the effect of transferring ownership to the Crown of the moneys subject to the requirement to pay on receipt thereof by the garnishee. Parliament had in mind the time when the Crown’s ownership-transferring power may be exercised when it provided, in the case of subsection 224(1.2) of the Income Tax Act, that it applies “[n]otwithstanding … the [BIA]” and, in the case of subsection 317(3) of the Act, despite any enactment “other than the [BIA]”. While Parliament intended that the unpaid source deductions identified at subsection 224(1.2) of the Income Tax Act be subject to this power at all times—both before and after bankruptcy—Parliament also intended that the equivalent power under subsection 317(3) only be exercised before bankruptcy. The words “other than the [BIA]” were not inserted into subsection 317(3) to give precedence to the BIA in the event of conflict since no conflict was possible. The purpose of this phrase was to prevent the power set out at subsection 317(3) from being exercised after bankruptcy. Since the power set out at subsection 317(3) may not be exercised after bankruptcy, it was in keeping with the spirit of the amendments made to the BIA in 1992 to the effect that only source deductions were special and were to be given priority after bankruptcy.

In the present case, since the requirement to pay was received by the appellant before the notice of stay was filed, the T.C.C. rightly concluded that the Crown became the owner of the moneys required before the bankruptcy occurred and that those moneys were therefore not part of the tax debtor’s patrimony at the time of the bankruptcy.

STATUTES AND REGULATIONS CITED

An Act respecting the ministère du Revenu, R.S.Q., c. M-31, ss. 15.3.1, 20.

An Act to amend the Bankruptcy Act and to amend the Income Tax Act in consequence thereof, S.C. 1992, c. 27.

Bankruptcy Act, R.S.C., 1985, c. B-3, s. 1.

Bankruptcy and Insolvency Act, R.S.C., 1985, c. B-3, ss. 1 (as am. by S.C. 1992, c. 27, s. 2), 67(1)(a), (2) (as am. by S.C. 1992, c. 27, s. 33), (3) (as am. by S.C. 1998, c. 19, s. 250), 69 (as am. by S.C. 1992, c. 27, s. 36; 1997, c. 12, s. 62; 2000, c. 30, s. 145; 2005, c. 3, s. 12; c. 47, s. 60; 2007, c. 36, s. 34; 2009, c. 33, s. 23), 70 (as am. by S.C. 1992, c. 27, s. 37; 2004, c. 25, s. 44; 2005, c. 47, s. 63(E)), 86(1) (as am. by S.C. 1997, c. 12, s. 73), (3) (as am. by S.C. 2000, c. 30, s. 148; 2009, c. 33, s. 25).

Excise Tax Act, R.S.C., 1985, c. E-15, ss. 222 (as enacted by S.C. 1990, c. 45, s. 12; 1993, c. 27, s. 87; 2000, c. 30, s. 50), 317 (as enacted by S.C. 1990, c. 45, s. 12; 1992, c. 27, s. 90; 1993, c. 27, s. 133; 2000, c. 30, s. 95).

Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1, s. 224(1.2) (as am. by S.C. 2007, c. 36, s. 108).

Income Tax Act, S.C. 1970-71-72, c. 63, s. 224(1.2) (as enacted by S.C. 1987, c. 46, s. 66; 1990, c. 34, s. 1).

CASES CITED

applied:

Alberta (Treasury Branches) v. M.N.R.; Toronto Dominion Bank v. M.N.R., [1996] 1 S.C.R. 963, (1996), 184 A.R. 1, 133 D.L.R. (4th) 609.

considered:

Québec (Sous-ministre du Revenu) c. Service de garantie Québec inc. (Syndic de), 2009 QCCA 409, [2009] R.J.Q. 597; Wa-Bowden Real Estate Reports Inc. v. Canada, [1997] G.S.T.C. 49, (1997), 5 G.T.C. 1123 (T.C.C.); Absolute Bailiffs Inc. v. Canada, [2002] G.S.T.C. 116 (T.C.C.); Bank of Montreal v. Canada (Attorney General) (2003), 66 O.R. (3d) 161, 229 D.L.R. (4th) 402, 48 C.B.R. (4th) 173 (C.A.); Giguère (Syndic de), [2001] R.J.Q. 2584 (C.A.); Forget (Syndic de) c. Québec (Sous-ministre du Revenu), 2003 CanLII 18072 (Que. S.C.); Quebec (Revenue) v. Caisse populaire Desjardins de Montmagny, 2009 SCC 49, [2009] 3 S.C.R. 286, 312 D.L.R. (4th) 577, 60 C.B.R. (5th) 1.

referred to:

Encor Energy Corp. v. Slaferek’s Oilfield Services (1983) Ltd. (Receiver of) (1994), 34 C.B.R. (3d) 284, [1995] G.S.T.C. 54 (Sask. C.A.); Canoe Cove Manufacturing Ltd. (Re), [1994] 6 W.W.R. 598, (1994), 90 B.C.L.R. (2d) 370, 25 C.B.R. (3d) 260 (B.C.S.C.).

AUTHORS CITED

Sullivan, Ruth. Sullivan on the Construction of Statutes, 5th ed. Markham, Ont.: LexisNexis Canada, 2008.

  APPEAL from a Tax Court of Canada decision (2009 TCC 522, [2009] G.S.T.C. 162, 2010 G.T.C. 10) dismissing the appellant’s appeal from an assessment issued under section 317 of the Excise Tax Act for failure to comply with a requirement to pay. Appeal dismissed.

APPEARANCES

Éric Potvin and André Rousseau for appellant.

Christian Boutin for respondent.

SOLICITORS OF RECORD

Lapointe Rosenstein Marchand Melançon, LLP, Montréal, for appellant.

Ministère du Revenu du Québec for respondent.

The following is the English version of the reasons for judgment rendered by

[1]        Noël J.A.: This is an appeal of a decision by Justice Angers of the Tax Court of Canada (the T.C.C. Judge), 2009 TCC 522, [2009] G.S.T.C. 162, dismissing the appeal of Toronto-Dominion Bank (the appellant) from an assessment issued under section 317 [as enacted by S.C. 1990, c. 45, s. 12; 1992, c. 27, s. 90; 1993, c. 27, s. 133; 2000, c. 30, s. 95] of the Excise Tax Act, R.S.C., 1985, c. E‑15 (the ETA) for failure to comply with a requirement to pay.

[2]        The dispute lies at the heart of a conflict in the case law involving the Court of Appeal of Québec and certain courts of the common law provinces, particularly the Ontario Court of Appeal, on the issue of whether requirements to pay (also called notices of garnishment) served before a tax debtor entered into bankruptcy, but not settled at the time of the bankruptcy, can be set up against trustees and secured creditors.

[3]        In the case at bar, the T.C.C. Judge relied on the decisions by the courts of Ontario, Saskatchewan and British Columbia and by his own court to conclude that, according to the language of subsection 317(3) of the ETA, the moneys subject to the requirement to pay were immediately relinquished to the Crown on the appellant’s receipt of the requirement. Those moneys were no longer part of the tax debtor’s patrimony when the notice of stay issued under section 69 [as am. by S.C. 1992, c. 27, s. 36; 1997, c. 12, s. 62; 2000, c. 30, s. 145; 2005, c. 3, s. 12; c. 47, s. 60; 2007, c. 36, s. 34; 2009, c. 33, s. 23] of the Bankruptcy and Insolvency Act, R.S.C., 1985, c. B‑3 [s. 1 (as am. by S.C. 1992, c. 27, s. 2)] (the BIA), was filed and, consequently, there is no conflict between the BIA and the requirement to pay, which remains fully applicable.

[4]        The appellant is relying primarily on the decision of the Court of Appeal of Québec in Québec (Sous‑ministre du Revenu) c. Service de garantie Québec inc. (Syndic de), 2009 QCCA 409, [2009] R.J.Q. 597 (De Courval), which interpreted analogous provisions of An Act respecting the ministère du Revenu, R.S.Q., c. M‑31 (the AMR). The appellant alleges that the relinquishment in favour of the Crown was subject to section 70 [as am. by S.C. 1992, c. 27, s. 37; 2004, c. 25, s. 44; 2005, c. 47, s. 63(E)] of the BIA, that there is therefore a conflict and that according to the very language of subsection 317(3), the BIA prevails.

[5]        For the reasons that follow, I am of the opinion that the appeal must be dismissed.

RELEVANT FACTS

[6]        The facts are straightforward. For the purposes of this appeal, both parties have adopted the T.C.C. Judge’s summary (reasons, paragraph 1):

(a)     Corporation 9161‑3505 Québec Inc. (hereinafter 9161) with a debt of $12,014.93 to the respondent, the Quebec Minister of Revenue (the Minister), through one of its authorized employees, sent the appellant a Requirement to Pay on December 11, 2007, pursuant to subsections 317(1) and (3) of the [ETA];

(b)     when the Minister sent the Requirement to Pay to the appellant, the appellant had $8,868.19 belonging to 9161;

(c)     on December 24, 2007, 9161 filed a notice of intention to make a Proposal to its creditors under the [BIA];

(d)     on December 24, 2007, the trustee of the 9161 proposal sent the appellant, pursuant to the BIA, a notice to stay the Requirement to Pay;

(e)     the appellant did not comply with the Requirement to Pay from December 11, 2007, to December 24, 2007, although the bank account for 9161 had a positive balance of $8,868.19;

(f)   on April 9, 2008, the Minister issued a Notice of Assessment to the appellant for $6,000.22 pursuant to section 317 of the [ETA] and on April 22, 2008, the appellant filed an objection;

(g)     on or around October 21, 2008, the objection officer dismissed the objection but recommended that the amount of the assessment be reduced to $2,867.97 because the $6,000.22 required had already been assessed pursuant to sections 15.5 and 15.6 of the [ETA] by Quebec’s Ministère du Revenu, as the positive balance in the bank account was only $8,868.19, leaving only $2,867.97 in the account;

(h)     a reassessment was made on September 26, 2008, and is the subject of the current appeal.

[7]        Both at the objection stage and before the T.C.C., the appellant argued that because it still had not paid the amount claimed by the Minister when it received the notice of stay regarding the requirement to pay, subsection 70(1) of the BIA prevails according to the very language of subsection 317(3) of the ETA, rendering any prior seizure proceedings ineffective (appeal book, pages 18 and 66).

STATUTORY FRAMEWORK

[8]        Subsection 317(3) of the ETA, as applicable during the time at issue, reads as follows:

317. …

Garnishment

(3) Despite any other provision of this Part, any other enactment of Canada other than the Bankruptcy and Insolvency Act, any enactment of a province or any law, if the Minister has knowledge or suspects that a particular person is, or will become within one year, liable to make a payment (a) to a tax debtor, or (b) to a secured creditor who has a right to receive the payment that, but for a security interest in favour of the secured creditor, would be payable to the tax debtor, the Minister may, by notice in writing, require the particular person to pay without delay, if the moneys are payable immediately, and in any other case as and when the moneys become payable, the moneys otherwise payable to the tax debtor or the secured creditor in whole or in part to the Receiver General on account of the tax debtor’s liability under this Part, and on receipt of that notice by the particular person, the amount of those moneys that is so required to be paid to the Receiver General shall, despite any security interest in those moneys, become the property of Her Majesty in right of Canada to the extent of that liability as assessed by the Minister and shall be paid to the Receiver General in priority to any such security interest. [Emphasis added.]

[9]        A person who fails to remit the amount required becomes liable to pay that amount (subsection 317(7) of the ETA).

[10]      Subsection 317(3) of the ETA, as reproduced, has remained essentially unchanged since it was introduced in 1990 (S.C. 1990, c. 45). The only changes that have since been made are the following: the words “notwithstanding” and “nonobstant”, which appeared in the original version, were replaced with the words “despite” and “malgré”; in the same text, the means of communicating the requirement was changed (that is, written notice instead of registered letter); and the reference was changed to the BIA instead of the Bankruptcy Act [R.S.C., 1985, c. B-3], according to the new nomenclature adopted in 1992.

[11]      The equivalent provisions of the AMR are as follows:

15. The Minister may, by notice served or sent by registered mail, require that a person who, by virtue of an existing obligation, is or will be bound to make a payment to a person owing an amount exigible under a fiscal law, pay to the Minister, on behalf of the person's creditor, all or part of the amount that the person owes or will have to pay to the creditor, such payment to be made at the time the amount becomes payable to the creditor.

…

15.3.1. Upon receipt of a notice from the Minister served or sent by registered mail, the amount indicated in the notice as having to be paid to him becomes the property of the State and payment thereof to the Minister shall take priority over any other security granted in respect of the amount. [Emphasis added.]

[12]      It is also useful to reproduce subsection 224(1.2) [as enacted by S.C. 1987, c. 46, s. 66; 1990, c. 34, s. 1] of the Income Tax Act, S.C. 1970-71-72, c. 63 (ITA), as amended in 1990 (S.C. 1990, c. 34, subsections 1(2) and (3)), the same year that subsection 317(3) of the ETA (above) was introduced:

224. …

[Garnishment]

(1.2) Notwithstanding any other provision of this Act, the Bankruptcy Act, any other enactment of Canada, any enactment of a province or any law, where the Minister has knowledge or suspects that a particular person is or will become, within 90 days, liable to make a payment (a) to another person (in this subsection referred to as the “tax debtor”) who is liable to pay an amount assessed under subsection 227(10.1) or a similar provision, or (b) to a secured creditor who has a right to receive the payment that, but for a security interest in favour of the secured creditor, would be payable to the tax debtor, the Minister may, by registered letter or by a letter served personally, require the particular person to pay forthwith, where the moneys are immediately payable, and in any other case, as and when the moneys become payable, the moneys otherwise payable to the tax debtor or the secured creditor in whole or in part to the Receiver General on account of the tax debtor's liability under subsection 227(10.1) or a similar provision, and on receipt of that letter by the particular person, the amount of those moneys that is required by that letter to be paid to the Receiver General shall, notwithstanding any security interest in those moneys, become the property of Her Majesty and shall be paid to the Receiver General in priority to any such security interest. [Emphasis added.]

[13]      Prior to that amendment [S.C. 1987, c. 46, s. 66], this was the text that followed paragraph 224(1.2)(b):

224. …

[Garnishment]

(1.2) … the Minister may, by registered letter or by a letter served personally, require the particular person to pay forthwith, where the moneys are immediately payable, and in any other case, as and when the moneys become payable, the moneys otherwise payable to the tax debtor or the secured creditor in whole or in part to the Receiver General on account of the tax debtor’s liability under subsection 227(10.1) or a similar provision.

[14]      Subsection 224(1.2) [R.S.C., 1985 (5th Supp.), c. 1 (as am. by S.C. 2007, c. 36, s. 108)], as it currently stands, reads essentially as it did in 1990. I emphasize, out of an abundance of caution, that the word “nonobstant” which appeared at the beginning of the French text and in the last paragraph was replaced with the word “malgré” in 1994. However, the word “notwithstanding” in the English text remained unchanged. I do not think this change can be construed as intending to change the meaning of this provision.

[15]      Subsection 70(1) of the BIA, which is at the centre of the controversy, reads as follows:

Precedence of bankruptcy orders and assignments

70. (1) Every bankruptcy order and every assignment made under this Act takes precedence over all judicial or other attachments, garnishments, certificates having the effect of judgments, judgments, certificates of judgment, legal hypothecs of judgment creditors, executions or other process against the property of a bankrupt, except those that have been completely executed by payment to the creditor or the creditor’s representative, and except the rights of a secured creditor. [Emphasis added.]

[16]      That provision has remained unchanged since it was adopted in 1985 (R.S.C., 1985, c. B‑3, s. 1).

[17]      Subsections 67(2) [as am. by S.C. 1992, c. 27, s. 33] and (3) [as am. by S.C. 1998, c. 19, s. 250] and 86(1) [as am. by S.C. 1997, c. 12, s. 73] and (3) [as am. by S.C. 2000, c. 30, s. 148; 2009, c. 33, s. 25] of the BIA are also relevant to the analysis:

	67. …
Deemed trusts	(2) Subject to subsection (3), notwithstanding any provision in federal or provincial legislation that has the effect of deeming property to be held in trust for Her Majesty, property of a bankrupt shall not be regarded as held in trust for Her Majesty for the purpose of paragraph (1)(a) unless it would be so regarded in the absence of that statutory provision.
Exceptions	(3) Subsection (2) does not apply in respect of amounts deemed to be held in trust under subsection 227(4) or (4.1) of the Income Tax Act, subsection 23(3) or (4) of the Canada Pension Plan or subsection 86(2) or (2.1) of the Employment Insurance Act (each of which is in this subsection referred to as a “federal provision”) nor in respect of amounts deemed to be held in trust under any law of a province that creates a deemed trust the sole purpose of which is to ensure remittance to Her Majesty in right of the province of amounts deducted or withheld under a law of the province where …
Status of Crown claims	86. (1) In relation to a bankruptcy or proposal, all provable claims, including secured claims, of Her Majesty in right of Canada or a province or of any body under an Act respecting workers’ compensation, in this section and in section 87 called a “workers’ compensation body”, rank as unsecured claims. …
Exceptions	(3) Subsection (1) does not affect the operation of (a) subsections 224(1.2) and (1.3) of the Income Tax Act; (b) any provision of the Canada Pension Plan or of the Employment Insurance Act that refers to subsection 224(1.2) of the Income Tax Act and provides for the collection of a contribution, as defined in the Canada Pension Plan, an employee’s premium, or employer’s premium, as defined in the Employment Insurance Act, or a premium under Part VII.1 of that Act, and of any related interest, penalties or other amounts; or [Emphasis added.]

DECISION OF THE T.C.C. JUDGE

[18]      After having summarized the facts, the T.C.C. Judge identified numerous issues that he considered relevant to his analysis, including the following (reasons, paragraph 2):

Is there a transfer of the ownership of money following ... [the Requirement to Pay] and, if so, did the Notice to Stay cancel the right of ownership?

[19]      First, the T.C.C. Judge reviewed the decisions by his own Court in Wa‑Bowden Real Estate Reports Inc. v. Canada, [1997] G.S.T.C. 49 (Wa‑Bowden); and Absolute Bailiffs Inc. v. Canada, [2002] G.S.T.C. 116, both of which support the point of view that subsection 317(3) of the ETA gives the Crown absolute ownership of the moneys identified in the requirement to pay on receipt thereof by the garnishee (reasons, paragraphs 4 to 6).

[20]      The T.C.C. Judge also addressed the decisions of the Courts of Appeal for Ontario and Saskatchewan in Bank of Montreal v. Canada (Attorney General) (2003), 66 O.R. (3d) 161 (Bank of Montreal); and Encor Energy Corp. v. Slaferek’s Oilfield Services (1983) Ltd. (Receiver of) (1994), 34 C.B.R. (3d) 284, as well as the decision of the Supreme Court of British Columbia in Canoe Cove Manufacturing Ltd. (Re), [1994] 6 W.W.R. 598, which are all to the same effect (reasons, paragraphs 7 to 12).

[21]      Third, the T.C.C. Judge dealt with the decisions from Quebec, namely Giguère (Syndic de), [2001] R.J.Q. 2584 (C.A.); Forget (Syndic de) c. Québec (Sous‑ministre du Revenu), 2003 CanLII 18072 (S.C.); and De Courval (reasons, paragraphs 16 to 19). Those decisions conclude that according to subsection 317(3) of the ETA—and the corresponding provisions of the AMR—the BIA prevails in the event of conflict. In this case, since the amounts subject to the requirement to pay were not fully settled at the time of the bankruptcy, there would be a conflict with subsection 70(1) of the BIA.

[22]      The T.C.C. Judge refused to follow the trend in Quebec case law. According to him, the Supreme Court’s decision in Alberta (Treasury Branches) v. M.N.R.; Toronto Dominion Bank v. M.N.R., [1996] 1 S.C.R. 963 (Alberta) must be taken into account, which concluded that Parliament’s intention in enacting subsection 317(3) was to create a superior garnishing right that may be set up against all (reasons, paragraphs 20 to 25).

[23]      The T.C.C. Judge concluded his analysis as follows (reasons, paragraph 27):

Regardless of the fact that subsection 317(3) of the ETA excludes the application of all federal, provincial or other enactments, with the exception of the BIA, that could have an effect on the application of subsection 317(3), it is still clear that its application here does not contradict the provisions of the BIA, especially subsection 70(1) of the BIA, which only applies to a bankrupt’s property. So the tax debtor’s property in this case became the property of Her Majesty the Queen at the time the notice pursuant to subsection 317(3) of the ETA was sent, which was before the bankruptcy proposal was made to the creditors.

POSITIONS OF THE PARTIES

[24]      The appellant is relying on the interpretation adopted by the Quebec courts, particularly the reasons of the Court of Appeal of Québec in De Courval, which contain the most complete and exhaustive analysis on the subject. The appellant submits that subsection 70(1) of the BIA trumps the effects of subsection 317(3) of the ETA because, by its language, only executions that are not completely settled by payment are unaffected by bankruptcy. In this case, since that condition was not met when the notice of stay was filed and since subsection 317(3) of the ETA gives priority to the BIA in the event of conflict, subsection 70(1) of the BIA applies.

[25]      The appellant submits that the Supreme Court of Canada’s recent decision in Quebec (Revenue) v. Caisse populaire Desjardins de Montmagny, 2009 SCC 49, [2009] 3 S.C.R. 286 (Caisse de Montmagny), supports that conclusion. The appellant places particular emphasis on the key finding that deemed trusts for unpaid GST and QST cease to exist at the time of bankruptcy. The Supreme Court thus rejected the tax authorities’ argument that at no time could those moneys have been part of the bankrupt’s patrimony and, therefore, part of the property to be liquidated in compliance with the settling scheme established under the BIA (Caisse de Montmagny, paragraphs 18 and 28).

[26]      The respondent for her part readily admits that any deemed trusts for the GST which remained unpaid by 9161 (the tax debtor) necessarily ceased to exist at the time of bankruptcy. However, the respondent takes the position that this has no bearing on the operation of the recovery measure set out at subsection 317(3) of the ETA, which was not engaged in Caisse de Montmagny.

[27]      According to the respondent, it is well settled since the Supreme Court’s decision in Alberta that subsection 317(3) of the ETA, like subsection 224(1.2) of the ITA, has the effect of transferring ownership, which transfer occurs upon the garnishee’s receipt of a requirement to pay. In the case at bar, the appellant received the requirement to pay before the notice of stay was filed.

[28]      The respondent further submits that, the Court of Appeal of Québec’s reasoning in De Courval is based on an incorrect interpretation of the phrase “other than the [BIA]” in subsection 317(3) of the ETA. The effect of those words is not to give precedence to the BIA in the event of conflict, but rather to delimit the time during which the power given to the Minister may be exercised (Bank of Montreal, paragraph 14). Thus, the Minister cannot use that power after bankruptcy proceedings have been initiated. In this case, since the power was exercised before the bankruptcy, it remains fully applicable.

ANALYSIS

[29]      The question at issue is the following: When the Minister issues a requirement to pay under subsection 317(3) of the ETA before a notice of stay under section 69 of the BIA is filed and, on the date of that notice, the payment owing in respect of the requirement to pay still has not been made (in whole or in part), does subsection 70(1) of the BIA give priority to the assignment of the tax debtor’s property over the Minister’s requirement to pay?

[30]      The answer to that question depends on the meaning to be given to the words “other than the [BIA]” (“à l’exception de la [LFI]” in the French text) as they appear at subsection 317(3) of the ETA.

[31]      The appellant, relying on the ordinary meaning of the words, contends that this phrase causes subsection 317(3) to apply despite any other enactment, except the BIA. It follows that where a provision of the BIA conflicts with the operation of subsection 317(3), it prevails.

[32]      However, the respondent is of the opinion that the phrase has the effect of delimiting the time within which the Minister’s power may be exercised, by preventing that power from being exercised after the BIA comes into play. Since, in this case, the requirement to pay was served before the notice of stay was filed, the power was validly exercised.

[33]      Thus put, the question asked is one of pure statutory interpretation. In this respect, it is useful to recall that the provisions of any enactment, including tax statutes, must be construed contextually having regard to the statute read as a whole (R. Sullivan, Sullivan on the Construction of Statutes (5th ed. Markham, Ont.: LexisNexis Canada, 2008, page 276)).

[34]      Before we deal with that question, it is appropriate to address the decision of the Court of Appeal of Québec in De Courval to which the appellant devoted all of its submissions. The facts underlying that decision are similar to those at issue here, except with regard to the nature of the unpaid taxes (Quebec Sales Tax or QST) and the statute under which a requirement to pay was issued (the AMR).

[35]      In that case, the Deputy Minister of Revenue (the Deputy Minister) argued that the unpaid taxes were part of the deemed trust created in favour of the Crown, that this trust was unaffected by the bankruptcy and that the requirement to pay issued under the provision equivalent to subsection 317(3) of the ETA had the effect of crystallizing a pre‑existing right of ownership. In effect, according to the Deputy Minister, the deemed trust meant that at no time could the unpaid taxes (or moneys in lieu thereof) have been part of the bankrupt’s patrimony (De Courval, paragraphs 13 and 14).

[36]      Correctly anticipating the Supreme Court’s decision in Caisse de Montmagny, the Court of Appeal of Québec rejected the argument that the deemed trust remained in effect despite the bankruptcy (De Courval, paragraphs 28 to 32). Indeed, as the Supreme Court confirmed (Caisse de Montmagny, paragraphs 12 to 29), since the 1992 amendments (An Act to amend the Bankruptcy Act and to amend the Income Tax Act in consequence thereof, S.C. 1992, c. 27), the deemed trusts established for GST and QST that have been collected but not remitted or recoverable under section 222 [as enacted by S.C. 1990, c. 45, s. 12; 1993, c. 27, s. 87; 2000, c. 30, s. 50] of the ETA and section 20 of the AMR cease to exist at the time of the bankruptcy (subsection 67(2) of the BIA). This treatment differs from that applicable to deemed trusts pertaining to source deductions under the ITA, a comprehensive pension plan or the federal employment insurance program, which do survive bankruptcy (subsection 67(3) of the BIA).

[37]      The Court of Appeal of Québec then dealt with the argument that section 15.3.1 of the AMR (the provision that is equivalent to the part of subsection 317(3) of the ETA providing that the claimed moneys “become” the property of the Crown) had, in any event, effected a complete transfer of ownership to the Crown before the bankruptcy (De Courval, paragraphs 35 to 37). According to the Court of Appeal, the Supreme Court’s decision in Alberta, which attributed that effect to subsection 317(3) of the ETA, is distinguishable because, first, section 70 of the BIA was not at issue and, second, the events in Alberta took place before the 1992 amendments came into force (De Courval, paragraph 36). The Court of Appeal also declined to follow the decision of the Ontario Court of Appeal in Bank of Montreal (De Courval, paragraphs 38 and 39) on the ground, amongst others, that it was reached in reliance of the decision of the Supreme Court in Alberta, which is no longer good law.

[38]      Aware of the different treatment that the 1992 amendments afforded to source deductions, the Court of Appeal emphasized subsection 224(1.2) of the ITA, which was intended to facilitate recovery of those deductions in the event of default. Unlike subsection 317(3) of the ETA, that provision applies notwithstanding the BIA and, therefore, notwithstanding subsection 70(1) (De Courval, paragraph 37).

[39]      According to the Court of Appeal, the right of ownership conferred by subsection 317(3) of the ETA (and section 15.3.1 of the AMR) operates subject to the tax debtor not going bankrupt and, if that happens, subject to the amount claimed by the requirement to pay being settled in full before the bankruptcy. Otherwise, subsection 70(1) of the BIA prevails.

[40]      The Court of Appeal drew this conclusion at the end of its reasons (De Courval, paragraph 45):

[translation] ... since the notice under section 15 AMR is an “other process” under section 70 BIA, in order for the BIA not to prevail, the payment must be completed before the bankruptcy date. In this case, such a payment was not made and the amounts owing to the Minister were in a deemed trust on the bankruptcy date. In addition, they were held with other moneys from various sources, so they were not held in a real trust. Consequently, subsection 67(2) BIA applies and the moneys held by the Bank are the property of the bankrupt debtor. [Footnote omitted.]

[41]      The opinion expressed above, which is based on the Court of Appeal’s analysis of subsection 317(3) of the ETA, rests entirely on the premise that the phrase (“other than the [BIA]”) causes that statute to prevail in the event of a conflict. That premise is held as true without any discussion. Although in its reasons the Court of Appeal did analyse and distinguish numerous aspects of the Ontario Court of Appeal’s decision in Bank of Montreal, it did not address the following conclusion (Bank of Montreal, paragraph 14):

The appellant submits that under [subsection] 70(1) of the [BIA] a receiving order takes precedence over a garnishment that has not been completely executed by payment being made because [subsection] 317(3) of the ETA is made subject to the BIA. Otherwise, the appellant submits, the court would not be giving effect to the words, “other than the BIA”. The words “other than the BIA” have meaning apart from the interpretation suggested by the appellant. They mean that any [Goods and services taxes (GST)] payments that become due after a receiving order in Bankruptcy has been made no longer can be collected in priority to other creditors. [Emphasis added.]

[42]      This interpretation of the words “other than the [BIA]” is not new. It has been expressed previously, in particular by Justice Sarchuk of the Tax Court of Canada in Wa‑Bowden (paragraph 5):

Subsec. 317(3) also specifies that its application is subject to the [BIA]. This has been interpreted in a number of instances to mean that where monies were immediately due and owing prior to the date of bankruptcy, those monies are subject to the application of the Act, but where service of the Requirement occurs after the date of bankruptcy, or where the amount at issue was not immediately due and payable prior to the date of bankruptcy, any monies otherwise payable in the latter two instances are not available to the Respondent. [Footnote omitted; emphasis added.]

Adopting that interpretation, Justice Sarchuk found that the moneys subject to the requirement to pay became the property of the Crown on the garnishee’s receipt of the requirement and, therefore, were no longer the tax debtor’s property at the time of the ensuing bankruptcy (Wa‑Bowden, paragraph 6).

[43]      Therefore, the issue surrounding the interpretation of the words “other than the [BIA]” remains unresolved.

[44]      The interpretation proposed by the appellant according to which the BIA prevails in the event of a conflict seems, at first glance, to stem from the natural meaning of the words.

[45]      However, the respondent asks this Court to consider the legislative and jurisprudential context surrounding the adoption of subsection 317(3) in 1990 and the amendment to subsection 224(1.2) of the ITA in that same year, which enactments were intended to confirm, once and for all, the Crown’s right of ownership over the amounts subject to a requirement to pay. From that angle, the Supreme Court’s decision in Alberta is of particular interest since it sets out the precise state of the law in 1990, when those provisions were adopted.

[46]      In that case, the Supreme Court considered the legislative history surrounding subsection 224(1.2) of the ITA and subsection 317(3) of the ETA and, in particular, Parliament’s attempts, until then fruitless, to give the Crown right of ownership having priority over all computing claims (Alberta, paragraphs 11 to 14). Both Justice Cory, writing for the majority, and Justice Major, dissenting (but not on this point) expressed the view that the language of subsection 224(1.2) of the ITA, as amended in 1990, was clear enough to give the Crown the right of ownership which had been sought (the amended text and the text it replaced are reproduced at paragraphs 12 and 13, above). Both judges also expressed the view that subsection 224(1.2) of the ITA and subsection 317(3) of the ETA were, in that regard, identical (Alberta, paragraph 1, Justice Cory; and paragraph 58, Justice Major). Among other things, each concluded that on receipt of the requirement, the claimed moneys “become” the property of Her Majesty.

[47]      Justice Major, after having specified that he would focus his analysis on subsection 224(1.2) of the ITA rather than subsection 317(3) of the ETA “[f]or the sake of convenience” (idem), wrote the following (Alberta, paragraphs 65, 66 and 69):

Apparently in order to deal with the competing lines of authority as to whether s. 224(1.2) was sufficient to grant a priority to the MNR, Parliament amended the section in 1990 by adding the following to the end of the section:

 ... and on receipt of that letter [i.e. the garnishment summons] by the particular person, the amount of those moneys that is required by that letter, to be paid to the Receiver General shall, notwithstanding any security interest in those moneys, become the property of Her Majesty and shall be paid to the Receiver General in priority to any such security interest. 

This 1990 amendment was made to both the Income Tax Act and the relevant provisions of the Excise Tax Act. The three trial decisions in the cases at issue in these appeals are principally concerned with the issue of whether this amendment constituted the “something further” which Lloyds Bank had held was necessary to transfer the property interest in the funds to the MNR or to grant a priority to the MNR.

…

  I agree with Forsyth J. that the 1990 amendments to the Income Tax Act and the Excise Tax Act were sufficient to provide the “something further” which the Alberta Court of Appeal thought to be necessary in Lloyds Bank. [Emphasis added.]

No one takes issue with the fact that this “something further” resulted in the Crown becoming the owner of the moneys subject to the requirement upon the garnishee’s receipt of the requirement to pay (Alberta, paragraphs 5 and 6).

[48]      According to the respondent, it is the time when this ownership‑transferring power may be exercised which Parliament had in mind when it provided, in the case of subsection 224(1.2) of the ITA, that it applies “[n]otwithstanding ... the [BIA]” and, in the case of subsection 317(3) of the ETA, despite any enactment “other than the [BIA]”. While Parliament intended that the unpaid source deductions identified at subsection 224(1.2) of the ITA be subject to this power at all times—both before and after bankruptcy—Parliament also intended that the equivalent power under subsection 317(3) only be exercised before bankruptcy. The respondent submits that this is the way in which the words “[n]otwithstanding ... the [BIA]” and “other than the [BIA]” must be understood.

[49]      In my view, that is the correct interpretation. Returning to 1990, deemed trusts had the same effect whether they pertained to source deductions or GST. Both took effect at the time of the default and survived bankruptcy (see paragraph 67(1)(a) of the BIA, as it read before the 1992 amendments), such that the moneys held in those trusts could not, at any time, become part of the tax debtor’s patrimony. Therefore, even if a requirement to pay was issued at a time which coincided with the tax debtor’s bankruptcy, there was no conflict possible between the BIA and the right of ownership conferred upon the Crown under subsection 317(3) of the ETA, or between the BIA and the right of ownership granted under subsection 224(1.2) of the ITA. It was only after the 1992 amendments that this state of affairs changed and that deemed trusts for unpaid GST ceased to have effect upon the tax debtor’s bankruptcy (Caisse de Montmagny, paragraphs 12 to 16).

[50]      In this context, it cannot be said that the words “other than the [BIA]” were inserted into subsection 317(3) to give precedence to the BIA in the event of conflict since no conflict was possible. Rather, keeping in mind the principle according to which Parliament does not speak in vain, it seems that the purpose of this phrase was to prevent the power set out at subsection 317(3) from being exercised after bankruptcy.

[51]      Subsection 317(3) could not be read otherwise in 1990 and was deliberately left intact when the BIA was amended in 1992, as was subsection 224(1.2) of the ITA. Since the power set out at that subsection may not be exercised after bankruptcy, it is in keeping with the spirit of those amendments to the effect that only source deductions were special and were to be given priority after bankruptcy. This explains why the exercise of the power set out at subsection 224(1.2) is not subject to that limitation and why, since the amendments, the BIA stipulates that bankruptcy does not affect the exercise of that power (subsection 86(3) of the BIA).

[52]      Aside from that important difference, the powers set out at subsections 317(3) of the ETA and 224(1.2) of the ITA, when validly exercised, both have the effect of transferring ownership to the Crown of the moneys subject to the requirement to pay on receipt thereof by the garnishee (Alberta, above).

[53]      Since the requirement to pay was received by the appellant before the notice of stay was filed, the T.C.C. Judge rightly concluded that the Crown became the owner of the moneys required before the bankruptcy occurred and that those moneys were therefore not part of the tax debtor’s patrimony at the time of the bankruptcy. Consequently, the appellant had an obligation to pay the amount required and, having failed to do so, is personally liable for making that payment.

[54]      I would dismiss the appeal with costs.

Blais C.J.: I agree.

Trudel J.A.: I agree.