Martin, J.:—This is a case stated for the opinion of the Court on the effectiveness of ''Third Party Demand for Payment" and a "Demand for Tax on Assigned Accounts" issued pursuant to subsections (6) and (10) of section 52 of the Excise Tax Act, R.S.C. 1970, c. E-13.
Originally there were two questions but at the beginning of the hearing counsel informed me they had reached agreement that the "Third Party Demand for Payment" issued by the defendant on September 12,1983 under subsection 52(6) did not give the defendant priority over the plaintiff's claims to the accounts receivable which it had seized and retained on September 9, 1983. Because counsel reached agreement on the answer to the first question no argument was given and I was informed that I need only concern myself with the second question.
As already indicated the second question concerns the effectiveness of a demand for tax on assigned accounts issued on September 12,1983 by the defendant to the plaintiff in respect of accounts receivable which had been assigned by Olympic Rubber Products Ltd (Olympic) to the plaintiff in 1981 and again in 1983.
Olympic was an Ontario producer and seller of Canadian goods to which paragraph 27(1)(a) of the Excise Tax Act applied. In this respect Olympic, at some time prior to September 12, 1983, had sold goods, the federal sales tax on which amounted to at least $11,210.65, for which it had not, by September 12,1983, received either the sale price or the tax imposed on the transaction.
Earlier, in May of 1983, Olympic owed substantial sums of money to the plaintiff and, among other documents, executed a general assignment of book debts in favour of the plaintiff, notice of which was duly registered by a Financing Statement filed under the Personal Property Security Act, R.S.O. 1980, c. 375 at the Branch Registry Office at London, Ontario, on May 17, 1983.
On September 9, 1983, when Olympic owed the plaintiff $323,863.07 and was in default of its obligations to the plaintiff, the plaintiff served on Olympic notice of its intention to seize and retain Olympic's undertaking, including its accounts receivable. Pursuant to its notice of intention the plaintiff's agents physically seized Olympic's undertaking on September 9, 1983 by entering on Olympic's business premises, evicting the agents of Olympic from the premises, changing the locks and securing all of the chattels and records of Olympic on the premises.
At the time of the seizure, on September 9, 1983, agents of the defendant were on Olympic’s premises for the purposes of conducting an audit. They were informed by agents of the plaintiff that the seizure was being effected in accordance with the security documentation which the plaintiff had taken earlier that year from Olympic.
At the time of the seizure on September 9, 1983 three documents were completed and duly served or mailed by the plaintiff.
The first was the notice of the plaintiff's intention to seize and retain Olympic's undertaking and also contained Olympic's acknowledgment of its default and its consent to the seizure and retention in the following form:
NOTICE AND ACKNOWLEDGMENT
TO: OLYMPIC RUBBER PRODUCTS LTD.
AND TO: WILLIAM MURCHIE, EDWARD KING and JAMES
PASSMORE
Dear Sirs:
You are hereby notified that Thames Bandag and Tire Limited and Thames Tire & Auto Centre (London) Inc. ("Thames") as holders of the securities described in Schedule "A" hereto including those granted pursuant to a Loan Agreement dated May 16th, 1983 ("Securities"), given by Olympic Rubber Products Ltd. ("Olympic"), by reason of the several defaults of Olympic in the performance of its obligations under the Securities and with respect to its indebtedness to Thames as secured thereby, are proceeding immediately to take all necessary action to seize, protect, realize upon and retain all of the undertaking, property and assets of Olympic and all the shareholdings of William Murchie, Edward King and James Passmore in Olympic, all for the benefit of Thames.
DATED at London, Ontario this 9th day of September, 1983.
THAMES BANDAG AND TIRE LIMITED
per C/S
President
THAMES TIRE & AUTO CENTRE
(LONDON) INC.
per C/S
President
OLYMPIC RUBBER PRODUCTS LTD. hereby acknowledges its default under the securities described in Schedule "A" hereto and consents to Thames Bandag and Tire Limited and Thames Tire & Auto Centre (London) Inc. seizing, protecting, realizing upon and retaining all of its undertaking, property and assets.
DATED AT London, Ontario, this 9th day of September, 1983.
OLYMPIC RUBBER PRODUCTS LTD.
per
President
C/S per
Vice-President
WILLIAM MURCHIE, EDWARD KING and JAMES PASSMORE hereby each acknowledge default has been made under the Securities described in Schedule "A" hereto and consents to Thames Bandag and Tire Limited and Thames Tire & Auto Centre (London) Inc. seizing, protecting, realizing upon and retaining all of the shareholdings held by each of them in Olympic.
DATED this 9th day of September, 1983.
William Murchie
Edward King
James Passmore
SCHEDULE “A” | |
DESCRIPTION OF SECURITY | DATE |
Security Agreement | October 15, 1981 |
General Assignment of Book Debts | May 16th, 1983 |
Demand Debenture | May 16th, 1983 |
Pledge Agreement | May 16th, 1983 |
General Security Agreement | May 16th, 1983 |
Assignment of Securities | May 16th, 1983 |
The second document was the notice by the plaintiff to Olympic of its right to redeem its undertaking by the payment of $333,863.07 by September 26, 1983 and Olympic's waiver of its right to the 15-day notice in the following form:
NOTICE AND WAIVER TO: OLYMPIC RUBBER PRODUCTS LTD.
1220 Balmoral Road
Cambridge, Ontario
AND TO: ROYAL BANK OF CANADA
AND TO: WILLIAM MURCHIE, EDWARD KING and JAMES
PASSMORE
TAKE NOTICE that default has been made under a Loan Agreement dated May 16th, 1983 and under the securities (“Securities”) described in Schedule "A" hereto annexed, granted by Olympic Rubber Products Ltd. (“Olympic”) of 1220 Balmoral Road, Cambridge, Ontario, to Thames Bandag and Tire Limited and Thames Tire & Auto Centre (London) Inc. ("Thames") having their principal places of business at 563 Clarke Road, London, Ontario.
The Securities cover all the undertaking, property and assets of Olympic and all the shareholdings of William Murchie, Edward King and James Passmore in Olympic, ("Collateral").
The amount required to satisfy the claims of Thames is made up as follows:
Principal and interest to and
including September 9, 1983............ $323,863.07 Estimated Expenses of seizing,
protecting, realizing upon and
retaining the Collateral................. 10,000.00
TOTAL .................................. $333,863.07
Thames also claims interest at the Prime Rate as defined in the Loan Agreement plus One Percent (1%) per annum from the 9th day of September, 1983 until the date of payment hereunder.
We hereby give you notice that you may redeem the Securities of Thames upon paying the total sum of $333,863.07 referred to above plus interest on or before the 26th day of September, 1983.
Please be advised that if the total amount mentioned above plus interest is not paid to Thames on or before the 26th day of September, 1983, Thames will retain the Collateral.
This notice is given to you as you appear to have an interest in the Collateral.
DATED at London, Ontario this 9th day of September, 1983.
THAMES BANDAG AND TIRE LIMITED per C/S
President
THAMES TIRE & AUTO CENTRE
(LONDON) INC.
per C/S
The address of Thames Bandag and Tire Limited and Thames Tire & Auto Centre
(London) Inc. is 563 Clarke Road, London, Ontario.
OLYMPIC RUBBER PRODUCTS LTD. hereby acknowledges its inability to redeem the Collateral described above in accordance with the provisions of the Personal Property Security Act and further waives its rights to the 15 day notice in accordance with the provisions of the said Act and further authorizes and directs Thames to retain the Collateral forthwith.
DATED at London, Ontario this 9th day of September, 1983.
OLYMPIC RUBBER PRODUCTS LTD.
per
President
C/S
per
Vice-President
ROYAL BANK OF CANADA, WILLIAM MURCHIE, EDWARD KING and JAMES PASSMORE acknowledge that they have no intention to redeem the Collateral in accordance with the provisions of the Personal Property Security Act and therefore waive their rights to the 15 day notice in accordance with the provisions of the said Act.
DATED at London, Ontario this 9th day of September, 1983.
ROYAL BANK OF CANADA
per
D.R. McLennan per
D.J. Lee
William Murchie
Edward King
James Passmore
SCHEDULE “A” | |
DESCRIPTION OF SECURITY | DATE |
Security Agreement | October 15, 1981 |
General Assignment of Book Debts | May 16th, 1983 |
Demand Debenture | May 16th, 1983 |
Pledge Agreement | May 16th, 1983 |
General Security Agreement | May 16th, 1983 |
Assignment of Securities | May 16th, 1983 |
The third form was the notice which the plaintiff mailed to Olympic's debtors requiring any amount due to Olympic to be paid directly to the plaintiff as follows:
September 9th, 1983
Re: Olympic Rubber Products Ltd.
Dear Sirs:
On Thursday, September 8th, 1983, the Royal Bank of Canada, Commercial Banking Centre, 383 Richmond Street, London, Ontario (679-7850), pursuant to the terms of a Security Agreement and promissory note, demanded repayment of its outstanding indebtedness. As a result of the demand by the Royal Bank Thames Bandag and Tire Limited and Thames Tire & Auto Centre (London) Inc. ("Thames") of 563 Clarke Road, London, Ontario, pursuant to the terms of a Loan Agreement dated May 16th, 1983, and as holders of securities given by Olympic Rubber Products Ltd. (“Olympic”) to Thames, and as a result the demand of the Royal Bank had constituted default by Olympic in the performance of its obligations under the said Loan Agreement and Securities and with respect to Olympic's indebtedness to Thames as secured thereby, are entitled to direct payment of all debts, demands and accounts receivable, which are now due, owing or accruing due or which may hereafter become due, owing or accruing due to Olympic and hereby notified you accordingly.
Pursuant to the provisions of the Personal Property Security Act you are required to make all further payments in satisfaction of the outstanding balance of your account with Olympic payable to Thames Bandag and Tire Limited and this shall be your good and sufficient authority for so doing.
In the event you have any concerns or questions, please feel free to contact a representative of Thames Bandag and Tire Limited in Cambridge, Ontario, (519) 653-0403 or in London, Ontario at (519) 453-5300, or, alternatively, contact its solicitors, Chizmar Walker, 636 Wellington Street, London, Ontario, N6A 3R9, (519) 672-8440.
Yours very truly
THAMES BANDAG AND TIRE LIMITED
THAMES TIRE & AUTO CENTRE (LONDON) INC.
per:
Some three days later, on September 12, 1983, the defendant sent to the plaintiff its "Demand for Tax on Assigned Accounts". Because so much was made of this notice by counsel for the plaintiff it should also be set out here:
Revenue Canada
Customs and Excise
REGISTERED
Thames Building & Tire Ltd. 563 Clarke Road
London, Ontario N5V 2E1
Reply to: P.O. Box 5548
London, Ontario N6A 4R3
September 12, 1983
DEMAND FOR TAX ON ASSIGNED ACCOUNTS
RE: Olympic Rubber Products Ltd.
1220 Balmoral Road
Cambridge, Ontario N1T 1A5
It is believed that you have received from the above-named, licensed under the Excise Tax Act, an assignment of book debts or negotiable instruments of title to such debts.
You are, hereby, required to pay to the Receiver General for Canada, pursuant to the provisions of section 52, subsections (10) and (11) of the Excise Tax Act, out of any moneys received by you, after receipt of this notice, on account of such debts, a sum equivalent to the amount of any tax imposed by the said Act, upon the transactions giving rise to the debts assigned.
An Excise Tax Auditor of the Department has been instructed to assist you in determining the tax properly payable.
Cheques should be made payable to the Receiver General for Canada, and mailed to the Regional Chief, Collections, Revenue Canada-Excise, P.O. Box 5548, London, Ontario N6A 4R3 Telephone 519-679-4145 who will furnish you with receipts therefor.
L.J. Kluger
Regional Director, Excise
Department of National Revenue Customs and Excise
Section 52, subsections (10) and (11) of Chapter E-13, R.S.C. 1970 reads as follows:
52(10) When the minister has knowledge that any person has received from a licensee any assignment of any book debt or of any negotiable instrument of title to any such debt, he may, by registered letter, demand that such person pay over to the Receiver General out of any moneys received by him on account of such debt after the receipt of such notice, a sum equivalent to the amount of any tax imposed by this Act upon the transaction giving rise to the debt assigned.
(11) The person receiving any such demand shall pay the Receiver General according to the tenor thereof, and in default of payment is liable to the penalties provided in this Act for failure or neglect to pay the taxes imposed by Parts III to V.
After the plaintiff received the above demand from the defendant it recovered, from those who were formerly indebted to Olympic for the price of the manufactured articles sold to them by Olympic and for the federal sales tax on the transaction, total payments in respect of which the sum of $11,210.65 represents the federal sales tax properly payable by Olympic but not paid by it on these transactions. The plaintiff now wants to keep, not only the amount of the sale price on each transaction between Olympic and its customers, but also the amount of the federal sales tax imposed on the transaction.
On these facts the following question has been put for my opinion:
ls Thames liable pursuant to subsection 52(10) of the Excise Tax Act, R.S.C. 1970, Chapter E-13 for the payment to Revenue Canada of a sum equivalent to the amount of taxes imposed by the Excise Tax Act out of monies received by Thames on account of the debts seized and retained by it in accordance with the default provisons of the Securities?
Counsel for the plaintiff submits that because the plaintiff was the owner and not the assignee of the accounts receivable at the time the defendant issued its demand it was outside the ambit of subsection 52(10). He argues that the plaintiff's seizure and retention of the accounts receivable under the provisions of subsection 61(2) of the Ontario Personal Property Security Act is analogous to the foreclosure of a mortgage. That is to say, once a secured creditor had taken collateral and retained it under subsection 61(2) he no longer has a right to sue for a deficiency but instead the secured property becomes his own free of the debtor's equity with the assignee waiving any claim to a deficiency.
Even if the plaintiff could bring itself within the provisions of subsection 61(2) of the Personal Property Security Act and convince me that on September 12, 1983 it was the absolute owner of the accounts receivable, that would not, in my view, allow it to escape the provisions of subsection 52(10) of the Excise Tax Act.
That subsection allows the defendant to demand from any person who has received from a licensee any assignment of any book debt out of the money received by him on account of the defendant an amount equivalent to the tax on the transaction which gave rise to the debt assigned. In this matter it is not disputed that Olympic was a licensee and that it assigned its book debts, both the portions represented by the price of the products sold and the portions represented by the federal sales tax on the transaction, to the plaintiff. The plaintiff thus falls into the category of a person who has received from a licensee an assignment of book debts and as such it is obliged to pay over to the defendant, out of any moneys it receives on account of such debts, a sum equivalent to the amount of the tax imposed on the transaction which gave rise to the debt.
The plaintiff’s claim to the book debts of the licensee, Olympic, arose as a result of the receipt by the plaintiff of an assignment of book debts. I can see no merit in the plaintiff's argument that because it is now the owner of the debts it is no longer the assignee and is thus beyond the reach of subsection 52(10).
The provisions of subsection 52(10) do not direct themselves to the nature or degree of the plaintiff's claim to the book debts at the time the demand under subsection 52(10) is made. It only addresses itself to how the plaintiff's claim to the book debts arose, and, so long as the plaintiff's ownership arose by way of an assignment of book debts from a licensee then, assuming that there is compliance with the other provisions of subsection 52(10), that section is applicable to the plaintiff.
Although, in my view, it does not matter whether the plaintiff was or was not the absolute owner of the accounts receivable, without reference to any rights or equities of Olympic, to make it liable to comply with the provisions of subsection 52(10), the plaintiff was not in that position, as suggested by counsel for the plaintiff, on September 12, 1983 when the subsection 52(10) demand was made by the defendant.
Under section 61 of the Personal Property Security Act there is a 15-day waiting period within which a debtor may object to the assignee's retention of the security under subsection 61(2) and, in effect, force the assignee to have the security appraised prior to its sale. In the present case the debtor, Olympic, attempted to waive the 15-day period in the “Notice and Waiver" served on September 9, 1983. However subsection 56(5) of the Personal Property Security Act prohibits such a waiver and in my view the purported or attempted waiver by Olympic forming a portion of the Notice and Waiver was ineffectual so as to allow the plaintiff to retain book debts in satisfaction of the obligation secured within the meaning of subsection 61(2) of the Act. In other words the seizure and retention could not occur until the 15-day period had expired on September 26, 1983, some 12 days after the date of the defendant's demand under subsection 52(10) of the Excise Tax Act. Accordingly, even if the plaintiff's argument that absolute ownership of the book debts free from any claim or equitable rights of Olympic would place it beyond the reach of the defendant's demand, that absolute ownership could not have arisen or occurred until at least September 26, 1983 and, thus, did not exist when the defendant's demand was made on September 9, 1983.
There is also the possibility that neither of the two September 9, 1983 notices to Olympic were effective to vest the book debts in the plaintiff free and clear of any claim by Olympic because neither of them complied with the mandatory provisions of subsection 61(2) which requires the creditor to notify the debtor that the creditor intends "... to retain the collateral in satisfaction of the obligation secured" [Angelkovski et al. v. Trans-Canada Foods Ltd., 6 P.P.S.A.C. 1, Man. Q.B.].
Although both notices informed Olympic that the plaintiff intended retaining the book debts, neither went on to inform the debtor that the purpose of the retention was to satisfy the obligation secured. In view of my findings that absolute ownership by the plaintiff is irrelevant and, even if it were relevant, it could not have become effective until after the defendant's September 12, 1983 notice, and thus could not take the debts out of the reach of the subsection 52(10) notice, I do not have to and do not intend to address this third argument.
Counsel for the plaintiff also advances the argument that the notice issued by the defendant was not the notice contemplated by subsection 52(10) of the Excise Tax Act and was thus ineffective to oblige the plaintiff to make the payments referred to in the notice. One of the defects invalidating the notice, he submits, consists of the opening words “It is believed . . . . Counsel argues that because subsection 52(10) requires the Minister to have knowledge, or, as he put it, to have a confirmed belief it is not sufficient, to comply with subsection 52(10), for the defendant to say "It is believed . . . Ad The second alleged defect in the notice has to do with the several references to debts and transactions in the plural when subsection 52(10) refers to them in the singular. Counsel says, for example, that if the plaintiff received payment on one receivable it would be required to pay only the amount of the tax imposed upon the transaction associated with that receivable and would not be required to remit the whole amount of the receivable collected to discharge taxes imposed upon other transactions. He argues that the subsection 52(10) demand should have listed each of the debts arising out of the transaction on which the tax was imposed, the amount of the tax imposed and a demand, in respect of each listed debt and tax, for only the tax portion of the total amount recovered by the plaintiff.
In support of these arguments counsel for the plaintiff has referred me to Royal Trust Co. v. Montex Apparel Industries Ltd. (1972), 3 O.R. 132 (C.A.); 27 D.L.R. (3d) 551. In that case the subsection 52(10) demand was found by the Ontario Court of Appeal to be invalid because it had been addressed to the wrong person. The Court found that in issuing the notice the Minister was bound to strict observance of the conditions precedent to the right to issue it and that as the notice was a notice personal to the assignee and no one else and was neither directed to him nor to his attention at the firm where he worked, it was ineffective to operate according to its terms.
In my view neither of the so-called defects raised by counsel for the plaintiff is sufficient to invalidate the demand. The purpose of the demand is to notify the plaintiff of its obligation to pay to the defendant the federal sales tax portion of a combined amount of the sale price and the tax formally owed to Olympic and recovered by the plaintiff under its assignment of both the sale price and the tax.
The opening words of the demand “‘It is believed that you have received . . . an assignment of book debts ..." can only indicate that the Minister has some knowledge that there has in fact been an assignment. Subsection 52(10) does not require the Minister to have absolute, certain or confirmed knowledge. The expression of the Minister's belief satisfies the condition precedent to the issuance of the notice that there be knowledge.
As to the plaintiff's submission with respect to the pluralizing of the words "debt" and “transaction” in the demand when the singular is used in subsection 52(10), I have had some difficulty in understanding precisely how this would operate to invalidate the demand. It seems perfectly clear to me that the demand is being made for the tax portion of the debt and not for the amount which is attributable to the sale price of the article.
Because the demand specifically says it is being made pursuant to subsection 52(10) and because that subsection is set out in full at the foot of the page containing the demand, I I fail to see how the plaintiff can claim that the demand is invalid because it is claiming more than is authorized by subsection 52(10).
Finally, I note that, notwithstanding the plaintiff's arguments to the effect that the demand was unclear, the parties had no difficulty in determining precisely the amount which had to be paid when, for the purposes of calculating the amount, they assumed the notice to be valid.
Under the circumstances the plaintiff's claim is dismissed with, as both counsel have requested, no order as to costs.
Claim dismissed.