Chadwick,
J.:—The
applicant
company
was
in
the
construction
business
and
in
particular
was
involved
in
the
removal
of
asbestos
products
from
various
commercial
buildings
across
Canada.
On
January
15,
1992
the
applicants
commenced
proceedings
in
this
Court
under
the
provisions
of
the
Companies'
Creditors
Arrangement
Act,
R.S.C.
1985,
c.
C-36
(CCAA).
At
the
time
of
the
initial
application
I
made
an
order
appointing
Deloitte
and
Touche
Inc.
as
monitors
and
also
allowing
the
applicants
to
continue
to
carry
on
business
under
certain
terms
and
conditions.
A
number
of
orders
were
made
after
that
date
which
allowed
the
company
to
carry
on
business
and
to
complete
various
projects.
The
intention
of
the
applicants
was
to
prepare
and
provide
a
plan
of
arrangement
to
be
presented
to
all
of
their
creditors.
Unfortunately,
a
plan
of
arrangement
could
not
be
developed
and
as
such
on
the
1st
of
May
1992
I
appointed
Deloitte
and
Touche
as
receiver/manager
pursuant
to
subsec.
101(1)
of
the
Courts
of
Justice
Act,
R.S.O.
1990,
c.
C-43.
After
the
order
of
January
15,
1992
I
also
made
an
order
granting
to
John
Westeinde
and
the
Bank
of
Montreal
priorities
for
the
advancement
of
additional
funds
in
the
amount
of
$50,000
each.
These
funds
were
advanced
to
them
so
that
certain
projects
could
be
brought
to
completion
without
incurring
penalties
and
charge-backs.
The
projects
that
were
uncompleted
could
be
divided
into
two
categories,
namely
bonded
projects
and
unbonded
projects.
The
Halifax
Insurance
Company
held
the
performance
bonds
on
the
bonded
projects
and
through
arrangements
made
during
the
course
of
the
application,
under
the
CCAA,
the
Halifax
Insurance
Company
completed
a
number
of
the
projects.
On
the
other
project,
the
applicants
themselves
completed
these
projects.
A
number
of
the
respondents
were
involved
in
the
Bruce
Hydro
project
which
was
99
per
cent
complete
at
the
time
of
the
application.
There
were
holdback
moneys
owing
on
this
project,
and
the
lien
claimants
took
the
position
that
they
should
not
be
part
of
the
CCAA
application.
The
lien
claimants
have
been
consistent
in
their
position
from
the
initial
application
right
up
until
the
present
time.
In
making
the
order
under
the
CCAA,
I
did
so
without
prejudice
to
the
lien
claimants’
position
that
they
should
not
be
part
of
the
application.
The
applicants
are
indebted
to
Her
Majesty
in
Right
of
Canada
(the
federal
Crown)
for
employee
deductions
and
employer
contributions
pursuant
to
the
Income
Tax
Act,
Canada
Pension
Plan,
and
Unemployment
Insurance
Act.
There
is
also
a
claim
for
unremitted
GST
owing
pursuant
to
the
Excise
Tax
Act.
The
Crown
takes
the
position
that
because
of
the
federal
legislation
they
have
priority
over
all
funds.
Substantial
fees
and
disbursements
have
been
incurred
both
by
the
monitor
and
the
law
firm
of
Perley-Robertson
and
Co.
who
acted
on
behalf
of
the
monitor.
They
claim
priority
over
all
parties
as
a
result
of
the
orders
made
during
the
CCAA
application.
A
problem
now
arises
due
to
insufficient
assets
of
the
applicant
company
to
meet
all
of
these
obligations.
Although
there
are
a
number
of
outstanding
issues
amongst
the
various
parties
the
issues
on
this
application
are
as
follows:
1.
Is
the
Federal
Crown
in
the
Right
of
Canada
bound
by
the
provisions
of
the
Companies'
Creditors
Arrangement
Act!
2.
If
the
answer
to
question
no.
1
is
yes,
whether
subsec.
224(1.2)
of
the
Income
Tax
Act
of
Canada
and
subsec.
317(3)
of
the
Excise
Tax
Act
operate
notwithstanding
to
provide
to
the
federal
Crown
a
priority
ahead
of:
(a)
the
applicants;
(b)
the
creditors
of
the
applicants
subsequent
to
January
15,
1992;
(c)
the
lien
claimants
or
trust
claimants
under
the
Construction
Lien
Act.
3.
Are
subsecs.
224(1.2)
and
317(3)
of
the
Income
Tax
Act
and
the
Excise
Tax
Act
constitutionally
valid
as
a
form
of
taxation
within
the
federal
sphere
or
are
they
invalid
as
consisting
of
a
form
of
debt
recovery,
which
is
properly
the
subject
matter
of
provincial
jurisdiction?
4.
In
the
alternative,
does
the
federal
Crown
take
priority
to
the
funds
available
due
to
the
deemed
trust
provisions
under
the
Income
Tax
Act,
the
Canada
Pension
Plan,
Unemployment
Insurance
Act
and
Excise
Tax
Act?
5.
Does
the
Court
have
jurisdiction
under
the
CCAA
to
require
that
payment
be
made
from
assets
of
the
applicant
for
debts
incurred
subsequent
to
January
15,
1992?
6.
Whether
the
priorities
established
by
the
court
orders
made
within
the
provisions
of
the
CCAA
since
January
15,1992
are
subject
to
the
requirements
to
pay
provided
for
under
subsec.
224(1.2)
of
the
Income
Tax
Act
and
subsec.
317(3)
of
the
Excise
Tax
Act.
Whether
the
Federal
Crown
is
Bound
by
the
Provisions
of
the
Companies’
Creditors
Arrangement
Act
This
issue
has
been
the
subject
matter
of
a
great
deal
of
judicial
interpretation
both
as
it
relates
to
the
federal
Crown
and
the
provincial
Crown.
The
starting
point
in
considering
this
issue
is
the
decision
of
the
Supreme
Court
of
Canada
in
Alberta
Government
Telephones
v.
Canada
(Canadian
Radio-television
and
Telecommunications
Commission),
[1989]
2
S.C.R.
225,
61
D.L.R.
(4th)
193.
In
that
case
Dickson,
C.J.C.
on
behalf
of
the
Court
reviewed
the
test
which
must
be
applied
considering
whether
the
Crown
is
bound
by
legislation.
The
test
can
be
summarized
as
follows:
(a)
expressly
binding
words;
(b)
a
clear
intention
to
bind
which
is
manifest
from
the
very
terms
of
the
statutes;
(c)
the
intention
to
bind
with
the
purpose
of
statute
would
be
wholly
frustrated
if
the
government
were
not
bound.
I
had
occasion
to
consider
whether
the
Provincial
Crown
in
the
Right
of
the
Province
of
Ontario
was
bound
by
the
Companies'
Creditors
Arrangement
Act
in
the
decision
of
Fine's
Flowers
v.
Creditors
of
Fine's
Flowers
(1992),
7
O.R.
(3d)
195.
In
that
case,
I
concluded
that
the
province
was
bound
in
that
there
was
an
intention
to
bind
the
Crown,
also
if
the
Crown
was
not
bound
it
would
frustrate
the
purpose
of
the
Act.
Since
the
decision
in
Fine's
Flowers
v.
Creditors
of
Fine's
Flowers,
the
Supreme
Court
of
Canada
has
issued
its
reasons
in
the
Friends
of
the
Oldman
River
Society
v.
Canada
(Minister
of
Transport),
[1992]
1
S.C.R.
3,
[1992]
2
W.W.R.
193.
In
that
case
the
Court
applied
a
logical
inference
or
logical
implication
test
in
considering
whether
the
Crown
is
bound
by
the
legislation.
In
the
past
year,
there
have
been
a
number
of
decisions
on
this
issue.
Some
have
held
that
the
Crown
is
bound
and
others
that
the
Crown
is
not
bound.
(See
Worldwide
Air
Charter
v.
Procureur
Général
du
Canada
(unreported),
Que.
S.C.,
January
30,
1992;
Re
Gaston
H.
Poulin
Contractor
Ltd.,
(1992),
91
D.L.R.
(4th)
96,
92
D.T.C.
6338;
Procureur
Général
du
Canada
c.
Les
Enterprises
Jean
Mercier
Ltée,
No.
500-09-001147-917,
March
12,
1992,
Que.
C.A.)
Notwithstanding
recent
decisions
of
the
various
courts
dealing
with
the
question
of
whether
the
Crown
is
bound
by
the
Companies'
Creditors
Arrangement
Act
I
am
still
of
the
view
that
they
are
for
the
reasons
I
stated
in
Fine's
Flowers
v.
Creditors
of
Fine's
Flowers,
supra.
This
particular
case
exemplifies
how
the
Act
would
be
brought
to
a
standstill
if
the
Crown
exercised
their
statutory
priority
rights
as
provided
for
in
the
Income
Tax
Act,
the
Unemployment
Insurance
Act
and
the
Excise
Tax
Act.
It
does
not
mean
that
the
Crown
will
be
deprived
of
their
secured
priority.
However,
in
order
that
a
plan
or
arrangement
can
be
put
forward
by
the
applicant
company,
they
require
some
procedural
protection
to
allow
them
to
reorganize
or
restructure.
If
the
Crown
were
able
to
proceed
with
their
garnishes
and
third
party
demands
then
the
company
would
never
be
in
a
position
to
put
forward
a
plan
or
arrangement.
Priorities
During
the
course
of
the
proceedings
under
the
CCAA,
Deloitte
Touche,
the
monitor,
filed
various
reports
outlining
the
status
of
the
applicant
company.
It
is
apparent
from
the
material
filed
that
in
order
for
the
company
to
put
forth
a
plan
or
arrangement
they
would
have
to
complete
a
large
majority
if
not
all
of
their
outstanding
construction
projects.
It
was
recognized
that
if
the
projects
were
not
completed
by
the
applicants,
then
the
cost
of
completion
and
the
chargebacks
against
the
applicants
would
affect
all
of
the
creditors.
It
requires
a
very
delicate
balance
when
applying
the
measures
provided
in
the
CCAA
to
protect
the
interest
of
all
classification
of
creditors
as
well
as
the
public
interest.
The
purpose
of
the
Act
is
not
to
give
a
benefit
or
advantage
to
one
class
of
creditors
at
the
expense
of
other
creditors.
Likewise,
it
is
the
duty
and
the
responsibility
of
the
court
not
to
alter
the
security
arrangements
entered
into
by
the
applicant
company
and
its
various
creditors.
It
is
not
the
Court's
duty,
responsibility
or
mandate
to
attempt
to
readjust
the
priorities
between
the
creditors
and
the
applicant
companies.
(See
Hong
Kong
Bank
of
Canada
v.
Chef
Ready
Foods
Ltd,
(1990),
4
C.B.R.
(3d)
311,
[1991]
2
W.W.R.
136;
Elan
Corp.
v.
Comiskey
(1990),
1
O.R.
(2d)
289).
Section
11
of
the
CCAA
grants
the
Court
wide
jurisdiction
in
staying
proceedings
and
actions
against
the
applicant
company
in
order
to
allow
them
to
reorganize
and
to
put
forth
a
plan
of
arrangement.
Section
11
must
be
given
wide
and
liberal
interpretation
in
order
that
the
Court
can
carry
out
the
intention
of
the
CCAA.
In
addition
to
the
powers
granted
to
the
court
under
section
11
of
the
CCAA,
the
Court
has
its
inherent
power
as
a
superior
court
to
appoint
a
receiver
and
make
orders
to
allow
for
the
effective
operation
of
the
receivership.
(See
Courts
of
Justice
Act,
R.S.O.
1990,
c.
C-43,
subsec.
101(1);
Eighty
Wellesley
Street
East
v.
Fundy
Bay
Builders
Ltd.,
[1972]
2
O.R.
280.)
In
this
case
there
are
a
number
of
priority
issues
which
have
arisen
as
a
result
of
the
lack
of
sufficient
assets
and
receivables.
Westeinde
and
Bank
of
Montreal
Advances
In
the
initial
stages
of
the
application
John
Westeinde
and
the
Bank
of
Montreal
both
agreed
to
advance
funds
to
complete
construction
projects
in
order
that
they
could
obtain
the
moneys
due
and
owing
to
the
company
and
also
to
avoid
the
problems
associated
with
the
non-completion
of
a
construction
contract
and
the
additional
costs.
The
advancement
of
these
funds
by
Westeinde
and
the
Bank
of
Montreal
was
for
the
benefit
of
all
creditors,
both
secure
and
non-secure.
A
condition
of
advancing
these
moneys
was
that
they
could
have
some
priority
of
payment
over
the
other
creditors.
Put
another
way,
it
is
similar
to
allowing
a
receiver
to
borrow
moneys
to
complete
contracts
which
will
benefit
the
creditors
and
the
company.
Acknowledging
that
they
should
be
paid
before
other
creditors
does
not
in
my
view
change
the
priority
of
the
various
creditors
or
jeopardize
their
security.
Obviously,
if
there
are
no
assets
in
the
applicant
company,
then
they
cannot
be
paid.
If
however
there
are
assets
as
a
result
of
completion
of
contracts
and
receivables
that
are
not
imposed
with
a
trust
under
the
Construction
Lien
Act
then
they
should
be
paid
in
advance
of
creditors.
Monitor
and
Legal
Fees
The
second
aspect
deals
with
the
fees
of
the
monitor
and
their
legal
counsel
with
reference
to
the
application
under
the
Companies’
Creditors
Arrangement
Act
and
the
subsequent
receivership.
The
monitor
in
effect
has
been
the
person
responsible
for
running
the
operation
and
completing
the
contracts
since
the
order
of
January
15,
1992.
In
addition,
the
monitor
has
the
responsibility
of
preparing
the
plan
of
arrangement
to
be
presented
to
the
creditor.
It
is
readily
recognized
that
the
work
of
the
monitor
was
far
more
involved
outside
the
Court
than
inside
the
confines
of
the
courtroom.
The
majority
of
the
successful
company
creditor
arrangement
applications
are
as
a
result
of
the
negotiations
which
take
place
by
the
monitor
and
the
various
creditors.
Unfortunately
in
this
case
the
monitor
was
unable
to
put
forth
a
plan
or
arrangement.
This
failure
was
not
as
a
result
of
any
impropriety
or
misconduct
on
behalf
of
the
monitor
but
was
purely
as
a
result
of
various
financial
problems
associated
with
the
applicant
company.
In
addition
to
the
normal
duties
and
requirements
of
the
monitor,
this
case
presented
more
difficulties
because
of
construction
lien
problems,
bonding
problems,
and
the
claims
by
the
federal
government.
All
of
this
resulted
in
numerous
affidavits,
cross-
examinations
and
court
attendances.
Reasonable
fees
of
both
the
monitor
and
their
legal
counsel
should
be
paid
out
of
the
assets
of
the
applicant
company.
The
fruits
of
the
monitors'
efforts
are
for
the
benefit
of
all
creditors
and
therefore
the
monitors
and
their
legal
counsel
should
be
paid
in
advance
and
before
distribution
to
the
creditors.
(See
Re
Stephanie's
Fashion
Ltd.
(unreported),
B.C.S.C.,
March
15,
1991;
Re
Deloitte
&
Touche
and
Ernst
&
Young
(unreported),
Sask.
Q.B.,
May
21,
1991;
affirmed
(1992),
89
D.L.R.
(4th)
246
(Sask.
C.A.).)
Suppliers
of
Goods
and
Services
Another
group
or
class
of
creditors
are
those
persons
who
supply
work
and
material
to
the
projects
after
January
15,
1992
in
order
that
they
may
be
completed.
As
I
have
indicated,
the
completion
of
the
projects
is
for
the
general
benefit
of
all
of
the
creditors.
It
allows
the
release
of
the
funds
and
also
avoids
the
back-charges
related
to
other
contractors
completing
the
project.
One
of
the
purposes
of
the
CCAA
is
to
allow
the
applicant
company
to
continue
on
with
its
business
during
the
period
of
reorganization.
It
would
be
virtually
impossible
for
a
company
to
carry
on
business
if
there
was
not
some
method
in
which
suppliers
could
be
compensated.
The
reality
is
that
no
supplier
would
deal
with
a
company
in
financial
difficulties
if
they
knew
that
they
were
not
going
to
get
paid
or
would
be
placed
behind
all
other
creditors
of
the
company.
It
was
acknowledged
during
the
course
of
the
submissions
by
counsel
that
the
lien
claimants
would
be
entitled
to
the
hold-backs
and
moneys
held
in
trust
pursuant
to
the
Construction
Lien
Act.
It
was
also
acknowledged
that
none
of
these
proceeds
could
form
part
of
the
assets
or
estate
of
the
applicant
company
which
would
be
available
for
general
distribution
to
all
classes
of
creditors.
Federal
Government
The
final
issue
dealing
with
priority
relates
to
the
federal
government
and
the
statutory
priority
which
is
granted
to
them
under
the
various
Acts.
Under
the
federal
legislation
they
have
been
provided
with
a
priority
position
and
also
have
imposed
a
"deemed
trust"
provision
on
funds.
Subsection
224(1.2)
of
the
Income
Tax
Act
provides
that
it
operates
notwithstanding
any
enactment
of
Canada,
any
enactment
of
a
province,
or
any
law.
The
provisions
empower
the
federal
Crown
to
require
payment
intended
for
a
tax
debtor
from
secured
creditors
of
the
tax
debtor
to
be
made
to
it.
Both
the
Canada
Pension
Plan
and
the
Unemployment
Insurance
Act
incorporate
by
reference
subsections
224(1.2)
and
(1.3)
in
respect
of
the
employee
deductions
and
employer
contributions
required
by
those
Acts.
Subsection
317(3)
of
the
Excise
Tax
Act
contains
a
power
similar
to
that
contained
in
subsection
224(1.2)
of
the
Income
Tax
Act,
save
that
the
latter
applies
notwithstanding
the
Bankruptcy
Act
while
the
former
does
not.
In
addition,
the
Income
Tax
Act
subsections
227(4),
(5);
Canada
Pension
Plan
subsections
24(3),
(4);
Unemployment
Insurance
Act
subsections
57(2),
(3);
and
Excise
Tax
Act
subsections
222(1),
(3)
all
provide
for
a
deemed
trust
provision.
Once
wages
were
paid
by
the
applicants
to
their
employees,
some
of
the
moneys
so
paid
ceased
to
be
property
of
the
employer
and
became
that
of
the
employee.
From
that
money
the
employer
was
statutorily
required
to
hold
back
a
certain
amount
which
is
deemed
to
be
held
in
trust
for
the
federal
Crown.
Where
the
applicants
collected
GST
as
an
agent
of
the
Crown
the
money
so
collected
never
became
the
property
of
the
applicants.
As
I
stated
in
Fine's
Flowers
v.
Creditors
of
Fine's
Flowers,
although
I
found
the
provincial
Crown
bound
by
the
provisions
of
the
CCAA
as
it
related
to
the
procedural
aspects
of
the
Act,
I
also
found
that
the
Crown
had
priority
as
a
result
of
their
statutory
security.
If
the
CCAA
application
has
materialized
the
Crown
would
obviously
be
in
a
special
classification
of
creditor
which
would
give
them
some
control
over
the
proposed
plan
or
arrangement.
From
that
secured
position
then
the
Crown
would
have
to
be
paid
out
in
order
for
the
plan
of
arrangement
to
work.
In
the
receivership
application
they
obviously
will
have
priority
over
other
creditors
and
these
priorities
will
have
to
be
determined.
In
view
of
my
finding
that
they
are
bound
by
the
CCAA,
then
the
monitor
and
legal
counsel,
the
suppliers
of
goods
after
January
15,
1992,
and
those
persons
who
loaned
money
to
keep
the
company
in
operation
should
all
be
paid
in
priority
to
the
Crown
or
other
creditors.
The
Constitutionality
of
Subsections
224(1.2)
of
the
Income
Tax
Act
and
317(3)
of
the
Excise
Tax
Act
The
applicants
and
the
various
creditors
of
the
applicants
have
challenged
the
constitutional
validity
of
the
above
mentioned
sections
of
the
federal
legislation.
Their
position
is
that
the
collection
powers
as
provided
for
both
in
subsec.
224(1.2)
of
the
Income
Tax
Act
and
subsection
317(3)
of
the
Excise
Tax
Act
are
ultra
vires
the
federal
Parliament
as
it
is
property
and
civil
rights
in
a
province.
The
Manitoba
and
Alberta
Courts
of
Appeal
have
held
that
these
provisions
did
not
create
a
priority
in
favour
of
the
federal
Crown
over
secured
creditors.
(See
Lloyds
Bank
of
Canada
v.
International
Warranty
Company,
[1990]
2
C.T.C.
360,
60
D.L.R.
(4th)
272
(Alta.
C.A.);
Pembina
on
the
Red
Development
Corp.
v.
Tri
man
Industries
Ltd.,
[1992]
1
C.T.C.
133,
92
D.T.C.
6174.
The
Saskatchewan
Court
of
Appeal
held
differently
and
found
that
the
federal
Crown
had
an
entitlement
to
receive
payment
of
the
tax
debtor's
receivables
ahead
of
secured
creditors,
in
Royal
Bank
of
Canada
v.
Saskatchewan
Power
Corp.
[1990]
2
C.T.C.
285,
90
D.T.C.
6330
(Sask.
C.A.).
All
of
these
cases
were
decided
before
subsection
224(1.2)
was
amended
in
June
1990.
A
more
recent
decision
dealing
with
the
amended
subsection
224(1.2)
is
Transgas
Ltd.
v.
Mid-Plains
Contractors
Ltd.,
[1992]
1
C.T.C.
151,
[1992]
2
W.W.R.
257.
In
that
case,
MacPherson,
C.J.Q.B.
declared
subsection
224(1.2)
of
the
Income
Tax
Act
as
presently
worded
to
be
unconstitutional
to
the
extent
that
it
infringes
on
the
provincial
laws
relating
to
the
ownership
of
property
pursuant
to
subsection
92(13)
of
the
Constitution
Act,
1867.
This
case
is
currently
under
appeal
to
the
Saskatchewan
Court
of
Appeal.
Counsel
for
the
applicants
have
urged
me
to
follow
the
decision
of
MacPherson,
C.J.Q.B.
With
respect
to
the
Chief
Justice,
I
am
unable
to
reach
the
same
conclusions
as
he
did.
In
TransGas,
MacPherson,
C.J.Q.B.
found
that
subsection
224(1.2)
did
not
apply
to
trust
moneys
claimed
by
lien
holders
under
the
Saskatchewan
Builders'
Lien
Act.
Subsection
91(3)
of
the
Constitution
Act
gave
to
Parliament
the
power
to
make
laws
for
raising
of
money
by
any
mode
or
system
of
taxation".
The
words
are
clear
and
unambiguous
and
have
been
interpreted
to
give
Parliament
a
broad
power
when
legislating
for
the
purpose
of
taxation.
The
section
which
MacPherson,
C.J.Q.B.
found
was
outside
the
power
of
Parliament
dealt
with
collection
or
enforcement.
He
found
that
this
section
infringed
upon
provincial
laws
relating
to
ownership
of
property.
The
effect
of
subsection
224(1.2)
is
to
require
payment
of
a
debt
owed
by
a
third
party
to
the
Minister
of
National
Revenue.
This
section
applies
notwithstanding
the
priority
that
may
be
given
to
a
third
party
by
provincial
legislation.
The
moneys
in
question
are
moneys
that
have
been
deducted
by
the
employer
for
the
employee's
wages
or
paid
by
way
of
GST.
It
would
appear
to
me
that
the
deemed
trust
provisions
and
collection
procedures
are
all
part
of
the
pith
and
substance
of
the
federal
legislation
(see
Attorney
General
of
Canada
v.
Nykorak,
[1962]
S.C.R.
331;
Attorney
General
of
Canada
v.
Canadian
National
Transportation
Companies,
[1983]
2
S.C.R.
206,
7
C.C.C.
(3d)
449;
Whitbread
v.
Walley,
[1990]
3
S.C.R.
1273,
77
D.L.R.
4th
25;
Friends
of
the
Oldman
River
Society
v.
Canada,
supra).
In
conclusion,
I
would
find
that
subsection
224(1.2)
of
the
Income
Tax
Act
and
subsection
317(3)
of
the
Excise
Tax
Act
are
within
the
primate
of
Canada
and
that
the
Crown
has
priority
to
the
extent
claimed
to
the
moneys
collected
or
to
be
collected
by
the
receiver
as
a
result
of
notices
given
under
that
Act.
Counsel
may
speak
to
me
with
reference
to
any
outstanding
matters
as
a
result
of
this
decision
along
with
the
question
of
costs.
Order
accordingly.
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