Cullen,
J.:
—On
August
21,
1989,
my
colleague
Mackay,
J.
ordered
that
the
actions
under
Court
Nos.
T-1364-86,
T-2864-86
and
T-2866-86
be
tried
together
on
common
evidence.
The
parties
to
this
action
have
agreed
that
the
sole
issue
of
fact
in
dispute
between
them
is
whether
the
plaintiffs
are
entitled
to
challenge
the
application
by
the
Minister
of
National
Revenue
of
the
$41,000
paid
to
the
Receiver
General
of
Canada.
Background
464734
Ontario
Inc.
(Ontario)
is
incorporated
under
the
laws
of
the
Province
of
Ontario,
carrying
on
business
in
the
Regional
Municipality
of
Hamilton-
Wentworth
in
the
province
of
Ontario.
On
December
15,
1981,
Ontario
entered
into
a
contract
with
Konvey
Construction
Company
Limited
(Konvey)
in
which
it
agreed
to
act
as
a
forming
subcontractor
for
the
purpose
of
building
a
project
(project).
Ontario
had
submitted
its
bid
to
Konvey
on
the
basis
that
it
would
be
permitted
to
complete
its
work
at
the
project
without
using
union
labour.
As
a
result,
the
amount
bid
by
Ontario
was
considerably
lower
than
it
would
have
been
if
Ontario
had
contemplated
using
union
labour.
Konvey
was
aware
of
this
fact
when
it
accepted
Ontario's
bid.
After
Ontario
had
commenced
work
on
the
project,
a
number
of
unions
who
represented
those
tradesmen
who
would
typically
be
employed
by
Ontario
at
the
project,
pressured
both
Konvey
and
Ontario
by
threatening
to
close
down
the
project
if
Ontario
didn't
enter
into
a
collective
agreement
with
the
unions.
Ontario
did
so
and
significantly
increased
its
labour
costs
on
the
project.
Ontario
was
orally
assured
by
Konvey
that
it
would
be
reimbursed
for
its
extra
costs
incurred
but
in
fact
Konvey
did
not
increase
the
progress
payments
being
made.
There
were
other
problems
with
the
project,
resulting
in
extras
being
claimed
against
Konvey.
All
of
these
factors
resulted
in
Ontario
not
having
sufficient
cash
flow
to
fully
pay
its
employees’
wages
and
deductions
(C.P.P.
and
U.I.C.),
nor
to
make
tax
payments
contemplated
by
section
153
of
the
Income
Tax
Act
and
section
10
of
the
Income
Tax
Act
(Ontario).
The
plaintiff
applied
its
cash
flow
first
to
wages
due
to
the
employees
and
then
applied
the
balance
of
its
cash
flow
against
statutory
deductions
including
those
required
by
section
153
of
the
Income
Tax
Act
and
section
10
of
the
Income
Tax
Act
(Ontario).
Konvey
reneged
on
its
undertaking
and
Ontario
commenced
an
action
against
Konvey
under
the
Mechanics'
Lien
Act
(Ontario).
On
February
17,
1983,
a
claim
for
lien
was
registered
and
on
April
12,
1983
a
statement
of
claim
was
issued.
Ontario
submitted
a
T-4
summary
indicating
it
owed
$98,326
in
source
deductions.
Revenue
Canada
performed
an
audit
on
March
7,
1983
which
audit
determined
that
the
amount
of
source
deductions
owed
by
Ontario
was
$98,762.12.
Counsel
for
the
plaintiffs
indicated:
“As
for
these
proceedings
I
am
going
to
use
Revenue
Canada's
numbers,
simply
because
the
difference
of
$400
wasn't
worth
our
time
to
find
out
why
there
was
a
difference
(transcript
page
7).
To
this
the
auditor
added
interest
and
penalty.
The
month
that
Ontario
fell
behind
was
April
1982.
On
March
8,
1983
Ontario
was
assessed
for
those
amounts.
The
directors
of
Ontario
were
Marcella
and
Virginia
Pica
until
September
1982,
at
which
time
Anthony
Pica
took
over.
Both
Marcella
and
Virginia
Pica
were
reassessed
in
their
capacity
as
directors
of
Ontario.
Differences
between
an
earlier
assessment
and
a
later
one
in
October
21,
1986
were
that
taxes
were
reduced
from
about
$32,000
to
about
$28,000
in
that
moneys
had
been
collected
and
the
penalty
was
reduced
because
it
had
been
calculated
incorrectly.
The
mechanics'
lien
case
was
eventually
settled
(after
six
days
of
trial)
on
the
basis
that
Ontario
was
awarded
$41,000
over
and
above
the
costs
of
litigation.
Counsel
for
Konvey
throughout
was
the
law
firm
of
Coutts,
Crane
and
Ingram
(Coutts
&
Co.).
The
action
was
prosecuted
by
the
directors
because
Ontario
was
without
funds
(page
9
of
transcript).
Having
secured
judgment
and
having
received
a
cheque
for
$41,000
from
Coutts
&
Co.
(a
cheque
made
payable
to
the
Receiver
General
of
Canada
and
drawn
on
Coutts
&
Co.'s
trust
account),
Brian
Nichols
(Nichols)
counsel
for
Ontario,
wrote
the
following
letter
to
R.
Hughes
(Hughes),
Acting
Chief
of
Collections
for
Revenue
Canada
on
September
7,
1983:
Re:
464734
Ontario
Inc.
As
we
have
advised
you
previously,
464734
Ontario
Inc.
commenced
an
action
against
Konvey
Construction
Company
Limited.
His
Honour
Judge
Blair
has
now
awarded
$41,000.00
in
damages
to
464734
Ontario
Inc.
We
have
received
a
cheque
in
that
amount
payable
in
favour
of
the
Receiver
General,
drawn
on
the
account
of
Messrs.
Coutts,
Crane,
Ingram,
the
solicitors
for
Konvey
Construction
Company
Limited,
We
are
pleased
to
forward
this
cheque
to
you
to
be
applied
against
the
account
of
464734
Ontario
Inc.
by
reducing
amounts
owing
in
respect
of
federal
and
provincial
income
taxes
by
464734
Ontario
Inc.
in
the
chronological
order
in
which
such
federal
and
provincial
income
tax
liabilities
arose.
This
letter
was
picked
up
by
Hughes
and
signed
for
by
him.
Nichols
stated
at
pages
35-36
of
the
transcript:
Q.
Whose
signature
is
at
the
bottom
of
that
letter?
A.
That's
Richard
Hughes.
Q.
And
why
is
that
signature
there?
A.
I
wanted
it
to
be
perfectly
clear
that
the
$41,000.00
had
been
delivered
to
him,
and
that
he
had
been
directed
as
to
how
to
apply
the
funds.
Q.
Would
you
turn
to
Edit
1,
page
28.
In
this
letter,
Mr.
Hughes
says,
“Further
to
your
telephone
request
for
the
calculations
of
the
227.1(1)
assessment
.
.
."
Why
were
you
asking
for
these
calculations?
A.
I
wanted
to
see
how
the
$41,000.00
was
applied
in
those
calculations.
Q.
Page
31.
What
does
this
show
you
as
to
how
the
$41,000.00
was
applied?
A.
It
indicates
that
the
$41,000.00
was
applied
against
provincial
tax,
C.P.P.,
and
U.I.C.
Q.
Was
this
done
pursuant
to
your
request
in
your
letter
of
September
7,1983?
A.
No,
it
was
not.
Hughes
wrote
to
Nichols
on
February
24,
1984
enclosing
the
Department's
Original
audit
and
an
explanation
of
the
amounts
assessed
against
the
directors.
The
explanation
he
gave
to
the
various
assessments
was
that
he
"has
not
applied
the
$41,000
in
accordance
with
the
instructions
of
Nichols
and
therefore
Ontario".
He
“has
applied
it
towards
provincial
tax,
Canada
Pension
and
Unemployment
Insurance
and
nothing
towards
federal
tax”
(emphasis
added)
(page
11
of
transcript).
Directors
of
course
are
only
liable
for
federal
income
tax
and
not
liable
for
Canada
Pension,
Unemployment
Insurance
or
provincial
income
tax,
and
thus
the
purpose
of
Nichols’
letter
of
September
7,
1983
is
plain—the
$41,000
would
meet
the
directors'
responsibilities
for
federal
income
tax.
There
is
no
question
that
Hughes’
appropriation
of
the
$41,000
was
directly
contrary
to
the
direction
of
Nichols
and
Ontario
as
to
its
application.
There
are
of
course
penalties
for
not
having
paid
source
deductions
in
the
first
place
and
the
directors
are
liable
for
those
as
was
admitted
by
counsel
for
the
plaintiffs
(page
16
of
transcript).
Nichols:
As
might
be
expected,
over
a
time
span
of
6
or
7
years,
Nichols'
overall
evidence
was
guarded,
in
part
based
on
belief,
and
a
touch
misleading
on
the
date
he
gave
information
to
Hughes.
As
to
the
latter
point,
Nichols
stated:
Page
32
of
the
Transcript:
A.
464734
Ontario
Inc.
had
defaulted
in
part
because
of
the
actions
of
Konvey
Construction
Co.,
and
had
commenced
a
Mechanic's
Lien
action
against
Konvey.
I
advised
Mr.
Hughes
of
this
Action.
Q.
When
did
you
advise
Mr.
Hughes
of
this
action?
A.
It
would
have
been
either
in
the
latter
half
of
May,
1983,
or
the
beginning
of
June,
1983.
Page
38
of
the
transcript:
Q.
Now,
I
believe
you
indicated
that
you
had
some
contact
with
Mr.
Hughes,
and
in
about—I
think
you
said
May
of
'83,
you
made
him
aware
of
the
Statement
of
Claim?
A.
I
said
I
made
him
aware
either
late
in
May
or
early
in
June
of
'83.
But
the
fact
is
the
claim
for
lien
and
the
statement
of
claim
were
prepared
by
another
law
firm
and
the
file
was
not
transferred
to
Nichols’
firm
until
June
10,
1983
and
that
date
was
given
to
us
by
Nichols
at
page
37
of
the
transcript.
Thus
he
was
certain
of
the
date
of
June
10,
1983
but
still
left
hanging
the
possibility
of
giving
Hughes
information
in
late
May
or
early
June.
It
is
also
difficult
to
understand
how
Nichols
could
not
recollect
the
name
of
the
law
firm
that
actually
began
the
action
and
from
whom
he
received
the
file,
namely
Shinehoft,
Mihailovich
and
Czutrin.
Also,
it
is
barely
credible
that
Nichols
would
remember
a
telephone
conversation
but
couldn't
recall
any
conversation
with
Hughes
at
the
time
Hughes
picked
up
the
cheque.
Pages
45-46
of
the
transcript:
Q.
Am
I
correct
that
when
you
handed
him
this
letter,
there
really
was
no
discussion
between
Mr.
Hughes
and
yourself
concerning
the
letter?
A.
I
had
indicated
by
telephone
previously
how
I
intended
to
have
the
funds
applied.
Q.
But,
when
you
handed
him
the
letter,
do
I
take
it
there
was
really
no
discussion
between
himself
and
yourself?
A.
I
don't
recall
if
there
was
any
further
discussion
when
I
handed
him
the
letter.
[Emphasis
added.]
Surely,
the
letter
is
explicit
and
if
Nichols
wanted
Hughes
to
do
anything
except
acknowledge
receipt
of
the
letter,
those
conditions
could
have
been
written
in.
But
the
actual
words
on
the
letter
are:
"Revenue
Canada
hereby
acknowledges
receipt
of
this
letter."
There
is
not
a
hint
or
suggestion
that
Hughes
accepted
the
letter
on
condition
he
follow
the
instructions
given
by
Nichols
in
the
letter.
Hughes
felt
he
was
not
bound
to
follow
Nichols'
instruction
because
the
"garnishment"
had
been
filed,
the
cheque
was
made
payable
to
the
Receiver
General
of
Canada
and
the
letter
from
Coutts
&
Co.
dated
September
1,
1983
made
it
clear,
to
Hughes
at
any
rate,
that
the
$41,000
was
being
paid
in
satisfaction
of
third
party
demand
(Exhibit
D-2,
Tab
15).
Nichols
in
evidence
says
at
page
42
of
the
transcript:
"I
don't
recall
that
document."
when
speaking
of
Exhibit
D-2,
Tab
15,
but
did
concede
at
page
40
of
the
transcript
that
he
believed
there
was
a
letter
sent
to
him
by
Coutts
&
Co.
with
the
cheque:
Q.
I'm
showing
you
another
letter.
Can
you
tell
us
whether
you
have
ever
seen
this
letter
before?
A.
It's
possible
that
a
copy
of
that
letter
was
sent
to
me
with
the
cheque.
I
believe
there
was
a
letter
sent
with
the
cheque
by
Coutts,
Crane,
and
Ingrani.
Q.
I
see.
So,
you
would
have
seen
a
copy
of
this
letter?
A.
I'm
not
entirely
sure.
I
remember
they
did
have
the
covering
letter
with
the
cheque.
This
could
possibly
be
it.
In
seeking
to
find
a
reason,
other
than
third
party
notice/garnishment,
why
the
cheque
was
made
out
to
the
Receiver
General
of
Canada,
Nichols
suggested
a
court
order
required
it.
Page
43
of
transcript:
Q.
Sir,
turning
back
to
the
photocopy
of
the
cheque,
you
would
agree
with
me
that
that
is
issued
by
the
law
Firm
of
Coutts,
Crane,
and
Ingram?
A.
That's
correct.
Q.
It
would
appear
to
be
on
a
trust
account?
A.
Yes,
it
is
[sic]
says,
"trust
account".
Q.
And
it
is
payable
to
the
Receiver
General
of
Canada?
A.
It
says,
"Receiver
General
for
Canada.”
Q.
You
would
agree
with
me
then
that
cheque
is
being
paid
by
the
law
firm
on
a
trust
account,
the
law
firm
of
Coutts,
Crane,
and
Ingram?
A.
That
cheque
is
drawn
on
the
trust
account.
Q.
And,
sir,
would
you
also
agree
with
me
that
that
payment
was
being
made
pursuant
to
the
requirement
to
pay
that
you
identified
earlier?
A.
Well,
that
cheque
was
issued
as
a
result
of
the
settlement
in
the
litigation.
Q.
And
the
payment
that
is
being
made
to
the
Receiver
General
of
Canada,
would
you
agree
that
it
is
being
made
pursuant
to
the
requirement
to
pay?
A.
I
believe
the
Consent
judgment
provided
that
the
cheque
be
paid
to
the
Receiver
General.
Q.
The
Consent
judgment?
A.
Yeah.
Q.
Are
you
referring
to
a
particular
exhibit
here
today?
A.
Let
me
just
have
a
look
at
it
and
see.
It
doesn't
appear
to
say
that.
[Emphasis
added.]
Hughes:
Hughes
was
a
National
Revenue
employee
whose
task
it
was
to
collect
the
unpaid
source
deductions,
which
are
federal
tax,
provincial
tax,
Canada
Pension
Plan
amounts
and
Unemployment
Insurance
amounts,
plus
interest
and
penalty.
He
began
his
work
in
early
March,
1983.
He
describes
it
this
way
at
page
54
of
the
transcript:
A.
First
of
all,
I
was
advised
by
a
supervisor
in
the
source
deduction
section
of
the
Hamilton
office
that
they
were
going
to
conduct
a
payroll
audit
on
the
books
and
records
of
464734
Ontario
Inc.
As
a
result,
I
attended
during
the
time
that
they
were
conducting
the
audit,
and
/
interviewed
the
director
at
that
time,
Mr.
Antonio
Pica,
with
regard
to
method
of
payment,
available
assets,
future
income.
Based
on
the
interview,
I
was
able
to
ascertain
that
there
were
outstanding
loans
owed
to
the
company
by
related
family
members,
including
Virginia
Pica,
Marcella
Pica,
Frank
and
Antonio
Pica.
And
that
besides
these
loans
and
some
left
over
lumber
and
building
materials,
the
only
other
asset,
or
potential
asset,
or
source
of
income
was
a
claim
under
the
Construction
Lien
Act
that
had
been
made
by
the
company
for
an
unfilled
contract.
Q.
Do
you
remember
what
claim
that
was
or
against?
A.
It
was
against
a
company
called
Konvey
Construction
Limited.
As
a
result
of
that
information,
I
sent
out
requirements
to
pay
to
family
members,
along
with
one
to
Konvey
Construction,
another
one
to
their
lawyers,
and
another
one
to
the
bank
of
record.
[Emphasis
added.]
and
later,
at
page
56
of
the
transcript,
in
answer
to
a
question
from
the
Court:
THE
COURT
:
That
document
going
out
to
family
members
or
to
the
lawyers.
You
said
you
sent
it
out
to
the
lawyers.
You
said
to
"their
lawyers."
What
do
you
mean
by
“their
lawyers"?
THE
WITNESS:
The
lawyer
for
Konvey
Construction
Limited.
Counsel
for
the
defendant
won
the
battle
with
the
Court
and
with
counsel
for
the
plaintiffs
at
pages
58-60
of
the
transcript:
MS.
LEE:
Well,
My
Lord,
I
guess
my
position
still
is
that
he
can
refer
to
a
fact,
the
fact
that
be
would
have
done
something
at
a
certain
date
and
time.
The
fact
that
a
document
cannot
be
produced
to
perhaps
back
up
that
statement
may
go
towards
the
weight
of
what
he
said.
But,
in
my
submission,
the
fact
of
what
happened
and
what
he
knows
cannot
be
excluded,
and
that
is
the
defendant's
position.
MS.
LEE:
I
leave
it
in
Your
Lordship's
hands.
What
I
propose
is
that
the
witness
certainly
can
indicate
when
he
became
aware
of
the
lien
and
the
action,
and
how
he
did.
MS.
LEE:
Well,
My
Lord,
as
I
said,
I
will
leave
it
in
the
Court's
hands.
But
my
position
is:
The
fact
of
sending
it
out
is
simply
something
that
the
witness
can
attest
to.
The
fact
that
we
don't
have
a
document
before
us
may
go
to
weight.
THE
COURT:
Well,
it
probably
won't
go
a
long
way
to
weight,
because
it
will
receive
almost
scant,
if
any,
attention.
I
think
it’s
unfair
to
the
plaintiff
in
this
situation.
Despite
my
comments
made
in
that
exchange,
Hughes'
evidence
is
credible,
no
documents
are
required
because
Hughes
has
indicated
all
the
actions
he
took
as
soon
as
he
was
assigned
the
collection
responsibility.
However,
as
will
be
seen,
early
or
late
notification
to
Hughes
of
the
action
is
really
not
the
basis
for
my
decision.
We
heard
from
Hughes
that
shortly
after
the
notice
of
assessment
was
issued
in
March
1983,
a
recommendation
was
made
to
head
office
that
the
indebtedness
of
Ontario
be
certified
and
concurrent
writs
be
issued
out
of
the
Federal
Court.
Execution
was
requested
of
the
Sheriff
of
Hamilton-Wentworth
to
levy
on
the
execution
in
that
jurisdiction.
The
sheriff
reported
in
July
1983
(Exhibit
D-2,
Tab
10)
that
no
goods
or
chattels
were
exigible
and
enclosed
the
writ
nulla
bona
return.
The
Federal
Court
certificate
was
certified
March
9,
1983.
On
July
7,
1983,
Hughes
states
that
a
"Requirement
to
Pay”
[was]
issued
to
Konvey
Construction
Limited
and
that
it
was
mailed
to
them
by
registered
mail
and
it
was
in
respect
of
Ontario.
At
page
67
of
the
transcript
he
explains:
Q.
And
what
was
Konvey
supposed
to
do,
having
been
served
with
this
requirement?
A.
Well,
if
they
were
liable
to
464
for
any
amounts
or
were
to
become
liable
within
90
days
of
the
date
of
the
requirement
to
pay,
those
funds
were
to
be
remitted
to
the
Receiver
General,
instead
of
being
paid
to
464734
Ontario
Inc.,
up
to
the
maximum
amount
or
the
amount
stated,
$120,825.41.
When
asked
why
Konvey
was
served
he
explains
again
at
pages
67-68
of
the
transcript:
Q.
.
.
.
Why
was
Konvey
Construction
Limited
identified
as
a
party
that
would
be
served
with
one
of
these?
A.
Well,
the
Minister
had
knowledge
or
suspected
that
Konvey
Construction
Company
would—or
was
indebted
to
464734
Ontario.
Inc.
Q.
And
what
was—did
you
have
any
knowledge
of
how
it
would
or
might
become
indebted
to
464734?
A.
As
I
indicated
previously,
I
had
been
advised
by
Mr.
Antonio
Pica
back
in
early
March
that
there
was
an
outstanding
Mechanic's
Lien
action.
And
during
my
investigation
after
that
date,
I
spoke
to
both
the
company,
Konvey
Construction
Limited,
and
their
solicitor,
and
was
advised
that
there
was
an
active
case.
And
discussions
had
been
entered
into
in
order
to
settle
it.
Q.
And
who
were
the
solicitors
for
the
company
that
you
say
you
spoke
to?
A.
Coutts,
Crane,
and
Ingram.
Q.
And
again,
that
has
been
identified
as
a
requirement
to
pay
that
was
sent
or
served
on
Coutts,
Crane,
and
Ingram.
And
again,
what
was
Coutts,
Crane,
and
Ingram
expected
to
do?
A.
Well,
in
the
event
that
they
became
indebted,
by
virtue
of
being
the
solicitors
for
Konvey
Construction
Limited,
holding
the
money
on
behalf
of
Konvey,
that
they
would
pay
the
Receiver
General,
instead
of
464734
Ontario
Inc.
[Emphasis
added.]
Hughes
could
not
recall
how
he
became
aware
that
Coutts
&
Co.
were
the
solicitors,
but
he
does
remember
when,
namely
March
1983.
We've
read
Nichols’
account
concerning
the
letter
of
September
7,
1983
from
Nichols
to
Hughes
and
now
we
hear
from
Hughes.
Q.
.
.
.
can
you
identify
what
that
is?
A.
That
was
a
letter
that
was
given
to
me—or
a
copy
of
it—that
I
signed
when
I
picked
up
a
cheque
for
$41,000.00
that
had
been
issued
by
Coutts,
Crane,
and
Ingram,
and
represented
the
net
settlement
amount
on
the
Mechanic’s
Lien
action.
Q.
All
right.
I
wonder,
Madam
Registrar,
if
I
could
just
have
D-2.
Thank
you.
Sir,
is
that
the
original
of
the
document
at
tab
13?
A.
Yes
it
is.
Q.
All
right.
Did
you
receive
anything
else
with
that
letter?
A.
Yes,
I
received
another
letter
on
the
letterhead
of
Coutts,
Crane,
and
Ingram,
along
with
a
cheque
payable
to
the
Receiver
General
for
$41,000.00
and
garnishee
remittance
slip.
At
page
71
of
the
transcript:
Q.
Oh,
I'm
sorry.
.
.
.
I
have
the
wrong
tab.
Tab
14?
A.
Oh,
okay.
Q.
After
the
letter,
there
is
an
attachment.
A.
It's
a
microfilm
copy
of
the
remittance
slip.
It
was
attached
to
Coutts,
Crane,
and
Ingram's
letter.
Q.
All
right.
And
after
that
attachment,
there
is
another
one;
could
you
identify
what
that
is?
A.
Yes,
it’s
a
microfilm
copy
of
the
cheque
that
was
attached.
Q.
And
did
you
say
that
you
received
the
letter
from
Mr.
Nichols
and
the
letter
from
Mr.
McLean
and
these
two
attachments
at
the
same
time?
A.
Yes,
I
did.
Q.
And
can
you
describe
the
circumstances,
where
you
were,
when,
at
the
time
that
you
received
this
material?
A.
Yes.
I
had
attended
the
law
offices
of
Speigel
and
Nichols
in
Brampton
on
another
matter.
And
during
my
visit
there,
Mr.
Nichols
presented
this
package
of
the
two
letters,
along
with
the
cheque
and
remittance
slip.
At
page
73
of
the
transcript:
Q.
Now,
sir,
if
I
could
ask
you
to
turn
back
to
tab
13,
which
is
the
letter
from
Mr.
Nichols
to
yourself.
At
the
bottom
of
the
page
there
is
a
signature
which
appears
to
be
yours.
Did
you
sign
that?
A.
Yes,
I
did.
Q.
All
right.
And
were
you
asked
to
sign
that?
A.
Yes,
I
was.
Q.
All
right.
And
when
you
signed
it,
what
did
you
think—why
you
were
signing
it?
A.
I
was
signing
it
in
order
to
acknowledge
receipt
of
the
cheque
and
the
letter.
Q.
Still
on
that
letter,
sir,
you
will
see
in
the
body
of
the
letter
from
Mr.
Nichols
to
yourself,
the
last
line,
he
indicates
how
he
wishes
the
cheque
to
be
applied,
to
federal
and
provincial
tax
owing
in
chronological
order.
First
of
all,
was
there
any
discussion
between
yourself
and
Mr.
Nichols
concerning
the
letter?
A.
I
can't
recall
any
discussion
with
Mr.
Nichols.
Q.
And
was
there
any
discussion
about
that
last
line?
A.
No.
Q.
Did
you
have
an
opportunity
to
read
the
letter
at
the
time
that
he
handed
it
to
you?
A.
Yes,
I
did.
Q.
Did
you
have
any
reaction
to
the
letter?
A.
Yes,
at
first
I
thought
it
was
a
little
presumptuous.
Because
the
payment,
in
my
opinion,
was
in
response
to
the
requirement
to
pay
that
had
been
sent
to
Konvey
Construction,
and
was
not
a
direct
payment
from
the
taxpayer.
And
I
took
the
position
that
the
direction
was
not
effective.
[Emphasis
added.]
and
at
page
76
of
the
transcript
Hughes
describes
how
he
applied
the
$41,000:
Q.
Does
that,
sir,
show
how
the
$41,000.00
was
applied?
A.
Yes.
Q.
And
why
was
it
applied
in
that
way?
A.
Well,
it
was
applied
firstly
to
provincial
tax,
because
of
the
Collection
Share
Agreement.
And
subsequently
to
Canada
Pension
and
U.I.C.
because
that
happens
to
be
the
standing
policy
of
the
department
on
how
arrear
amounts
are
applied.
It
is
clear
from
the
cross-examination
of
Hughes
that
Tony
Pica
and
Nichols
were
most
forthcoming
in
supplying
information,
nothing
was
hidden
and
Hughes
was
apprised
throughout
about
the
mechanics'
lien
action
first
by
Tony
Pica,
then
later
by
Nichols.
Hughes
stated
at
page
81
of
the
transcript
that
Tony
Pica
gave
him
"a
photostated
(sic)
copy
of
the
Notice
of
Claim".
Q.
You
mean
the
Statement
of
Claim?
A.
Statement
of
Claim.
This
is
repeated
later
and
the
fact
he
got
a
statement
of
claim
in
March
1983.
In
this
March
1983
conversation
it
is
clear
that
Tony
Pica
told
Hughes
all
about
his
trouble,
the
increased
expense
with
union
labour.
Hughes
cannot
recall
if
Tony
Pica
told
him
about
solicitors
for
Konvey
(said
the
same
thing
on
examinationin-chief)
but
“in
March
1983,
I
issued
a
requirement
to
pay
to
Coutts,
Crane
and
Ingram”
(page
83
of
transcript).
All
through
this
cross-examination
both
counsel
for
the
plaintiffs
and
Hughes
describe
the
document
Tony
Pica
gave
to
Hughes
as
a
statement
of
claim.
Despite
going
through
his
file
Hughes
could
not
be
certain
where
he
“came
across
the
name,
Okay?
of
Coutts,
Crane
and
Ingram,
originally
Okay?
But
that
could
have
merit.”
(Here
Hughes
is
referring
to
counsel's
suggestion
that
he,
Hughes,
called
the
solicitor
for
Ontario
and
they
told
him.)
Counsel
then
showed
Hughes
the
statement
of
claim
(Exhibit
P-1,
page
38).
This
exchange
took
place
at
page
84
of
the
transcript:
Q.
Now,
would
you
be
kind
enough
to
turn
to
page
38
of
P-1.
A.
Okay.
He
gave
me
part
of
this.
He
didn't
give
me
the
whole
thing.
Q.
He
gave
you
part
of
this?
A.
Yes.
Q.
But,
this
is
the
Statement
of
Claim
that
he
gave
you;
right?
A.
I
believe
so.
Q
.
And
it
was
on
the
basis
of
having
this
Statement
of
Claim
that
you
were
able
to
find
all
about
Konvey,
and
ultimately
all
about
their
solicitors;
correct?
A.
Well,
that
and
the
discussion
that
I
had
with
Mr.
Pica
in
.
.
.
Q.
Yes.
But,
you
indicated
that
you
obtained
this
Statement
of
Claim
from
Pica
at
the
time
of
your
discussion.
That
was
your
evidence?
A.
Yes,
he
gave
me
a
copy
of
the
contract
and
a
copy
.
.
.
I
thought
it
was
a
notice,
Notice
of
Motion.
Q.
Well,
you
refer
to
it
in
your
evidence
as
a
claim,
the
Statement
of
Claim.
That's
how
I
spoke
to
you.
A.
Okay.
Q.
And
you
have
recognized
this,
and
this
is
the
one
that
he
gave
you,
or
at
least
part
of
it?
A.
I
believe
so.
Q.
Okay.
Now,
if
you
will
turn
to
page
44.
You
will
note
at
the
bottom
that
it
was
delivered
by
solicitors
called
Shinehoft,
Mihailovich
&
Czutrin.
That
gave
you
the
names
of
Ontario's
solicitors;
didn't
it?
A.
Yes.
Q.
And
I
suggest
to
you
that
it
was
also
delivered,
meaning
filed
with
the
Court,
on
April
12,
1983.
That
is
what
the
document
says;
does
it
not?
A.
Yes.
Q.
So,
that
it
was
not
when
you
spoke
with
Tony
Pica
that
you
got
this
document?
It
had
to
have
been
after?
A.
Well,
I
don't
recall
receiving
any
documents
after
the
fact.
Q.
And
the
fact
is,
you
spoke
with
Brian
Nichols
about
this
matter?
A.
Yes,
it
did
come
up.
Q.
And
he
certainly
told
you
or
talked
to
you
about
the
fact
that
there
was
an
action
against
Konvey?
A.
Yes.
Q.
And
about
the
construction
project,
which
was
the
undoing
of
Ontario?
He
told
you
all
about
that?
And
later
at
page
87
:
Q.
But
then
again,
your
recollection
is
that
you
got
the
Statement
of
Claim
in
March
of
1983?
A.
I
got
a
copy
of
a
document,
okay?
which
I
thought
was
the
Statement
of
Claim,
okay?
Q.
The
point
is,
your
recollection
is
very
hazy,
is
it
not,
on
this
aspect?
A.
As
to
what
the
specific
document
was
titled,
okay.
I
got
a
document
that
looks
like
this,
yes.
[Emphasis
added.]
In
the
light
of
what
happened
later
in
the
testimony
this
exchange
between
counsel
is
interesting.
Page
88
of
the
transcript:
MR.
SPEIGEL:
The
point
is,
it
is
one
thing
to
say:
Here
is
the
document
in
front
of
me.
I
am
relying
of
this
document.
It's
another
thing,
as
the
defendant
has
been
attempting
to
do,
to
say:
I
am
going
to
hide
the
documents.
I
am
going
to
have
my
witnesses
look
at
these
documents.
And
then
they
are
going
to
get
up
and
testify,
saying:
I
now
recollect
what's
going
on.
Had
they
not
looked
at
the
documents
that
they
haven't
provided
us
with,
there
is
no
way
that
this
witness
would
be
able
to
say,
"I
recollect
what
is
going
on."
These
documents
were
not
provided.
MS.
LEE:
My
Lord,
that
is
how
all
witnesses
refresh
their
memory
about
events
that
happen
six
years
later.
That
doesn't
mean
they
have
to
produce
every
single
piece
of
paper
that
they
looked
at.
The
Court
wouldn't
want
that;
no
court
would
want
that.
A
document
from
a
file
can
be
used
to
test
that
person's
recollection.
And
if
that
is
what
my
friend
wants
to
do,
then
he
is
entitled
to
do
that.
But,
aside
from
that
purpose,
there
is
no
relevance
at
all
in
having
the
whole
file
produced.
MR.
SPEIGEL:
It
would
be
difficult
for
me
to
attempt
to
test
his
recollection
with
documents
that
have
never
been
produced
in
the
first
place.
Obviously,
we
are
not
necessarily
going
to
produce
for
the
trial
an
exhibit
book,
ten
inches
of
documents.
But,
the
ten
inches
of
documents
are
almost
inevitably
produced
at
discovery.
Then
you
sift
down
what
you
need,
what
you
don't
need,
what
is
not
relevant,
and
you
use
that
which
is
relevant.
THE
COURT:
Well,
I
think
I
made
it
clear
at
the
beginning
that
if
there
are
documents
in
this
file
which
he
has
used
to
recall
that
have
not
been
produced,
and
obviously
can't
be
relied
on,
I
don't
see
that
there
is
much
more
to
be
gained.
I
mean,
he
has
indicated
on
the
copy
of
the
pleadings
he
doesn't
recall.
For
example,
the
evidence
of
Mr.
Nichols
is
that
he
did
give
him
that
document.
This
man's
evidence
is
he
doesn't
recall.
He
doesn't
say
he
wasn't
given
it,
but
he
doesn't
recall
it.
Now
to
assist
him,
he
went
back
to
his
file
and
checked
his
notes,
which
have
not
been
produced—checked
documents.
But,
that
gives
a
very
poor
basis
for
his
recollection,
the
fact
that
he
has
to
go
back
to
documents
that
apparently
were
not
important
enough
to
be
introduced
as
documents.
MR
SPEIGEL:
In
that
case,
I
have
made
my
point,
My
Lord,
and
I
will
go
on.
[Emphasis
added.]
As
indicated
earlier,
both
Pica
and
later
Nichols
kept
Hughes
informed
on
the
progress
of
the
mechanic's
lien
action,
even
suggesting
that,
"there
was
a
possibility
of
a
settlement
amount".
Nichols
also
told
Hughes
that
the
money
that
Ontario
was
alleged
to
get
from
Konvey
was
going
to
be
paid
to
Revenue.
The
directors
were
using
their
own
money
to
pursue
the
action
and
despite
that
financial
risk,
the
money
was
to
go
to
Revenue
Canada.
Hughes
was
adamant
that
he
issued
a
requirement
to
pay
because
the
account
was
under
collection
action.
Hughes
states
at
page
92
of
transcript:
Q.
And
you
attempted
to
issue
this
requirement
to
pay
to
Konvey
because,
in
your
words,
"Konvey
was
indebted
to
Ontario"?
A.
It
was
issued
to
Konvey
because
Konvey
was
the
defendant
in
the
Mechanic's
Lien
action.
Q.
But,
they
were
not
indebted;
were
they?
A.
No,
I
don't
believe
they
were.
Q.
No,
there
was
simply
a
claim
for
damages
against
them?
A.
Right.
Q.
And
that
claim
was
not
liquidated,
meaning
no
one
could
set
the
exact
amount
that
they
owed?
A.
That's
right.
Q.
If
anything.
There
was
just
a
claim?
A.
That's
right.
Q.
And
had
not
Ontario
prosecuted
this
action,
Revenue
Canada
would
have
received
nothing
from
Konvey?
A.
That's
correct.
Q.
But,
Konvey
claimed
they
owed
nothing
to
Ontario.
They
were
fighting
the
action;
correct?
A.
If
they
were
fighting
the
action,
I
would
imagine
that
that
would
be
their
position.
Q.
Yes.
And
you
knew
they
were
fighting
the
action?
A.
Well,
we
didn't
get
a
cheque
when
we
issued
the
requirement
to
pay
to
them.
Counsel
then
cross-examined
Hughes
on
the
fact
that
he
personally
could
not
be
certain
that
the
requirement
to
pay
to
Konvey
and
to
Courts
&
Co.
had
been
sent
registered
mail
(I
shall
comment
later
on
this).
Counsel
for
Ontario
had
suggested
the
third
party
notice
was
issued
because
Hughes
didn't
trust
Ontario.
At
page
101
of
the
transcript,
Hughes'
answer:
A.
It
was
very
large
amount
of
money
outstanding,
over
$120,000.00.
And
we
have
taxpayers
coming
in
all
the
time
who
indicate
a
method
of
payment,
okay,
and
then
fail
to
follow
it
through.
It
was
a
judgment
call,
based
on
the
total
circumstances
of
the
file
at
that
time.
We
were
looking
at
a
loss,
we
anticipated,
you
know,
in
excess
of
$50,000.00.
So,
it
was
done
as
a
means
of
insuring
that
the
proceeds
came
to
the
department.
And
then
at
the
penultimate
moment
of
the
trial
on
the
re-examination
of
Hughes,
we
had
what
may
be
charitably
described
as
a
legal
dustup.
Hughes
confirmed
that
he
met
and
talked
to
Tony
Pica
on
March
7,
1983
during
the
time
of
the
payroll
audit
at
the
business
premises
of
Ontario.
Page
102
of
transcript:
Q.
And
are
you
saying
that
at
that
time
you
received
a
document
or
a
copy
of
a
document
from
Mr.
Pica?
A.
Yes,
he
gave
me
a
copy
of
the
contract,
or
at
least
the
face
page,
okay,
and
a
copy
of
the
lien
action.
Q.
All
right.
Do
you
know
what
a
Mechanic's
Lien,
claim
for
lien,
is?
A.
I
know
more
about
it
today
than
I
did
six
years
ago.
It's
where
a
contractor—
Q.
I'm
not
asking
you.
I’m
just
saying:
Have
you
seen
one,
do
you
know
what
it
is?
A.
Yes.
Q.
Do
you
know
the
difference
between
a
Statement
of
Claim
and
a
Claim
for
Lien?
A.
Yes.
Q.
Are
they
different
documents,
as
far
as
you
know?
A.
Yes,
they
are.
Q.
Is
that
the
document
that
you
got?
A.
I
thought
it
was,
but
I
can’t,
you
know—as
I
said,
I
didn't
get
the
full
document.
Q.
All
right.
Now,
did
you
keep
a
copy
of
the
document
that
Mr.
Pica
gave
you?
A.
Yes.
Q.
Did
you
keep
it
in
your
file?
A.
Yes.
Q.
My
Lord,
I’m
going
to
ask
the
witness
to
identify
his
file
and
identify
the
copy
of
the
document
that
he
took
on
that
day.
THE
COURT:
Well,
it’s
a
little
late
for
that
in
the
day.
MS.
LEE:
My
Lord,
it's
a
document
that
comes
from
the
plaintiffs,
from
the
company.
I
can’t
see
how
it
can
cause
any
prejudice
to
the
parties.
In
my
respectful
submission,
this
is
proper
on
re-examination.
I
think
the
ultimate
question
is
to
have
the
truth
before
the
Court,
My
Lord.
THE
COURT:
I
think
the
ultimate
is
to
have
documents
before
the
Court,
before
the
trial.
MS.
LEE:
My
Lord,
with
all
respect—
THE
COURT:
This
man
has
said
already
that
it
wasn't
this
document,
and
it
wasn't
all
of
this
document.
It
was
part
of
this
document.
He
didn't
know
how
much,
how
big
a
part.
But,
he
has
indicated'in
his
evidence
that
that
is
what
he
got.
Obviously,
he
didn't
get
that
because
he
couldn't
have
received
something
that
is
dated
in
April,
when,
in
fact
the
meeting
took
place
in
March.
MS.
LEE:
That's
why
I’m
saying,
My
Lord,
I
think
the
purpose
of
re-examination
is
to
clarify
the
witness’
answer,
his
evidence.
I
think
the
purpose
of
all
of
the
evidence
gathered
in
the
trial
process
is
to
reach
the
truth.
And
if
[he]
has
given
an
incorrect
answer,
My
Lord,
I
feel
I
am
obliged
to
rectify
that.
[Emphasis
added.]
At
page
106
of
the
Transcript:
MS.
LEE:
But,
this
is
re-examination,
My
Lord.
And
I
think
the
purpose
of
reexamination
is
to
clarify
matters
that
come
up
as
a
result
of
cross-examination.
And
later,
at
pages
106-108
of
the
transcript
counsel
for
the
plaintiffs
and
counsel
for
the
defendant:
MR.
SPEIGEL:
My
friend
is
saying
these
documents
were
not
all
relevant,
she
was
not
going
to
rely
upon
them,
and
therefore
she
didn't
put
them
in
her
list
of
documents.
that
is
what
she
said,
because
I
have
got
this
document
saying
what
she
is
going
to
rely
upon.
We
go
through
the
trial.
We
are
at
the
very
end.
We
are
on
re-direct,
probably
of
the
last
witness.
And
now
she
wants
to
pick
and
choose
what
documents
that
she
wants
to
put
in,
that
might
hurt
the
plaintiff's
case,
documents
that
the
plaintiff
has
not
seen
before.
And
not
only
is
she
picking
and
choosing,
but
she
is
saying:
We
have
got
some
other
things
here.
I’m
not
going
to
let
you
see
them.
I'm
only
going
to
let
you
see
what
I
think
I
am
going
to
like.
And
the
plaintiff
has
to
sit
back—cross-examination
is
gone
now,
can't
touch
it.
I
have
already
had
my
turn.
She
is
having
her
last
crack
at
the
apple.
She
puts
in
this
stuff
that
I
have
never
seen
before
and
calls
it
re-direct
and
calls
it
proper.
And
I
suggest
that
it
is
improper
and
it
is
improper
re-direct.
She
could
have
put
it
in
through
the
witness
on
direct.
She
asked
the
witness
the
questions
on
direct,
as
to
speaking
to
Tony.
She
could
have
attempted
to
put
the
document
in.
She
didn't
attempt
to
do
that,
because
she
is
not
relying
on
it.
Then,
when
her
witness
is
caught
out
in
an
inconsistency,
then
she
goes
back
and
says:
Ah,
I’m
pulling
it
out
of
the
hat
and
I
want
to
use
it.
And
I
suggest
that
is
improper.
There
has
to
be
some
rules
of
the
game
whereby
everybody
knows
what
is
going
on.
And
it
is
not
as
if
it
were
a
trial
by
ambush,
and
that
is
what
she
is
doing.
MS.
LEE:
My
Lord,
it
is
the
plaintiff
in
cross-examination
that
has
made
this
point,
which
probably
is
not
relevant
to
the
ultimate
determination
anyway.
But,
it
is
that
cross-examination
that
has
made
it
relevant.
Otherwise,
it
wouldn't
be
raised.
Why
would
we
anticipate
something
that
would
come
out
of
cross-
examination?
.
.
.
I
don't
think
it
is
incorrect
that
a
document,
that
is
required
to
clarify
his
answer
on
re-examination,
cannot
be
admitted,
even
though
it
hasn't
been
put
in
through
examination-in-chief.
At
page
109
of
the
transcript:
THE
COURT:
No,
we
are
getting
into
a
situation—it
is
nothing
personal
—but,
we
are
just
trying
to
get
at
the
truth.
MS.
LEE:
Yes.
And
with
respect,
I
wish
I
could
establish,
you
know,
a
firmer
legal
foundation
for
saying
that
this
document
is
admissible,
without
further
argument.
I
can’t
at
this
point.
But,
there
is
always
the
over-riding,
I
guess,
basis
for
admissibility:
if
it’s
relevant
and
probative.
And
it
is,
with
respect.
Where
there
is
an
answer
that
has
been
given
that
obviously—that
Your
Lordship
has
pointed
out—
has
inconsistencies.
And
we
have
here
a
situation
where
it
is
a
document
from
the
company,
My
Lord.
With
respect,
there
can
be
no
prejudice
at
all.
MS.
LEE:
.
.
.
So,
what
I
would
ask
My
Lord,
is
if
the
file
or
the
document
in
the
file
could
be
put
to
the
witness.
THE
COURT:
Well,
I
don't
know
really
how
pertinent
it
is
to
the
ultimate
decision
here.
It
is
probably
only
that
aspect
that
has
me
leaning
in
favour
of
allowing
the
witness
to
look
at
the
file
and
to
cull
out
the
document
that
he
says
he
received
from
Mr.
Pica.
So
I
am
going
to
give
you
10
minutes.
But,
that
is
the
only
document
he
is
to
look
at,
for
the
purposes,
as
you
indicated,
because
it
was
raised
in
cross-
examination.
MS.
LEE:
My
Lord,
I
have
the
file
now.
Would
you
still
like
a
10—
THE
COURT:
No,
if
you
have
got
it
available.
He
talked
about
there
were
four
or
five
of
them.
I
want
him
to
take
it
out.
I
don't
want
you
to
take
it
out.
BY
MS.
LEE:
Q.
Mr.
Hughes,
do
you
recognize
this?
A.
Yes,
I
do.
Q.
Could
you
please
tell
the
Court
what
it
is?
A.
It's
what
we
call
a
collection
docket,
and
it
is
for
464734
Ontario
Limited
and
513244
Ontario
Limited.
Q.
Was
that
a
file
you
compiled?
A.
It
was
a
file
that
I
worked
on
while
I
hand(l)ed
the
tax
collection
of
the
companies.
Q.
All
right.
Can
you
identify
in
that
file
the
document
that
you
would
have
obtained
on,
I
think
you
said,
March
7,
1983?
You
are
handing
something
to
the
Registrar.
Could
you
please
tell
us
what
that
is?
A.
It's
a
Mechanic's
Lien.
THE
COURT
:
Well,
you
had
better
have
a
look
at
it.
It
looks
a
heck
of
a
lot
different
than
what
I
see
in
front
of—
THE
WITNESS:
It’s
a
claim
for
lien
under
the
Mechanic’s
Lien
Act.
BY
MS.
LEE:
Q.
By
whom?
A.
By
464734
Ontario
Inc.
Q.
And
is
there
a
date
anywhere
on
it?
A.
Yes,
it’s
the
17th
of
February,
1983.
Q.
And
is
that
the
document
that
you
received
from
Mr.
Pica
or
from
the
company
on
that
date?
A.
That
is
the
document—a
copy
of
the
document
that
Mr.
Pica
gave
me,
yes,
on
March
the
7th.
Q.
Mr.
Hughes,
with
respect
to
the
Statement
of
Claim,
did
you
ever
receive
a
copy
of
that—or
I
think
you
said
parts
of
it—did
you?
A.
I
don't
recall
receiving
a
copy
of
the
Statement
of
Claim.
Q.
The
one
that
Mr.
Speigel
showed
you?
A.
Now
that
I
have
seen
that
one,
that
is
what
I
was
referring
to.
Q.
All
right.
I
have
no
other
questions,
My
Lord.
Thank
you.
THE
COURT
:
I'm
going
to
allow
re-direct,
if
there
is
anything
you
wish
to
raise.
MR.
SPEIGEL:
There
is
nothing
I
can
do
at
this
point.
and
later,
just
before
the
witness
was
excused
(page
113
of
transcript):
THE
COURT:
Okay.
You
are
excused.
Just
a
couple
of
questions.
Now,
we
have
heard
that
you
received
a
claim
for
lien.
It
is
has
been
alleged
in
your
evidence
that
you
were
given
a
Statement
of
Claim
by
Mr.
Nichols,
along
with
a
Statement
of
Defence.
One
was
given
to
you
in
March,
another
one
was
given
to
you
sometime
in
May,
I
believe.
My
dates,
don't
quote
me
on
that.
But,
what
we
have
been
calling
garnishment—nothing
took
place
until
July.
What
was
the
purpose
for
that?
If
you
got
that
Claim
for
Lien
when
you
said
that
you
did,
why
wouldn't
you
have
moved
immediately
to
do
something
about
it?
THE
WITNESS:
We
did,
Your
Honour.
The
department
issued
a
requirement
to
pay
to
both
Konvey,
and
Coutts,
Crane,
and
Ingram,
in
March
of
1983.
THE
COURT
:
And
that
was
the
first
step
you
took,
or
at
least
the
department
took?
THE
WITNESS:
Well,
one
of
the
first
steps.
Because
the
day
or
two
days
after
the
assessment
was
issued,
the
debt
was
certified
and
a
certificate
was
taken
out
in
Federal
Court
in
Ottawa,
and
writs
were
filed
as
well.
Comments:
Counsel
for
the
plaintiffs
put
the
issue
this
way
in
his
argument
at
page
14
of
the
transcript:
.
.
.
the
main
dispute
is
how
the
$41,000.00
should
be
applied.
The
taxpayer
has
directed
it
to
be
paid
toward
federal
income
tax
and
Ontario
income
tax
as
they
arose
in
chronological
order.
The
Minister
disregards
that
direction
and
applies
it
towards
Unemployment
Insurance,
Canada
Pension,
and
its
employer
and
employee
for
both,
and
Ontario
income
tax.
So,
the
question
is:
When
a
creditor
is
being
paid
by
a
debtor,
who
decides
where
that
money
is
going
to
go
and
how
it
is
to
be
applied?
It
is
clear
in
law
that
if
no
third
party
notice
had
been
served
by
the
defendant
and
Konvey
had
paid
the
$41,000
to
counsel
for
the
plaintiffs,
the
plaintiffs
would
have
been
entitled
to
have
the
money
allocated
as
directed
by
Nichols
in
his
letter
of
September
7,
1983.
In
those
circumstances
we
would
have
had
the
fact
of
a
debt
owed
by
Ontario
to
the
Crown.
Where
no
direction
is
given
by
the
debtor
then
the
creditor
is
free
to
apply
the
moneys
received
as
the
creditor
sees
fit.
The
debtor
must
expressly
authorize
how
the
funds
he
is
paying
to
the
creditor
are
to
be
applied
and
failure
to
do
so
leaves
the
creditor
to
decide:
Can
Fishing
&
Tackle
Sports
Limited
v.
Dawe,
[1960]
O.W.N.
499;
25
D.L.R.
(2d)
487;
and
Re
Northern
and
Central
Gas
Corp.
Ltd.
v.
Kidd
Creek
Mines
(1988),
66
O.R.
(2d)
11.
This
general
rule,
like
most
general
rules,
has
an
inevitable
exception
which
is
found
in
The
Agricultural
Insurance
Company
v.
Sergeant
(1895),
26
S.C.R.
29.
This
case
was
brought
to
the
Court's
attention
by
counsel
for
the
plaintiffs
and
counsel
states
at
page
17
of
the
transcript:
In
this
case,
the
debtor
was
an
insurance
agent
collecting
premiums
on
behalf
of
the
creditor
insurance
company.
The
creditor
got
nervous
and
he
obtained
a
note
and
a
mortgage
signed
by
the
debtor
and
the
defendant,
as
a
surety
or
guarantor.
The
business
continued,
and
premiums
were
collected
and
paid
over,
but
the
debt
was
never
reduced.
The
debtor
died
and
the
creditor
wanted
the
money
from
the
defendant,
on
the
basis
of
the
mortgage.
The
defendant
says
that
that
money
was
paid
in
the
course
of
normal
dealings
and
it
goes
to
the
oldest
account,
because
nothing
was
specifically
said.
The
Court
held
that
the
rule
relating
to
the
oldest
account
going
out
first
only
applies
if
the
payment
was
either
of
the
debtor's
money,
or
at
least
of
money
over
which
he
had
power
to
appropriate.
The
Court
held
that,
in
this
case
the
money
that
had
been
paid
to
the
creditor
was
in
fact
the
creditor's
own
money,
and
therefore
the
rule
didn't
apply.
[Emphasis
added.]
The
plaintiffs
argued
at
page
19
of
the
transcript,
and
referred
to
the
Agricultural
case,
supra:
So,
they
are
looking
at
it
and
they
are
saying:
These
were
never
your
money
in
the
first
place.
And
because
it
is
not
your
money
in
the
first
place,
how
can
you
say
that
you
are
going
to
appropriate
it?
Now,
in
our
case
the
$41,000.00
that
was
paid
was
the
money
of
Ontario.
It
was
not
the
Minister’s
money.
That
was
admitted
in
cross-examination
by
Mr.
Hughes.
I
specifically
asked
him.
I
said,
That
money
was
the
money
paid
as
a
result
of
a
debt
owing
from
[K]onvey
to
Ontario?
Answer:
Yes.
And
it
was
Ontario's
money
that
was
being
paid
over?
Answer:
Yes.
And
it
was
only
because
there
was
this
requirement
to
pay
that
you
paid
Ontario's
money
directly
to
Revenue
Canada?
It
is
admitted
at
all
times
that
that
money
was
Ontario's
money.
Therefore,
the
exception
to
the
rule
does
not
apply
in
this
case.
With
the
greatest
respect,
the
ownership
of
the
money
is
really
a
question
of
law
to
be
determined
by
the
Court
and
not
Hughes.
To
be
determined
is
the
question,
does
the
general
rule
apply
in
the
circumstances
here
if
the
moneys
are
paid
pursuant
to
the
equivalent
of
a
garnishment?
Conclusions
The
evidence
is
quite
clear
on
many
points.
Hughes,
the
tax
collector,
went
to
work
immediately
after
the
audit
was
done.
Tony
Pica
gave
him
a
detailed
commentary
on
the
problems
Ontario
was
facing,
why
these
problems
arose,
what
assets
Ontario
still
had
(for
example,
loans
outstanding
and
payable
by
family
members)
and
the
fact
that
a
mechanic's
lien
action
had
been
commenced
by
Ontario.
Hughes
had
all
this
information
on
March
7,
1983.
He
was
also
handed
a
document
by
Tony
Pica
confirming
a
lien
action.
On
more
than
one
occasion
Hughes
accepted
that
the
document
he
received
was
a
part
of
a
statement
of
claim,
however,
the
statement
of
claim
was
dated
April
1983
so
he
could
not
have
received
that
document
in
March.
What
buttresses
Hughes'
conclusions
that
he
knew
about
the
lien
action
on
March
7,
1983
is
the
fact
that,
in
addition
to
having
the
Sheriff
attempt
to
secure
assets,
a
third
party
notice
was
issued
against
Konvey
and
the
law
firm
of
Coutts
&
Co.
There
is
no
question
that
Tony
Pica
and
Nichols
kept
Hughes
fully
informed
but,
remember,
the
Department
of
National
Revenue
already
had
a
third
party
notice/
garnishment
filed.
These
garnishments
are
different
than
those
filed
under
provincial
jurisdiction.
Here
the
garnishment
has
a
90-day
lifetime
so
that
if
the
money
is
not
owed
by
the
garnishee
when
the
third
party
notice
is
filed,
if
money
later
becomes
due
and
owing
during
the
90
days
the
garnishee
in
law
must
forward
the
money
owed.
Hughes
filed
a
subsequent
third
party
notice
on
July
7,
1983
and
at
that
time
only
a
claim
for
money
was
in
place.
However,
during
the
term
of
this
third
party
notice,
Konvey
became
indebted
to
Ontario
for
$41,000
under
a
Court
judgment.
Counsel
for
the
plaintiffs
argued
that
Hughes
did
not
deliver
the
notice
personally
nor
could
he
have
knowledge
about
whether
it
was
sent
by
registered
mail.
With
the
greatest
of
respect,
there
is
a
presumption
of
regularity
and
certainly
there
is
no
question
that
Konvey
ana
the
law
firm
of
Coutts
&
Co.
did
receive
this
notice
as
evidenced
by
the
September
1,
1983
letter
written
by
McLean
of
Coutts
&
Co.
When
the
time
came
for
Coutts
&
Co.
to
forward
the
$41,000,
they
wrote
a
letter
to
Revenue
Canada
for
the
attention
of
Hughes
clearly
stating
it
was
in
satisfaction,
"of
a
third
party
demand
made
upon
both
ourselves
and
our
client
Konvey
Construction
Company
Limited”.
The
whole
thrust
of
the
letter
was
in
compliance
with
the
third
party
notice.
There
was
not
in
the
circumstances
here
a
payment
by
Ontario.
It
was
a
payment
made
by
the
garnishee
to
satisfy
its
obligations
under
the
third
party
notice.
The
money
when
paid
out
and
the
cheque
when
received
was
not
Ontario's
money
nor
did
Ontario
have
the
power
to
demand
how
it
be
appropriated.
At
best
Ontario
was
a
conduit.
Accordingly,
the
M.N.R.
had
the
authority
to
apportion
the
payment
as
he
in
fact
did.
I
agree
with
counsel
for
the
defendant
that
what
they
had
was
a
judgment
of
the
Court
entitling
them
to
payment
from
Konvey
of
a
certain
sum.
That
payment
was
never
made
to
them
because
it
was
intercepted
by
the
garnishment/third
party
notice.
The
defendant
was
not
arguing,
nor
in
the
circumstances
here
was
it
necessary,
that
a
statutory
trust
existed
in
favour
of
the
Crown
and
arguments
countering
that
position
by
the
plaintiffs
were
unnecessary.
Counsel
for
the
defendant
gave
an
interesting
if
somewhat
esoteric
argument
vis-a-vis
money
but
surely,
when
the
Supreme
Court
of
Canada
was
using
the
word
money
it
was
doing
so
in
the
ordinary
parlance.
The
action
by
Ontario
is
dismissed
and
as
conceded
the
directors
are
responsible
for
the
penalties
imposed
as
a
result
of
the
deductions
not
being
made
as
required
by
the
various
statutes.
The
defendant
was
not
bound
to
allocate
the
$41,000
as
directed
by
Nichols
in
his
letter
of
September
7,
1983
but
in
fact
was
at
liberty
to
allocate
it
as
the
Minister
did
in
fact
do.
The
defendant
is
entitled
to
its
costs.
Appeal
dismissed.