Canada (Minister of National Revenue) c. Hypnat Ltée., 2001 FCT 285

Date: 20010403

Docket: ITA-1626-98

Neutral reference: 2001 FCT 285

MONTRÉAL, QUEBEC, APRIL 3, 2001

BEFORE: RICHARD MORNEAU, PROTHONOTARY

In re the Income Tax Act

                                                                        - and -

In re one or more assessments made by the Minister of National Revenue pursuant to one or more of the following statutes: the Income Tax Act, the Canada Pension Plan and the Employment Insurance Act

AGAINST:

                                                               HYPNAT LTÉE

                                                                                                                             Judgment debtor

                                                                         AND

                                                  HYPNAT LTÉE, COURTIER

                                                                                                                                         Garnishee

                                       REASONS FOR ORDER AND ORDER

RICHARD MORNEAU, PROTHONOTARY

[1]                 The case at bar concerns a motion by the judgment creditor Her Majesty the Queen for a final order of garnishment against the garnishee Hypnat Ltée, Courtier.

[2]                 A provisional order of garnishment was made against the garnishee on September 29, 1999. Essentially this seizure of September 29, 1999 placed under provisional garnishment an account receivable in the amount of $1,529,111.45 owed by the garnishee to the judgment debtor.

[3]                 For purposes of obtaining the final order of garnishment the central question this Court must resolve is whether this account receivable - this debt - was prescribed between the parties at the time of the provisional garnishment, namely September 29, 1999.

[4]                 According to the garnishee the evidence was that this debt should be regarded as having been created at October 31, 1993 at the latest and according to the rules of prescription the debt, which is in the nature of an indefinite loan, was prescribed three years after the date of its creation, and in short prescription applied in its favour as of January 1, 1997.

[5]                 In its submission, there is no evidence of a recognition of the debt in the case at bar by the garnishee which could interrupt the running of prescription, since

           (i)         the letter of August 31, 1998 filed in support of the Novak affidavit originated with the judgement debtor, not the garnishee, and so cannot in any way constitute a recognition of the debt by the latter;

           (ii)        the garnishee's financial statements for the taxation years ending August 31, 1991 to October 31, 1999 (Exhibits 1(c) to 1(k)) and the latter's worksheets for the same period (Exhibits E-1 to E-9) cannot constitute a recognition of the debt since in its submission it has been established that such financial statements and worksheets only have a very limited value in tax matters.

[6]                 The judgment creditor argued that it is perfectly justifiable to rely on the garnishee's financial statements and worksheets in the case at bar since the purpose of doing so here was not to classify the transactions between the garnishee and the judgment debtor for purposes of taxation, simply to provide a foundation for her rights as creditor. She further argued that all these documents ultimately come from the garnishee and not, as the garnishee maintained, at least for the financial statements, from third parties who were not aware of the legal position of the garnishee.

[7]                 I agree with this approach by the judgment creditor as to the justification for referring to the financial statements and worksheets in the case at bar.

[8]                 I also consider that a joint analysis of the financial statements and worksheets and the affidavits of the garnishee's representative dated October 15, 1999 and August 1, 2000 lead to the clear and unambiguous conclusion that since the 1991 taxation year a debt has existed between the garnishee and the judgment debtor and that this debt (see the worksheets) has been progressing regularly in accordance with a series of "debit/credit" transactions at least up to October 31, 1997. These transactions may be seen as an admission of the existence of a debt regularly renewed by the garnishee, and thus constitute an interruption of prescription by a debt recognition at least up to October 31, 1997.

[9]                 As on this assumption the prescription began to run again in 1997, the three-year period was not completed in September 1999 when the provisional seizure was made.

[10]            Additionally, I cannot conclude in the case at bar that the current transactions reflected in the worksheets indicate that the debt existing between the parties at all relevant times must now be seen as a series of transactions or obligations successively carried out which are subject to prescription independently of each other. According to my analysis, there is nothing in the evidence which suggests that the real nature of the indebtedness between the parties may be distorted in this way.

[11]            For these reasons, the Court

           -           FINDS that the "debt" of the garnishee Hypnat Ltée, Courtier to the judgment debtor Hypnat Ltée was not prescribed on September 20, 1999;

           -           DISMISSES the objection to the garnishment made by Hypnat Ltée, Courtier;

           -           MAINTAINS AND DECLARES TO BE final the seizure made herein;

           the whole with costs.

[12]            The judgment creditor shall submit to the Court within ten days of the instant order for signature a final draft order of garnishment with the usual technical provisions.

Richard Morneau        

                                    Prothonotary

Certified true translation

Suzanne M. Gauthier, LL.L. Trad. a.

                                                  FEDERAL COURT OF CANADA

                               NAMES OF COUNSEL AND SOLICITORS OF RECORD

COURT FILE No.:

STYLE OF CAUSE:

ITA-1626-98

In re the Income Tax Act

and

In re one or more assessments made by the Minister of National Revenue pursuant to one or more of the following statutes: the Income Tax Act, the Canada Pension Plan and the Employment Insurance Act

AGAINST:

HYPNAT LTÉE

                                                          Judgment debtor

AND

HYPNAT LTÉE, COURTIER

                                                                     Garnishee

PLACE OF HEARING:                           Montréal, Quebec

DATE OF HEARING:                              March 8, 2001

REASONS FOR ORDER BY:                 RICHARD MORNEAU, PROTHONOTARY

DATE OF REASONS FOR ORDER:                 April 3, 2001

APPEARANCES:

SOLICITORS OF RECORD: