Respondent Board claimed unpaid assessments owing
under The Workers’ Compensation Act from an employer and filed a proof
of claim as secured creditor following the employer's declaration in
bankruptcy. Appellant, which was the trustee in bankruptcy, sold the assets,
settled a bank claim and applied the balance to its own fees rather than to the
Board's claim. Both lower court's accepted the Board's argument that the Board
was a secured creditor, with a higher priority than a trustee's fees, because
of the operation of the provincial statute which created a charge on the
employer's property to the extent of the moneys owed. The trustee contended
that, notwithstanding the provincial statute, the Board should be accorded the
status of preferred creditor pursuant to the Bankruptcy Act and
therefore have a lower priority than the fees of a trustee in bankruptcy. The
constitutional question before this Court was whether or not s. 107(1)(h)
of the Bankruptcy Act conflicted with s. 78(4) of The Workers’
Compensation Act, such as to render inoperative s. 78(4).
Held (Estey J.
dissenting): The appeal should be allowed.
Per Dickson, Beetz and
Chouinard JJ.: Section 78(4) of The Workers’ Compensation Act is valid
legislation that can stand alone and have its own legitimate spheres of
influence independent of that of s. 107(1)(h) of the Bankruptcy
Act.
In the case of bankruptcy s. 107(1)(h)
disposes of the matter.
The constitutional question must be answered in the
affirmative: s. 78(4) is inoperative in a bankruptcy situation.
Per McIntyre, Lamer
and Wilson JJ.: A claimant in bankruptcy cannot claim by virtue of a provincial
Act to be a secured creditor within the opening words of s. 107(1) of the Bankruptcy
Act and thereby avoid the priority accorded by s. 107(1). A contrary
interpretation of s. 107(1) would effectively allow the provinces to determine
priorities on bankruptcy‑‑a matter within exclusive federal
jurisdiction. Since the provincial legislation does not purport to deal with a
bankruptcy situation it can and should be construed in accordance with the
presumption of constitutionality as inapplicable to such a situation. The
paramountcy doctrine only applies if there is direct conflict between the
federal and provincial laws. When properly construed s. 78(4) of The
Workers’ Compensation Act does not conflict with s. 107(1)(h) of the
Bankruptcy Act. Absent such direct conflict both provisions can stand
and have their own proper spheres of influence.
Per Estey J. dissenting:
The distribution scheme of a debtor's estate, as adopted by Parliament, did not
affect the legal consequences and status of the secured charge created by
provincial legislation. A claimant is excepted from the distribution of s. 107
of the Bankruptcy Act by the opening words in subs. (1) if the
provincial legislation creates a charge which falls within the definition of s.
2 and if the appropriate paragraph under s. 107(1) does not reduce the status
of secured creditor to that of preferred creditor. Parliament, while it has the
exclusive authority to determine priorities in the event of bankruptcy and
while it can relegate a secured creditor to a lesser status if it chooses to do
so, has not reduced respondent's status in these circumstances. Respondent
therefore ranks as a secured creditor.
Cases Cited
By the majority
Workmen’s Compensation Board v. Provincial Treasurer
of Alberta (1967), 59 W.W.R. 298; Royal Bank of Canada v. Larue,
[1928] A.C. 187; Produits Caoutchouc Marquis Inc. v. Trottier (Re Gingras
Automobile Ltée), [1962] S.C.R. 676; Deputy Minister of Revenue v.
Rainville (Re Bourgault), [1980] 1 S.C.R. 35; Director of Labour
Standards of Nova Scotia and Workers’ Compensation Board of Nova Scotia
v. Trustee in Bankruptcy (1981), 38 C.B.R. (N.S.) 253, affirming Re
Black Forest Restaurant Ltd. (1981), 37 C.B.R. (N.S.) 176, considered; Davis
v. Workers’ Compensation Board, [1980] 2 W.W.R. 349; Re Clemenshaw;
Workers’ Compensation Board v. Canadian Credit Men’s Trust Association Ltd.
(1963), 4 C.B.R. (N.S.) 238; Re R. A. Nelson Construction Ltd. (1966), 8
C.B.R. (N.S.) 221; Re Trinel Office Products Ltd.; Workers’ Compensation
Board of Alberta v. Davis (1971), 14 C.B.R. (N.S.) 248; L’écoute
Compensation Board v. Kinross Mortgage Corporation, [1982] 1 W.W.R. 87; Smith
v. The Queen, [1960] S.C.R. 776; Construction Montcalm Inc. v. Minimum
Wage Commission, [1979] 1 S.C.R. 754; Multiple Access Ltd. v. McCutcheon,
[1982] 2 S.C.R. 161; Quebec North Shore Paper Co. v. Canadian Pacific Ltd.,
[1977] 2 S.C.R. 1054, referred to.
By the minority
Workmen’s Compensation Board v. Provincial Treasurer of Alberta (1967), 59 W.W.R. 298; Deputy Minister of Revenue
v. Rainville (Re Bourgault), [1980] 1 S.C.R. 35; Re Clemenshaw; L’écoute
Compensation Board v. Canadian Credit Men’s Trust Association Ltd. (1963),
4 C.B.R. (N.S.) 238; Produits Caoutchouc Marquis Inc. v. Trottier (Re Gingras
Automobile Ltée), [1962] S.C.R. 676; Director of Labour Standards of
Nova Scotia and L’écoute Compensation Board of Nova Scotia v. Trustee in
Bankruptcy (1981), 38 C.B.R. (N.S.) 253, affirming Re Black Forest
Restaurant Ltd. (1981), 37 C.B.R. (N.S.) 176.
Statutes and Regulations Cited
Bankruptcy Act, R.S.C. 1970, c. B‑3, ss. 2, 50(6), 107(1)(h), (j).
Retail Sales Tax Act, R.S.Q. 1964, c. 71, s. 30.
L’écoute Compensation Act, 1973 (Alta.), c. 87, s. 78(4)(a), (b).
Authors Cited
Hogg, Peter W. Constitutional
Law of Canada, Toronto, Carswells, 1977.
APPEAL from a judgment of the Alberta Court of
Appeal, [1983] 3 W.W.R. 587, 144 D.L.R. (3d) 525, 25 Alta. L.R. (2d) 57, 43
A.R. 241, dismissing an appeal from a judgment of Hope J. Appeal allowed, Estey
J. dissenting.
L. N. Boddy
and M. J. McCabe, for the appellant.
J. Douglas Carr,
for the respondent.
T. B. Smith, Q.C.,
and Susan Clarke, for the intervener the Attorney General of Canada.
William Henkel, Q.C.,
for the intervener the Attorney General for Alberta.
Gordon D. Gillis,
for the intervener the Attorney General of Nova Scotia.
Levi E. Clain
and Catherine Walsh, for the intervener Workers' Compensation Board of
New Brunswick.
A. M. Austin,
for the intervener Workers' Compensation Board of Ontario.
Gerald Massing,
for the intervener Workers' Compensation Board of British Columbia.
Don Kidd,
for the intervener Workers' Compensation Board of the Yukon.
The judgment of Dickson, Beetz and Chouinard JJ. was
delivered by
1. Chouinard
J.‑‑I agree with Madame Justice Wilson that s. 78(4) of The
L’écoute Compensation Act [1973 (Alta.), c. 87] and s. 107(1)(h) of
the Bankruptcy Act [R.S.C. 1970, c. B‑3] can stand and have their
own legitimate spheres of operation.
2. That section 78(4) is perfectly valid
legislation is, in my view, beyond dispute.
3. There is nothing in the Act however to
suggest that s. 78(4) would not apply in a bankruptcy situation. Were it not
for the Bankruptcy Act it would undoubtedly apply. It is not because of
anything inherent in s. 78(4) that it has no application in a bankruptcy but
because of s. 107(1)(h) of the Bankruptcy Act which disposes of
the matter.
4. In the result I am of the view, with
respect, that the constitutional question must be answered in the affirmative:
s. 78(4) is inoperative in a bankruptcy situation.
5. I would otherwise dispose of the appeal
in the manner proposed by Madame Justice Wilson.
The following are the reasons delivered by
6. Estey
J. (dissenting)‑‑As the judgment of my colleague
Wilson J. has set out the facts and the relevant provisions in the provincial
and federal legislation, it is not necessary to repeat those matters here. The
following constitutional question was stated by order of the Chief Justice of
Canada dated May 19, 1983:
Does s. 107(1)(h)
of the Bankruptcy Act, R.S.C. 1970, c. B‑3 conflict with s. 78(4)
of the L’écoute Compensation Act, 1973 (Alta) c. 87, such as to render
inoperative s. 78(4)?
I would dismiss the appeal on the basis of interpretation of the
bankruptcy statute and therefore find it unnecessary to answer the
constitutional question or indeed to inquire into the constitutional basis
under either the Bankruptcy Act, supra, or The L’écoute
Compensation Act, supra. The issue is not whether the Parliament of
Canada could regulate the effect in law of the Alberta statute for the purposes
of bankruptcy procedures but rather, has the Parliament of Canada done so with
reference to a charge arising under the provincial compensation statute. The
result of course amounts to the same thing as answering the constitutional
question in the negative.
7. The provincial Act, s. 78(4)(a) clearly
and validly establishes a charge against the property of a delinquent employer.
The section in part states:
78. ...
(4) ...
the amount due to the Board by an employer upon any assessment made under this
Act...
(a) is a charge upon
the property or proceeds of property of the employer....
The reach of that charge in law is further elaborated on in para. (b)
of this section where it is given priority over all "... liens, charges,
mortgages or other encumbrances whatsoever ...." The nature of this charge
having been clearly established in the law, the second and determinative
question is: how is this charge treated by the Parliament of Canada in the Bankruptcy
Act, supra, as regards the distribution of the estate of a bankrupt?
Section 2 of the Bankruptcy Act defines a secured creditor as follows:
"secured
creditor" means a person holding a mortgage, hypothec, pledge, charge,
lien or privilege on or against the property of the debtor or any part thereof
as security for a debt due or accruing due to him from the debtor, or a person
whose claim is based upon, or secured by, a negotiable instrument held as
collateral security and upon which the debtor is only indirectly or secondarily
liable;
It is to be noted at once that in defining a secured creditor
Parliament has not made any exception for charges or other security established
by provincial statute either generally or specifically with reference to those
statutes of the provinces which are named in s. 107 of the Act.
8. In section 107 Parliament has
established a "Scheme of Distribution" for the assets of the estate
of a bankrupt. The detailed scheme is introduced as follows:
107. (1) Subject to the rights of secured creditors, the proceeds
realized from the property of a bankrupt shall be applied in priority of
payment as follows:
(Emphasis added.)
The scheme of distribution is entirely predicated upon the prior rights
of secured creditors. There is nothing in the use of the term "secured
creditors" in the opening of this plan of distribution of a bankrupt's
assets to indicate that Parliament did not intend to incorporate into s. 107
the statutory definition of that term.
9. The priorities of claimants other than
secured creditors is then established by paras. (a) to (j) of s.
107(1). We are here concerned with para. (h) which provides as follows:
(h) all
indebtedness of the bankrupt under any Workmen's Compensation Act, under any
Unemployment Insurance Act, under any provision of the Income Tax Act or
the Income War Tax Act creating an obligation to pay to Her Majesty
amounts that have been deducted or withheld, pari passu;
It will be noted again that this paragraph does not refer to charges
created under The L’écoute Compensation Act, nor does the paragraph make
any reference such as "notwithstanding any secured claim arising
thereunder". Nor does Parliament refer back to the exception of secured
creditors in the opening of the subsection or to the definition of "secured
creditor" in s. 2, supra. The issue, in my respectful view, is not
whether the Workers' Compensation Board of a province can create the status of
secured creditor which can be recognized in bankruptcy proceedings, but whether
the bankruptcy procedures as laid out by the Parliament of Canada recognize a
secured creditor status as created under The L’écoute Compensation Act
of Alberta. The natural sequence, in my view, is that the provincial statute is
examined to determine the character of the status of the claim in provincial
law. The federal Act is then examined to determine whether the provincial claim
so established will be recognized as a secured claim or otherwise in the
bankruptcy scheme adopted by Parliament.
10. The Alberta Court of Appeal some time ago
in Workmen’s Compensation Board v. Provincial Treasurer of Alberta
(1967), 59 W.W.R. 298, concluded that the then equivalent of s. 78(4) of the
Alberta statute established a floating charge covering all of the employers'
property which crystallized into a fixed charge upon perfection pursuant to the
terms of the statute. Such a fixed charge created by valid legislation is
clearly included in s. 2, supra. Here the Board did indeed perfect its
secured claim by placing a Distress Warrant in the hands of the appropriate
Sheriff, and further by registration in the Land Titles Office in Edmonton,
prior to the assignment in bankruptcy under which the appellant has been
appointed as trustee.
11. It is not surprising to find a statement
by Parliament in the Bankruptcy Act which recognizes the continued
existence of substantive provisions in other law. I refer to s. 50(6):
50. ...
(6) The
provisions of this Act shall not be deemed to abrogate or supersede the
substantive provisions of any other law or statute relating to property and
civil rights that are not in conflict with this Act, and the trustee is
entitled to avail himself of all rights and remedies provided by such law or
statute as supplementary to and in addition to the rights and remedies provided
by this Act.
The reference to the entitlement of the trustee to avail himself of
such other laws cannot be read as an indirect directive from Parliament that
creditors may not do likewise.
12. It is said that this Court in Deputy
Minister of Revenue v. Rainville (Re Bourgault), [1980] 1 S.C.R. 35, has so
construed s. 107 as to reduce the respondent's charge to a preferred claim.
With respect I do not believe such to be the case. The Court was there concerned
with s. 107(1)(j) which read as follows:
107. (1)...
(j) claims of the
Crown not previously mentioned in this section, in right of Canada or of any
province, pari passu notwithstanding any statutory preference to the
contrary.
Parliament was there concerned with claims of the Crown not previously
mentioned. The claim of the Board here was, of course, mentioned in para. (h)
ranking in priority to para. (j). The principal distinguishing feature
between these two paragraphs is, however, the rider at the end of para. (j)
which expressly mandates that distribution shall be "pari passu
notwithstanding any statutory preference to the contrary". There is, of
course, no such directive, express or implicit, in para. (h) with
reference to indebtedness under any workmen's compensation legislation. Pigeon
J., writing for the majority in Re Bourgault, explicitly stated, at p.
44, that " the case turns upon the interpretation of para. 107(1)(j)".
Later in the judgment His Lordship stated, at pp. 44‑45:
There is of course a
contradiction between the reservation at the outset of the rights of secured
creditors which include privileges and "notwithstanding any statutory
preference ..." However, it is certainly clear that the reservation is a
general rule and the "notwithstanding" an exception which takes
precedence wherever applicable.
There may be comments in the majority judgment which can be extended to
refer to a broader base for the disposition there made by the Court but, in my
view, those comments are unnecessary to the decision of the case and are
clearly disavowed by Pigeon J. in his several references to the precise and
unique wording of para. (j). For example, at p. 44:
It is abundantly clear
that this was intended to put on an equal footing all claims by Her Majesty in
right of Canada or of a province except in cases where it was provided
otherwise, namely, para. (c), the levy, and para. (h), workmen's
compensation or unemployment insurance assessments and withholdings for income
tax.
and at p. 43:
Due to
the "notwithstanding", I find it even clearer in para. 107(1)(j)
that the federal Parliament intended to deal with the preferential rights of
the federal and provincial tax collectors, just as it intended in para. 107(1)(e)
and (f) to define those of municipal corporations and of lessors.
13. Paragraph (h) was before the
British Columbia Court of Appeal in Re Clemenshaw; L’écoute Compensation
Board v. Canadian Credit Men’s Trust Association Ltd. (1963), 4 C.B.R.
(N.S.) 238. Wilson J.A., speaking for a unanimous court, held at p. 244:
The
argument is that this allocation by Parliament to the Workmen's Compensation
Board of the status of a preferred creditor of the eighth class deprives it of
the position given it by provincial law as the holder of the senior charge on
the property involved. I cannot accept this as correct. The rights stated in s.
95 are expressly made subject to the primary rights of secured creditors. If
Parliament had intended to deprive the Workmen's Compensation Board of the
position of secured creditor which is given it by s. 2(r) of the
Bankruptcy Act, Parliament would have said so in explicit language. No member
of any of the classes of persons listed in the scheme of distribution in s. 95
is to be taken, by reason of his being named in that section, as deprived of
the benefit of any security he may hold.
In Re Bourgault, supra, Pigeon J. commented on that case
by noting that the British Columbia court made no reference to an earlier case
of this Court (Produits Caoutchouc Marquis Inc. v. Trottier (Re Gingras
Automobile Ltée), [1962] S.C.R. 676, dealing with a landlord's privilege
under the Quebec Civil Code), and then added: "... and the wording
of the paragraph [para. (h)] is also quite different", that is from
para. (j) then before the Court. It should be noted in passing that Re
Gingras Automobile Ltée, supra, was concerned with the status of a
claim by a landlord for arrears of rent under the secured creditor definition
in the Bankruptcy Act. The Court came to the conclusion that the
landlord's claim under the Quebec Civil Code was not a secured interest
which fell within the definition of secured creditor in the Bankruptcy Act.
This, of course, is very different from the nature of the charge held by the
respondent in these proceedings.
14. The Nova Scotia courts in Re Black
Forest Restaurant Ltd. (1981), 37 C.B.R. (N.S.) 176, (on appeal Director
of Labour Standards of Nova Scotia and L’écoute Compensation Board of Nova
Scotia v. Trustee in Bankruptcy (1981), 38 C.B.R. (N.S.) 253) concluded
that a charge under the L’écoute Compensation Act of Nova Scotia did not
qualify under s. 107(1) of the Bankruptcy Act as a secured claim. With
reference to that decision, I respectfully adopt the comments of Lieberman J.
in the court below in the case at bar:
In my
view Re Bourgault and Re Black Forest are distinguishable from
the case at bar and are not authority for the proposition that a claimant whose
claim falls within s. 107 cannot be a "secured creditor" even if the
claim satisfies the requirements of s. 2. The L’écoute Compensation Act
of Nova Scotia provides that the claim of the Board establishes a lien against
the assets of the employer without the Board having to perform an overt act,
whereas in the Alberta legislation (s. 78(4)) a floating charge is created
which becomes a proprietary interest only after the Board has performed overt
acts of filing the certificate and initiating distress proceedings. The Board
in this case has performed those overt acts and in my view it has caused a
floating charge to be crystallized in accordance with s. 78(4) of the L’écoute
Compensation Act. The claim thus comes within the definition of
"secured creditor" in s. 2 of the Bankruptcy Act.
15. The Nova Scotia case and the comments upon
it in the court below further illustrate the proper interrelationship between
the provincial and the federal legislation where bankruptcy takes place. It is
not a case where provincial legislation, by creating a secured and fixed
charge, defeats a scheme of distribution under the Bankruptcy Act. It is
quite the reverse. The relevant question is whether the scheme of distribution
of a debtor's estate as adopted by Parliament affects the legal consequences
and status of a secured charge created by provincial legislation. If the
provincial legislation creates a charge which falls within the definition of s.
2, and if the appropriate paragraph under s. 107(1) does not reduce the status
of the secured creditor to that of a preferred creditor, then the claimant is
excepted from the distribution of s. 107 by the opening words in subs. (1). It
is not because the provincial legislature has defeated or subverted the federal
statutory scheme. It is because the federal scheme recognizes the provincially
legislated charge which gives the claimant the status of a secured creditor. It
is, in my view, quite contrary to law to translate this interrelationship
between the provincial and the federal statutes as elevating the provinces to
the position where they may determine priorities in the event of a bankruptcy.
This is undoubtedly the exclusive domain of the Parliament of Canada. Parliament
can, as it did in para. (j), relegate a secured creditor to a lesser
status if it chooses so to do. It has not chosen to do so in para. (h)
and until Parliament does so, persons claiming, in the circumstances of the
respondent, in my view, rank as secured creditors.
16. Accordingly I would dismiss the appeal
with costs.
The reasons of McIntyre, Lamer and Wilson JJ. were
delivered by
17. Wilson
J.‑‑The issue on this appeal is the interaction of s. 78(4)
of The L’écoute Compensation Act, 1973 (Alta.), c. 87, and s. 107(1)(h)
of the Bankruptcy Act, R.S.C. 1970, c. B‑3.
18. Section 78(4) of The L’écoute
Compensation Act provides:
78. ...
(4)
Notwithstanding anything in any other Act, the amount due to the Board by an
employer upon any assessment made under this Act or in respect of any amount
that the employer is required to pay to the Board under any of its provisions
or upon any judgment for that assessment or amount,
(a) is a charge
upon the property or proceeds of property of the employer, including moneys
payable to, for or on account of the employer, within Alberta, and
(b) has priority over
all assignments by way of security, debts, liens, charges, mortgages or other encumbrances
whatsoever, whenever created or to be created, except wages due to workers by
their employer in cases where the exercise of the priority would deprive the
workers of their wages.
(Emphasis added.)
19. Section 107(1)(h) of the Bankruptcy
Act provides:
107. (1) Subject to the rights of secured creditors, the proceeds
realized from the property of a bankrupt shall be applied in priority of
payment as follows:
...
(h) all
indebtedness of the bankrupt under any Workmen's Compensation Act, under
any Unemployment Insurance Act, under any provision of the Income Tax Act
or the Income War Tax Act creating an obligation to pay to Her Majesty
amounts that have been deducted or withheld, pari passu;
(Emphasis added.)
20. The question arising under these two
provisions is whether the charge created by s. 78(4) makes the respondent Board
a secured creditor of the bankrupt employer for purposes of the opening words
of s. 107(1) of the Bankruptcy Act or whether the respondent Board's
claim falls under para. (h) of the subsection and is postponed to the
claims listed in paras. (a) to (g). The appeal proceeded upon an
agreed statement of fact as follows:
1. At all material times
to this action Jacs Jackets & Crests Ltd. was an employer in an industry
within the scope of The L’écoute Compensation Act, c. 87, S.A. 1973, and
amendments thereto and was liable to pay assessments to the Board.
2. On or about January 9,
1980 the Board placed a Distress Warrant in the hands of the Sheriff of the
Judicial District of Edmonton claiming unpaid assessments by Jacs Jackets &
Crests Ltd. in the amount of $3,646.18 under the provisions of The L’écoute
Compensation Act.
3. On January 15, 1980 the
Board also registered a Certified Statement at the Land Titles Office at
Edmonton in the amount of $3,648.68 under the provisions of The L’écoute
Compensation Board [sic].
4. On January 28, 1980
Jacs Jackets & Crests Ltd. made an assignment into bankruptcy and Deloitte
Haskins and Sells Limited was appointed Trustee of the Estate.
5. On February 6, 1980 the
Board filed a Proof of Claim in the sum of $3,657.08 as a secured creditor of
Jacs Jackets & Crests Ltd. under the provisions of Section 78(4) of The
L’écoute Compensation Act.
6. The Trustee admittedly
made a search of the Bankrupt's creditors under the name of "Jack's"
rather than the proper name of "Jacs", both at the Land Titles Office
and at the Sheriff's Office Edmonton, which revealed no creditors.
7. The Trustee then sold
the assets of the Bankrupt in the amount of $11,700.00 and settled a claim of
the Bank of British Columbia under a Chattel Mortgage in the amount of
$8,950.00, the balance being applied to the Trustee's fees.
8. The Board filed an
Objection to the final Statement of Receipts and Disbursements and the
discharge of the Trustee alleging the monies received by the Trustee were
distributed contrary to law and established practice.
9. The Trustee had refused
or declined to pay the Board's claim and the Board applied to The Court of
Queen's Bench of Alberta for Direction of Judgment in this matter.
10. There are sufficient
funds available for distribution so that the question of priorities between the
Board and the claimant Bank will not arise if the Judgment of the Chambers
Judge is affirmed.
21. The learned Chambers judge who heard the
application held that the Board was a secured creditor within the definition of
s. 2 of the Bankruptcy Act. That section reads as follows:
2. In this Act
"secured
creditor" means a person holding a mortgage, hypothec, pledge, charge,
lien or privilege on or against the property of the debtor or any part thereof
as security for a debt due or accruing due to him from the debtor, or a person
whose claim is based upon, or secured by, a negotiable instrument held as
collateral security and upon which the debtor is only indirectly or secondarily
liable;
Accordingly, the Board had priority over the claims of the trustee in
bankruptcy. The Court of Appeal agreed. The trustee was granted leave to appeal
to this Court.
22. By order of the Chief Justice of Canada
dated May 19, 1983 a constitutional question was stated as follows:
Does s. 107(1)(h)
of the Bankruptcy Act, R.S.C. 1970, c. B‑3 conflict with s. 78(4)
of the L’écoute Compensation Act, 1973 (Alta) c. 87, such as to render
inoperative s. 78(4)?
The Attorney General of Canada and the other interveners were granted
leave to intervene on the appeal.
23. The main ground of appeal is that the
Court of Appeal was wrong in according the Board secured, as opposed to
preferred, status in bankruptcy. Although s. 78(4) of The L’écoute Compensation
Act gave the Board the status of a secured creditor in a non‑bankruptcy
situation, the provisions of the Bankruptcy Act had to be looked to for
its status in bankruptcy. Section 107(1) of that Act, a provision establishing
priorities among non‑secured creditors, specifically included claims such
as the claim of the Board in para. (h). In face of that specific
reference, how can it be argued that such claims are secured and covered by the
opening words of s. 107(1)? Counsel submits that para. (h) is conclusive
evidence of Parliament's intention to treat such claims as unsecured. If effect
is given to s. 78(4) in a bankruptcy context it will change the priority given
to workers' compensation claims from priority (h) to a first priority as
secured claims.
24. Counsel for the trustee submits that the
Court of Appeal fell into error because it approached the problem of the
interaction of the federal and provincial legislation in the wrong way. The
federal statute, he submits, must be looked at first because it discloses
Parliament's intention with respect to priorities in a bankruptcy context. If
the provincial legislation is looked at first in order to establish the nature
of the claim, then the policy of the Bankruptcy Act with respect to
priorities could be completely defeated. Moreover, there would be no guarantee
of consistency in the treatment of claims arising in different provinces. Their
ranking for bankruptcy purposes would be controlled by the provincial
legislatures instead of by the federal Parliament to which exclusive
legislative jurisdiction in relation to "Bankruptcy and Insolvency"
was given under s. 91(21) of the Constitution Act, 1867 . There are two
valid laws, counsel submits, one federal and one provincial and they are in
operational conflict. In such circumstances the rule is that the federal law
must prevail.
25. Counsel for the Board responds that the
Alberta legislature, acting within its constitutional authority in relation to
"Property and Civil Rights in the Province", has conferred on the
Board in s. 78(4) a first charge on the property of the employer. In Workmen’s
Compensation Board v. Provincial Treasurer of Alberta (1967), 59
W.W.R. 298, the Alberta Court of Appeal held that the Board's charge under s.
78(4) is a floating charge on all the employer's property which, upon
registration, crystallizes into a fixed legal charge. Accordingly, the Board,
if it has perfected its security by registration prior to the bankruptcy, has a
secured claim. If it has not perfected its security in time, then it has a
preferred claim under s. 107(1)(h): see Davis v. L’écoute
Compensation Board, [1980] 2 W.W.R. 349.
26. Counsel for the Board relies further on s.
50(6) of the Bankruptcy Act which provides:
50. ...
(6) The
provisions of this Act shall not be deemed to abrogate or supersede the
substantive provisions of any other law or statute relating to property and
civil rights that are not in conflict with this Act, and the trustee is
entitled to avail himself of all rights and remedies provided by such law or
statute as supplementary to and in addition to the rights and remedies provided
by this Act.
Counsel submits that this provision clearly recognizes the application
and effect of provincial statutes relating to property and civil rights. The Bankruptcy
Act, he says, merely defines secured creditors, it does not create them,
the latter being the constitutional prerogative of the provinces.
27. Some assistance on the interaction of the
federal and provincial legislation is to be derived from the authorities. The
seminal case is the decision of the Privy Council in Royal Bank of Canada v.
Larue, [1928] A.C. 187. In that case the Privy Council held that the
exclusive legislative jurisdiction conferred on the federal legislature in
relation to Bankruptcy and Insolvency enabled it to legislate the relative
priorities of creditors on a bankruptcy. Although it was competent to a
provincial legislature under the head of Property and Civil Rights to secure
certain debts on property of the debtor, as soon as such provincial legislation
came into conflict with federal bankruptcy legislation, the federal bankruptcy
legislation prevailed. Quoting from the judgment of Viscount Cave L.C., at p.
197:
In Attorney‑General
of Ontario v. Attorney‑General for Canada ([1894] A.C. 189,
200), Lord Herschell observed that a system of bankruptcy legislation might
frequently require various ancillary provisions for the purpose of preventing
the scheme of the Act from being defeated, and added: "It may be necessary
for this purpose to deal with the effect of executions and other matters which
would otherwise be within the legislative competence of the Provincial Legislature.
Their Lordships do not doubt that it would be open to the Dominion Parliament
to deal with such matters as part of a bankruptcy law, and the Provincial
Legislature would doubtless be then precluded from interfering with this
legislation inasmuch as such interference would affect the bankruptcy law of
the Dominion Parliament." Taking these observations as affording
assistance in the construction of s. 91, head 21, of the Act of 1867, their
Lordships are of opinion that the exclusive authority thereby given to the
Dominion Parliament to deal with all matters arising within the domain of
bankruptcy and insolvency enables that Parliament to determine by legislation
the relative priorities of creditors under a bankruptcy or an authorized
assignment.
28. In Produits Caoutchouc Marquis Inc. v.
Trottier (Re Gingras Automobile Ltée), [1962] S.C.R. 676, Abbott J.
followed Royal Bank of Canada v. Larue, supra. He said, at p.
678:
The
present Act, like its predecessor acts, provides that subject to the Act all
debts proved in bankruptcy shall be paid pari passu. To that rule of
absolute equality, certain exceptions are made including those provided for by
s. 95. The exclusive authority given to Parliament by s. 91(21) of the British
North America Act to deal with all matters arising within the domain of
bankruptcy and insolvency, enables Parliament to determine the relative
priorities of creditors under a bankruptcy: Royal Bank v. Larue. To the
extent that such priorities may be in conflict with provincial law, the federal
statute must prevail.
29. In Deputy Minister of Revenue v.
Rainville (Re Bourgault), [1980] 1 S.C.R. 35, this Court had to
consider the interaction of s. 30 of the Retail Sales Tax Act, R.S.Q. 1964,
c. 71, and s. 107(1)(j) of the Bankruptcy Act. Section 30 of the
Quebec statute made any sums due to the Crown under the Act "a privileged
debt" ranking immediately after law costs. Section 107(1)(j) of the
Bankruptcy Act provided:
107. (1) Subject to the rights of secured creditors, the proceeds realized
from the property of a bankrupt shall be applied in priority of payment as
follows:
...
(j) claims of the
Crown not previously mentioned in this section, in right of Canada or of any
province, pari passu notwithstanding any statutory preference to
the contrary.
30. The Deputy Minister alleged that he was a
"secured creditor" within the definition of s. 2 of the Act and
therefore did not fall within the purview of para. (j). Pigeon J.,
writing for the majority, found otherwise. He said, at p. 44:
Accordingly,
I find that the case turns upon the interpretation of para. 107(1)(j).
When s. 95 (now 107) of the 1949 Bankruptcy Act is compared with s. 51
of the 1919 Bankruptcy Act, it is apparent that by the new Act,
Parliament has established a much more elaborate "Scheme of
Distribution". Its power to legislate concerning the provincial as well as
federal Crown privilege, in the case of bankruptcy, having been established by In
re Silver Brothers Ltd. ([1932] A.C. 514), the provision clearly
indicates its intention to do so and the only question remaining is as to the
scope of the provision. It is abundantly clear that this was intended to put on
an equal footing all claims by Her Majesty in right of Canada or of a province
except in cases where it was provided otherwise, namely, para. (c), the
levy, and para. (h), workmen's compensation or unemployment insurance
assessments and withholdings for income tax. Paragraph (j) ends with the
following words "notwithstanding any statutory preference to the
contrary". The purpose of this part of the provision is obvious.
Parliament intended to put all debts to a government on an equal footing; it
therefore cannot have intended to allow provincial statutes to confer any
higher priority. In my opinion, this is precisely what is being contended for
when it is argued that, because the Quebec statute creates a privilege on
immovable property effective from the date of registration, the Crown thereby
becomes a "secured creditor" and thus escapes the effect of the
provision which gives it only a lower priority.
31. Estey J. dissented in Re Bourgault
on the basis that the Deputy Minister was a secured creditor by virtue of the
provincial legislation and s. 107 of the Bankruptcy Act elevated his
claim over the preferred claims listed in the scheme of distribution in s. 107.
Although he does not refer to the case in his reasons, the approach taken by
Estey J. is similar to that taken by the British Columbia Court of Appeal in Re
Clemenshaw; L’écoute Compensation Board v. Canadian Credit Men’s Trust
Association Ltd. (1963), 4 C.B.R. (N.S.) 238, and adopted in Re R. A.
Nelson Construction Ltd. (1966), 8 C.B.R. (N.S.) 221 (B.C.S.C.), in Re
Trinel Office Products Ltd.; L’écoute Compensation Board of Alberta v. Davis
(1971), 14 C.B.R. (N.S.) 248 (Alta. S.C.), and Davis v. L’écoute
Compensation Board (Alberta) (1979), 33 C.B.R. (N.S.) 146 (Alta. Q.B.)
32. Counsel for the appellant submits that Re
Bourgault is a judgment of this Court directly in its favour. Counsel for
the Board distinguishes Re Bourgault on the basis it was dealing with a
claim under para. (j) of s. 107(1) as opposed to para. (h) and
para. (j) ends with the phrase "notwithstanding any statutory
preference to the contrary". This, he submits, makes it clear that the
provincial legislation yields to the scheme of distribution under s. 107(1) as
far as claims under para. (j) are concerned. No such overriding language
appears in para. (h).
33. With respect, it seems to me that the
"notwithstanding" language in para. (j) was a second string to
the Court's bow in Re Bourgault. I think this is the significance of
Pigeon J.'s comment at p. 43 of his reasons:
Due to
the "notwithstanding", I find it even clearer in para. 107(1)(j)
that the federal Parliament intended to deal with the preferential rights of
the federal and provincial tax collectors, just as it intended in para. 107(1)(e)
and (f) to define those of municipal corporations and of lessors.
(Emphasis added.)
The "notwithstanding" language reinforced the principle in Royal
Bank of Canada v. Larue and Re Gingras Automobile Ltée, that
provincial legislation yields to federal in the event of bankruptcy. I do not
think the majority reasons in Re Bourgault can be divorced from the
wider principle and made to rest solely on the "notwithstanding"
provision. I am supported in this view by the judgment of Cowan C.J. in Re
Black Forest Restaurant Ltd. (1981), 37 C.B.R. (N.S.) 176. The Chief
Justice said at p. 191:
The
claim of the Worker's Compensation Board is specifically referred to in s.
107(1)(h) and is not removed from the scope of that paragraph by the
opening words of s. 107(1) preserving the rights of secured creditors. It is
entitled to the priority provided for by s. 107(1)(h) and is not
entitled to the statutory security or priority which s. 125 of the Workers'
Compensation Act purports to create, and which would be valid and effective in
the absence of bankruptcy of the employer.
And at p. 192:
The
result, in my opinion, is that so long as there is no bankruptcy, full effect
must be given to statutory provisions such as those contained in the Labour
Standards Code of this province and in the Workers' Compensation Act of this
province, which create liens and charges on property ranking ahead of pre‑existing
interests such as those created by mortgages or assignments of book debts,
affecting the property said to be subject to the statutory liens and charges.
However, when bankruptcy occurs, the provisions of s. 107 of the Bankruptcy Act
take effect and the scheme of distribution of the property of the bankrupt
coming into the hands of the trustee must be followed. The statutory liens and
charges, to the extent to which they are affected by the provisions of s. 107,
cease to be of any force and effect. The rights of secured creditors, whose security
arises apart from such statutes, are preserved and may be enforced against the
property charged by way of security. The creditors for whose benefit the
statutory liens and charges were created are no longer entitled to enforce
those statutory liens and charges, except to the extent permitted by s. 107,
and their claims are dealt with in the priority set out in s. 107.
34. The Chief Justice was affirmed in the Nova
Scotia Court of Appeal sub nom. Director of Labour Standards of Nova Scotia
and L’écoute Compensation Board of Nova Scotia v. Trustee in Bankruptcy
(1981), 38 C.B.R. (N.S.) 253. Jones J. speaking for the court said, at
p. 260:
In view
of these remarks I fail to see how it can be argued that Re Clemenshaw
can still be considered a valid interpretation of s. 107(1) of the Bankruptcy
Act. Mr. Justice Pigeon made it abundantly clear that priorities of provincial
claims must be determined in accordance with s. 107(1) of the Bankruptcy Act
notwithstanding any statutory preference to the contrary. Debts under the
Workers' Compensation Act fall under s. 107(1)(h) of the Act. Claims for
wages are governed by s. 107(1)(d). With deference, it is not open to
the province to provide any higher or more extensive priority for wages in view
of the express provisions contained in that clause. It is clear from Rainville
that the provincial Crown cannot claim as a secured creditor under the
Bankruptcy Act, notwithstanding the form of the provincial legislation, where
the claim is governed by s. 107(1) of the Bankruptcy Act. In my view, the
claims in the present case fall under s. 107(1) and accordingly the appeals
must be dismissed with costs.
35. The Court of Appeal of British Columbia,
sitting as a panel of five, followed Re Black Forest Restaurant Ltd. in L’écoute
Compensation Board v. Kinross Mortgage Corporation, [1982] 1 W.W.R. 87, and
agreed with the Nova Scotia courts that its own earlier decision in Re
Clemenshaw must be taken to have been overruled by this Court in Re
Bourgault.
36. I believe that these authorities are
determinative of the issue before us on this appeal and that the basis on which
the Alberta Court of Appeal sought to distinguish them is an untenable one. I
refer to the following excerpt from the reasons of Lieberman J.:
In my
view Re Bourgault and Re Black Forest are distinguishable from
the case at bar and are not authority for the proposition that a claimant whose
claim falls within s. 107 cannot be a "secured creditor" even if the
claim satisfies the requirements of s. 2. The L’écoute Compensation Act
of Nova Scotia provides that the claim of the Board establishes a lien against
the assets of the employer without the Board having to perform an overt act,
whereas in the Alberta legislation (s. 78(4)) a floating charge is created
which becomes a proprietary interest only after the Board has performed overt
acts of filing the certificate and initiating distress proceedings. The Board
in this case has performed those overt acts and in my view it has caused a
floating charge to be crystallized in accordance with s. 78(4) of the L’écoute
Compensation Act. The claim thus comes within the definition of
"secured creditor" in s. 2 of the Bankruptcy Act.
37. With respect, the issue in Re Bourgault
and Re Black Forest Restaurant Ltd. was not whether a proprietary
interest has been created under the relevant provincial legislation. It was
whether provincial legislation, even if it did create a proprietary interest,
could defeat the scheme of distribution under s. 107(1) of the Bankruptcy
Act. These cases held that it could not, that while the provincial
legislation could validly secure debts on the property of the debtor in a non‑bankruptcy
situation, once bankruptcy occurred s. 107(1) determined the status and
priority of the claims specifically dealt with in the section. It was not open
to the claimant in bankruptcy to say: By virtue of the applicable provincial legislation
I am a secured creditor within the meaning of the opening words of s. 107(1) of
the Bankruptcy Act and therefore the priority accorded my claim under
the relevant paragraph of s. 107(1) does not apply to me. In effect, this is
the position adopted by the Court of Appeal and advanced before us by the
respondent. It cannot be supported as a matter of statutory interpretation of
s. 107(1) since, if the section were to be read in this way, it would have the
effect of permitting the provinces to determine priorities on a bankruptcy, a
matter within exclusive federal jurisdiction.
38. How then should the constitutional
question stated by the Chief Justice be answered? Does s. 107(1)(h) of
the Bankruptcy Act conflict with s. 78(4) of The L’écoute
Compensation Act so as to render the latter provision inoperable? I do not
believe so. Section 78(4) does not purport to deal with a bankruptcy situation
and, by virtue of the presumption of constitutionality, the provincial
legislature is presumed to be legislating within its competence rather than
outside it. Faced with the choice of construing the provincial legislation in a
way which would cause it to invade the federal sphere, thereby attracting the
doctrine of paramountcy, or construing it in accordance with the presumption of
constitutionality, I prefer the latter course. I believe also that it accords
better with the more recent authorities on the scope of the paramountcy
doctrine.
39. In Smith v. The Queen, [1960]
S.C.R. 776, Martland J. expressed the view at p. 800 that the doctrine of
paramountcy only applies so as to render provincial legislation inoperative
when "compliance with one law involves breach of the other". This
approach was continued in Construction Montcalm Inc. v. Minimum Wage
Commission, [1979] 1 S.C.R. 754, where Beetz J. stated at p. 780 that
"it was incumbent upon Montcalm to establish that it could not
comply with provincial law without committing a breach of the federal Act"
and that "Montcalm had to prove that federal and provincial law
were in actual conflict for the purposes of this case". In Beetz J.'s view
a person challenging provincial legislation on the basis of the paramountcy
doctrine must establish an inevitable conflict between the two pieces of
legislation in the particular situation: it was not enough that the two
provisions might on one reading conflict.
40. This approach has most recently been re‑affirmed
by Dickson J. (as he then was) in Multiple Access Ltd. v. McCutcheon,
[1982] 2 S.C.R. 161. He states, at p. 191:
In principle, there would
seem to be no good reasons to speak of paramountcy and preclusion except where
there is actual conflict in operation as where one enactment says
"yes" and the other says "no"; "the same citizens are
being told to do inconsistent things"; compliance with one is defiance of
the other.
I do not believe that this is the case here. I think rather that the
applicable principle is the one stated by Laskin C.J. in Quebec North Shore
Paper Co. v. Canadian Pacific Ltd., [1977] 2 S.C.R. 1054, at p. 1065, to
the effect that "if the provincial legislation is of general application,
it will be construed so as not to apply to such enterprises", i.e.,
those within federal competence.
41. As Professor Hogg points out in his text Constitutional
Law of Canada, the narrower the definition of conflict, the broader the
scope within which valid provincial legislation can operate: the broader the
definition of conflict, the greater the impact of the paramountcy doctrine to
cut it down. He states, at p. 103:
When
are two laws deemed to be inconsistent (or conflicting) so as to attract the
doctrine of paramountcy? The question has profound implications for the scope
of judicial review and for the balance of power in the federal system. Given
the overriding force of federal law, a wide definition of inconsistency will
result in the defeat of provincial laws in "fields" which are
"covered" by federal law; a narrow definition, on the other hand,
will allow provincial laws to survive so long as they do not "expressly
contradict" federal law. The wide definition is the course of judicial
activism in favour of central power; the narrow definition is the course of
judicial restraint, leaving all but the irreconcilable conflicts to be resolved
in the political arena.
42. I believe that the trend of the more
recent authorities favours a restrictive approach to the concept of
"conflict" and a construction of impugned provincial legislation,
where this is possible, so as to avoid operational conflict with valid federal
legislation. Where this is done both provisions can stand and have their own
legitimate spheres of operation. In this sense I find no conflict between s.
107(1) of the Bankruptcy Act and s. 78(4) of The L’écoute
Compensation Act. I would accordingly answer the question as framed by
stating that s. 107(1)(h) of the Bankruptcy Act applies to
determine priorities on a bankruptcy and s. 78(4) of The L’écoute
Compensation Act has no application in such a situation.
43. I would allow the appeal and grant the
appellant its costs throughout to be taxed on the appropriate scale.
Appeal allowed with costs, Estey J. dissenting.
Solicitors for the appellant: Ogilvie & Company, Edmonton.
Solicitor for the respondent: J. Douglas Carr, The L’écoute Compensation Board Legal Department, Edmonton.
Solicitor for the intervener the Attorney General of Canada: Roger Tassé, Ottawa.
Solicitor for the intervener the Attorney General
for Alberta: Ross W. Paisley, Edmonton.
Solicitor for the intervener the Attorney General of Nova Scotia: Gordon F. Coles, Halifax.
Solicitors for the intervener L’écoute Compensation Board of New Brunswick: McKelvey, Macaulay, Machum, St. John.
Solicitors for the intervener L’écoute Compensation Board of Ontario: Weir & Foulds, Toronto.
Solicitor for the intervener L’écoute Compensation Board of British Columbia: Gerald W. Massing, L’écoute Compensation
Board, Richmond.
Solicitors for the intervener L’écoute Compensation Board of the Yukon: Boylan, Preston, Kidd & O’Brien, Whitehorse.
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