National Trust Co. v. H & R Block Canada Inc., 2003 SCC 66, [2003] 3 SCR 160

National Trust Co. v. H & R Block Canada Inc., [2003] 3 S.C.R. 160, 2003 SCC 66

H & R Block Canada Inc.                                                                                Appellant

v.

National Trust Co.                                                                                         Respondent

Indexed as:  National Trust Co. v. H & R Block Canada Inc.

Neutral citation:  2003 SCC 66.

File No.:  28975.

2003:  June 3; 2003:  November 14.

Present:  Iacobucci, Major, Bastarache, Binnie, Arbour, LeBel and Deschamps JJ.

on appeal from the court of appeal for ontario

Commercial law — Bulk sales — Personal liability of buyer — Buyer failing to comply with requirements of bulk sales legislation — Seller using proceeds of sale to discharge amounts owing to its two highest ranking secured creditors — Whether buyer “personally liable to account” to unsecured creditor for amount owing to it by seller as a result of non-compliance with legislation — Meaning of “personally liable to account” — Bulk Sales Act, R.S.O. 1990, c. B.14, s. 16(2).

The appellant (“H & R”) purchased stock in bulk consisting largely of goodwill and client lists for the sum of $800,000, from Tax Time Services, a company in financial difficulty.  H & R contravened the Bulk Sales Act by failing to obtain a list of Tax Time’s creditors and by failing to give notice of the sale to the creditors.  At the time of sale, all Tax Time’s assets had been pledged as security for its outstanding indebtedness.  Tax Time applied the proceeds of sale against its debts owed to its two highest ranking secured creditors:  the first creditor was paid in full, the second in part. The other secured and unsecured creditors remained unpaid.  The respondent (“NT”), an unsecured creditor, commenced proceedings against H & R.  The applications judge held that the sale was void and, pursuant to s. 16(2) of the Bulk Sales Act, ordered H & R to account by paying to NT the amount owing to NT by Tax Time.  The majority of the Court of Appeal upheld the decision.

Held (LeBel and Deschamps JJ. dissenting):  The appeal should be allowed.

Per Iacobucci, Major, Bastarache, Binnie and Arbour JJ.:  The buyer’s duty to account under s. 16(2) of the Bulk Sales Act  must be interpreted in light of the rules of statutory interpretation and, in particular, of the true purpose of the Act and of commercial realities.  The Act has two main purposes:  (1) to protect the interests of all creditors whose debtors have disposed of all or substantially all of their assets; and (2) to ensure the fair distribution of the proceeds of a sale in bulk among the seller’s creditors, based on their priority ranking.  The clear legislative intent is to deter fraud and to ensure that creditors are properly paid.  The Act is not intended to be punitive in nature. In this context, the phrase “personally liable to account” in s. 16(2) is consistent with the interpretation that the buyer must account for what is owed, taking into account what was properly paid out to creditors from the proceeds of the sale in bulk.  Buyers of bulk goods have some incentive to ensure that the appropriate creditors are paid, since the buyer will be liable for any difference.  This limited duty of double payment is sufficient to serve as an incentive to buyers of sales in bulk to protect the interests of the seller’s creditors, in accordance with the Act.  A purposive approach to the accounting required under s. 16(2) directs a court to look to the substance, and not merely the form, of the payments made.  The court retains the discretion to consider all of the facts of the case to determine what, if anything, should be done to put the unpaid creditors in the position they would have been in had the Act been complied with or whether a strict liability to pay, under s. 16(2), would lead to an unfair result.  The creditor should not be placed in a better position than it would have been in had the buyer complied with the Act; conversely, the non-compliant buyer should not be unduly punished.  A modern accounting should take into account proper payments to priority-ranking creditors made as a direct result of payment to the seller of the bulk goods.  Finally, in the context of transactional business law, there are strong policy reasons for facilitating efficient transactions while protecting creditors.  The Act should accommodate modern commercial realities as best it can.

Here, NT was not deprived of any money it would have received on a ratable distribution of the proceeds of the bulk sale.  Tax Time’s payments to its two highest-ranking creditors did not place NT at a disadvantage.  To require H & R  to now pay to NT the value of the proceeds of the sale would be to place NT in a better position than it would have been in had the requirements of the Act been met and H & R would be unduly punished.  This would be a very unfair result.  NT was, therefore,  not entitled to damages under the s. 16(2) duty to account.

Per LeBel and Deschamps JJ. (dissenting):  The general objective of the Bulk Sales Act is to prevent debtors from making off with the proceeds of the sale of their assets without their creditors being paid.  To achieve this objective, the Act provides for mechanisms reinforced by a sanction.  The sanction is that the sale may be set aside (s. 16(1)) and, if that occurs, the buyer must account to the creditors for the value of the property that the buyer acquired in the sale (s. 16(2)).  This sanction is essential to the proper operation of the Act since it gives the buyer and the seller an incentive for complying with it. 

Where an application is brought to a judge under s. 16(1), the judge may refuse to set aside the sale.  The discretion to be exercised, however, is limited.  The judge must be satisfied that the transaction is advantageous to all creditors protected by the Act, that the parties to the sale had a legitimate reason or an excuse for not complying with the Act, and that the objective of deterrence was not circumvented.  An ex post facto analysis of what complying with the Act would have meant for creditors is neither desirable nor useful.  If the parties do not comply with the Act and the sale is set aside, there is no room for any speculation:  the buyer must account to the creditors for the value of the property purchased.  The bright-line rule set out in s. 16(2) cannot be interpreted in such a way as to take the payments made by the seller into account.  An interpretation based on the use of the proceeds of sale to pay the secured creditors would undermine the spirit of the Act, which is intended to protect not only secured creditors but also ordinary creditors.  It would also do violence to the wording chosen by Parliament, in that it substitutes the words “proceeds of the sale” for “value thereof”.  Under s. 16(2), the use made by the seller of the sale price received by the seller is of no relevance.  Section 16(2) deals only with the buyer’s liability to the creditors.

Here, the parties did not comply with the Act with full knowledge of what they were doing and there is nothing in the evidence that would suggest that the transaction was obviously advantageous to the creditors and that this justified disregarding the objectives of protection, transparency, consultation and deterrence.  The argument that NT would have been in the same position if there had been compliance with the Act is based on pure speculation.  Since the trial judge found that the sale was void,  the duty to account for the property is automatic.

Cases Cited

By Bastarache J.

Approved:  Motorsource Inc. v. A.O. Smith Corp. (1993), 8 Alta. L.R. (3d) 1; overruled:  Sidaplex-Plastic Suppliers Inc. v. Elta Group Inc. (1998), 40 O.R. (3d) 563; referred to:  McLennan v. Fulton (1921), 50 O.L.R. 572; Re St. Thomas Cabinets, Ltd. (1921), 61 D.L.R. 487; Garson v. Canadian Credit Men’s Trust Association, [1929] S.C.R. 282.

By Deschamps J. (dissenting)

Higgins v. Elliott (1922), 65 D.L.R. 154; McLennan v. Fulton (1921), 50 O.L.R. 572; Re St. Thomas Cabinets, Ltd. (1921), 61 D.L.R. 487; Garson v. Canadian Credit Men’s Trust Association, [1929] S.C.R. 282; Motorsource Inc. v. A.O. Smith Corp. (1993), 8 Alta. L.R. (3d) 1; Sidaplex-Plastic Suppliers Inc. v. Elta Group Inc. (1998), 40 O.R. (3d) 563.

Statutes and Regulations Cited

Bankruptcy Act, R.S.C. 1985, c. B-3 .

Bulk Sales Act, R.S.O. 1990, c. B.14, ss. 1 “sale in bulk”, 3, 4, 7, 8(1), (2), 9(1), 12, 16, 17(1).

Bulk Sales Act, 1917, S.O. 1917, c. 33.

Bulk Sales Act, 1959, S.O. 1959, c. 9, s. 17.

Insolvent Act of 1875, S.C. 1875, c. 16.

Authors Cited

Belsheim, Edmund O.  “The Old Action of Account” (1931-1932), 45 Harv. L. Rev. 466.

Billig, Thomas Clifford.  “Bulk Sales Laws:  A Study in Economic Adjustment” (1928), 77 U. Pa. L. Rev. 72.

Black’s Law Dictionary, 6th ed.  St. Paul, Minn.:  West Publishing, 1990, “account”.

Bowes, Richard.  Alberta Law Reform Institute.  Report No. 56.  The Bulk Sales Act.  Edmonton: The Institute, 1990.

British Columbia.  Law Reform Commission.  Report on Bulk Sales Legislation.  Vancouver: The Commission, 1983.

Forbes, Robert M.  Handbook:  Ontario Bulk Sales Act.  Burlington, Ont.:  Rapport Publishing, 1990.

Langdell, C. C.  “A Brief Survey of Equity Jurisdiction” (1889), 2 Harv. L. Rev. 241.

Manitoba.  Law Reform Commission.  Report No. 71.  Report on the Bulk Sales Act.  Winnipeg: The Commission, 1988.

Northwest Territories.  Committee on Law Reform.  Working Paper No. 3.  The Bulk Sales Act.  Yellowknife:  The Committee, 1990.

Saskatchewan.  Law Reform Commission.  The Bulk Sales Act:  Report to the Minister of Justice.  Saskatoon: The Commission, 1990.

APPEAL from a judgment of the Ontario Court of Appeal (2001), 151 O.A.C. 82, 28 C.B.R. (4th) 251, 56 O.R. (3d) 188, 207 D.L.R. (4th) 147, 18 B.L.R. (3d) 172, 46 R.P.R. (3d) 182, [2001] O.J. No. 4127 (QL), reversing in part a judgment of the Ontario Court (General Division).  Appeal allowed, LeBel and Deschamps JJ. dissenting.

Samuel R. Rickett and Michael J. W. Round, for the appellant.

David J. T. Mungovan and Peter J. Cavanagh, for the respondent.

The judgment of Iacobucci, Major, Bastarache, Binnie and Arbour JJ. was delivered by

Bastarache J. —

I.    Introduction

1                                   This appeal focuses on the application of the remedy provision, under s. 16(2) of Ontario’s Bulk Sales Act, R.S.O. 1990, c. B.14 (the “Act”), when a bulk sale has been declared void for failure to comply with the requirements of the Act.  This is the first time this Court has been asked to interpret and apply s. 16(2). 

2                                   The specific issue before this Court is whether, where a sale of stock in bulk has been declared void and set aside for non-compliance with the Act, the value of the stock in bulk for which the buyer is obliged to account to the seller’s unpaid creditors under s. 16(2) must be reduced by amounts paid by the seller out of the proceeds of the sale to secured creditors.

3                                   Tax Time Services Ltd. (“Tax Time”) was in the business of tax preparation and the discounting of tax refunds.  From 1984 to 1987, the respondent, National Trust Co. (“National Trust”), financed Tax Time’s business of discounting income tax refunds.  A contract dispute occurred in 1987, and litigation ensued.  While this litigation was ongoing, the transaction that is the subject of this appeal took place.

4                                   In 1991, the appellant, H & R Block Canada Inc. (“H & R Block”), purchased property used by Tax Time for its business of tax preparation and discounting of tax refunds which had a book value of $82,000, for a sale price of $800,000.  H & R Block also received a customer list and “goodwill”, the benefit of a non-competition clause as well as indemnification from one of the principals of Tax Time for any liability arising from non-compliance with the Bulk Sales Act.  The transaction between Tax Time and H & R Block was a “bulk sale”.  H & R Block did not comply with the Bulk Sales Act.  Specifically, it did not demand or receive a list of creditors from Tax Time; it gave no notice to the creditors of Tax Time; nor did it seek consent from such creditors.

5                                   At the time of the transaction, in mid-1991, Tax Time’s financial situation was not  encouraging.  All of Tax Time’s assets stood as security for loans from the Royal Bank of Canada, First City Trust Co., the National Bank of Canada, Norex Leasing, the Federal Business Development Bank and the Bank of Nova Scotia.  Tax Time also had 35 unsecured creditors, one of which was National Trust.  Tax Time applied the entire $800,000 against  its debts owed to its two most senior-ranking secured creditors, as would have been required under s. 12(1) of the Act (and the Bankruptcy Act, R.S.C. 1985, c. B-3 ).  First City Trust Co. was paid $425,000, apparently discharging the debt.  However, the Royal Bank was not paid in full.  National Trust commenced this proceeding under s. 17(1) of the Act, seeking an accounting from H & R Block for the value of the bulk goods.  Significantly, there is no suggestion that Tax Time or H & R Block acted dishonestly, and the sale price of $800,000 is not contested.

6                                   The Bulk Sales Act has at least two significant objectives or purposes:  (i) to protect the interests of all creditors whose debtors have disposed of all or substantially all of their assets; and (ii) to ensure the fair distribution of the proceeds of a sale in bulk among the seller’s creditors, based on their priority ranking.  The clear legislative intent is to deter fraud and to ensure that creditors are properly paid.  This said, I am of the view that the Bulk Sales Act is not intended to be punitive in nature and that this should be taken into account in its interpretation.  A purposive approach to the accounting required under s. 16(2) directs us to look to the substance and not merely the form of the payment to the seller’s creditors from the proceeds of the sale.  The court retains the discretion to consider all of the facts of the case to determine whether liability to account under s. 16(2) has been fulfilled. 

II.      Overview of the Bulk Sales Act

7                                   Legislation regulating the sale of bulk goods was first introduced in the United States around the turn of the 20th century.  These laws were the product of an initiative by creditors to combat commercial fraud, which was prevalent at that time.  See T.  C. Billig, “Bulk Sales Laws:  A Study in Economic Adjustment” (1928), 77 U. Pa. L. Rev. 72, at p. 81.  Bulk sales laws were in place in 45 U.S. jurisdictions and in all Canadian jurisdictions by 1922.  See R. M. Forbes, Handbook: Ontario Bulk Sales Act (1990). 

8                                   From the outset, bulk sales legislation has been judicially recognized as protecting the interests of creditors whose merchant debtors had disposed of all or substantially all of the inventory, chattels and fixtures by which they carry on business.  See McLennan v. Fulton (1921), 50 O.L.R. 572 (C.A.), at p. 577; Re St. Thomas Cabinets, Ltd. (1921), 61 D.L.R. 487  (Ont. S.C.), at p. 491; and Garson v. Canadian Credit Men’s Trust Association, [1929] S.C.R. 282, at pp. 285-86.  However, such laws were recently repealed in Alberta, British Columbia, Manitoba, Saskatchewan, Yukon and the Northwest Territories, following reports of law reform commissions in those jurisdictions that the goal of protecting creditors, to the extent that it is achieved by bulk sales legislation, is realized only at the cost of significant commercial inconvenience, disruption and expense.  More importantly, these laws were largely seen as unnecessary in light of the availability of remedies under the general law of fraudulent conveyance.  See Law Reform Commission of British Columbia, Report on Bulk Sales Legislation (1983), at p. 1; Manitoba Law Reform Commission, Report No. 71, Report on the Bulk Sales Act (1988); Northwest Territories Committee on Law Reform, Working Paper No. 3, The Bulk Sales Act (1990); Law Reform Commission of Saskatchewan, The Bulk Sales Act:  Report to the Minister of Justice (1990); R. Bowes, Alberta Law Reform Institute,  Report No. 56, The Bulk Sales Act (1990).

9                                   In Ontario, the Bulk Sales Act was originally enacted in 1917 (S.O. 1917, c. 33).  After minor amendments in 1933, a new Act came into force in 1959 (S.O. 1959, c. 9).  The major change in the 1959 legislation was in relation to the consequences of non-compliance with the Act by the buyer of the stock in bulk, which is the issue in this appeal.  What are now s. 16(1) and s. 16(2) were introduced as s. 17 to provide unpaid creditors of the seller with a remedy against the buyer.  Under the former legislation, the only penalty imposed on a buyer for non-compliance was to render the transaction voidable if it was attacked by the seller’s creditors within the statutory limitation period.

10                               Section 17 (now s. 16(2)) introduced an alternative remedy for creditors —  an accounting by the buyer of the value of the bulk goods, as well as a personal judgment against the buyer for the value thereof.  Specifically, s. 16(2) states that “[i]f a sale in bulk has been set aside or declared void and the buyer has received or taken possession of the stock in bulk, the buyer is personally liable to account to the creditors of the seller for the value thereof, including all money, security and property realized or taken by the buyer from, out of, or on account of, the sale or other disposition by the buyer of the stock in bulk” (emphasis added).  There have been no substantive changes to the Act since 1959. 

11                               Ontario’s Bulk Sales Act applies to any sale of goods “out of the usual course of business or trade of the seller” (s. 1 “sale in bulk”).  This means that any sale of substantially all of the assets of a business, or a sale of the assets used to operate the business, as occurred in this case, must comply with the provisions of the Act.  Under s. 4, a buyer, before paying or delivering to the seller any part of the proceeds of the sale, must demand and receive from the seller a list of creditors.  Under s. 8(1), the sale may proceed only if:  the claims of the seller’s unsecured creditors do not exceed $2,500 and the claims of the seller’s secured creditors do not exceed $2,500 (s. 8(1)(a)); the seller delivers a statement showing that all claims of all creditors, unsecured and secured, have been paid in full (s. 8(1)(b)); or adequate provision has been made for the immediate payment in full of all claims of the creditors, unsecured and secured (s. 8(1)(c)).  Under s. 8(2)(a), the sale may proceed only if 60 per cent of the unsecured creditors (by number and amount) have consented to the sale.  In this latter case, the sale is to be made through a trustee, appointed under s. 9(1), who must distribute the proceeds in accordance with the priorities set out in the Bankruptcy Act (s. 12(1)).

12                               The only method available for avoiding this sale by trustee is to obtain a judicial exemption under s. 3(1): “A seller may apply to a judge for an order exempting a sale in bulk from the application of this Act, and the judge, if satisfied, on the affidavit of the seller and any other evidence, that the sale is advantageous to the seller and will not impair the seller’s ability to pay creditors in full, may make the order . . . .”

13                               Under s. 16(1), a sale in bulk is voidable unless the buyer has complied with the Act.  H & R Block did not comply with the Act.  At issue, then, is the nature of the remedy under s. 16(2) that is applicable where no fraud has occurred, but where the sale proceeds were paid out by the seller, and not the buyer, to its creditors in the order of their priority credit rankings.

III.    Judicial History

A.     Ontario Court of Justice (General Division)

14                               At the hearing before the application judge, the parties agreed that the bulk sale did not comply with the Act.  The parties also agreed that the “value of the stock in bulk”, within the meaning of s. 16(2) of the Act, was $800,000, being the amount that H & R Block paid to purchase the stock from Tax Time.

15                               Spence J. declared the sale from Tax Time to H & R Block void for non-compliance with the Act.  Specifically, he noted that there had been no request for an exemption under s. 3, and no statement had been delivered under s. 4.  Neither party appealed this finding.  Spence J. ordered H & R Block to account to National Trust for the value of the stock in bulk and held that H & R Block was not entitled to “credit” for the payments made by Tax Time to its secured creditors from the sale proceeds to offset its liability to account for the value of the assets.  Spence J. found that in the cases where a buyer had been granted such “credit”, it was for amounts paid by the buyer to creditors of the seller over and above the sale price paid by the buyer.

B.      Ontario Court of Appeal (2001), 56 O.R. (3d) 188

(1)  MacPherson J.A. (McMurtry C.J.O. concurring)

16                               In brief reasons, the majority of the Ontario Court of Appeal endorsed the reasoning and conclusion of the application judge as “impeccable” (para. 74).  The purpose of the Act is to protect unsecured as well as secured creditors, either by ensuring that all creditors’ claims are paid in full, or by allowing the sale to proceed, giving all creditors, including unsecured creditors, an opportunity to state their position on the proposed sale.  The parties agreed that the Act was not complied with and that these objectives were not achieved.  The argument that National Trust would have been in the same position if the Act had been complied with is based on assumptions about what would have happened if the sale had been executed in accordance with the law.  Other outcomes apart from the one assumed by Borins J.A. might have been possible:  National Trust might have been able to improve its position had it been given an opportunity to contest the transaction; or it might have been able to argue for a higher purchase price or different sale conditions.  It was too late to speculate.  A unilateral decision by Tax Time as to how to distribute the proceeds of the sale was not a proper accounting for the value of the stock in bulk.

(2)  Borins J.A. (dissenting)

17                               Borins J.A.’s lengthy dissent includes an overview of the origins, purpose and operation of the Bulk Sales Act.  His analysis flows from the purpose of the Act, which, in his view, is to prevent a company in trouble from spiriting away all of its assets and to ensure that the assets that remain are distributed among the seller’s creditors fairly and ratably.  In this case, although the sale did not comply with the Act, it was conducted in such a way that the objectives of the Act were achieved.  The proceeds of the sale were distributed exactly as they would have been had the sale proceeded in compliance with the Act under a trustee appointed by a judge; that is, they were paid to secured creditors in order of priority.

18                               Borins J.A., at para. 50, held:

In keeping with the well-accepted nature of an equitable action for an  accounting, the buyer is required to provide an account of all money it paid for the stock in bulk and its disbursement by the seller.  If the seller has disbursed the proceeds in a manner that has resulted in any creditor not having been paid its full or pro rata share, then the buyer must personally pay creditors their full, or ratable, share of the proceeds, up to the value of the stock in bulk. 

Here, the obligation to account was discharged when the buyer showed that the seller had disbursed the money among its creditors ratably.  Any amount already paid to the seller’s creditors should, in effect, be deducted from the buyer’s liability.  Since the seller had paid the entire value of the assets to its creditors ratably, the buyer was no longer accountable to the creditors. 

19                               In Borins J.A.’s opinion, it would be inequitable to make H & R Block pay the debt to National Trust under the circumstances.  Had H & R Block complied with the Act, National Trust would not have been paid because Tax Time did not have sufficient assets at that point to pay it after the claims of the more highly-ranked secured creditors were satisfied.  Section 16(2) would therefore operate to put National Trust in a better position than it would have been in had the sale not occurred or the requirements of the Act been met; National Trust would be the lucky recipient of a windfall.  It would also penalize H & R Block unfairly.  Since the sale was not a ruse to dispose of Tax Time’s assets improperly or cheat its creditors, but was in fact intended to raise funds and improve Tax Time’s ability to pay its debts, there was no reason to punish H & R Block for taking part in the transaction. 

20                               Borins J.A. also held that the remedy provided for under s. 16(2) should follow the same distributional principles as a distribution of proceeds of sale under s. 12(1) —  that is, creditors should be paid in order of priority.  An action brought by a creditor under s. 16(2) is a representative action for the benefit of all of the seller’s creditors.  Therefore, the particular creditor bringing the action should not be allowed to leapfrog over creditors that rank ahead of it.

21                               In essence, Borins J.A. was of the view that the nature of an equitable accounting was such that a creditor was due only what he might have recovered if the buyer had complied with the Act; anything more would be unjust enrichment.  Furthermore, the buyer’s liability should be reduced by any amount paid, by the buyer or by the seller, to creditors in priority ranking.  Borins J.A. held that National Trust was therefore not entitled to damages under an equitable accounting.

IV.    Analysis

A.     The Purpose of the Act

22                               The primary purpose of the Bulk Sales Act is to protect the interests of all creditors, secured and unsecured alike, whose debtors have disposed of all or substantially all of their assets.  As a secondary purpose, the Act ensures the fair distribution of the proceeds of a sale in bulk; specifically, that the creditors of a seller receive their ratable share of the proceeds of a sale in bulk, based on their priority ranking, and are therefore not prejudiced by the sale.  See McLennan v. Fulton, supra, at p. 577; Re St. Thomas Cabinets, supra, at p. 491; Garson v. Canadian Credit Men’s Trust Association, supra, at pp. 285-86; reasons of Borins J.A., at para. 48.

23                               In furtherance of these objectives, the Act establishes a regime in which buyers and sellers of bulk sales are held to certain measures when carrying out a bulk sale.  These measures are designed to deter fraud and to ensure that the interests of creditors are protected, and to this end, the remedies available under the Act provide an incentive for buyers and sellers to comply with the Act.  As stated earlier, I am of the view that the Bulk Sales Act is not intended to be punitive in nature. 

B.      The Section 16(2) Remedy Provision

(1)  Generally

24                               When determining the remedy under s. 16(2) of the Act, we must place ourselves at the point in time when the sale transaction, which was subsequently declared void, actually took place and not the later point in time when the sale transaction was declared void.  It was the sale itself that failed to comply with the Act and failed to protect the interests of the seller’s creditors.  We are, therefore, concerned with the creditors who were left unprotected at that time, their respective debts at that time, and not those remaining five years after the sale, when the sale was declared void.

25                               It is also important to clarify that, when dealing with the s. 16(2) remedy provision, it is the value of the proceeds, and not the amount of the proceeds, that is in issue.  The two figures may sometimes be the same.  In this case, the value of the proceeds was determined to be $800,000 and that was precisely the amount that H & R Block paid Tax Time for the assets, the customer list and the “goodwill” of the company.  However, the value of the proceeds and the amount thereof may often be quite different.

26                               The process to be followed by the application judge in applying the s. 16(2) remedy provision is similar to the process used in determining whether an exemption should be granted under s. 3 of the Act.  In other words, the application judge will turn his or her mind to similar considerations when deciding on a course of action under either s. 3 or s. 16(2) of the Act.  Specifically, the application judge should consider, inter alia, how the creditors, both secured and unsecured, would be affected by the sale; whether the sale would be detrimental or beneficial to the creditors; and whether it would have the same impact on each of the creditors, or whether certain creditors would be differentially affected.  Would the sale be advantageous to the seller?  Would the sale impair the seller’s ability to pay the creditors in full?  Generally speaking, after considering such factors, if it is reasonable to believe that an application judge would have granted an exemption (i.e., the value of the sale is not detrimental to the creditors), then it is also likely that the buyer will be able to account to unpaid creditors under s. 16(2), providing the proceeds of the sale are paid to the creditors ratably.  I, however, do not rely on this proposition as it was not pursued in oral argument before the Court.

(2) Duty to Account

27                               When interpreting a particular provision of an Act, it is important to bear in mind the general purpose of the Act as well as its objectives.  Other provisions in the Act will sometimes influence the meaning given to a particular provision.  It was suggested here that s. 16(2), and in particular the duty to account, should be interpreted in light of s. 12 of the Bulk Sales Act, which states, in part, that the trustee is a trustee for the general benefit of the creditors of the seller and shall distribute the proceeds of the sale among such creditors in like priorities as is required under the Bankruptcy Act.  It is my opinion that this is not the case; ss. 12 and 16(2) are distinct.  The s. 16(2) remedy provision is a discrete provision and is not dependent on any other particular provision in the Act for interpretation.  Instead, the meaning of the phrase “liable to account to” is to be considered in light of the purpose of the Act and of the provision itself in the legislative context.

28                               Is an accounting within the meaning of s. 16(2) an equitable remedy under which the buyer should be credited with any payments properly made to priority-ranking creditors through direct payments by the buyer or seller?  Or is it an instrument of strict liability, under which the buyer is strictly liable to pay twice if he or she failed to comply with the requirements of the Act?  In other words, does the Act direct us to look to the substance, or merely the form, of the payment?  H & R Block argued for and Borins J.A., in his dissenting reasons, adopted the former reading.  I also adopt this reading.

29                               We must interpret the buyer’s duty to account under s. 16(2) in light of the rules of statutory interpretation and, in particular, of commercial realities.  Accordingly, two factors have heightened importance: (i) predictability, since bright-line rules facilitate transactions and economic efficiency; and (ii) a sensible economic result, also to further economic efficiency.  The actual text and case law drive the first of the factors; a purposive approach and policy considerations drive the second.

(a)   Purposive Approach

30                               In light of the objectives of the Bulk Sales Act, a purposive approach to the interpretation of the buyer’s duty to account under s. 16(2), after having failed to comply with the Act, requires that the buyer pay to the seller’s creditors the amount that such creditors were deprived of as a result of the non-compliant sale.  In other words, when a buyer fails to conform with the Act, he or she will be liable to the creditors for any shortfall they incurred. 

31                               Under the purposive approach, creditors are put back in the position they would have been in had the buyer complied with the Act — no unjust enrichment of creditors takes place.  Furthermore, buyers of bulk goods have some incentive to ensure that the appropriate creditors are paid, since the buyer will be liable for any difference.  This limited duty of double payment is sufficient, in my opinion, to serve as an incentive to buyers of sales in bulk to protect the interests of the seller’s creditors, in accordance with the Act.

(b)  Text

32                               The remedial provision under s. 16(2) of the Bulk Sales Act reads:

16.  . . .

(2) If a sale in bulk has been set aside or declared void and the buyer has received or taken possession of the stock in bulk, the buyer is personally liable to account to the creditors of the seller for the value thereof. . . .

33                               The phrase “personally liable . . . for the value thereof” suggests that the buyer is liable for the full value of the stock in bulk that was purchased.  Such a reading can explain the majority of the Court of Appeal’s strict liability interpretation.  However, the language of this provision, especially the phrase “personally liable to account”, is more consistent with the interpretation that the buyer must account for what is owed, taking into consideration what was properly paid out to creditors from the sale in bulk.  This is the preferred interpretation.

34                               Historically, an “account” was “a form of action at common law against a person who by reason of some fiduciary relation (as guardian, bailiff, receiver, etc.) was bound to render an account to another, but refused to do so”; Black’s Law Dictionary (6th ed. 1990), at p. 19.  It is, therefore, technically an instrument of law, though it arose at a time before the distinction between law and equity was marked.  Its beginnings lay in the obligation of manorial bailiffs to tally up rents and expenses, and submit the difference, to their feudal landlords.  Fundamental to the “account” was that: (i) there were credits and debits to be applied, and a net result arrived at; (ii) it was enforceable at both law and equity, though it was technically a legal obligation; and (iii) it specifically envisaged the use of fungible money — so there was no need to return the specific property entrusted.  See C. C. Langdell, “A Brief Survey of Equity Jurisdiction” (1889), 2 Harv. L. Rev. 241, at pp. 246, 252 and 258; see generally:  E. O. Belsheim, “The Old Action of Account” (1931-1932), 45 Harv. L. Rev. 466.

35                               In my opinion, a modern accounting should take into account proper payments to priority-ranking creditors made as a direct result of payment to the seller of the bulk goods and should not result in an unjust enrichment to creditors who would not otherwise have recovered money from a compliant sale.  Accounting for the use of proceeds does not equate to repayment of these proceeds by the buyer in every case.

(c)   Relevant Case Law

36                               The jurisprudence in this area is not vast.  There are two cases, however, that warrant discussion.  In Sidaplex-Plastic Suppliers Inc. v. Elta Group Inc. (1998), 40 O.R. (3d) 563, the Ontario Court of Appeal voided a bulk sale.  Rosenberg J.A., writing for the Court of Appeal, noted that s. 8 creates two ways in which the buyer may complete a bulk sale.  He further noted that the buyer in that case did not resort to either method.  In turning to s. 16(2) and, specifically, the question of whether it grants to a court the discretion to refuse to set aside a sale where there has been non-compliance with the Act, Rosenberg J.A. stated, at p. 573, that “[t]here does not appear to be any [such] authority” and that the “legislation does not expressly give the court such a discretion”.  He went on to say, at the same page, that the Bulk Sales Act

places the responsibility on the purchaser to engage the mechanisms of the Act to ensure payment of the vendor’s creditors.  Should the purchaser fail to do so . . . the penalty that the purchaser must pay if the sale proceeds are not used to pay the creditors, is to pay the creditors what the vendor should have paid them. . . .

. . .  Accordingly, except where there has only been some technical non-compliance, the court does not have a discretion to refuse to declare a sale void.  [Emphasis added.] 

37                               Rosenberg J.A. leaves no discretion on the part of the application judge to take into account, for example, proper payments to priority-ranking creditors made as a direct result of payment to the seller of the bulk goods, or to determine whether the circumstances of a particular case are such that double payment by the buyer would lead to an unfair result.  Instead, the court suggests that once the buyer has failed to comply with the provisions of the Act, the necessary result is that such buyer be penalized by paying to the creditors what the vendor was required to pay to them.  With respect, to the extent that this decision stands for such proposition, it must be rejected.  As explained above, such reasoning does not facilitate economically-efficient transactions, nor does it reflect a purposive interpretation of the s. 16(2) remedy provision.  Had Spence J. not been required to follow Sidaplex, supra, he should, on the interpretation given here, have simply refused to set aside the bulk sale.

38                               In Motorsource Inc. v. A.O. Smith Corp. (1993), 8 Alta. L.R. (3d) 1 (C.A.), Motorsource, in a fraudulent scheme, sold all of its inventory of electric motors at fair market value (or better) to Southern Rewind.  The proceeds of the sale were then distributed, first to pay off its secured creditor, Royal Bank.  The rest of the proceeds flowed back to Southern Rewind (which was owned by the same person) against its alleged debt.  Acknowledging the direct ruling from the trial judge on the fraudulent intention on the part of Motorsource to give security to Southern Rewind in furtherance of an intention to hinder other creditors, the Court of Appeal turned its attention to whether or not it should void the sale.  After again noting that the sale was for fair market value, or higher, Kerans J.A., writing for the court, held that there was no need to void the sale.  The court did not rigidly apply the statutory remedy available in the Alberta Bulk Sales Act but instead used its discretion to deal with the non-compliant sale “on just terms” (para. 6).  In realizing that the only result of voiding the sale would be to require that the motors be taken from Southern Rewind and sold on the market, the court stated, at para. 6, that “[t]hat does not seem to be in the best interests of anybody.  So we will not do that.  We will let that sale go as being the best possible sale.”  The conveyance of money to Southern Rewind was, however, voided in order to distribute pro rata to creditors. 

39                               The significance of this case lies in the Alberta Court of Appeal’s use of discretion not to void the sale, and to adopt the actions that would put creditors in the place they would have been in had the Act been complied with.  Southern Rewind was effectively given “credit” for the payment to Royal Bank.

40                               In the facts of the case before us, one of the conditions of the sale from Tax Time to H & R Block was that the proceeds of the sale be used to pay Tax Time’s creditors in order of priority in order to secure a free title.  Holding H & R Block strictly liable to pay National Trust the value of the proceeds of the bulk sale, under these circumstances, would lead to a very unfair result and in the words of Kerans J.A., “does not seem to be in the best interests of anybody” (Motorsource, supra, at para. 6).  The inclusion of this condition of sale is consistent with the general purpose of the Act, which is to protect the interests of all creditors whose debtors have disposed of all or substantially all of their assets, and to ensure the fair distribution of the proceeds of a sale in bulk.  While the inclusion of this condition of sale is quite compelling in the present case, it should not be seen as a requirement in the decision-making process of determining whether or not to relieve the non-compliant buyer of a strict liability to account to the seller’s creditors.  Instead, it constitutes a factor to consider in the general context of the sale. 

41                               The respondent argued that if one factored in the goodwill of the company at the time of the bulk sale, all creditors could have been paid.  This suggests that a bankruptcy would have permitted National Trust to realize the $800,000 sale, and to obtain $600,000 more for other assets, that the non-competition clause was irrelevant and that all transactions could have been completed rapidly.  I agree with the appellant that this is speculation and that resort to such a scenario has nothing to do with the proper interpretation of s. 16(2).  This section does not contemplate comparison with a potential bankruptcy.  In this case, the $800,000 was advantageous because it reflected the best possible price and eased the situation of the company in carrying on business in the future.  The issue is whether National Trust was deprived of any money it would have received on a ratable distribution of the proceeds of the bulk sale.  That, I think, is in the true nature of an equitable accounting.

(d)  Policy Considerations

42                               In the context of transactional business law, there are strong policy reasons for facilitating efficient transactions while protecting creditors.  As I have already noted, bulk sales legislation was recently repealed in the western provinces and in two of the three territories, following reports of their respective law reform commissions that the goal of protecting creditors, to the extent that it is achieved by bulk sales legislation, is realized only at the cost of significant commercial inconvenience, disruption and expense.  There has been no decision to repeal the Act in Ontario.  The Act must therefore accommodate modern commercial realities as best it can.

43                               As a matter of policy, a strong argument for a “strict liability” reading of the duty to account is one focused on certainty.  A strict accounting is a bright-line rule: if you do not comply, then you pay twice.  Indeed, and as noted below, the wording of s. 16(2) could be seen to support such a view.  It is my opinion, however, that a purposive approach to s. 16(2) precludes such an interpretation.  With great respect for my colleague’s dissenting reasons, it seems unreasonable that an unsecured creditor who would not have recovered any payment even if the buyer had complied with the Act, should now be in a position to benefit from the buyer’s non-compliance with the Act.

44                               The Act reflects a desire to deter fraud and to ensure that creditors are properly paid.  Accordingly, a non-compliant buyer may be ordered to account in cases where there has been no proper payment to the seller’s creditors.  However, there is no legislative intent to punish non-compliant buyers in cases where there has been proper payment to the seller’s creditors, whether that payment was made by the buyer or the seller.  In such cases, the court should review all of the facts of the case and use its discretion in determining what, if anything, should be done to put the unpaid creditors in the position they would have been in had the Act been complied with or whether a strict liability to account, under s. 16(2), would lead to an unfair result.

C.     Application to this Appeal

45                               Tax Time became a money-losing enterprise.  To maximize value to its creditors, some of whom were sure to go unpaid, Tax Time decided it was best to wind up the business and sell the customer list.  Tax Time received fair market value for its customer list.

46                               H & R Block, as buyer, did not comply with the provisions of the Act and, as such, the sale in bulk from Tax Time was declared void under s. 16(1).  Under s. 16(2), H & R Block became personally liable to account to the creditors of the seller for the value of the stock in bulk.  In light of the purpose of the Act, and in accordance with a purposive reading of s. 16(2), H & R Block’s duty to account requires that the buyer pay to the seller’s creditors the amount that such creditors were deprived of as a result of the non-compliant sale.  Payments to creditors made directly from the proceeds of the bulk sale may be credited to the buyer, regardless of whether H & R Block or Tax Time made the payment.  Tax Time’s payments to its two highest-ranking creditors did not place National Trust at a disadvantage.  To require H & R Block to now pay to National Trust the value of the proceeds of the sale would be to place National Trust in a better position than it would have been in had the requirements of the Act been met; National Trust would be the lucky recipient of a windfall and H & R Block would be unduly punished.  This would be a very unfair result; National Trust is, therefore, not entitled to damages under the s. 16(2) duty to account.

V.     Conclusion

47                               We must interpret the buyer’s duty to account under s. 16(2) in light of the rules of statutory interpretation and, in particular, of the true purpose of the Act and of commercial realities. In this context, the phrase “personally liable to account” is consistent with the interpretation that the buyer must account for what is owed, taking into account what was properly paid out to creditors from the proceeds of the sale in bulk.  A purposive approach directs us to look to the substance, and not merely the form, of the payments made.  The court retains the discretion to consider all of the facts of the case to determine what, if anything, should be done to put the unpaid creditors in the position they would have been in had the Act been complied with or whether a strict liability to pay, under s. 16(2), would lead to an unfair result.  The creditor should not be placed in a better position than it would have been in had the buyer complied with the Act; conversely, the non-compliant buyer should not be unduly punished.  A modern accounting should take into account proper payments to priority-ranking creditors made as a direct result of payment to the seller of the bulk goods.

48                               The appeal is allowed with costs throughout.

English version of the reasons of LeBel and Deschamps JJ. delivered by

49                               Deschamps J.  (dissenting) — Where the law is clear, not even the most dynamic interpretation can justify going beyond the rules set out regarding the consequences of its violation.  The issue here is therefore not what would have happened if the law had been obeyed, but rather how to apply the requirements of s. 16(2) of the Bulk Sales Act, R.S.O. 1990, c. B.14 (the “Act”), so that it is consistent with the objectives and spirit of the Act.

I.    Objectives of the Bulk Sales Act

50                               After the federal Insolvent Act of 1875, S.C. 1875, c. 16, was repealed in 1880, the provinces of Canada were concerned that creditors be protected.  A number of provinces, undoubtedly inspired by the experience in the United States (T. C. Billig, “Bulk Sales Laws:  A Study in Economic Adjustment” (1928), 77 U. Pa. L. Rev. 72), enacted bulk sales legislation; Ontario, in 1917, was one of them.

51                               The general objective was to improve the position of creditors when debtors sold their businesses, a situation that was easy for debtors to abuse.  See Higgins v. Elliott (1922), 65 D.L.R. 154 (N.S.S.C.), at p. 164.  In McLennan v. Fulton (1921), 50 O.L.R. 572, at p. 577, Hodgins J.A. of the Ontario Court of Appeal wrote:  “The aim of the Act is to prevent a person, partnership, or company disposing of his or its assets in bulk, and pocketing the money, leaving creditors in the lurch.”  This objective has been frequently reiterated by the courts.  See Re St. Thomas Cabinets, Ltd. (1921), 61 D.L.R. 487 (Ont. S.C.), at p. 491; Garson v. Canadian Credit Men’s Trust Association, [1929] S.C.R. 282, at pp. 285-86.

52                               Three mutually complementary mechanisms, reinforced by a sanction, operate to achieve this general objective.  These mechanisms and sanction are also aimed at specific objectives and at responding to particular needs.

53                               The first mechanism is a judicial exemption (s. 3) granted on evidence that the sale is advantageous to the seller and will not impair the seller’s ability to pay creditors in full.  The general objective of the Act is completely met by that mechanism, which is available only when the financial health of the business is not affected by the proposed sale.  The specific objective of that mechanism is to provide the parties with an alternative in the event that the Act is regarded as imposing an unnecessary requirement.  Because the Act applies to all sales made out of the usual course of business, some transactions may have no effect on the business.  However, the creditors may demand that the seller or buyer provide them with particulars in writing of the sale in bulk (s. 7).  All necessary transparency is guaranteed.

54                               Under the second mechanism, the buyer must demand of the seller a statement providing the details of debts owing to secured and unsecured trade creditors (s. 4).  The buyer may pay the seller (s. 8(1)) only if the latter states that he or she has paid or made provision for his or her debts, or the debts do not exceed $2,500, or the excluded creditors have waived the provisions of the Act.  The general objective of the Act is met, because the creditors are not at risk of having the proceeds of the sale paid to the seller before the debt owing to them is paid.  The specific objective of this second mechanism is to make the buyer responsible for obtaining the statement in question, and to compel the buyer to withhold payment of the selling price until the buyer has arranged for payment of the debts owing to trade creditors.

55                               The third mechanism involves a sort of liquidation under judicial supervision (s. 8(2)).  It is conducted by a trustee with the agreement of a special majority of unsecured creditors, or is ordered by a judge where the creditors consent to the sale but not to the appointment of the trustee.  This route must be taken where the sale price is not sufficient to pay all the creditors, or where the seller is not able to provide a statement deposing that the seller has made provision for payment of the debts.  The general objective of reassuring creditors is met by this mechanism, since the proceeds of the sale are used to pay the business’s debts and all creditors are treated equitably.  The specific objective is to ensure that creditors are consulted and to transfer responsibility to a trustee for distributing the proceeds of the sale.

56                               The three mechanisms are supplemented by a sanction, which allows the creditors to receive an amount equal to the value of the property sold.  That mechanism is also intended to compel the parties to the deed of sale to comply with the Act.  The statutory sanction is that the sale may be set aside (s. 16(1)).  If that occurs, the buyer must account to the creditors for the value of the property that the buyer acquired in the sale (s. 16(2)).  The specific objective is to restore the creditors to the position they were in before the sale.  Therefore, a sale is set aside, the buyer no longer owns the property and must return it to the seller, and must refund the sale price.  Since it is often impossible for the property to be returned in full, because the buyer has used or disposed of the property, the Act requires that the buyer account for the value of the property.  The Act simplifies the usual mechanism associated with setting aside a sale by conferring the benefit on the group that the Act is intended to protect.  The sanction also acts as a strong deterrent, since the buyer becomes personally subject to the duty to account.  The buyer is made the guarantor of compliance with the requirements of the Act.  See Law Reform Commission of British Columbia, Report on Bulk Sales Legislation (1983), at pp. 25-26.  Under the rules that apply when a sale is set aside, the buyer may claim a refund from the seller of the amount paid.  Nevertheless, under the Act, the buyer is personally liable to the business’s creditors at the time the sale takes place.

57                               The sanction provided in s. 16(2) is essential to the proper operation of the Act.  Neither the buyer nor the seller would have an incentive for complying with the Act if there were no sanction for non-compliance.  Without the sanction, the Act would be nothing but wishful thinking, and would thus fail to achieve either its general or specific objectives.  If the Act had no teeth, it would serve no useful purpose.

58                               The judicial review that is provided for in relation to the sanction neither can nor should be used to render the three protection mechanisms moot.  Where an application is brought to a judge under s. 16(1), the judge may not refuse to set aside the sale unless it is justified in the circumstances and the exercise of discretion would meet the objectives of the Act.  An example of the exercise of discretion is offered in Motorsource Inc. v. A.O. Smith Corp. (1993), 8 Alta. L.R. (3d) 1 (C.A.).  In that decision, the sale price paid was equal to or greater than the market value of the property.  The Alberta Court of Appeal therefore refused to set the sale aside, on the ground that doing so would be in no one’s interest.  On the other hand, in Sidaplex-Plastic Suppliers Inc. v. Elta Group Inc. (1998), 40 O.R. (3d) 563 (C.A.), Rosenberg J.A. was of the opinion that the judge had no discretion.  However, he nonetheless acknowledged that mere technical non-compliance may justify refusing to declare a sale void.

59                               In my opinion, the Act leaves room for discretion to be exercised, but that discretion is limited.  Mere speculation that the proceeds of sale would have been distributed to a secured creditor and that the complainant creditor would not have been paid in a judicial liquidation is not sufficient.  The judge must weigh several factors.  If the judge decides to decline to void the sale, he or she must be satisfied that the transaction is advantageous to all creditors protected by the Act, that the parties to the sale had a legitimate reason or an excuse for not complying with the Act, and that the objective of deterrence was not circumvented.

60                               An ex post facto analysis of what complying with the Act would have meant for creditors is neither desirable nor useful.  The context in which the sale of all or part of the assets of a business is negotiated is extremely complex, and any reconstruction can only amount to speculation.  Apart from the discretion inherent in the decision as to whether or not to void the sale, the Act does not provide for such a reconstructive exercise to be conducted.  If the parties comply with the Act, the situation of the creditors will be much clearer and more certain than if a judge were to assess how advantageous a transaction would have been to them based on hypotheticals that may vary, in number and nature, from one creditor to another.

61                               If the parties do not comply with the Act and the sale is set aside, there is no room for any speculation.  The buyer must account to the creditors for the value of the property purchased.

II.      The Spirit and Letter of the Bulk Sales Act

62                               As Bastarache J. observes, the Act states a bright-line rule.  If the sale is set aside, the buyer is then personally liable to account.  Can that bright-line rule be interpreted in such a way as to take the payments made by the seller into account?  In my opinion, the answer is no.

63                               Section 16(2) reads as follows:

16. . . .

(2) If a sale in bulk has been set aside or declared void and the buyer has received or taken possession of the stock in bulk, the buyer is personally liable to account to the creditors of the seller for the value thereof, including all money, security and property realized or taken by the buyer from, out of, or on account of, the sale or other disposition by the buyer of the stock in bulk.

64                               Under this provision, the buyer is liable to account for the value of the stock in bulk, and not for the value of the proceeds of sale.  This is an important nuance, not only because the amount may be different but also because the sanction applies to the buyer’s personal assets and not to whatever has become of the proceeds of the sale.

65                               The purpose of the Act is to hold the buyer liable for an amount equal to the value of the property.  An interpretation based on the use of the proceeds of sale to pay the secured creditors would undermine the spirit of the Act, which is intended to protect not only secured creditors but also ordinary creditors.  Such an interpretation would also do violence to the wording chosen by Parliament, in that it substitutes the words “proceeds of the sale” for “value thereof”.  Under s. 16(2), the use made by the seller of the sale price received by the seller is of no relevance.  Section 16(2) deals only with the buyer’s liability to the creditors.

66                               As well, because the Act’s objective is to protect all the creditors, it would seem logical to prefer an interpretation under which that objective is more fully met by compliance rather than non-compliance.  Non-compliance obviates the protection mechanisms, while compliance makes it more likely that the objectives of the Act will be achieved.  The consequence of violating the Act must therefore be different from the consequence of complying with the Act.

67                               Moreover, assessing the extent of the buyer’s liability does not require any exercise of discretion by the judge.  Accordingly, at this stage, and after the judge has set aside the sale, it is inappropriate to inquire into the motivations that might have prompted a seller or buyer not to comply with the requirements of the Act.

68                               Above all, if the provincial legislature has not yet decided to repeal the Act, it is not the function of the courts to substitute their own judgment for it.  An interpretation that eliminates the consequences of violating the Act would be an implicit repeal of the Act, and amount to a negation of the democratic institutional process.

III.    Application to the Facts of the Case

69                               The trial judge found that the sale was void.  That finding was not appealed, and there is no reason to believe that it was either made or not appealed from out of inadvertence.  The parties did not offer any formal explanation for their non-compliance with the Act, although there can be no doubt, from certain clauses, that they did so with full knowledge of what they were doing:  Tax Times Services Ltd. and its president expressly undertook to indemnify H & R Block Canada Inc. for any liability arising out of non-compliance with the Act.  That clause cannot be interpreted otherwise than as a statement of non-compliance, because the buyer was not provided with either a statement or an exemption, and the creditors were not consulted.  The only possible conclusion is that the parties had business reasons for taking the route they chose.

70                               As well, there is nothing in the evidence that would suggest that the transaction was obviously advantageous to the creditors and that this justified disregarding the objectives of protection, transparency, consultation and deterrence.  On the contrary, as noted earlier, and as MacPherson J.A. of the Court of Appeal wrote ((2001), 56 O.R. (3d) 188), the argument that National Trust would have been in the same position if there had been compliance with the Act is based on pure speculation.  Even though it was not proven that National Trust would have been able to have the terms of the sale changed if it had been consulted, the reverse is by no means obvious either.  To encourage incorporating discretion at the stage of the duty to account can only provide sellers and buyers with an incentive to evade the application of the Act.

71                               The exercise engaged in by Borins J.A., and which my colleague Bastarache J. has adopted, is not, with respect, consistent with either the general objective of the Act or its specific objectives.  Participation by all classes of creditors, and more specifically by the ordinary creditor class, is circumvented, judicial review is evaded, and the parties have no incentive to comply with the Act because all that needs to be done in order for the buyer and seller to escape any sanction is to prove that the secured creditors have received an amount equal to the value of the proceeds.  Creditors will not be reassured by an interpretation that allows their debtors to sell their assets on the sly.

72                               As well, I do not find persuasive the argument that there is justification for giving the judge ex post facto discretion because it would be undesirable for National Trust to be paid when it would not have been paid if Tax Times had been liquidated.  The law does not provide for a windfall.  The Act simply sets out the consequence of the commercial risk that the buyer and seller take when they fail to comply with one of its provisions.  It is by no means obvious that H & R Block would have to pay twice because Tax Time and its president undertook to indemnify them.  Therefore it is not necessarily penalized by the application of the Act.

73                               When the Act is applied, there are financial consequences, which the parties anticipated.  It is not the function of judges to substitute their judgment for the wills of the legislature or the parties simply to minimize the impact of commercial legislation that they believe to be cumbersome or unfair.

IV.    Conclusion

74                               Legislation must be interpreted having regard to the objectives, spirit and letter of the law.  I am of the opinion that after a sale is declared void, the duty to account for the property is automatic.  Having regard to all these factors, I conclude that the Court of Appeal was correct to decline to intervene and the appeal should be dismissed.

Appeal allowed with costs, LeBel and Deschamps JJ. dissenting.

Solicitors for the appellant:  Fasken Martineau DuMoulin, Toronto.

Solicitors for the respondent:  Fraser Milner Casgrain, Toronto.