Docket: A-438-13
Citation: 2014 FCA 279
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CORAM:
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NOËL C.J.
GAUTHIER J.A.
BOIVIN J.A.
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BETWEEN:
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HER MAJESTY THE QUEEN
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Appellant
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and
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CAISSE DESJARDINS DE QUÉBEC
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Respondent
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REASONS FOR JUDGMENT
NOËL C.J.
[1]
This is an appeal from a decision by Justice
Archambault of the Tax Court of Canada (the TCC judge) allowing the appeal from
the Caisse Desjardins du Québec (the Caisse) from an assessment made under
subsection 317(3) of the Excise Tax Act, R.S.C. 1985, c. E-15 (the
Act).
[2]
This assessment arose from the fact that the
Caisse did not comply with a requirement to
pay (requirement) relating to the goods and
services tax owing by the tax debtor, Café de la paix (1980) inc. (the tax
debtor) and resulted in making the Caisse liable for this tax debt up to the
amount owed to the Caisse by the tax debtor.
[3]
Subsection 317(3) of the Act reads as
follows:
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317. (3) Despite any other provision of this Part, any other enactment
of Canada other than the Bankruptcy and Insolvency Act, any enactment
of a province or any law, if the Minister has knowledge or suspects that a
particular person is, or will become within one year, liable to make a
payment
(a) to a tax debtor, or
(b) to a secured creditor who has a right to receive the
payment that, but for a security interest in favour of the secured creditor,
would be payable to the tax debtor,
the Minister
may, by notice in writing, require the particular person to pay without
delay, if the moneys are payable immediately, and in any other case as and
when the moneys become payable, the moneys otherwise payable to the tax
debtor or the secured creditor in whole or in part to the Receiver General on
account of the tax debtor’s liability under this Part, and on receipt of that
notice by the particular person, the amount of those moneys that is so
required to be paid to the Receiver General shall, despite any security
interest in those moneys, become the property of Her Majesty in right of
Canada to the extent of that liability as assessed by the Minister and shall
be paid to the Receiver General in priority to any such security interest.
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317. (3) Malgré les autres dispositions de la
présente partie, tout texte législatif fédéral à l’exception de la Loi sur
la faillite et l’insolvabilité, tout texte législatif provincial et toute
règle de droit, si le ministre sait ou soupçonne qu’une personne est ou
deviendra, dans les douze mois, débitrice d’une somme à un débiteur fiscal,
ou à un créancier garanti qui, grâce à un droit en garantie en sa faveur, a
le droit de recevoir la somme autrement payable au débiteur fiscal, il peut,
par avis écrit, obliger la personne à verser au receveur général tout ou
partie de cette somme, immédiatement si la somme est alors payable, sinon dès
qu’elle le devient, au titre du montant dont le débiteur fiscal est redevable
selon la présente partie. Sur réception par la personne de l’avis, la somme
qui y est indiquée comme devant être versée devient, malgré tout autre droit
en garantie au titre de cette somme, la propriété de Sa Majesté du chef du
Canada, jusqu’à concurrence du montant dont le débiteur fiscal est ainsi redevable
selon la cotisation du ministre, et doit être versée au receveur général par
priorité sur tout autre droit en garantie au titre de cette somme.
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[4]
The issue is whether the TCC judge was correct
in concluding that the amounts payable by the Caisse to the tax debtor had
already been subject to legal compensation (set-off) under article 1673 of
the Civil Code of Québec (C.C.Q.) at the time the requirement was received
meaning that it was not liable for any amount to the tax debtor at the time the
requirement was received.
[5]
For the reasons explained below, it is my view
that the TCC judge correctly concluded that compensation had already been
effected between the amounts payable by the Caisse to the tax debtor and those
payable by the tax debtor to the Caisse and that, consequently, the requirement
was moot. However, my reasons for this conclusion are not quite the same as
those of the TCC judge.
[6]
The facts are undisputed, and I refer in this
regard to the summary of the facts provided by the TCC judge at paragraphs 5
to 9 of his reasons. The only issue is whether legal compensation was effected in
a timely manner. Paragraphs 4 and 6 of the variable credit contract
between the Caisse and the tax debtor are at the heart of the problem:
[translation]
4. REQUEST FOR REPAYMENT
The Caisse reserves the right to demand
at any time the immediate repayment of any balance owed in principal, interest,
costs and accessories. The Caisse will then have the option to cancel the
contract, without prejudice to all its other rights and recourses.
6. DEFAULT
If the Borrower draws a cheque that brings
the line of credit balance to an amount higher than the amount authorized
hereunder, if it goes bankrupt, if it transfers its property or becomes
insolvent or fails to meet any of the conditions and obligations stipulated
herein, any balance then owing in principal, interest, costs and accessories shall
become immediately exigible.
[Emphasis
added.]
[7]
It is also useful to mention clause 2,
which provides that as soon as the tax debtor’s current account is supplied
with funds over $10,000, the Caisse will debit the account by this amount in
payment of the balance of the tax debtor’s variable line of credit.
[8]
As stated by the TCC judge, the following two
provisions provide for legal compensation:
Article 1673 of the Civil Code of Québec,
LRQ, c C-1991:
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1673. Compensation is effected by
operation of law upon the coexistence of debts that are certain, liquid and
exigible and the object of both of which is a sum of money or a certain
quantity of fungible property identical in kind.
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1673. La
compensation s’opère de plein droit dès que coexistent des dettes qui sont l’une
ou l’autre certaines, liquides et exigibles et qui ont pour objet une somme d’argent
ou une certaine quantité de biens fongibles de même espèce.
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A party may apply for judicial liquidation of a debt in order to
set it up for compensation.
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Une partie peut demander la liquidation judiciaire d’une dette
afin de l’opposer en compensation.
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Section 69 of
the Act Respecting financial Services Cooperatives, CQLR c C‑67.3:
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69. A financial services cooperative
may, to obtain payment of any specific, liquid and exigible claim it has
against a member or depositor, withhold any sum of money it owes to the
member or depositor and use it to compensate its claim, except in the case of
the redemption of qualifying shares issued by it.
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69. Une coopérative de services financiers
peut retenir, pour le remboursement de toute créance certaine, liquide et
exigible qu’elle détient contre un membre ou un déposant, les sommes qu’elle
lui doit et en faire la compensation, sauf lorsqu’il s’agit du remboursement
des parts de qualification qu’elle a émises.
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[9]
Of the five conditions required by legal
compensation, namely, the reciprocity of two debts, their fungibility, their
certainty, their liquidity and their exigibility, only the last one is in
dispute. More specifically, the Crown accepts that the sums deposited by the
tax debtor in the bank account it held with the Caisse were exigible at any
time. It submits, however, that the corresponding amount payable by the tax
debtor to the appellant under the variable credit contract was not.
[10]
According to the Crown, clauses 4 and 6 of
the variable credit contract have to be harmonized, and the wording of these
provisions makes it clear that in situations not anticipated in clause 6,
the debt of the Caisse is not exigible unless notice is provided.
[11]
The TCC judge recognized that these two clauses,
when read according to the principles of interpretation set out in the C.C.Q.
(that is, according to standard practices), have the effect suggested by the
Crown (reasons at paragraph 14). He found, however, that clause 6 was the
result of a drafting error (reasons at paragraphs 16 and 20). Disregarding
clause 6 and citing clause 4, the TCC judge concluded that the
balance owed, that is, the “principal, interest and accessories”, were exigible
at any time (reasons at paragraph 15).
[12]
The TCC judge set aside clause 6 of the
contract on the ground that the parties had never intended to subscribe to it. He
drew this conclusion even though neither party claimed to have suffered as a
result of such an error. Indeed, the tax debtor did not appear before the court,
and the Caisse maintained before the TCC judge (reasons at paragraph 18),
and continues to maintain, that clause 6 is part of the contract. Indeed,
counsel for the Caisse confirmed at the hearing that clause 6 was part of
a standard contract, which, for all intents and purposes, excludes the idea
that clause 6 was the result of an error.
[13]
In these circumstances, the TCC judge could not
resolve the contractual interpretation issue before him by disregarding the awkward
clause. As submitted by the parties, he had to rely on the principles of
interpretation set out in the C.C.Q., specifically article 1428, which provides
that a clause is given a meaning that gives it a practical effect rather than
one that gives it no effect. He also had to interpret each clause in the light
of the others so that each is given the meaning derived from the document as a
whole (article 1427 C.C.Q.).
[14]
The interpretation advanced by the Crown applies
this principle. According to this interpretation, the amounts described in
clause 4 are not exigible unless a requirement for payment is issued,
except in the three situations anticipated in clause 6—bankruptcy, insolvency
or non-compliance with the contract—which make the amounts exigible without
notice.
[15]
In turn, the Caisse bases its interpretation on
the relevant case law, such as the decision of the Quebec Court of Appeal in Syndicat
d’épargne des épiciers du Québec (In re), (1975) C.A. 599, SOQUIJ
AZ-75011180. According to this case, a debt that is payable on demand is
exigible at any time and a demand for payment is only needed to require the
debtor to pay (to the same effect see Re Hil-A-Don Ltd.: Bank of Montreal c.
Kwiat, [1975] C.A. 157). According to the Caisse, it is from this perspective
that clauses 4 and 6 of the variable credit contract must be read.
[16]
I recognize that a debt payable on demand is
exigible at any time. The fact remains, however, that the parties to a contract
can agree to depart from this rule if this is their intention and they express
it clearly (Société canadienne des postes c. Morel, [2004] 2 JQ 2405 [Morel]).
[17]
The issue here is whether this is what the
parties intended to do in stipulating in clause 6 that the balance
referred to in clause 4 “shall become immediately
exigible” only in the three cases provided therein. As pointed out by
the Crown, some meaning must be given to these words.
[18]
In my opinion, a reading of the contract as a
whole and of these two clauses in particular leads to the conclusion that the
parties anticipated that the balance in question would be exigible without
notice or a requirement in the event of one of the three situations listed in
clause 6. It follows that, otherwise (i.e. except in these three
situations), notice or a requirement is required in order to make the balance
exigible. This is a clear departure as per the doctrine of Morel since
the contract cannot be read differently.
[19]
Consequently, the Caisse cannot avoid its
liability under subsection 317(3) of the Act solely on the ground that the
sums referred to in clause 4 were exigible at any time.
[20]
The TCC judge also offered an alternative reason
to justify his conclusion. This time relying on clause 6, he concluded
that the tax debtor became insolvent before the service of the requirement on
January 24, 2011, thus making the debt to the Caisse exigible before this
date under the clause (reasons at paragraphs 21 to 27).
[21]
The Crown is also challenging this conclusion as
part of this appeal. In the Crown’s opinion, the documents on which the TCC
judge relied to conclude that the tax debtor was insolvent do not demonstrate
this [translation] “clearly”
(Crown’s memorandum at paragraph 53). Better evidence would have been
required to conclude that the tax debtor was insolvent.
[22]
With respect, the question of whether the tax
debtor was insolvent before January 24, 2011, is one of fact. The
conclusion drawn by the TCC judge in response to this question cannot be set
aside in the absence of a palpable and overriding error. No such error was
shown.
[23]
The Crown’s main argument against the conclusion
drawn by the TCC judge is based on the fact that the Caisse continued to advance
credits after January 24, 2011. However, as pointed out by the TCC judge,
under the Bankruptcy and Insolvency Act, R.S.C. 1985 c. B-3
(subsection 50.4(1)) the Caisse was bound to continue complying with the
terms and conditions governing the credit line even though the tax debtor was
insolvent as of January 25, 2011, the date on which the tax debtor filed a
notice of intention to make a proposal (reasons at paragraph 24).
[24]
Moreover, the reasons set out by the TCC judge,
and the supporting evidence, points to the existence of a serious, precise and
concordant inference that the tax debtor was insolvent on January 24,
2011. No error has been shown in this respect.
[25]
I would therefore dismiss this appeal with costs.
“Marc Noël”
“I agree
Johanne Gauthier J.A. “
“I agree
Richard Boivin J.A.”
Certified true translation
François Brunet,
Revisor
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