Gaudet v. Simonot, [1996] 2 CTC 194, 95 DTC 5690

Krueger J.: — There are two related applications:

1. Marcel Simonot applied for orders which may be summarized as:

(a) That Saskatchewan Crop Insurance Corporation (SCIC) and its lawyers, Olive, Waller, Zinkhan and Waller (Olive Waller) be made party defendants to the action commenced by Edmour Joseph Gaudet et al (Gaudet) against Marcel Simonot, Albertine Simonot and Raymond Simonot (the Simonots) for the limited purpose of determining entitlement to the moneys being held in trust by either of them for Marcel Simonot;

(b) Requiring SCIC and/or Olive Waller to account for moneys held for Marcel Simonot up to September 15, 1995;

(c) Directing Her Majesty the Queen in the Right of Canada, as represented by the Minister of Revenue (Revenue Canada) to provide details of its “Requirements to Pay” as mailed to SCIC and Olive Waller;

(d) Directing SCIC and/or Olive Waller to pay to Revenue Canada any moneys being held by it/them for Marcel Simonot.

2. Following the application made by Marcel Simonot, SCIC interpleaded pursuant to Rule 411 of the Queen’s Bench Rules for an order to pay into Court the sum of $34,389.33, being moneys held for Marcel Simonot. It also requested relief from the eleven day notice requirement. Short notice was not objected to.

Background facts

On May 15, 1991, the Simonots gave Gaudet a security interest in all Saskatchewan Crop Insurance proceeds and GRIP payments relating to their farm lands. They granted a further security interest in the same proceeds on May 01, 1992, to Gaudet. No amounts were specified in either security agreement. Financing statements were registered in the Personal Property Registry relating to both agreements.

In January, 1994, Gaudet made an application pursuant to Section 63 of the Personal Property Security Act, R.S.S., P-6.1, for an order that the moneys held by SCIC for the Simonots be paid into Court. Olive Waller, by a letter dated January 24, 1994, advised the Court that SCIC was then holding for Marcel Simonot $15,462.69 plus interest. Moneys were also being held for Albertine Simonot and Raymond Simonot.

The Simonots disputed their indebtedness to Gaudet. Goldenberg J. on March 15, 1994, directed the trial of an issue to determine the indebtedness, if any, and security held. He further ordered SCIC to hold and not pay out, pending further order of the Court, the moneys due to the Simonots as set out in the letter of January 24, 1994.

Several “Requirements to Pay” were served on SCIC and Olive Waller by Revenue Canada relating to Marcel Simonot as a tax debtor. All related to unremitted source deductions for employees, penalties and interest. As of October 03, 1995, Marcel Simonot owed Revenue Canada $34,799.70.

Georgine Simonot, mother of Marcel Simonot, through her counsel, abandoned all claims to the moneys held by SCIC.

Revenue Canada claims a priority and asks that the full sum of $34,389.33 paid to it.

Marcel Simonot is in agreement with the moneys being paid by Revenue Canada. If moneys are still held by SCIC for Albertine Simonot and Raymond Simonot, Marcel Simonot does not ask that anyone be added as a party defendant relating to their money.

Gaudet did not dispute the priority of Revenue Canada; instead, he urged that Marcel Simonot not be permitted to avoid payment to him by allowing a tax debt to accumulate in favour of Revenue Canada.

Neither SCIC nor Olive Waller claimed any interest in the funds except for costs. They asked that they be absolved from any liability to account, upon payment into Court, for the moneys held for Marcel Simonot.

Issues

1. Should part of the security which was ordered held pending a trial, now be dealt with summarily?

2. If so, does Revenue Canada have a priority and what effect does that priority have on the applications now before the Court?

Existing order

When the trial of an issue was ordered, the only matter to be determined was the claim by Gaudet against the Simonts. The preservation order was made to insure that the security would be available in the event that Gaudet was successful in his action. The amount now claimed by Revenue Canada ($34,799.70) exceeds the amount being ? for Marcel Simonot ($34,389.33). If Revenue Canada has a priority, the sum of $34,389.33 will not be available to Gaudet even if he succeeds in his action.

Rule 417 of the Rules of Court allows the Court to dispose of an interpleader issue in a summary manner. See also: Patriotic Assurance Co. v. Siddall, [1936] 2 W.W.R. 464 (Sask. C.A.)

Pursuant to Rule 418, when the question to be decided is one of law, and the facts are not in dispute, the Court may decide the question without directing the trial of an issue. Priority in this case is a question of law and the facts are not in dispute. I propose to deal with the question of priority in a summary manner.

Priority of Revenue Canada

Revenue Canada does not dispute the validity of the secured creditor status of Gaudet pursuant to the Personal Property Security Act. It simply relies on subsection 224(1.2) of the Income Tax Act in asserting its priority. That section provides that, notwithstanding any other statute, Federal or Provincial, Revenue Canada has a right to serve a “Requirement to Pay” upon any person it suspects is or will, within 90 days, become liable to pay money to a secured creditor of a tax debtor, and to have the money paid to it.

In Royal Bank v. Saskatchewan Power Corp. (sub nom. Royal Bank v. Canada', Royal Bank of Canada v. Canada) (1991), [1991] 1 C.T.C. 532, 73 D.L.R. (4th) 257, Vancise J. of the Saskatchewan Court of Appeal stated at page 540 (D.L.R. 270):

Nowhere in subsection 224(1.2) is there a provision that Revenue Canada is to receive a charge on property or priority status. However, subsection 224(1.2) makes it clear that when the stated procedure is complied with, Revenue Canada is to receive the funds in preference to a security creditor, notwithstanding other enactments. Priority and a corresponding charge upon property are thus clearly intended if not specifically stated.

That ruling has been followed in a number of decisions since, including TransGas Ltd. v. Mid-Plains Contractors Ltd., [1993] 1 C.T.C. 280 (sub nom. Minister of National Revenue v. TransGas Ltd.), 93 D.T.C. 5391 (Sask C.A.), which has now been confirmed by the Supreme Court of Canada [1994] 3 S.C.R. 753, 120 D.L.R. (4th) 715.

I conclude that Revenue Canada has a priority status.

Effect of priority on applications

Having decided that Revenue Canada has a priority there is no need to add it as a party defendant to the proceedings.

The only function performed by Olive Waller was as solicitors for SCIC in investing the funds. If SCIC pays the funds held for Marcel Simonot into Court, there is no need to add SCIC or Olive Waller as party defendants. Marcel Simonot is apparently now satisfied that $34,389.33 is the correct amount being held for him and a further accounting is not likely necessary.

The purpose of subsection 224(1.2) of the Income Tax Act is to prevent tax debtors from avoiding payment of a tax which is owing by giving security to some other creditor. In this case, Gaudet has become the unwilling victim of that legislation. There is, however, no suggestion that Revenue Canada has done anything improper in asserting its priority.

Costs

Counsel for SCIC claimed costs on a solicitor and client basis on the interpleader application. No amount was suggested. I feel SCIC is entitled to costs in the sum of $800.00, including disbursements.

Revenue Canada did not make any presentation as to costs. It should have its costs as taxed and allowed on a party and party basis against Marcel Simonot and Gaudet to be shared equally. All other costs shall be costs in the cause of the action.

There will be an Order as follows:

1. Abridging the eleven day notice requirement of Rule 415(2) of the Rules of Court to allow the Interpleader application to be dealt with.

2. On the Interpleader application, directing SCIC to pay into Court, to the credit of Action No. 54 of 1994, Judicial Centre of Prince Albert, the sum of $34,389.33, plus any interest accumulated, for the credit of Marcel Simonot, less costs of $800.

3. Directing payment out of Court of the full amount paid in to Revenue Canada to be applied to the tax debt of Marcel Simonot.

4. Dismissing the application of Marcel Simonot.

5. Costs as hereinbefore stated.

Revenue Canada had priority over the funds in issue.