Cote J. (Hetherington and Irving, JJ.A., concurring):—
A. The issue
A panel of this Court heard three appeals together. In each, one party is The Queen, as represented by the Minister of National Revenue (here called the Minister). And in each case the other party is a bank or the Alberta Treasury branches. Each appeal is a priority contest between the Minister’s garnishee summons, and a general assignment of book debts to the bank or Treasury branch.
For some years, the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") and the Excise Tax Act have let the Minister garnish debts payable to persons who owe certain kinds of tax. The Act allows the Minister to issue his own garnishee summons without having to go to any court or get any kind of court judgment. (The Act calls it a "letter" but it works like a garnishee summons.) The wording of the two statutes on this point is very similar.
If A owes money to B, who owes income tax to the Minister, then the Minister can serve such a garnishee summons on A. After that, if A has not yet paid B, he has to pay the Minister instead of paying B. However, if B assigns this debt (or all his receivables) to a bank before the garnishee summons arrives, is A to pay the Minister or to pay that bank? That was the question in Lloyds Bank and the question in these three appeals.
If the two statutes said nothing about priority, the answer would be obvious. Garnishee summonses are always presumed to attach only what the (tax) debtor could honestly assign, and so the bank would prevail over the Minister That would also follow from the working of the two statutes, for after the debt is assigned, A no longer owes anything to B. A owes the debt to the bank alone.
But where certain types of income tax assessment are involved, the two statutes provide that the Minister is to have a special type of priority. I set out here subsections 224(1.2), (1.3) of the Income Tax Act, as it now reads.
224(1.2) Notwithstanding any other provision of this Act, the Bankruptcy Act, any other enactment of Canada, any enactment of a province or any law, where the Minister has knowledge or suspects that a particular person is or will become, within 90 days, liable to make a payment
(a) to another person (in this subsection referred to as the "tax debtor") who is liable to pay an amount assessed under subsection 227(10.1) or a similar provision, 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 registered letter or by a letter served personally, require the particular person to pay forthwith, where the moneys are immediately payable, 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 Receive General on account of the tax debtor’s liability under subsection 227(10.1) or a similar provision, and on receipt of that letter by a particular person, the amount of those moneys that is required by that letter to be paid to the Receiver General shall, notwithstanding any security interest in those moneys, become the property of Her Majesty and shall be paid to the Receiver General in priority to any such security interest.
[Emphasis indicates amendment.]
224(1.3) In subsection (1.2),
"secured creditor" means a person who has a security interest in the property of another person or who acts for or on behalf of that person with respect to the security interest and includes a trustee appointed under a trust deed relating to a security interest, a receiver or receiver-manager appointed by a secured creditor or by a court on the application of a secured creditor, a sequestrator, or any other person performing a similar function;
"security interest" means any interest in property that secures payment or performance of an obligation and includes an interest created by or arising out of a debenture, mortgage, hypothec, lien, pledge, charge, deemed or actual trust, assignment or encumbrance of any kind whatever, however or whenever arising, created, deemed to arise or otherwise provided for;
B. History
The emphasized words were not present in 1989. In that year, this Court decided Lloyds Bank Can. v. Int. Warranty Co. (1989), 97 A.R. 113, 68 Alta. L.R. (2d) 356, leave denied (1989), 102 A.R. 240 (S.C.C.). The argument of the Crown then and now, was that the subsection just quoted gives the Crown priority over assignments of book debts to other creditors, whenever the assignment was created.
In the Lloyds Bank case, our Court held that if the arguments then made by the Minister were right, the Income Tax Act’s words about priority would take away without compensation the property of the innocent bank. It is a principle of statutory construction that if a statute fairly permits two interpretations, the courts will pick the one which does not do that. Our Court found that the words of the Income Tax Act as they then stood (without the words emphasized above) were not clear enough to produce that confiscatory result. So the bank won and the Minister lost.
Then the two statutes were amended by Parliament to add the words emphasized in the quotation above. Doubtless the Minister hoped that this would reverse the effect of the Lloyds Bank decision and maybe some other similar decisions.
C. The amendments
The Queen’s Bench judges who heard the three cases now under appeal differed on whether the Minister achieved that result. One judge heard two cases and held that Parliament reversed Lloyds Bank, so the Minister now has priority. (The Minister’s counsel call it "super superiority".) However, another judge held that Parliament had reversed Lloyds Bank in part only. She held that the amendments only give the Minister priority where the assignment of book debts in favour of the bank 1s conditional or not vested. For example, some security documents say that the assignor can continue to collect his receivables until he defaults in repaying his bank loan, or until the bank (assignee) gives notice of the assignment. She held that the Minister only gets priority in such cases. Where the assignment transfers the receivables immediately and unconditionally, the bank gets priority over the Minister, she held.
Two of these appeals relate to unpaid GST under the Excise Act, and not to income tax at all. However, the Excise Tax Act subsections 317(3), (4) has provisions almost identical in wording to those quoted above from the Income Tax Act, and so the same reasoning applies. The same amendment was made to both Acts at the same time. (The Excise Tax Act 1s subject to the Bankruptcy and Insolvency Act, unlike the Income Tax Act, but that is not material to the main grounds of appeal on either side.)
Before us, both sides argued the priorities question, and how to interpret this legislation, and this decision will proceed on that topic.
For convenience, I will consider the subsections of the Income Tax Act quoted above. As counsel for the Minister point out, the amendments to that subsection say that service transfers the debt to Her Majesty, and that it shall be paid to Her Majesty notwithstanding the security interest, and in priority to the security interest. Where those amendments apply, in my view they reverse our Lloyds Bank decision and give the Minister priority over earlier mortgages and assignments. I cannot confine them to floating or conditional assignments and must disagree with one of the justices appealed from. I am sympathetic to her views. Counsel for the Minister considers that the banks have simply acquired moneys after what is more or less a breach of trust by the taxpayer. If the taxpayer is a vendor who has collected GST and not remitted it, that may be so. If he has not collected GST, then it is not so. If he is an employer who had the money to meet his full payroll, withheld income tax, and did not remit it, it is arguably true, though the argument does not persuade me. If he is an employer who lacked money to pay the full payroll, it is not true. Where it is not true, these sections are simply expropriation without compensation from a totally innocent bystander. But where the statute is clear and the Charter or Bill of Rights is not pleaded, we cannot stop the Minister’s expropriation without compensation.
D. Interpreting the section
But do the new words in the statutes apply to all cases? To answer that, One must consider the two statutory definitions in subsection (1.3). They have not been amended. Three things tie the definitions into the operative part, subsection (1.2), and its new words. First, the whole operative subsection (1.2) begins ’’where the Minister has knowledge or suspects that...", so the words which follow are a precondition. Second, the Minister’s power is to "require the particular person" and that refers back to the same precondition. Third, the amendments overriding secured interests, referred to above, only apply "on receipt of that letter". That refers to a power to send a letter (garnishee summons) which is in turn expressly conditioned on the same precondition.
What is the precondition? The Minister must believe or suspect that the intended recipient of the letter is liable, or will soon become liable, to make a payment under paragraph (a) or paragraph (b) of the operative subsection (1.2). No one suggests that (a) applies here, given the general assignments of book debts and other assignments. So the effective production in these cases is paragraph (b). It says:
(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,
[Emphasis added.]
Subsection (1.3) defines “security interest", and that definition appears to be satisfied in the present cases. But subsection (1.3) also defines "secured creditor". That definition is quoted near the head of this judgment. I will restate that definition slightly using square brackets:
a [certain] person who has a security interest in the property of another person or who acts for or on behalf of that person with respect to the security interest and includes....
[Emphasis added.]
In each of these three appeals, there was a general assignment of book debts which purported immediately to transfer title to the bank or Treasury branch. Doubtless it was done to secure a loan, but legal title was thereafter in the transferee, the bank or Treasury branch. Therefore, the bank or Treasury branch is not a "secured creditor" under this definition, because it does not have any interest "in the property of another person”. The bank or Treasury branch itself is the owner. The tax debtor, both sides agree, would have to be the “other person". But he has no title. So one cannot say that the book debts (receivables) assigned are "the property of" the tax debtor.
The Crown argued that the tax debtor still had an equity of redemption, and that that debtor would get the receivables back from the bank or Treasury branch if the loan were repaid. Doubtless that is in theory true. But the only property of the debtor is the equity of redemption, and the Minister does not claim that.
Furthermore, the agreed facts in each of these three appeals disclose a bank loan still owing which is larger than the receivables purportedly garnished. In two cases, it is vastly bigger. Where the debtor is in a large deficit position, his "equity of redemption" is valueless, and no one would exercise it even if he or she had the wherewithal to do so. The Crown said that the debtor/mortgagor might come into a windfall and pay off the bank loan. That is in theory true, but the collateral here is other debts. No one would ever pay more than $x to redeem a receivable of $x. To do so would be madness. Every dollar is worth the same as any other dollar. Receivables have no unique or sentimental value. And every dollar which the bank or Treasury branch collected under the assignment of book debts would reduce the bank loan by one dollar.
The bank or Treasury branch here holds legal title to the collateral (receivables). So the equity of redemption exists only to the extent that a court of equity would assist the mortgagor to redeem.
Would a court of equity intervene and so give an equity of redemption here? Equity was traditionally jealous of the right to redeem land, and so 1 will say nothing about an equity of redemption in land, or in tangible personalty. But the things mortgaged or assigned here are debts, rights to recover money.
It seems to me that there would have been four overlapping obstacles in the way of these assignors (mortgagors) were they to ask a court of equity to declare that they had an equity of redemption:
A. The question would be moot, and redemption highly unlikely to occur for the reasons given above.
B. He who seeks equity must do equity, and so one can redeem only by tendering the whole sum due to the creditor under the bank loan. See Snell’s Equity 397 (29th ed. 1990). Here the mortgagor/assignor would not do that, for the receivables would always be worth less. And the chance of the mortgagor/assignor having the funds to redeem seems slight.
C. Equity only exists to supplement the law, and will only intervene to correct an injustice. Leaving title in the assignee bank is no injustice, and the right to redeem is theoretical.
D. One maxim of equity is that equity, like nature, will do nothing in vain.
Maxims of equity are not rigid rules, but are rather approaches or principles to be applied to specific situations. Therefore, using them is partly a question of asking what is the underlying aim of equity’s intervention. And it is partly a matter of looking for analogies among the decided cases, particularly those which have applied the maxim in question. Among cases applying the nothing-in-vain maxim, one finds the following:
— The Court will not order specific performance of a contract to plant trees on isolated plots of land where the trees would never bear fruit and would be very difficult of access: Tito v. Waddell (#2), [1977] Ch. 106, 326-27.
— An injunction will not issue to forbid removing a director under irregular procedure, if the defendant could easily remove him validly under the correct procedure: Bentley-Stevens v. Jones, [1974] 1 W.L.R. 638.
- If money is to be invested in land for a beneficiary but he wants the money, not the land, equity will not force him to take land, which he would immediately sell: Benson v. Benson (1710), 1 P. Wms. 129, 131, 24 E.R. 324, 325; Seeley v. J ago (1717), 1 P. Wms. 389, 24 E.R. 438.
— The Court will not order specific performance of a contract to give an interest easily ended, such as a tenancy at will or a partnership or apprenticeship with no fixed term, or an office revocable on short notice: Snell’s Equity 592-93 (29th ed. 1990); Hercy v. Birch (1804), 9 Ves. Jr. 357, 32 E.R. 640; Sheffield Gas Consumers’ Co. v. Harrison (1853), 17 Beav. 294, 297, 51 E.R. 1047, 1048; Wheeler v. Trotter (1737), 3 Swans. 174, 177, 36 E.R. 819, 821.
In all these cases, the common element ts that giving the specific relief requested would be a waster of time and money. It would do no one any good, and the result would either not exist, or would speedily disappear for good. In my view, the same is true in the present case. Since equity does nothing in vain, equity would not decree redemption here.
So there is no real equity of redemption. Even if I am wrong and there is One, One cannot really say the receivables are in any sense "the property of" the mortgagor/debtor. Its equity is negative.
And even if it is doubtful whether one can say any of those things, then at the very least subsections (1.2) and (1.3) are ambiguous. And in case of ambiguity, the Court will take the construction which does not confiscate innocent persons’ property without compensation, as discussed by this Court in the Lloyds Bank case, supra.
E. Conclusion
The agreed facts put before the Court appear to show that to be the case in all three appeals. However, to remove any doubt, I would give the Minister the option to reapply in Queen’s Bench to show by proper evidence that any of these three mortgagor/debtors on the day of service of the garnishment in fact had significant equity in the receivables in question, so that it would have made sense to tender the amount owing on the bank loan and redeem. Such a motion must be filed within six weeks of the date of these reasons, and returnable within three weeks thereafter. Unless the Minister succeeds in that, I would in each case declare that the bank or Treasury branch prevails over the Minister I would dismiss Appeal No. 14257 and allow Appeal Nos. 14345 and 13808, subject to that right to reapply.
The assignees also argued before us that these statutory provisions are ultra vires Parliament because their subject comes under section 92 of the British North America Act 1867 (now the Constitution Act 1867). No one argued whether they might remove any priority which the Minister would otherwise have. That is because in the two GST cases before us, the tax debtor went into bankruptcy around the relevant time.
I will only say this about the bankruptcy issue. It is a serious one, given
A. the exception in the Excise Act for the Bankruptcy and Insolvency Act,
B. that Bankruptcy and Insolvency Act’s invalidation of seizures and garnishments, and
C. the fact that here one garnishee summons was received on the very day of bankruptcy, and another was received about the same day (though a third was received later).
But it seems unlikely that the Minister can show that any of these three debtors had significant equity. Therefore, it is not necessary to decide the Constitution and the Bankruptcy and Insolvency Act issues. Nor are they suitable to discuss here; they are almost certainly academic in these cases. In addition, the evidence as to the timing of the garnishment and the bankruptcy is unclear in two of these appeals, so these are poor appeals in which to try to settle the bankruptcy aspect of the law. That may be doubly academic here.
The bank and the Treasury branches have had almost total success here, but the issues in the three appeals overlapped somewhat. To reduce duplication of costs, I suggest that the Minister pay fees at half the usual amount on each of the three appeals. I would also suggest the following. He should pay his opponent’s full reasonable disbursements on each ap- peal. He should pay full costs in each Queen’s Bench action unless in that suit he wins the motion permitted to him. However, as we did not hear argument on costs, those are only suggestions. I would allow any party to apply to this panel in writing to reconsider costs of appeal, or Queen’s Bench costs of a particular suit in which such a Queen’s Bench motion is won.
Appeals allowed in part.
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