Re Howard D. Milne, [1995] 1 CTC 122

John A. Hargrave P.:-This motion, to stay realization proceedings under a writ of execution, arises out of an income tax debt for 1992 and 1993. The debt is the result of Howard D. Milne’ stock trading activities as a marketmaker on behalf of his company, Slumber-Magic Adjustable Bed Co. In due course the Minister filed a certificate for the tax assessment, which is not under any appeal.

Pursuant to the writ of execution, the sheriff seized some 86,000 shares in Slumber-Magic out of some 400,000 shares held by Mr. Milne, whose share holdings amount to about nine per cent of the total issued and outstanding shares of Slumber-Magic.

The shares are fairly actively traded on the Vancouver Stock Exchange, in the range of 60 cents to 75 cents. By way of example, on November 9, Slumber-Magic traded in the order of 100,000 shares and on November 10, some 17,500 shares, with minimal impact on the market.

Counsel for Mr. Milne pointed out that the tax debt was as a result of Mr. Milne’s trading activities on behalf of the company; it was money which he never actually had in his hands; the tax debt resulted from an accountant’s error; and figures for Mr. Milne’s 1994 taxation year would very likely show a loss large enough to affect the tax debt. Counsel for the Minister of National Revenue makes the point that his client cannot speculate as to the effect of the 1994 tax year on the present tax debt owed.

In March 1994 Revenue Canada and Howard Milne entered into an interim payment arrangement and agreed, in consideration for various things to be done and payments to be made by Howard Milne, that Revenue Canada would not take any legal action for four months. Howard Milne was not able to comply with the agreed terms. The result was the present execution proceedings against Howard Milne’s shares in Slumber- Magic.

Counsel for Howard Milne urged a hardship argument based on affidavit evidence that should his client’s seized shares be put on the market the sale could have a number of effects, including driving down the price of the company’s shares, causing his client to declare bankruptcy. This would prevent him from discharging his business activity as marketmaker for Slumber-Magic, which would wipe out the company, with a loss to many other shareholders.

Counsel for the Minister countered that the fraction of Howard Milne’s shares that would be sold amounted to a very small percentage of all of the issued and outstanding shares of the company, and that the sheriff would be instructed to sell in an orderly manner so as not to substantially affect the price of the shares on the Vancouver Stock Exchange. In any event, the current trading history of the company shows that trading of substantial blocks of shares has little impact on market value.

Counsel for Mr. Milne suggested that it would be proper for the parties to meet and negotiate, as a term of the requested stay, as set out in the motion. Counsel for the Minister urged that the proposed payments of $200 per month for the next three months, on some $177,000, were too small; that if there were a permanent stay of execution and a release of the seized shares the Crown would be unsecured; that an order that the parties meet every three months to negotiate a new schedule of payments would be unenforceable; and that Mr. Milne had not lived up to the last compromise agreement.

At the conclusion of argument I referred counsel to a line of cases, of which The Queen v. Wilfred Elliott Rumball, [1981] C.T.C. 9, 81 D.T.C. 5001, is an example. In that case the Crown executed against the registered retirement savings plans of the tax debtor, at which point the debtor applied for a stay of execution. The Court pointed out that section 158 of the Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1 (the "Act") was imperative and required immediate payment of the tax assessment, even though the taxpayer may have objected to the assessment, or have taken an appeal to the tax review board, or to the Federal Court, and that (at page 11 (D.T.C. 5002)):

The only instance where a stay such as asked for here will be granted is where seizure has been made of property real or personal of the taxpayer, who has, or who does within the specified time, object to the assessment, or taken a proper appeal therefrom, and such sale, prior to final determination of the actual liability may be prejudicial to the taxpayer.

I have now had the benefit of written arguments from counsel.

In Morch v. M.N.R., [1949] C.T.C. 250, 4 D.T.C. 649, the Exchequer Court of Canada held that there would be no stay of a writ of execution except to the extent of appeals of the underlying debt. The Crown was ordered not to take sale proceedings or to take steps to alter the taxpayer’s position in case his appeals were successful.

In Lambert v. The Queen, [1975] C.T.C. 120, 75 D.T.C. 5065 (F.C.T.D.), the taxpayer had a pending appeal of a reassessment. The Court pointed out at page 125 (D.T.C. 5068):

Another important consideration in determining the issue before this Court is that the taxpayer has the right to apply to a court to prevent a sale or disposition or assets seized and, pending final determination of the liability for tax, should a prima facie case be shown against the assessment and should it also be established that the taxpayer would be prejudiced by interim sale of the assets, he would be entitled to have any proposed sale or disposal of assets stayed or, in special circumstances to have the execution lifted against certain assets which might be likely to spoil or deteriorate.

In Canada (A.-G.) v. Raymond, [1980] C.T.C. 520, 80 D.T.C. 6383, the Federal Court of Appeal considered an instance in which a bailiff, under writ of execution, had seized and paid money into court. The Crown wished payment out. The trial judge denied the application as the time limitation period for filing of a notice of objection, by the taxpayer, had not expired. The Court of Appeal said at page 520 (D.T.C. 6384):

It seems clear that this judgment must be reversed. The fact that a taxpayer can still make an objection to an assessment in no way affects the obligation which the taxpayer has to pay the tax assessed on him, were the right of the Minister of National Revenue to take such measures of execution as he shall deem appropriate or, finally, the right of the Minister to obtain payment of taxes in the amount determined by him.

In Kune v. The Queen, [1982] C.T.C. 300, 82 D.T.C. 6247, the Court held that the challenge of an assessment stayed execution under a writ of fieri facias to the extent of seized real estate property provided certain steps were taken to secure the Crown, but did not stay execution by way of seizures of personal property and garnishments of money where there was no evidence that the latter executory measures would cause the petitioner irreparable prejudice.

All of these cases were decided on the basis of the mandatory wording in subsection 158(2) of the then current Income Tax Act:

The taxpayer shall, within 30 days from the date of mailing of the notice of assessment, pay to the Receiver General any part of the assessed tax, interest and penalties then unpaid, whether or not an objection or appeal from the assessment is outstanding.

In 1985 the section 158 was amended to read:

Where the Minister mails a notice of assessment of any amount payable by a taxpayer, that part of the amount assessed then remaining unpaid is payable forthwith by the taxpayer to the Receiver General.

This new wording should be read together with section 225.1 of the Income Tax Act which came into being at about the same time and which allows the tax debtor relief from execution proceedings, in some instances, where an appeal from an assessment is in progress. However the courts have continued to treat section 158 as mandatory:

In any event, assessments have, as a general rule, to be paid forthwith under section 158 of the Act. Of course, there are collection restrictions imposed on the Minister under section 225.1 of the Act where a taxpayer has served a notice of objection to an assessment. (92000 Holdings Ltd. v. Canada, [1993] 1 C.T.C. 344, 93 D.T.C. 5047, at page 346 (D.T.C. 5048))

Running through all of these cases, where the taxpayer has been successful, there are common threads of an appeal of a tax assessment certificate that is not final, hardship which cannot be compensated for in money in the event of a successful appeal by the taxpayer and, express or implied, protection for Revenue Canada in case the appeal is not successful.

Counsel for Howard Milne has produced an interesting argument, based on Federal Court Rule 2100(1):

Where a judgment is given or an order made for the payment by any person of money, and the Court is satisfied, on an application made at the time of the judgment or order, or at any time thereafter, by the judgment debtor or other party liable to execution

(a) that there are special circumstances which render it inexpedient to enforce the judgment or order, or

(b) that the applicant is unable from any cause to pay the money, then, notwithstanding anything in paragraph (2) or (3), the Court may by order stay the execution of the judgment or order by writ of fieri facias either absolutely or for such period and subject to such conditions as the Court thinks fit.

and on the special circumstances of the situation, including hardship to Howard Milne, which might not be compensable if the seizure and sale of the shares were to put Slumber-Magic out of business, hardship to the shareholders of the company were the company to cease to exist and that 1994 tax losses may well offset the outstanding assessment.

In considering the applicant’s argument I have also looked at section 158 of the Income Tax Act:

158. Payment of remainder .-Where the Minister mails a notice of assessment of any amount payable by a taxpayer, that part of the amount assessed then remaining unpaid is payable forthwith by the taxpayer to the Receiver General.

I am bound by the ordinary meaning of the words in the absence of a good reason to reject that ordinary meaning. The key concept in section 158 is that the assessed unpaid tax is payable ’’forthwith". As Lord Justice Harmon pointed out in Hillingdon London Burrow Council v. Cutler, [1968] 1 Q.B. 124 at page 135: "...forthwith is not a precise time and, provided no harm is done, forthwith means any reasonable time thereafter".

Again we have the concept of harm as an interpretation of how long "forthwith" might be in any given situation.

In the present situation special circumstances exist which may do harm to the applicant, although the Crown urges otherwise. Equally, harm may also occur to the Crown. To release the seized shares, in return for the promise of token monthly payments and an agreement to try to renegotiate those payments every three months, and to pay lump sums in addition when possible, might not be a prudent course. If the Crown gives up a secured position for very little in return, that could result in harm to the Crown if Revenue Canada had to collect the tax assessment in the future and were unable to find any assets, for presently Howard Milne’s situation is not good.

Counsel for Howard Milne also points out that at present his client fits into the second branch of Rule 2100, in that he is unable to pay, although considering Mr. Milne’s shareholdings and their present value, it may be more of a case of unwilling to pay, given his view that for the end of the 1994 tax year he and Revenue Canada will be about even.

On balance and given Howard Milne’s purported financial situation, there could be substantially more harm to the Crown should the execution proceedings be stayed, for there is no guarantee that if Revenue Canada gives up its present secured position, as proposed by Howard Milne, that they will be able to collect the tax presently owed.

In the present instance no appeal has been taken, or can now be taken, of the underlying assessment. It is neither for Revenue Canada to have to speculate on what its balance with Howard Milne might be at the end of 1994, or some future tax year, when Howard Milne might have an offsetting loss, nor to have to give up a position secured by seizures under the writ of execution. Rather, on the basis of the case law built around section 158 of the Income Tax Act and because there is no compelling reason to depart from that case law, the Minister of National Revenue is entitled to the tax balance due now.

The motion for a stay of execution proceedings is dismissed.

Motion dismissed.