Her Majesty the Queen v. National Bank of Canada (Supplementary Reasons for Judgment Rendered on February 19, 1993), [1993] 2 CTC 161

Rothstein, J.:—

Receivables collected by the bank prior to November 13, 1985

In my reasons for judgment issued on February 19,1993 ([1993] 2 CTC 149, 18 C.B.R. (3d) 35), I stated at page 161 (C.B.R. 53):

In the case of Thrush, the Minister’s notice was given on November 1, 1985, a petition for receiving order was made on November 13, 1985, and the receiving order was made on November 25, 1985. It was not made absolutely clear during the trial whether the bankruptcy in the case of Thrush would affect all receivables collected by the bank or whether the Minister was entitled to sales tax on receivables collected between November 1 and November 12,1985. To the extent that the receivables in question were collected on or after November 13, 1985, the Minister's claim is dismissed with costs. For those receivables collected by the bank between November 1 and November 12, 1985, counsel may make further submissions should either of them deem it necessary.

Pursuant to my invitation in the above passage to make further submissions respecting the Thrush receivables collected by the bank between November 1 and November 12, 1985, there were communications between counsel and additional documentation was submitted in respect of these receivables. Counsel for the Minister urged that these documents be taken into evidence. While counsel for the bank did not object to their being taken into evidence, he submitted that little weight should be attached to them. I have allowed these documents to form part of the record in this case and they will be marked as an exhibit.

The documents consist of correspondence between counsel, correspondence from Coopers & Lybrand Limited and various accounting records and memoranda pertaining to the Thrush receivables. The documents were discussed with counsel by way of conference calls on at least three occasions, the last being on June 11, 1993.

The documents indicate that the Minister’s notice under subsection 52(10) of the Excise Tax Act, R.S.C. 1970, c. E-13, was received by the bank on November 4, 1985. It should be noted that the agreed statement of facts states:

6. On or about November 1, 1985, Mercantile was served with a demand by the Minister of National Revenue pursuant to subsection 52(10) of the Act.

The agreed statement of facts also provides:

11. The federal sales tax imposed under the Act on the transactions giving rise to the book debts collected by the purchaser on behalf of Mercantile and the Defendant over the periods of time specified below are as follows:

(a) between November 13,1985 and November 30, 1985, $36,239.61; (b) between November 30, 1985 and December 31, 1985, $8,494.25;

(c) between December 31, 1985 and January 31, 1986, $9,404.58; and

(d) between January 31, 1986 and February 28, 1986, $738.89.

Counsel for the bank argued that I should be guided by the agreed statement of facts which implies that no receivables were collected before November 13, 1985. However, the subsequently filed material indicates that receivables were received by the bank prior to November 13,1985. Counsel for the Minister submits that the accurate facts should govern.

This is not a case in which facts have been agreed upon, on the express understanding that while they may be inaccurate, the parties, for various reasons, have agreed to be bound by them notwithstanding. Nor to my knowledge is this a case in which one party or the other acted to its detriment as a result of the agreement as to facts.

As I understand the circumstances, when the facts in the agreed statement of facts were agreed to, they were thought to be accurate. It now appears that some of the dates referred to in the agreed statement of facts were inaccurate. The date of service of the Minister’s notice appears to be November 4, 1985, and not November 1, 1985, and there were receivables collected prior to November 13, 1985. I assume that at the time the agreed statement of facts was signed, and based upon the issues as envisaged by counsel at that time, the difference of a few days was not thought to be significant.

In the circumstances of this case, I am of the view that I should rely on the most accurate facts available in the evidence.

While the documents indicate that the Minister's notice was served on November 4, 1985, there is no evidence as to the precise time of day that service was effected. Subsection 52(10) of the Excise Tax Act attaches monies received by an assignee of book debts after receipt of the Minister's notice. I am of the view that the notice should take effect for receivables received by the bank after November 4, i.e., as of November 5, 1985.

Counsel agreed that the total receivables received by the bank during this period, November 5 to 12, 1985, the last date before the effective date of bankruptcy of Thrush, was $38,769.35. The documents confirm this figure. Therefore, I find that the amount of receivables affected by the Minister's notice between November 5 and November 12, 1985, was $38,769.35.

However, tax on this sum, at the then currently applicable rate, was not paid to the Minister by the bank before the effective date of the bankruptcy, November 13, 1985. As of the effective date of the bankruptcy, the Minister continued as a creditor of the bankrupt Thrush. For the reasons why I found that the Minister's claim failed in respect of the receivables collected by the bank on and after November 13, 1985, I am of the view that the Minister's claim fails as against the bank for receivables collected between November 5 and November 12, 1985. Subsection 70(1) of the Bankruptcy Act states:

70(1) Every receiving order and every assignment made in pursuance of this Act takes precedence over all judicial or other attachments, garnishments, certificates having the effect of judgments, judgments, certificates of judgment, judgments operating as hypothecs, executions or other process against the property of a bankrupt, except those that have been completely executed by payment to the creditor or his agent, and except the rights of a secured creditor.

The Supreme Court of Canada in Can. Credit Men's Trust Assn. v. Beaver Trucking Ltd., [1959] S.C.R. 311, 17 D.L.R. (2d) 161, found at page 319 (D.L.R. 166), per Judson, J., for the majority, that judgment creditors that have not been paid prior to the debtor's bankruptcy are subject to the Bankruptcy Act. In Ontario Development Corp. v. I.C. Suatac Construction Ltd. (1976), 12 O.R.

(2d) 465, 69 D.L.R. (3d) 353 at page 476 (D.L.R. 364), after referring to Beaver, supra, Howland, J.A. for the Ontario Court of Appeal found that such judgment creditors are reduced to the status of equality with the general creditors.

Nothing in the Excise Tax Act suggests to me that an assignee of book debts is the Minister’s agent for the purposes of collecting excise tax or that there is an implied agency relationship in respect of excise tax between the Minister and an assignee of book debts. I view the Minister's claim for excise tax unpaid as of the effective date of bankruptcy as a claim with no greater status than that of a judgment creditor and therefore subject to the bankruptcy proceedings.

Under the circumstances, the Minister's claim fails in respect of the receivables collected by the bank between November 5 and November 12, 1985. Notwithstanding my conclusion on this issue, I have gone into some detail in respect of the facts because I have been advised that the matter is being appealed.

Prejudgment interest

The Minister asks for prejudgment interest on the principal amount owed to him. Notwithstanding my disposition of the Minister's claim with respect to the tax indebtedness itself, counsel for the Minister requested that I address this issue. As I have indicated, I have been advised that the matter is being appealed. I will address the subject matter of prejudgment interest if only to bring some focus to the issue.

Counsel for the Minister submits that the amount owed under the Excise Tax Act is a debt owing and should be treated as any other debt in respect of the question of prejudgment interest.

Subsections 52(10) and (11) of the Excise Tax Act make no mention of interest. The only other amounts in addition to taxes payable by virtue of subsection 52(11) are penalties. Penalties were not claimed in this case. Subsection 52(11) provides:

52(11) The person receiving any such demand shall pay the Receiver General according to the tenor thereof, and in default of payment is liable to the penalties provided in this Act for failure or neglect to pay the taxes imposed by Parts III to V.

Nothing in the Minster's demand in this case makes mention of interest. Even if interest were contemplated under subsection 52(11) of the Excise Tax Act, the tenor of the Minister’s demand in this case does not seek to make the bank liable for interest.

Provisions in the Excise Tax Act requiring the payment of interest on amounts payable by third parties were first introduced by S.C. 1986, c. 9, subsection 40(1), which, by virtue of subsection 40(2), came into force on May 1, 1986. These provisions are not referable to amounts claimed from an assignee of book debts under subsection 52(10) or (11) of the Excise Tax Act.

It is clear that Parliament could have enacted legislation providing for interest on amounts owing under subsections 52(10) or (11) but it apparently chose not to do so.

In Rath v. The Queen, [1982] C.T.C. 207, 82 D.T.C. 6175 (F.C.A.), Thurlow, C.J. stated at page 211 (D.T.C. 6179):

There is no equity in a tax. Under a taxing statute the Crown is entitled only to such exactions as the statute imposes. The case, as I see it, is simply one in which the department, with full knowledge of the facts, made erroneous assessments and unwarranted refunds. As there was no statutory provision imposing an obligation to pay interest for the use of the refunds until the errors were corrected by reassessments, the taxpayer, in my opinion, was not liable for such interest or to be assessed for it.

To the extent that Rath is still the law, I am bound by it. It is my understanding that no statutory provisions or common law decisions affected the applicability of the principles in Rath in respect of claims of the Minister under subsections 52(10) and (11) of the Excise Tax Act up to February 1, 1992. For the reasons set forth in Rath, equitable relief would not be an appropriate basis upon which to award interest in the case of taxes imposed by statute. Thus, for the period prior to February 1, 1992, there would be no liability on an assignee of book debts for interest in respect of excise tax payable under subsections 52(10) and (11) of the Excise Tax Act.

However, section 36 of the Federal Court Act, which was proclaimed in force on February 1,1992, expressly addressed the question of prejudgment interest. Subsection 36(1) provides:

36(1) Except as otherwise provided in any other Act of Parliament, and subject to subsection (2), the laws relating to prejudgment interest in proceedings between subject and subject that are in force in a province apply to any proceedings in the Court in respect of any cause of action arising in that province.

Subsection (6) provides:

36(6) This section applies in respect of the payment of money under judgment delivered on or after the day on which this section comes into force, but no interest shall be awarded for a period before that day.

As I understand subsection (6), prejudgment interest may be awarded in respect of any judgment delivered after February 1, 1992, but no interest shall be awarded for a period prior to February 1, 1992.

The relevant legislation relating to prejudgment interest in the Province of Ontario, which is the province in which the cause of action in this case arose, is the Courts of Justice Act, R.S.O. 1990, c. C-43. Subsection 128(1) of that Act provides:

128(1) A person who is entitled to an order for the payment of money is entitled to claim and have included in the order an award of interest thereon at the prejudgment interest rate, calculated from the date the cause of action arose to the date of the order.

Reading section 36 of the Federal Court Act and subsection 128(1) of the Ontario Courts of Justice Act together, causes me to conclude that interest under the Ontario statute would apply to an amount owing under the Excise Tax Act for the period from February 1, 1992, to the date this judgment is delivered. While subsection 128(1) of the Ontario Act calculates interest from the date the cause of action arose, its applicability to actions in this Court is solely dependent upon section 36 of the Federal Court Act and must be subject to the manner in which it is prescribed to apply under subsection 36(6).

I have some misgivings about the application of section 36 of the Federal Court Act to indebtedness under a taxing statute. Taxing statutes are generally codes unto themselves. Parliament is entitled to impose taxes, penalties, interest or other charges as it deems appropriate in such statutes. It seems somewhat unusual that prejudgment interest in respect of taxes owing would arise under a general prejudgment interest provision in the Federal Court Act and not under the relevant taxing statute itself. However, subsection 36(1) of the Federal Court Act appears to be applicable "in respect of any cause of action”, "except as otherwise provided in any other Act of Parliament”. Nothing in any other Act of Parliament provides that section 36 of the Federal Court Act is not applicable to causes of action under the Excise Tax Act.

Had there been any tax indebtedness found, I would have awarded interest thereon from February 1, 1992, to the date of delivery of this judgment at the rates and in the manner prescribed by the Ontario Courts of Justice Act.

Amendment of pleadings

Counsel for the Minister submitted that I should permit an amendment to the pleadings to allow for an increase in the amount claimed in the Thrush action to $86,138.02. Apparently, information enabling the correct claim to have been made was available well before the trial of this matter. However, it was overlooked. Counsel asked for the amendment as it would be relevant should the Federal Court of Appeal reverse my decision.

The particular amendment sought is solely for the purpose of ensuring that if the Minister is successful on appeal, he will recover the accurate amount of sales tax owing. However, the trial judgment has already been rendered. We are at the stage of proceedings in the Trial Division where allowing the amendment would serve no useful purpose at this level. It seems to me that the matter of the amendment should be left open for argument on the appeal. At that stage, the Federal Court of Appeal may consider the appropriate disposition of any application to amend the pleadings pursuant to its jurisdiction under Rule 1104 of the Federal Court Rules.

Conclusion

With respect to the excise tax relative to receivables collected by the bank prior to November 13, 1985, the Minister's claim is dismissed with costs.

Minister's claim dismissed.