The Clarkson Company Limited, as the Receiver and Manager of Aero Trades (Western) Ltd. v. Her Majesty the Queen, [1988] 1 CTC 395, 88 DTC 6256

McNair, J.: —In this case, the plaintiff sues the defendant for recovery of a balance of $50,447.33 for work done and services provided at the request of the defendant, pursuant to an air charter contract entered into between Aero Trades (Western) Ltd. and the Department of Indian Affairs and Northern Development on January 4, 1983. The defence is that the Crown is entitled to set off against that amount moneys due by Aero Trades (Western) Ltd. to the Crown for taxes, pursuant to the authority of section 224.1 of the Income Tax Act, subsection 52(9) of the Excise Tax Act and section 95 of the Financial Administration Act.

The facts are undisputed and are succinctly set out in an agreed statement of facts filed by counsel for the parties on December 9, 1987, the substantive portions of which, exclusive of Schedules "A" to "D" annexed thereto, read as follows:

Agreed Statement of Facts

1. THAT Aero Trades (Western) Ltd. (hereinafter referred to as “Aero Trades") is a body corporate duly incorporated under and pursuant to the laws of the Province of Manitoba. At all material times hereto Aero Trades carried on a commercial air service business in the Province of Manitoba and elsewhere.

2. THAT on or about the 4th day of January, 1983, Aero Trades entered into an Agreement (hereinafter referred to as "the Agreement") with the Regional Finance Officer, Department of Indian Affairs and Northern Development, on behalf of Her Majesty the Queen in Right of Canada (hereinafter referred to as "the Crown").

3. THAT attached hereto and marked as Schedule "A" hereof is a copy of that said Agreement.

4. THAT on June 30, 1983, the Canadian Imperial Bank of Commerce appointed The Clarkson Company Limited (now known as Clarkson Gordon Inc.) as Receiver and Manager of Aero Trades pursuant to security held by the Canadian Imperial Bank of Commerce over the asets, [sic] undertaking and property of Aero Trades. Immediately thereafter, The Clarkson Company Limited took possession of the assets, undertaking and property of Aero Trade and managed and operated the commercial air service business that was formerly carried on by Aero Trade.

5. THAT attached hereto and marked as Schedule “B” is a copy of an Order of the Court of Queen's Bench of Manitoba dated the 8th day of July, 1983 confirming the appointment of The Clarkson Company Limited as the Receiver and Manager of Aero Trades together with copies of the Affidavits of Arthur R. Wrightson and Ronald Hardie which were sworn on July 6, 1983 and filed in support of the application for the obtaining of the said Order.

6. THAT from and after the 30th day of June, 1983, The Clarkson Company Limited performed the work and services provided for in the Agreement and provided further casual charter services to the Crown, particulars of which are as follows:

Department	Date	Date	Invoice No.	Invoice Amount
1. Indian Affairs	June 28, 1983		12860	$36,100.00
2. Public Works	July 26, 1983		C6783	$ 1,155.00
3. Indian Affairs	July 31, 1983		12906	$18,050.00
4. Indian Affairs	August 16, 1983		C7274	$	100.00
5. Indian Affairs	August 18, 1983		C7308	$ 1,678.04
6. Indian Affairs	August 24, 1983		H19168	$	875.00
7. Indian Affairs	August 30, 1983		C7247	$ 1,202.33
8. Indian Affairs	August 31, 1983		12938	$36,100.00
9. Indian Affairs	Sept. 1, 1983		C7313	$ 1,426.00
10. Indian Affairs	Sept. 3, 1983		C7352	$	796.80
11. Indian Affairs	Sept. 15, 1983		C7318	$	868.58
TOTAL . . . .				$98,351.65

7. THAT attached hereto and marked as Schedule "C" hereof are copies of the invoices provided to the Department of Indian Affairs and Northern Development and the Minister of Public Works itemized in the next preceding paragraph hereof.

8. THAT pursuant to the authority of Section 224.1 of the Income Tax Act, Section 52(9) of the Excise Tax Act, and Section 95 of the Financial Administration Act the Crown set off the sum of $50,447.33 being monies owing by Aero Trades to the Crown prior to June 30, 1983 against monies owing by the Crown to The Clarkson Company Limited as set out in paragraph 6 hereof, particulars of which set-offs are as follows:

4. Indian Affairs Aug. 16, 1983 C7274 $ 100.00 $ 100.00 Customs & Excise 10. Indian Affairs Sept. 3, 1983 C7352 $ 796.80 $ 796.80 Customs & Excise 11. Indian Affairs Sept. 15,1983 C7318 $ 868.58 $ 868.58 Customs & Excise 9, THAT attached hereto and marked as Schedule "D" hereof are various documents confirming the amounts taken by the Crown by way of set-off.

		Invoice Invoice Amount
Department	Date Date	No.	Amount	Taken	Taken By
1. Indian Affairs June 28, 1983		12860	$36,100.00	$18,050.00	Taxation
2. Public Works	July 26, 1983	C6783	$ 1,155.00	$ 1,155.00	Customs & Excise
3. Indian Affairs	July 31, 1983	12906	$18,050.00	$16,396.81	Taxation

5. Indian Affairs	Aug. 18, 1983	C7308	$ 1,678.04	$ 1,678.04	Customs & Excise
6. Indian Affairs Aug. 24, 1983 H19168 $ 875.00 $ 875.00					Justice
7. Indian Affairs	Aug. 30, 1983	C7274	$ 1,202.33	$ 1,202.33	Customs & Excise
8. Indian Affairs Aug. 31, 1983		12938	$36,100.00	$29,600.00	Justice
9. Indian Affairs	Sept. 1, 1983	C7313	$ 1,426.00	$ 1,426.00	Customs & Excise

TOTAL FEDERAL GOVERNMENT	$98,351.65	$72,148.56
CREDIT RECEIVED FROM DEPARTMENT OF		($21,701.23)
INDIAN AFFAIRS
BALANCE OWING		$50,447.33

10. THAT the parties agree that the issue before this Honourable Court is as follows: Is the Crown entitled to set-off monies owed by Aero Trades to the Crown against monies owed by the Crown to The Clarkson Company Limited, as Receiver and Manager of Aero Trades, by virtue of Section 224.1 of the Income Tax Act, Section 52(9) of the Excise Act, and Section 95 of the Financial Administration Act.

Counsel were in agreement that paragraph 5 of the agreed statement of facts was intended to incorporate by reference the two affidavits therein referred to, even though the same were not contained with the order of the Manitoba Court of Queen's Bench annexed as Schedule "B" thereto. The affidavits so incorporated are those of Arthur R. Wrightson, Superintendent of Canadian Imperial Bank of Commerce (the "bank"), and A. Ronald Hardie, a partner or associate of The Clarkson Company Limited, both sworn on July 6, 1983, in support of the application for the aforementioned order.

The Wrightson affidavit is particularly illuminative. Aero Trades (Western) Ltd. had borrowed extensively from Canadian Imperial Bank of Commerce. To secure its loans, the bank obtained from Aero Trades five chattel mortgages of aircraft, helicopters and other goods and chattels of Aero, including additions and substitutions therefor, such chattel mortgages being dated October 16, 1979, November 30, 1979, March 18, 1980, April 2, 1980, and March 18, 1983. The bank took as further security a general assignment of accounts receivable dated October 22, 1981, and as well had Aero Trades execute in its favour a general security agreement dated July 21, 1981, charging as collateral security in its favour all the property and undertaking of the debtor company, both presently owned and thereafter acquired. Paragraph 9 of the general security agreement provided as follows:

Default

9.01 Upon default by the undersigned in payment of all or any part of the indebtedness or liability of the undersigned to the Bank or in the performance or observance of any of the provisions hereof (in this agreement called "default") the Bank may appoint in writing any person to be a receiver (which term shall include a receiver and manager) of the Collateral, including any rents and profits thereof, and may remove any receiver and appoint another in his stead, and such receiver so appointed shall have power to take possession of the Collateral and to carry on or concur in carrying on the business of the undersigned, and to sell or concur in selling the Collateral or any part thereof. Any such receiver shall for all purposes be deemed to be the agent of the undersigned. The Bank may from time to time fix the remuneration of such receiver. All moneys from time to time received by such receiver shall be paid by him first in discharge of all rents, taxes, rates, insurance premiums and outgoings affecting the Collateral, secondly in payment of his remuneration as receiver, thirdly in keeping in good standing any liens and charges on the Collateral prior to the security constituted by this agreement, and fourthly in or toward payment of such parts of the indebtedness and liability of the undersigned to the Bank as to the Bank seems best, and any residue of such moneys so received shall be paid to the undersigned. The Bank in appointing or refraining from appointing such receiver shall not incur any liability to the receiver, the undersigned or otherwise.

.02 In addition to the rights and remedies specifically provided herein, the Bank shall, upon default, have the rights and remedies of a secured party under the PPS Act.

.03 Unless the Collateral is perishable or unless the Bank believes that the Collateral will decline speedily in value, the undersigned shall be entitled to not less than fifteen days' notice in writing of the date, time and place of any public sale or of the date after which any private disposition of the Collateral is to be made.

Other relevant facts emerge from the Wrightson affidavit. The bank wrote Aero Trades on June 1, 1983, to make formal demand for payment of the total indebtedness of $1,840,127.64 outstanding as at May 31, 1983. On June 30, 1983, the bank gave a letter of appointment to The Clarkson Company Limited appointing the latter as its receiver and manager pursuant to the general security agreement dated July 21, 1981. By the same letter, the bank also appointed the plaintiff as its agent with respect to the general assignment of book debts and chattel mortgages given by Aero Trades. The plaintiff was specifically directed to take all necessary actions required for taking possession and realization of the bank's security. As of July 5, 1983, there were four secured creditors of Aero Trades, namely, Canadian Imperial Bank of Commerce, Federal Business Development Bank, Canadian Acceptance Corporation (now Roylease Limited) and Cessna International Finance Corporation. This was one reason leading Wrightson to conclude in paragraph 7 of his affidavit as follows:

7. THAT by reason of the extent of the assets (and therefore the responsibility of the Receiver and Manager), the existence of other secured creditors, and the fact that at least, in the short run, the business of the Defendant will be operated, I believe that the Receiver and Manager should be Court appointed. Further, since the business continues to be operated, I believe that the appointment of the Receiver and Manager be made immediately.

The affidavit of A. Ronald Hardie, a partner or associate of the plaintiff, points to the necessity of continuing the business operation of Aero Trades with a view to protecting the debtor's assets, including its air carrier licenses, pending final realization, and as well reaffirms Wrightson's belief as to the advisability of a court order appointing the receiver and manager. The affidavit further discloses that the net book value of the debtor's assets as at May 31, 1983, amounted to $3,560,000 against which there were secured debts of $2,294,000 and unsecured creditor's claims of $3,566,000.

The statutory provisions on which the defendant relies in support of the defence of set-off are section 224.1 of the Income Tax Act, S.C. 1980-81-82-83, c. 48, subsection 52(9) of the Excise Tax Act, R.S.C. 1970, c. E-13 and subsection 95(1) of the Financial Administration Act, R.S.C. 1970, c. F-IO. In my view, subsection 95(1) of the Financial Administration Act is the one most relevant to this case. The said statutory provisions are reproduced verbatim hereunder, viz:

Section 224.1 of the Income Tax Act:

224.1 Where a person is indebted to Her Majesty under this Act or under an act of a province with which the Minister of Finance has entered into an agreement for the collection of the taxes payable to the province under that act, the Minister may require the retention by way of deduction or set-off of such amount as the Minister may specify out of any amount that may be or become payable to such person by Her Majesty in right of Canada.

Subsection 52(9) of the Excise Tax Act:

52. (9) Where a person is indebted to Her Majesty under this Act the Minister may require the retention by way of deduction or set-off of such amount as the Minister may specify out of any amount that may be or become payable to such person by Her Majesty.

Subsection 95(1) of the Financial Administration Act:

95. (1) Where, in the opinion of the Minister of Justice, any person is indebted to Her Majesty in right of Canada in any specific sum of money, the Treasury Board may authorise the Receiver General to retain by way of deduction or set-off the amount of any such indebtedness out of any sum of money that may be due or payable by Her Majesty in right of Canada to such person.

As I see it, the issue to be determined in the case is whether the defendant is entitled to avail itself of the statutory right to set-off against any amount or amounts that may be or become payable to the plaintiff by the defendant for air charter services provided the latter against an indebtedness or liability for income and excise taxes which arose prior to the plaintiff's appointment as receiver and manager of the tax debtor.

The respective arguments of the parties can be summarized as follows.

It is the plaintiff's position that the receiver and manager is not the same person as the tax debtor within the meaning of the statutory set-off provisions. It follows therefore that there was no mutuality of debts at the time of his appointment by the bank on June 30, 1983, save possibly for the invoiced amount of $36,100 billed pursuant to the contract on June 28, 1983, for the minimum hours or monthly charge for the period June 16 to July 15, 1983. In other words, the indebtedness due the Crown for taxes was incurred prior to the receivership, whereas the contractual debt for air charter services, apart from the $36,100 item, all arose thereafter. Moreover, there can be no mutuality of debts where the parties are not the same with respect thereto. In the result, the following requirements for statutory set-off were not fulfilled, namely:

(1) there was no mutuality of debts at the time of the appointment of the receiver on June 30, 1983, by reason that the debt due by the defendant had not been incurred;

(2) the appointment of the receiver and manager negated the concept of mutuality of parties; and

(3) the mere fact of a pre-existing contract for the provision of air charter services did not operate to circumvent the lack of mutuality.

Counsel for the plaintiff places much reliance on the case of C./.B.C v. Tuckerr Industries Inc. (1983), 149 D.L.R. (3d) 172; [1983] 5 W.W.R. 602 (B.C.C.A.), affg. 38 B.C.L.R. 244. The principal submission of the defendant is that the parties are the same inasmuch that the plaintiff simply stepped into the shoes of Aero Trades in providing air charter services in accordance with the pre-existing contract. The receiver and manager assumed the benefit and burden of the contract and thereby became subject to the defendant's statutory right of set-off for income and excise taxes. The general security agreement makes the receiver and manager the agent of the company. Thus, Aero Trades and the receiver are the same person to all intents. The real issue is whether there were mutual debts. There was no repudiation of the contract by the receiver and manager nor any attempt to contract out with respect to the Crown's statutory right of set-off. The receiver simply stepped into the shoes of Aero Trades thereby creating the necessary mutuality of debts, and thus giving rise to the defendant's right to set off the existing tax indebtedness against the moneys payable to the plaintiff by the defendant in respect of the services rendered by the former under the preexisting contract.

The cases principally relied on by the defendant are: Rother Ironworks Ltd. v. Canterbury Precision Engineers Ltd., [1974] Q.B. 1; [1973] 1 AIT E.R. 394 (C.A.); Parsons v. Sovereign Bank of Canada, [1913] A.C. 160 (P.C.); and The Clarkson Co. Limited v. The Queen, [1979] 1 F.C. 630; 94 D.L.R. (3d) 348 (C.A.), affg. on different ground, [1978] 2 F.C. 151, 80 D.L.R. (3d) 98 (T.D.).

At common law, two conditions must be fulfilled at the same time for setoff to apply: (1) two debts or cross-obligations; and (2) mutuality of those debts: United Steel Corp. v. Turnbull Elevator Ltd., [1973] 2 O.R. 540; 34 D.L.R. (3d) 492 (C.A.); and Simpson Shatula Redi-Mix & Building Ltd. v. Keir Tire Ltd., [1982] 6 W.W.R. 307; 45 C.B.R. 26 (Sask. Q.B.). The appointment of a receiver under a debenture or other security instrument has the effect of crystallizing the floating charge thereof so as to vest the property subject thereto in the debenture or security holder by way of equitable assignment: see Rother Ironworks Ltd. v. Canterbury Precision Engineers Ltd., supra, and also N.W. Robbie & Co., Ltd. v. Witney Warehouse Co., Ltd., [1963] 3 All E.R. 613 (C.A.); Business Computers Ltd. v. Anglo-African Leasing Ltd., [1977] 2 All E.R. 741 (C.A.) and C.I.B.C. v. Tuckerr Industries Inc., 149 D.L.R. (3d) 172; [1983] 5 W.W.R. 602 (B.C.C.A.). Moreover, there is no crucial or appreciable distinction between a receiver and manager appointed by the holder of a debenture or security instrument with respect to the effect of crystallization and a receiver and manager appointed by the court. In both cases, he is but part of the administrative machinery designed to enforce the equitable floating charge: Robbie & Co. v. Witney Warehouse Co., op. cit.

Bennett, on Receiverships, Carswell, 1985 ed., makes the following statement at pages 227-28:

Set-off will generally apply with respect to liquidated cross claims between the debtor and a third party as at the date of crystallization or the date of the order, as the case may be. Of course, set-off can be applied between the parties before the appointment of a receiver, but the right to claim set-off need not be exercised before the appointment. In other words, while the right to claim set-off existed before the appointment of the receiver, it may be exercised subsequently and the receiver will take subject to the pre-existing right of set-off. Thus, crystallization of a floating charge will not alter the right to claim set-off if such right existed before receivership.

Where the cross claim sought to be set off by the third party against the receiver arises after the receiver's appointment, set-off will generally be disallowed if the debt does not arise out of the same contract or from one intimately connected with the other.

Thus, a creditor who is owed money by a debtor prior to the debtor's receivership will not be entitled to claim set-off for a debt incurred in a contract with the receiver and manager. In such a case, there is no mutuality of debts between the same parties.

On the other hand, if the receiver completes a contract entered into by the debtor before crystallization, the account debtor will be able to assert a claim of set-off. . . .

The case of Parsons v. Sovereign Bank of Canada, [1913] A.C. 160 (P.C.) is instructive on the point of mutuality of parties as between a contracting paper mill company and its receivers appointed by court order with power to carry on the business of the company. Here the receivers continued to accept orders from the appellants for the delivery of paper under current contracts. Orders were subsequently filled by the receivers and by November 7, 1907, an invoiced amount of $15,754.30 was due from the appellants to the respondents to whom the debt had been assigned by the receivers to cover borrowing. On June 17, 1907, the receivers wrote the appellants advising that they were cancelling their contracts. Notice of the assignment to the respondents was given on July 3. The respondents sued for the invoiced amount due and the appellants counterclaimed to set off unliquidated damage for breach of their contracts with the company prior to receivership. The Privy Council held that they were entitled to do so on the ground that the amount sued for was due under the old contracts with the company which was responsible for the breach, and not under new contracts with the receivers. Viscount Haldane, L.C., stated the rationale at pages 167-68:

. . . In the present case the receivers and managers were by the terms of the orders of the Court obviously intended to carry on the actual business of the company with as little breach of continuity as possible; and there was no reason why they should not use the name and powers of the company for the purpose of fulfilling existing orders. But in the present case the contracts were contracts entered into before the receivers and managers were appointed, and had been entered into in the ordinary course of the business of the company in manufacturing and delivering paper; and there is, in their Lordships' opinion, no ground for presuming that the receivers and managers intended to act otherwise than in the name of the company to carry to a conclusion the business which was current, or that they meant to repudiate the obligations of the company. In the absence of a liquidation the persona of the contracting company remained legally intact though controlled by the receivers and managers.

In Rother Ironworks Ltd. v. Canterbury Precision Engineers Ltd., [1974] Q.B. 1; [1973] 1 All E.R. 394 (C.A.) the plaintiff owed the defendants £124 for goods sold and delivered. The plaintiff was placed in receivership by its debenture holder, just prior to which it had contracted with the defendants for the sale of goods to the value of £159. The receiver and manager delivered the goods so ordered to the defendants and afterwards sued for the price thereof. The defendants sought to set off the plaintiff's debt of £124 and the receiver argued that they could not since the defendants' debt, having arisen after crystallization of the floating charge of the debenture, was an asset of the company that became subject to the debenture charge with the result that there was no mutuality between it and the debt due to the defendants. The defendants argued that the crystallization of the floating charge operated as an equitable assignment by way of charge of the plaintiff's rights under the existing contract for the purchase by the defendants of its goods, which were always subject to the defendants' right of setoff. Thus, the debenture holder as equitable assignee could not be in a different or better position in that regard than the plaintiff. The court held in favour of the defendants.

Russell, L.J. stated the ratio at page 6 (All E.R. 396):

In our judgment the argument for the defendants is to be preferred. It is true that the right of the plaintiff company to sue for the debt due from the defendant company was embraced, when it arose, by the debenture charge. But if this was because the chose in action consisting of the rights under the contract became subject to the charge on the appointment of the receiver, then the debenture holder could not be in a better position to assert those rights than had been the assignor plaintiff company. And if the obligation of the defendant company to pay £159 be regarded as a chose in action on its own it never in our view came into existence except subject to a right to set off the £124 as in effect payment in advance. That which became subject to the debenture charge was not £159 but the net claim sustainable by the plaintiff company of £35.

It is true that it was found as a material fact that the plaintiff and defendants had a history of mutual dealings. This was the point on which the majority of the British Columbia Court of Appeal distinguished the Rother case in C./.B.C. v. Tuckerr Industries Inc., supra, regarding Rother as an example of an equitable set-off in the absence of mutuality and not as an example of statutory set-off based on mutual debts. In Tuckerr the claimant was an accounting firm which sought to set off fees due to it from the defendant landlord against rental payments due the latter under a lease. The plaintiff bank placed the defendant into receivership on February 18, 1982, pursuant to its debenture, thereby crystallizing the floating charge of the debenture. The rental payments did not accrue due and payable to the plaintiff as equitable assignee until March 1, 1982. The court held, in dismissing the appeal, that the statutory right of set-off no longer availed because the equitable assignment operated to prevent any mutuality of debts arising from the cross-obligations. Nor did the evidence establish an equitable setoff. Furthermore, the client-auditor relationship that gave rise to the company's debt was separate and distinct from the landlord-tenant relationship that gave rise to the claimant's debt.

The case of Clarkson Co. Ltd. v. The Queen, supra, involved the Crown's entitlement to set off excise taxes owing by a company against drawback claims for customs duties and excise taxes paid by the company in unrelated transactions arising from the importation of goods, where the drawback claims were made by a receiver appointed pursuant to a debenture made by the company to a bank. The plaintiff claimed that $91,348.23 of the total drawbacks related to transactions after its appointment as receiver and could not be set off against the company's indebtedness for excise taxes. The issue at trial was whether that amount of drawback could be set off against the indebtedness due the Crown for excise taxes. The court held that it could. Mr. Justice Dubé, after reviewing the authorities and alluding to section 95 of the Financial Administration Act, stated the following conclusion at page 74 (D.L.R. 104):

There existed before crystallization of the floating charge a right in Rapid Data to recoup the duties paid, predicated upon the return or destruction of the goods, and in the defendant a rightful claim against Rapid Data for taxes. There were two debts and there was mutuality of those debts. The fact that the right to be reimbursed was only exercised after the appointment of a receiver is not, in my view, a bar to the set-off of the one debt against the other as between the same parties.

The Federal Court of Appeal upheld the right of set-off, but on the different ground that by virtue of sections 80 and 81 of the Financial Administration Act an assignment of a Crown debt was not effective, except an "absolute assignment . . . not purporting to be by way of charge only”. Here, the debenture operated as an assignment by way of charge and was therefore ineffectual to vest an independent right to the drawbacks in the creditor as equitable assignee.

Jackett, C.J., did not specifically disagree with the conclusion of Dubé, J., although voicing some obiter reservation that if the Crown were an ordinary person the defence of set-off might not avail by reason of the equitable assignment of the drawback claims to the debenture holder.

In my view, the case of N.W. Robbie & Co. Ltd. v. Witney Warehouse Co. Ltd., supra, is distinguishable as Dubé, J., found in Clarkson because the debt against which set-off was claimed did not come into existence until after the appointment of the receiver. As Russell, L.J., pointed out in Robbie & Co. v. Witney Warehouse Co., ”. . . an assignee of a chose in action takes subject to an already existing right of set-off".

In the case at bar, there is no dispute that Aero Trades was indebted to the Crown for income and excise taxes in the amount of $72,148.56 prior to the appointment of the receiver. When the receiver and manager took over the assets of Aero Trades he took them over subject to this pre-existing right of set-off, which was an existent and ascertained amount at that time. The receiver is the agent of the company by virtue of his appointment under the general security agreement and nothing in the court order of July 8, 1983, changed this, save only with respect to further clarifying and amplifying of the rights of the receiver and manager to take over the undertaking, property and assets of Aero Trades and to continue to carry on its business for the better preservation and realization of the same and the entering into of agreements with respect thereto.

I agree with the conclusion of the Ontario Court of Appeal in Peat Marwick Limited v. Consumers' Gas Company (1981), 29 O.R. (2d) 336; 35 C.B.R. (N.S.) 1 (C.A.) as to the dual role played by a receiver-manager appointed pursuant to a floating charge security instrument. Houlden, J.A., perceived the situation in this light at page 344 (C.B.R. 11):

It seems to me that the receiver and manager in a situation like the present one is wearing two hats. When wearing one hat, he is the agent of the debtor company; when wearing the other, the agent of the debenture holder. In occupying the premises of the debtor and in carrying on the business, the receiver and manager acts as the agent of the debtor company. In realizing the security of the debenture holder, notwithstanding the language of the debenture, he acts as the agent of the debenture holder and thus is able to confer title on a purchaser free of encumbrances.

It is clear from the evidence in the present case that the plaintiff, as receiver and manager, had elected to carry on the business and undertaking of Aero Trades, both generally and more particularly in regard to the debtor company's contract to provide air charter services to the defendant. In the result, I consider that the plaintiff, acting in the capacity of receiver and manager, is the same person as the debtor company and as such is subject to any pre-existing right of set-off that may avail to the defendant with respect to the existent debt or obligation for income and excise taxes owing to the latter, so far as any requirement for mutuality of persons or parties is concerned.

What then of the other requirement for mutuality of debts?

In C.I.B.C. v. Tuckerr Industries Inc., supra, the statutory set-off was cognisable under an old English statute that was made part of the law of British Columbia, wherein the operative words alluded specifically to mutual debts and the setting off of one debt against the other. In the present case, the statutory set-off provisions of the Income Tax Act and the Excise Tax Act are virtually identical in so far as they render any Crown indebtedness of a person liable to be set off against "any amount that may be or become payable to such person" by the Crown. The only difference that I can see in the comparable section of the Financial Administration Act is that it speaks of a specific sum of money in terms of Crown indebtedness and the setting off against that indebtedness of "any sum of money that may be due or payable by Her Majesty in right of Canada to such person". The words of the two first mentioned enactments seem to specifically avoid any suggestion of a liquidated debt against which the indebtedness for income and excise taxes may be set off.

As indicated, the plaintiff contends that the requirement for mutuality of debts is not met in the present case because the contractual debt for air charter services arose after the appointment of the receiver and manager, save for the possible exception of the $36,100 amount invoiced on June 28, 1983.

The contract entered into on January 4, 1983, between the debtor company, Aero Trades, and the Department of Indian Affairs and Northern Development provided for the rendering of air charter services for the period from June 16 to September 15, 1983, both dates inclusive. The Department's liability under the contract was limited to $150,000. This maximum limitation was broken down into various components. The minimum hours for the contract period were estimated at 285 hours at a firm rate per flying hour of $380. This gave an estimated overall expenditure of $108,300. There were costs of ferrying a helicopter to Frobisher Bay and return at a flat rate cost of $2,250 each way. The other estimated expenditures were crew expenses for accommodation, meals and ground transportation, and estimated costs of fuel and miscellaneous expenses, for which specific amounts were estimated in each instance. The total of these estimated amounts came to $150,000.

The contract provided that invoices be submitted to the Department on the twenty-fifth day of the month to cover the minimum hours or the monthly charge. These were to be followed ten days after each month end by a monthly summary of applicable charter tickets, together with receipted crew expenses, if applicable. The contract further provided for an invoice showing reconciliation of hours flown for the total contract period to be submitted as soon as possible following termination. There was no evidence that any such reconciliation was ever submitted. Two of the supporting invoices were for the full 95 hours of monthly charge at the prescribed hourly rate of $380 for a total in each case of $36,100. The third was for the bimonthly amount of 47.5 hours for the period July 16 to July 31, 1983, at a charge of $18,050. The remaining invoices were for holding charges at a lesser hourly rate of $40 per hour, plus crew expenses and other expense incidentals.

I find on the evidence that the contract was one for the provision of air charter services required to be billed periodically over the term of the contract, for which the amounts invoiced in respect thereof became due and payable immediately upon receipt of billings. All of these billed amounts arose out [of] the contract which the receiver undertook to complete as the official persona of the debtor company.

At the moment of crystallization of the floating charge of the security instrument, Aero Trades was indebted to the Crown for income and excise taxes for which a right of set-off was exigible against an amount payable or indebtedness due by the Crown. The receiver and manager took subject to this right of set-off when he stepped into the shoes of the debtor company with respect to its contract to provide air charter services. In my opinion, the amount payable for these services was ascertainable by reference to the contract between the parties in terms of an existing right to be paid or reimbursed for those services in accordance with the contract. In the result, it is my opinion that the question posed in the agreed statement of facts must be answered in the affirmative. This being the view I take of the case, the plaintiff's action necessarily fails.

For the foregoing reasons, the plaintiff's action is dismissed with costs and judgment will issue accordingly.

Action dismissed.