In the Matter of Assessments by the Minister of National Revenue Against Alliance Blindée Ltée v. La Caisse D’entraide Economique De Rouville,, [1982] CTC 266, 82 DTC 6226

Walsh, J:—Two motions for dismissal of oppositions made by the respective opposants came on for hearing and were heard simultaneously. The Minister of National Revenue obtained judgment against defendant for amounts withheld by it from employees by virtue of the Income Tax Act and the 1971 Unemployment Insurance Act and not remitted, by deposit of a certificate to this effect in the records of this Court on March 9, 1982 for $53,908.21. As a result four trucks belonging to defendant were seized on March 10, 1982.

Said defendant was indebted to the opposant, Caisse d’Entraide Economique de Rouville by virtue of a commercial pledge made pursuant to Article 1979(e) and following of the Quebec Civil Code duly registered, and was in default in its payments, owing a balance of $77,866.59 but said opposant had not at the time of the seizure executed its rights under Article 1979(i) to take possession of the objects pledged. I dealt with a similar situation in the case of The Queen v Restaurant & Bar La Seigneurie de Sept-1 les Inc and Bank of Montreal, opposant, reported in [1977] 2 FC 207 and wil not repeat my conclusions here save to say that I concluded that although the pledgee had the right to take possession of the property pledged that was not equi- valent to the right of revendication of an owner under Article 597 of the Code of Civil Procedure entitling it to oppose the seizure, but merely the right of a creditor governed by Article 604. This judgment has been commented on by a number of learned authors and in several subsequent cases in the Quebec Courts, some of which reach a different conclusion in carefully reasoned arguments. I do not propose to analyse all of these, more especially since in a recent judgment in the case of Deputy Minister of Revenue of Quebec v Fountainhead Fun Center et al SC. No 500-05-002904-801, dated September 30, 1981, the Honourable Justice Louise Mailhot examined them at length. She referred specifically to the Quebec Appeal Court Judgment, /n Re Mocajo Construction Inc: Freed v Rodrigue, [1973] CA 509, which made a clear distinction between a promise to pledge and a pledge, with the former not giving the lender any right of retention on the object. In that case, unlike the present case the object of the contract of commercial pledge had been ceded to the creditor by an act prior to the bankruptcy of Mocajo. As the creditor had legally obtained possession of the goods accordingly its rights prevailed. That is not the situation here with respect to La Caisse d’Entraide Economique de Rouville.

In the Supreme Court case of J R Laliberté v Larue, Trudel & Picher and Les Appartements Lafontaine Ltée, [1931] SCR 7 at p 16 the difference between the common law and Quebec law is explained and it is stated that trust (inter alia) confers rights on the property but never transfers ownership.

In the case of Elliot Krever and Associates Limited v Montreal Casting Repairs Ltd and Universal Waste Materials Inc, [1969] SC 6 the Honourable Justic Mayrand made a distinction between privilege and right of retention, Stating at 8 and 9 (translated):

Plaintiff’s privilege prevails over that of Defendant but the actual right of retention of Defendant prevails over the eventual right of retention of the beneficiary creditor of a commercial pledge. Privilege and right of retention are two legal guarantees of a different nature; the anteriority of the privilege does not authorize its holder to set aside the right of he who has a right of retention.

In concluding her judgment Madame Justice Mailhot states at 10 (translated):

The tribunal considers that the eventual right of the creditor of a commercial pledge can not be considered as an actual right of possession giving rise to a right to revendicate under Article 597 of the Code of Civil Procedure and the setting aside of the seizure when there has been no taking of possession by the creditor of the pledge. If there has been a taking of possession as a result of default, the creditor of the pledge then has a right of retention and is in the same position as a pledgee.

I believe that this is the better view, and adopt same.

The learned Justice goes on to say (translated):

The present opposants also invoke a trust agreement, and the tribunal has the same view with respect to the trustee whose privilege is determined by the Special Corporate Powers Act (RSQ 1977 c P-16 and amendments).

This brings in the other opposition in the present case by the Société Nationale de Fiducie. It is the creditor of a duly registered trust deed guaranteeing $190,000 of bonds issued by Defendant to La Caisse d’Entraide Economique de Rouville for whom it acts as trustee, on which $136,456.43 plus interest is still due and has put the debtor in default and took possession on March 5, 1982 of all defendant’s assets and contends that it has a right of retention over them. Obviously it is, in the light of the jurisprudence, in a much stronger position in opposing the Minister’s seizure than the Caisse d’Entraide Economique de Rouville is. Madame Justice Louise Mail- hot finds however that the matter is governed by the provisions of the Special Corporate Powers Act. Section 29 of that Act provides that a pledge of moveables gives a privilege ranking after the privileges enumerated in Articles 1994, 1994(a), 1994(b) and 1994(c) of the Civil Code. The claim of the Crown ranks as No 10 in the list in Article 1994 and hence would outrank the opposant’s claim if this section of the Special Corporate Powers Act governs the situation. However in Article 1994 the claims of creditors who have a right of pledge or retention rank as No 4, and in this case the opposant had taken possession of the items pledged before the Minister’s judgment or seizure.

section 30 of the Special Corporate Powers Act provides that a debtor can cede and transfer to the creditor the articles pledged and that was what was done in this case on March 5, 1982.

The same distinction is referred to in the Meredith Memorial Law Lectures (McGill University 1976-77) — La Charge Flottante: Louis Payette, at 63 where it is stated (translated):

The right of preference of the trustee does not authorize it to set aside the seizure made by an ordinary creditor of the company: the privilege never carries this right. The situation is different when the trustee, after the default of the company, takes possession of the assets. The trustee acquires the status of a creditor who is a pledgee in possession of the assets pledged and has the right of retention (Article 1975 CC).

Later at 63-64 it is said:

.. . Our tribunals have let it be understood that the right of retention of the trustee in possession shelters it from ordinary creditors of the company.

The question of whether Article 1994(4) of the Civil Code is in conflict with section 29 of the Special Corporate Powers Act is a difficult one, which need not be considered here where the actual merits of the opposition are not being dealt with in a final manner. An article to which the Court was referred by Louis Payette, advocate, in 40 Revue du Barreau (1980) p 337 is of considerable interest in this connection.

At this stage of proceedings opposant, La Société Nationale de Fiducie, has established at least an arguable case for the opposition which should therefore not be dismissed on a motion to strike.

As the matter is of some urgency I am issuing these reasons in English to be translated to French with top priority rather than awaiting the French version before issuing the judgment.

ORDER

The opposition to seizure of La Caisse d’Entraide Economique de Rouville is struck with costs.

The motion to strike the opposition of La Société Nationale de Fiducie is dismissed with costs.