Nurgitz J.:
The defendant brings a motion to dismiss the plaintiffs action or in the alternative to grant an order staying these proceedings pending a final determination of certain bankruptcy proceedings and an appeal pending in the Tax Court of Canada.
This matter was commenced with Revenue Canada claiming against Danny Moss, the husband of the plaintiff for income tax arrears and assessments totalling $301,956.21. The taxation years involved in that assessment are 1991, 1992 and 1994 and also involve tax debt from 1987, 1990, 1993 and 1995.
Between 1992 and 1996 cheques totalling in excess of $550,000 were received by the plaintiff in her account. These cheques were payable to either Danny Moss, the plaintiff herself or Danro Construction — a company operated by either one or both of the Moss’s.
By virtue of s. 160(1), a Notice of Assessment was issued to the plaintiff claiming the same $301,956.21 — the amount assessed against the plaintiffs husband. This particular section of the Income Tax Act commonly referred to as one of the “attribution rules” is applicable when property or monies are transferred not at arms length. The plaintiff has appealed that assessment to the Revenue Canada Appeals Division. The appeal was denied and the matter is now pending before the Tax Court of Canada.
In July, 1995 the plaintiff purchased an Annuity Policy from the defendant for the sum of $250,000 and other similar policies from other insurance companies.
On February 5, 1997 Revenue Canada obtained a “jeopardy order” allowing it to take collection proceedings pending any appeals from assessments. That order was reviewed on motion of the plaintiff and the matter was heard by Mr. Justice Muldoon of the Federal Court of Canada. On November 19, 1997 he handed down reasons dismissing the plaintiffs appeal and confirming the jeopardy order.
In January, 1997 pursuant to Section 224 of the Income Tax Act Revenue Canada made claim against the defendant under a “Requirement to Pay”. The specifics of this “Requirement to Pay” are that the defendant must collapse the annuity contract and pay the proceeds to Revenue Canada.
To further complicate matters, on January 6, 1998 the plaintiff made an assignment in bankruptcy and on March 12, 1998 the Attorney-General of Canada, on behalf of the Minister of National Revenue, brought a Notice of Motion seeking an annulment of the bankruptcy assignment. That motion is pending in this court.
At first resisted by the defendant, ultimately, the sum of $270,645.47 was paid to Revenue Canada on December 4, 1997 pursuant to a “Requirement to Pay”.
The defendant relies on Rule 21,01(3)(b) to challenge the capacity of the plaintiff to commence and prosecute an action following the assignment in bankruptcy. Its position is that the right, if any, to bring this action has been vested in the trustee in bankruptcy.
The defendant further alleges that the statement of claim fails to disclose a reasonable cause of action, in that payment made by the defendant to the Minister of National Revenue is made under a legal requirement and therefore is no different than a garnishment proceeding in any other law suit.
To all of this is added the further submission of the defendant and that is that in the event that the plaintiff succeeds in her appeal presently before the Tax Court of Canada all funds would be returned (no doubt without loss of interest or other benefits) and there would be no issue to be tried. To that end, as alternative relief, a stay of this action is being asked for -- to be effective until there is a final determination of the plaintiffs assessment.
The plaintiffs position simply is that she is the owner of the annuity policy and that policy is exempt from seizure pursuant to The Insurance Act, R.S.M. 1987, c. 140. As well, the plaintiff resists the argument of the defendant with respect to status. It is the contention of the plaintiff that the trustee in bankruptcy has no interest in the annuity contract, as it would not form part of the bankrupt’s estate, and accordingly the plaintiff could pursue this action on her own behalf without reference to the trustee.
The annuity contract with the defendant allows the plaintiff to withdraw funds at will. The contract has been used in a fashion that could be characterized as a chequing account while at the same time providing a form of protection from creditors.
The defendant placed before the court correspondence between counsel for the Minister of National Revenue and the plaintiff dated December 19, 1997. In that letter National Revenue proposed a resolution of all of these various problems by the following:
Your clients would initiate a reference to the Federal Court of Canada with respect to determination of the status of the assets: whether or not the plans fall within the provincial exemption under the Insurance Act, whether or not the exemption in any event applied to protect against collection by the Federal Crown; whether or not each insurance company is ‘liable to make a payment’ within the meaning of s. 224(1) of the Income Tax Act.
Counsel for the plaintiff points out that he was not counsel at that time and is unable to explain why this suggested solution to resolve all of these differences was not acceptable.
It seems to me that this offered solution might have avoided these proceedings and brought to a head all of the issues with all of the parties being participants. Proceeding on that basis would also have avoided the possible unconscionable situation where the defendant would not only be required to pay monies to the plaintiff but would also be obligated to National Revenue under the “Requirement to Pay”.
The issue of whether the plaintiff has status, i.e. as a bankrupt is one that may evaporate rather quickly in the event that the Minister of National Revenue is successful. That proceeding currently is in this court and if the assignment in bankruptcy is declared a nullity then the right of the plaintiff to prosecute this action will no longer be an issue.
Similarly, if the plaintiff succeeds in her appeal of the assessment — again the large issue is resolved and it would be incumbent on the Minister of National Revenue to return the funds paid under the “Requirement to Pay”.
Dealing with the first question raised on this motion, that is the striking out of the Statement of Claim on the grounds that it fails to disclose a reasonable cause of action, I am of the view that the defendant ought not to succeed. The Statement of Claim does makes sufficient allegations that disclose a cause of action and accordingly the Statement of Claim ought not to be struck out pursuant to Queen’s Bench Rule 25.11.
While a stay of proceedings is a discretionary remedy, the decision to grant this remedy will obviously depend on the facts. The facts of this case are such that the outcome of the two other proceedings could substantially alter the rights of the parties in this litigation. Added to this is the obvious lack of prejudice to the plaintiff. There being no injustice or prejudice to the plaintiff, I am of the opinion that the defendant’s application to stay the plaintiffs action should be granted pending the resolution of the application to declare the bankruptcy proceeding a nullity and also pending the appeal now before the Tax Court of Canada.
The defendant’s application to stay these proceedings is therefore allowed with costs.
Stay of proceedings granted.
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