Attorney General of Canada v. The Canadian Imperial Bank of Commerce, Workmen’s Compensation Board and Confidential Acceptance LTD, [1974] CTC 97

Rowbotham, J:—This action comes before me pursuant to an order of the Master in Chambers made in response to an application by the Sheriff of Calgary for interpleader relief.

The Master ordered that an issue be tried between the Department of National Revenue (Excise Department) as plaintiff and The Canadian Imperial Bank of Commerce, Workmen’s Compensation Board and Confidential Acceptance Ltd as defendants, to decide the respective rights of the parties as claimants to the proceeds resulting from the seizure and sale of three house trailers (hereinafter called “the trailers”).

On November 20, 1968 Mobilcraft Industries Ltd (hereinafter called “Mobilcraft”), a licensee under the provisions of the Excise Tax Act of Canada, executed and delivered to The Canadian Imperial Bank of Commerce (hereinafter called “the Bank”) an assignment of all goods, wares, merchandise etc in accordance with section 88 of the Bank Act. On December 7, 1970 Mobilcraft granted a chattel mortgage of the trailers to Confidential Acceptance Ltd (hereinafter called “Confidential”). On April 1, 1971 Mobilcraft granted a second chattel mortgage of the trailers to the Department of National Revenue (Excise Division) to secure payment of excise taxes due. On June 10, 1971 the Department of National Revenue instructed the Sheriff to seize the trailers. Subsequent to the seizure of the trailers by the Sheriff, the Bank, at the request of the Sheriff, sold the trailers. On July 5, 1971 the Regional Director of the Excise Tax Division of the Department of National Revenue sent a registered demand letter to the Bank, demanding payment of excise taxes out of the proceeds of the sale of the trailers.

The claim of the Workmen’s Compensation Board has since been abandoned and the claim of Confidential turns on the question of the priority in time of its chattel mortgage over the chattel mortgage held by the Crown. As a consequence the essential issue to be decided by me is whether or not a claim for payment of excise taxes by the Crown takes precedence over the claim of the Bank based on the earlier assignment to the Bank pursuant to section 88 of the Bank Act and the earlier chattel mortgage held by Confidential.

The Crown, claiming as a simple contract creditor has a prerogative right to priority over simple contract creditors of equal degree, unless the Crown has, by legislation, either expressly or impliedly abrogated that right. (See The Queen v The Bank of Nova Scotia (1885), 11 SCR 1; In re Cardston UFA, [1925] 3 WWR 651.) Nor is the right of the Crown waived by acceptance of partial payment (see The Queen v The Bank of Nova Scotia (supra)).

The Crown stands in an even stronger position with respect to claims based on statute (see Re Henley & Co (1878), 9 Ch D 469; Commissioners of Taxation for the State of New South Wales v Palmer and others, [1907] AC 179 (Judicial Committee of the Privy Council); The King v Lithwick, [1921] DLR 1 (Exch); The King v Ernest Powers, [1923] Ex CR 131; Re Tyrer Co Ltd, [1930] DLR 320; and The Bank of Montreal v The Attorney General of Canada, [1971] 1 WWR 151).

This prerogative right held by the Crown in the right of Canada cannot be abrogated by provincial legislation (see Gauthier v The King (1918), 56 SCR 176; The King v Lithwick (supra); and Rex v Star Kosher Sausage Manufacturing Company, [1940] 3 WWR 127). See also the comments of Gwynne, J of the Supreme Court of Canada in The City of Fredericton v The Queen (1880), 3 SCR 505 at 563 concerning the respective sovereign powers of Canada and of its provinces:

Herein consists the great distinction between the constitution of the Dominion of Canada, and that of the United States of America,—a distinction necessary in a constitution founded upon, and designed to be similar in principle to, that of the United Kingdom of Great Britain and Ireland, but deliberately designed specially, as I have no doubt, with the view of avoiding what was believed to be a weakness and defect in the constitution of the United States, and to have been the cause of the civil war out of which that country had then but recently emerged. Instead of a confederation of several distinct, independent states, which, while retaining to themselves sovereign power, have agreed to surrender jurisdiction over certain matters to a central government, we have constituted one supreme power, having executive and legislative jurisdiction over all matters, excepting only certain specified matters, being of a local, municipal, domestic, or private character, jurisdiction over which is vested in certain subordinate bodies, termed Provinces, carved out of the territory constituting the Dominion, . . .

The fact that the Crown in the right of Canada has also advanced a claim under the provisions of a provincial statute does not affect or diminish its prerogative priority (see Crowther v The Attorney General of Canada (1959), 17 DLR (2d) 437). Hence the claim of the federal Crown in this case certainly takes priority over the claim of Confidential which is based on its chattel mortgage, and of the Bank in so far as the Bank’s claim is based upon The Seizures Act of Alberta.

The Bank further contends that the definition of manufacturer or producer described in paragraph 2(1)(a) of the Excise Tax Act does not include the Bank in the present situation, that the claim of the Crown crystallized at a point in time later than that of the Bank and by reason of this fact the Bank has priority, that the Bank took its security without notice of any prior encumbrance based on the claim of the Crown, and that section 88 of the Bank Act grants a statutory right to the Bank which puts its claim in the same position and on the same basis as the claim advanced by the Crown.

Paragraph 2(1)(a) of the Excise Tax Act reads as follows:

2. (1) In this Act

(a) ‘‘manufacturer or producer” includes the assignee, trustee in bankruptcy, liquidator, executor, or curator of any manufacturer or producer and, generally, any person who continues the business of a manufacturer or producer or disposes of his assets in any fiduciary capacity, including a bank exercising any powers conferred upon it by the Bank Act and a trustee for bondholders,

The plain language of paragraph 2(1)(a) expressly includes in the definition of a manufacturer or a producer “a bank exercising any powers conferred upon it by the Bank Act”. The Bank has contended that it is excluded from the definition because it did not carry on the manufacturing or producing process. However the Bank did dispose of the assets in a fiduciary capacity and that action brings the Bank within the ambit of the definition.

Subparagraph 27(1)(a)(i) and subsections 52(1), (10) and (11) of the Excise Tax Act read as follows:

27. (1) There shall be imposed, levied and collected a consumption or sales tax of nine per cent on the sale price of all goods

(a) produced or manufactured in Canada

(i) payable, in any case other than a case mentioned in subparagraph (ii) or (iii), by the producer or manufacturer at the time when the goods are delivered to the purchaser or at the time when the property in the goods passes, whichever is the earlier,

52. (1) All taxes or sums payable under this Act shall be recoverable at any time after the same ought to have been accounted for and paid, and all such taxes and sums shall be recoverable, and ll rights of Her Majesty hereunder enforced, with full costs of suit, as a debt due to or as a right enforceable by Her Majesty, in the Federal Court of Canada or in any other court of competent jurisdiction.

(10) When the Minister has knowledge that any person has received from a licensee any assignment of any book debt or of any negotiable instrument of title to any such debt, he may, by registered letter, demand that such person pay over to the Receiver General out of any moneys received by him on account of such debt after the receipt of such notice, a sum equivalent to the amount of any tax imposed by this Act upon the transaction giving rise to the debt assigned.

(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.

The plain language of these sections created an obligation on the Bank to pay the tax at the time the trailers were delivered or the property in the trailers passed to the purchaser regardless of any earlier claim made by any other creditor.

The Bank of Montreal v Guaranty Silk Dyeing and Finishing Co, [1935] DLR 483, cited by the Bank to support its contention that its claim has priority because the Bank took its security without notice of any prior encumbrance against the title to the trailers is inapplicable to the facts of this case. The case cited applies to the question of priorities between competing common law lienholders and not to the question of the prerogative right of the Crown over that of a common law lienholder.

The Bank further argued that because the prerogative priority of the Crown is not listed in enumerated priorities for banks contained in the Bank Act, that in view of the facts of this case and considering the relative rights granted to the parties by the Excise Tax Act and the Bank Act, both federal statutes, the Bank should have an equitable priority over the claim advanced by the Crown because the claim of the Bank was first in time. I reject this argument because I can find nothing in the language of either the Excise Tax Act or the Bank Act which subjects the rights of the Crown referred to in the sections of the Excise Tax Act referred to above to any other claim made prior in time. Certainly the Bank Act gives wide powers to the chartered banks in connection with commercial transactions but it does not, either expressly or impliedly, limit or abrogate the taxing power of the Crown ‘within the provisions of the Excise Tax Act.

The plaintiff is entitled to receive payment of the proceeds received from the sale of the trailers together with the costs of this action on the appropriate scale.