Bank of Montreal v. Attorney General of Canada, [1971] CTC 91, 71 DTC 5091

Rae, J.:—C. T. Takahashi & Company Ltd. and Douglas Plywood Ltd. were faced with conflicting demands by the plaintiff and by the Department of National Revenue, Taxation Division, to certain moneys which they owed and would otherwise have paid to Canadian Plywood Corporation Ltd. Takahashi and Douglas interpleaded and paid into court the sums of $1,290.23 and $983.84 respectively, less certain costs, and an issue was directed to be tried as to which of the plaintiff and the defendant, representing Her Majesty the Queen in right of Canada, has priority.

The facts are:

(a) The plaintiff, Bank of Montreal, holds a general assignment of book accounts from Canadian Plywood dated August 28, 1967 and duly registered as required by statute on September 6, 1967.

(b) Canadian Plywood was at all times material indebted to the plaintiff and to the Crown Federal in amounts in excess of the total moneys in court.

(¢) Takahashi and Douglas each owed the moneys in court to Canadian Plywood prior to April 15, 1970.

(d) On April 15, 1970 written “Demand on Third Parties” was received by Takahashi from the Director of Taxation pursuant to Section 120 of the Income Tax Act, R.S.C. 1952, ec. 148, such demand reading in part:

WHEREAS it is believed that you are or are about to become indebted or liable to make a payment to the taxpayer whose name appears below and hereinafter referred to as the debtor,

AND WHEREAS the said debtor is indebted to Her Majesty the Queen pursuant to the provisions of one or more of the Acts shown below, in the amount of $113,999.66

You Are HEREBY REQUIRED to deduct from moneys payable to the said debtor and to pay over to the Receiver General of Canada all amounts for which you are or are about to become liable to the said debtor.

The debtor referred to was Canadian Plywood. Section 120 of the Act reads, so far as it is relevant here:

120. (1) When the Minister has knowledge or suspects that a person is or is about to become indebted or liable to make any payment to a person liable to make a payment under this Act, he may, by registered letter or by a letter served personally, require him to pay the moneys otherwise payable to that person in whole or in part to the Receiver General of Canada on account of the liability under this Act.

(2) The receipt of the Minister for moneys paid as required under this section is a good and sufficient discharge of the original liability to the extent of the payment.

(e) On April 23, 1970 Takahashi received from the plaintiff notice in writing notifying it of the general assignment of book accounts in question and demanding that payment of the moneys in question, payable by it to Canadian Plywood, be paid to the plaintiff.

(f) On April 22, 1970 Douglas received a similar written demand to the foregoing under Section 120 of the Income Tax Act and on the same date received from the plaintiff a notice in writing and demand for payment, similar to that referred to in paragraph (e) above, based on the same general assignment of book accounts.

The evidence does not disclose, and I am informed by counsel that it cannot be established, which of the demand under Section 120 of the Income Tax Act and the notice and demand of the plaintiff, was received by Douglas first in point of time on April 22, 1970.

I proceed first on the basis of the facts in the case of Takahashi, 1.e., the notice and demand under the Income Tax Act being received by Takahashi before receipt of the notice and demand from the plaintiff.

The written demand under Section 120 of the Income Tax Act is in part an extra-judicial garnishee order. The plaintiff contends that the Crown is in no better position under this section than a private citizen as creditor taking proceedings by way of garnishee order and that regardless of the time of giving notice of assignment by the plaintiff, or whether notice was given at all, the plaintiff takes priority under its assignment.

Section 120 of the Income Tax Act, however, goes further. It creates an equitable charge in favour of the Crown upon delivery of a demand under the section: see Attorney General of Canada v. Workmen’s Compensation Board of B.C., [1968] C.T.C. 111, a decision of Munroe, J. of this Court, applied in Bank of Montreal v. Union Gas Co. of Canada Ltd., [1969] C.T.C. 686, a decision of the Ontario Court of Appeal. Delivery of the demand also constitutes notice of the charge.

The right of the plaintiff under its assignment is an equitable right, 1.e., as between Canadian Plywood as assignor and the plaintiff as assignee, the assignment, which is an equitable assignment, is absolute and complete so far as the funds in question here are concerned, without notice being given to Takahashi: see Evans, Coleman Evans Ltd. v. R. A. Nelson Construction Ltd. et al. (1958), 16 D.L.R. (2d) 123; 27 W.W.R. 38. Until the giving of notice by the plaintiff to Takahashi and in the absence of the demand of the Crown, Takahashi could have paid Canadian Plywood and been discharged: see Section 2(25) of the Laws Declaratory Act, R.S.B.C. 1960, c. 213, reading in part:

(25) Any absolute assignment, by writing under the hand of the assignor (not purporting to be by way of charge only), of any debt or other legal chose in action, of which express notice in writing has been given to the debtor, trustee, or other person from whom the assignor would have been en- titled to receive or claim such debt or chose in action, is and shall be deemed to have been effectual in-law (subject to all equities which would have been entitled to priority over the right of the assignee if this Act had not passed) to pass and transfer the legal right to the debt or chose in action from the date of such notice, and all legal and other remedies for the same, and the power to give a good discharge for the same, without the concurrence of the assignor;

The Crown submits that in these circumstances the claim of the Crown takes priority and relies, inter alia, on the Bank of Montreal v. Union Gas Co. of Canada Ltd. case (supra). That case involved a set of facts very similar to those before me except that there the third party had paid the Crown pursuant to the demand under Section 120.

I quote from the reasons for judgment of Jessup, J.A. (for the Court), at page 691:

It [Section 120(1)] creates a charge not on moneys owing or accruing due as in the case of an attaching or garnishee order but on “moneys otherwise payable” at the time of delivery of the demand. It seems to. me the construction I adopt is necessary to give effect to the plain words of the statute. The charge created by the section, in my view, is a continuing charge crystallized by the state of affairs at the time of delivery of the statutory demand, and accordingly it is not affected by the subsequent knowledge of a debtor upon whom a demand under the statute has been made that the funds so charged have previously been I assigned away to a third party.

and also at page 691 :

In my view Section 120(1) creates a charge in favour of the Crown, upon delivery of a demand under the section, which is an equitable charge. I take this to be also the view of Munroe, J. expressed in Attorney-General of Canada v. Workmen’s Compensation Board of British Columbia, 67 D.L.R. (2d) at pages 19-20. Quoad the fund of debt in question here the plaintiff’s assignment is of a debt to become due in the future and the assignment is therefore an equitable one: Edward Tailby v. The Official Receiver (1888), 13 App. Cas. 523. As between two claims founded in equity and on the basis of the principle in Dearle v. Hall (1828), 3 Russ. 1, in my opinion, priority must go to he who first gives notice. Dearle v. Hall, it is true, was a contest between competing equitable assignments and Lord Macnaghten in Francis Ridout Ward and Charles Pemberton v. Thomas Matthew Duncombe et al., [1893] A.C. 369 was of the view that the rule in Dearie v. Hall ought not to be extended to a new case. But as Lord Reid observed in B. S. Lyle Ltd. v. Rosher et al., [1959] 1 W.L.R. 8 at page 19,

. that must, I think, mean a case where there is a significant distinction from the position in Dearie v. Hall." In my view there is no such significant distinction in the facts of this case and they are embraced in the principles which provide the ratio in Dearle v. Hall.

As already stated, the assignment to the plaintiff here is an equitable assignment.

The Bank of Montreal v. Union Gas Co. of Canada Ltd. case has been followed in the Ontario High Court in Community Building Supplies Ltd. v. Kipling Paving Co. Ltd.; Johnson- Kiewit Subway Corp., Garnishee, 10 D.L.R. (34) 9 : [1970] 2 O.R. 194;

In my view, the plaintiff not having given notice of its assignment to Takahashi until after the equitable charge of the Crown became effective as such and notice thereof had been given, the claim of the Crown must take priority.

I now turn to the situation with respect to Douglas. There, as previously stated, the demand under Section 120 of the Income Tax Act and notice of the assignment to the plaintiff were each received by Douglas on the same day. The Crown submits, inter alia, that the two competing claims being concurrent, that of the Crown should prevail. In my view that submission is sound. The principle is well recognized in the authorities: see, for example, Crowther v. A.-G. Can., 17 D.L.R. (2d) 437 at page 443; 42 M.P.R. 269; [1956-60] I.L.R. 584, a _ decision of the NS. &. C. en banc, per MacDonald, J.:

Hence I think it is desirable to point out that the prerogative claimed by the Crown Dominion is that described in the Attorney- General’s factum herein as “the prerogative which provides that, whenever the right of the Crown and the right of the subject with respect to the payment of debts or claims of equal degree come into competition, the right of the Crown prevails ... to the exclusion or postponement of other claimants of equal degree”. This is well established and has been held to apply to the Crown in the right of Canada or of a Province where not excluded by competent legislation.

and at pages 443-4:

This appears clearly by reference to the oft cited judgment of Macdonald C.B. in R. v. Wells, 16 East 278 at page 282: (1) “This appears to me to go a great way to shew what prerogative of the Crown it was to which the statute (83 Henry 8) applies: that it was to the prerogative of having first execution . . . and not to any prerogative which goes to determine the preference between two executions, one of the Crown and the other of the subject subsisting at the same time. (2) This latter prerogative will be found to depend upon another principle, perfectly distinct from this, and far more general; determining a preference in favour of the Crown in all cases, and touching all rights of what kind soever, where the Crown’s and the subject’s right concur, and so come into competition. (3) I take it to be an incontrovertible rule of law, that where the King’s and the subject’s title concur, the King’s shall be preferred.”

Thus the Crown must take priority in respect of the moneys payable by Douglas also.

There will be judgment for the defendant accordingly.