Attorney General of Canada v. Workmen’s Compensation Board for the Province of British Columbia, [1968] CTC 111

MUNROE, J.:—Pursuant to the order made herein by Macdonald, J. on August 21, 1967, upon the application of Gulf Log Salvage Co-operative Association for relief by way of interpleader, the said association paid into court to the credit of this cause the sum of $1,178.27 being the amount admittedly due and payable by the said Association to Haleta Products Ltd., which company is and was at all relevant times indebted to Her Majesty the Queen in right of Canada (under the Income Tax Act and under the Canada Pension Plan) and to the defendant (for unpaid assessments under the Workmen’s Compensation Act) in amounts greater than the sum of money paid into court as aforesaid.

Upon this stated case I am asked to determine to whom the funds in court belong. It is the submission of the plaintiff, representing Her Majesty in right of Canada, that such claim takes priority over the opposing claim asserted by the defendant. It is the submission of the defendant that the monies in. court belong in equal shares to the plaintiff and the defendant.

The narrative of steps taken by each of the parties to enforce payment of their respective claims may be summarized as follows:

(1) On November 17, 1966, the defendant registered in the County Court of Vancouver a certificate under Section 39 of the Workmen’s Compensation Act certifying that the Workmen’s Compensation Board had assessed $1,607.94 upon Haleta Products Ltd. (Exhibit 1).

(2) On November 17, 1966, the defendant issued out of the County Court of Vancouver a Warrant of Execution directing the Sheriff of Vancouver to levy out of the assets of Haleta Produets Ltd. the sum of $1,725.91 (Exhibit 2).

(3) On March 23, 1967, the Department of National Revenue issued a Notice of Assessment showing Haleta Products Ltd. to be indebted in the amount of $2,372.96 in respect of payroll deductions for 1966 (Exhibit 3).

(4) On May 10, 1967, the Department of National Revenue filed in the Exchequer Court of Canada a certificate under Section 119 of the Income Tax Act certifying that there was due and payable by Haleta Products Ltd. the sum of $1,288.40 plus interest under the Income Tax Act and the sum of $699.40 plus interest under the Canada Pension Plan (Exhibit 4).

(5) On May 23, 1967, Gulf Log Salvage Co-operative Association received from the Department of National Revenue a Demand on Third Parties issued under Section 120 of the Income Tax Act and ordering payment to the Department of National Revenue of all amounts up to $2,402.37 which were owed to Haleta Products Ltd. by Gulf Log Salvage Co-operative Association (Exhibit 5).

(6) On May 25, 1967, Golf Log Salvage Co-operative Association received a letter from the defendant with a “Demand- Request’’ that the Association pay to the Sheriff $1,700 pursuant to the Warrant of Execution which had been issued on November 17, 1966 (Exhibit 6).

The defendant herein has the same preferential rights and prerogatives as Her Majesty in right of the Province of British Columbia. See In re Sid B. Smith Lumber Co. Ltd. (1917), 25 B.C.R. 126 at 132; Zucco v. Workmen’s Compensation Board (1956), 20 W.W.R. 257; Battaglia v. Workmen’s Compensation Board (1960), 32 W.W.R. 1; Re Western Wood Products Corporation Ltd. (1962), 28 W.W.R. 552.

Where, as here, the federal statutes under which the debts of Haleta Products Ltd. arose do not purport to create a priority for the Federal Crown over claims of the Provincial Crown, debts owing to the Crown in right of Canada and in right of a province rank pari passu. See In re Walter’s Trucking Service Ltd. (1965), 50 D.L.R. (2d) 711 at 717. That, then, leaves for consideration the question as to whether or not the plaintiff is entitled to priority over the defendant herein by reason of the steps taken by the Federal Crown to enforce its claims. In that respect, the plaintiff places reliance upon the fact that the Department of National Revenue on May 10, 1967, obtained a judgment against Haleta Products Ltd. when it filed in the Exchequer Court of Canada a certificate under Section 119 of the Income Tax Act and the fact that on May 23, 1967, it served a demand for payment (Exhibit 5) upon Gulf Log Salvage Co-operative Association under Section 120 of the Income Tax Act. The relevant provisions of the said Act are as follows :

JUDGMENTS

119. (2) On production to the Exchequer Court of Canada, a certificate made under this section shall be registered in the Court and when registered has the same force and effect, and all proceedings may be taken thereon, as if the certificate were a judgment obtained in the said Court for a debt of the amount specified in the certificate plus interest to the day of payment as provided for in this Act.

GARNISHMENT

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.

It is the submission of counsel for the plaintiff that upon service of Exhibit 5 as aforesaid the garnishing procedure was complete and that thereafter the monies belonged to Her Majesty in right of Canada and the fact that leave was obtained to pay the monies into court cannot affect such ownership. He says that up to the moment of service of such garnishing order the claim of the Crown in right of Canada and that of the defendant stood on an equal footing, that is, each of the parties was a judgment creditor of Haleta Products Ltd., but the claim of the former now ranks ahead of that of the defendant because the former took garnishing proceedings under Section 120 of the Income Tax Act. It is conceded by counsel for the defendant that none of the steps taken by the defendant to enforce payment of its account rendered the defendant anything more than a judgment creditor, with its preference as an agent or servant of the Crown. It is also conceded that Section 48 of the Work- men’s Compensation Act has no application to the facts of this case, so no lien exists in favour of the defendant; and also that the warrant of execution issued by the defendant on November 17, 1966 (Exhibit 2) did not entitle the Sheriff to seize the accounts receivable of Haleta Products Ltd. As I understand the submission of counsel for the defendant, he says that if the monies had been paid by Gulf Log Salvage Co-operative Association to the Federal Crown, then the defendant’s claim to share equally would be defeated but where, as here, the monies are not yet in the hands of the Federal Crown, distribution should be made pari passu between the parties. What, then, was the effect of the garnishment? In British Columbia a garnishing order issued under the Attachment of Debts Act after judgment forms an equitable charge on a debt owing by the garnishee to the judgment debtor from the time of service upon him of the attachment order; and charges take priority in the order in which they become a charge. See B.C. Millwork Products Ltd. v. Overhead Door Sales (Vancouver) Ltd. (1961), 34 W.W.R. (N.S.) 86; Imperial Oil Ltd. v. Abilene Contracting Co. Ltd. (1966), 57 D.L.R. (2d) 572. The wording of Section 120 of the Income Tax Act is no less wide than the wording of Section 8 of the Attachment of Debts Act. The charge of the plaintiff was complete and perfect upon service of Exhibit 5 and required no further act to be done in order to make that right consummate. By the service of the notice, the Federal Crown called upon the garnishee, under the authority of the statute, to pay the money to the Receiver General of Canada. Payment thereof would have vested the money in the Federal Crown and would have discharged the liability of the garnishee to the Judgment debtor. The fact that the garnishee elected not to comply with the statute but, rather, to institute interpleader proceedings cannot, I think, divest the Federal Crown of its property in the money. See also Giles v. Grover and Pillard (1832), 131 E.R. 563; Reg. v. Hamilton (1962), 39 W.W.R. (N.S.) 545; Industrial Development Bank v. Valley Dairy Ltd., [1953] O.R. 70; Workmen’s Compensation Board v. Graham et al. (1945), 1 D.L.R. 557.

Accordingly I hold that the claim of the plaintiff to payment out of the interpleader fund is entitled to priority over the opposing claim against the said fund asserted by the defendant. ROY A. HUNT, ALFRED M. HUNT, TORRENCE M. HUNT, ROY A. HUNT Jr., RICHARD MCM. HUNT AND MELLON NATIONAL BANK AND TRUST COMPANY. (EXECUTORS or THE ESTATE oF RACHEL MCM. M. HUNT), Appellants,

and

HER MAJESTY THE QUEEN, Respondent.

Supreme Court of Canada (Fauteux, Abbott, Martland, Ritchie and Hall, JJ.), March 13, 1968, on appeal from a judgment of the Exchequer Court following disposition of a Petition of Right, reported [1966] C.T.C. 474.

Estate tax—Federal—Estate Tax Act, S.C. 1958, c. 29—Sections 38(e), 41, 47(4)—Exchequer Court Act, R.S.C. 1952, c. 98—Section 74—Procedure for enforcing payment of estate tax by estate of non-resident domiciliary—Seizure of shares by writ in Canadian court—Situs of shares for purpose of judicial execution—“Share” distinguished from “share certificate”.

In issue was the situs for the purpose of judicial execution of a large number of shares of Aluminium Limited owned by the Estate of Rachel McM. M. Hunt who died in 1963 resident and domiciled in Pittsburg, Penn. The company was incorporated in Canada and its head office was in Montreal. Share transfer registers were maintained in Montreal and in Pittsburg (where the share certificates were located) and elsewhere. That the situs of the shares for the purpose of determining liability to Canadian estate tax was in Canada was not disputed but the appellants contended that the seizure of the shares under a writ of fieri facias out of the Exchequer Court, directed to the Sheriff of the Judicial District of Montreal, was invalid because for the purposes of judicial:execution under the processes of the Exchequer Court the situs of the shares was in Pittsburg and hence outside the jurisdiction of that Court.

HELD:

The same considerations applied to determine the situs of shares for the purpose of judicial execution as for the purpose of a dispute as to ownership, which was the issue in Braun v. The Custodian. In both situations the dominant consideration was the jurisdiction of the court to which the corporation was ultimately subject (which fixed the situs in Montreal in the present case). Appeal dismissed.

John De M. Marler, Q.C., and R. J. Cowling, for the Appellants.

D. 8S. Maxwell, Q.C., and D. G. H. Bowman, for the Respondent.

CASES REFERRED to :

Dominion Royalty Corp. Ltd. v. Goffatt, [1935] S.C.R. 565;

Brassard v. Smith, [1925] A.C. 371;

R. v. Williams, [1942] A.C. 549;

Treasurer of Ontario v. Ab er dein, [1947] A.C. 24;

R. v. National Trust, [1933] S.C.R. 670.

ABBOTT, J. (all concur) :—This is an appeal from a judgment of the President of the Exchequer Court, rendered August 18, 1966, whereby it was declared that certain shares of Aluminium Limited were validly seized under a writ of Fieri Facias issued out of the Exchequer Court of Canada.

The circumstances giving rise to the present dispute are set forth in a Statement of Facts, agreed to by the parties. The late Rachel McM. M. Hunt died in the City of Pittsburg, Pennsylvania, no February 22,, 1963. At her death she was domiciled in, and a citizen of, the United States of America. The appellants were named as executors under her will, and probate of her will was granted to them on March 18, 1963.

At the date of her death, the late Mrs. Hunt owned 43,560 shares in the capital stock of Aluminium Limited. Aluminium Limited is a company incorporated under. the Companies Act of Canada, and at all relevant times had its head office and principal place of business in the City of Montreal. Almost all of the meetings of directors, and all meetings of shareholders of Aluminium Limited, are held at the company’s head office in the City of Montreal and the central management of the company is located there. At the date of death of the deceased, the company maintained a register of transfers of shares in its capital stock and all books required to be kept by it pursuant to Section 107 of the Companies Act in the City of Montreal. It also maintained branch registers of transfers in Pittsburg, New York, London (England), Toronto and Vancouver. The shares of Aluminium Limited were listed on the Montreal, Toronto, Vancouver, New York, Midwest, Pacific Coast, London, Paris, Basle, Geneva, Lausanne and Zurich Stock Exchanges. At the date of death, the share certificates relating to the shares owned by the deceased were physically situated in the City of Pittsburg.

On May 14, 1963 estate tax, in the amount of $156,620.73, was assessed pursuant to Part II of the Estate Tax Act, Statutes of Canada, 1958, c. 29. Under that Part, there is imposed an estate tax of 15% of the aggregate value of property situated in Canada of a person domiciled outside Canada. For the purposes of Part II of the Act, the situs of shares in a corporation is deemed by Section 38 of the Act to be the place where the corporation is incorporated. Accordingly for the purposes of Part II of the Estate Tax Act, the shares of Aluminium Limited were deemed to be situated in Canada. No objection to the assessment has been filed pursuant to Section 22 of the Estate Tax Act.

On May 14, 1963 the Deputy Minister of National Revenue issued a certificate, alleging that estate tax in the sum of $156,620.73 was due, owing and unpaid by the Mellon National Bank and Trust Company, executor of the estate of Rachel MCM.

M. Hunt. This certificate was registered in the Exchequer Court. No objection is taken in this appeal to the issuance or registration of the said certificate which, under Section 41 of the Estate Tax Act, has the same force and effect as a judgment obtained in the Exchequer Court.

On May 14, 1963 a Writ of Fieri Facias was issued out of the Exchequer Court and directed to the Sheriff of the Judicial District of Montreal who is, by virtue of Section 74 of the Exchequer Court Act, ex officio an officer of the said court. The Sheriff took the steps appropriate to the seizure of the Hunt shares in accordance with the requirements of the writ.

By Petition of Right filed on June 6, 1963 and amended on June 21, 1963, the appellants claimed, inter alia, that the seizure of the said shares was invalid, and it is from the judgment of the Exchequer Court of Canada, dismissing the appellants’ action, that this appeal is brought.

Before the Exchequer Court, the sole issue was whether the shares of Aluminium Limited were situated in Canada for the purposes of judicial execution under the processes of the Exchequer Court.

Following the judgment of the Exchequer Court, counsel for appellants advised counsel for respondent of his intention to contend before this court that, whatever might have been the situs of the shares, the writ of execution issued out of the Exchequer Court was not in the appropriate form and that it was therefore ineffective to seize the shares. At the argument before us, counsel for appellants was informed that, in the circumstances of this case, and applying the principles enunciated by Duff, C.J. in Dominion Royalty Corporation Ltd. v. Goffatt, [1935] S.C.R. 565, this point, as to procedure, cannot be entertained in this court.

The sole question in issue before this court is, therefore, whether the shares in question were property in Canada for the purposes of judicial execution. Three possible conclusions are open for consideration; either for purposes of execution (1) the shares were situate only in Canada, or (2) they were situate in both Canada and Pennsylvania, or (3) they were situate only in Pennsylvania.

The appellants can succeed only if they establish that the learned trial judge ought to have rejected the first two alternatives and adopted the third.

Counsel for the appellants put his case squarely on the familiar line of cases which established the rule that, for provincial succession duty purposes, shares have a situs where they can be effectively dealt with: Brassard v. Smith, [1925] A.C. 371, R. v. Williams, [1942] A.C. 549, and Treasurer of Ontario v. Aberdein, [1947] A.C, 24.

Appellants’ contention was that the situs of Mrs. Hunt’s shares, for present purposes, was in the United States and particularly in Pittsburgh, either because of the rule of situs laid down in R. v. Williams and Ontario v. Aberdein or simply by reason of the physical location there of her share certificates.

In Brassard v. Smith, the shares in question there could be effectively dealt with only in Quebec. In the Williams case, as in the present case, the court was faced with a situation where the shares could be validly transferred in more than one place. In Williams, the shares were validly transferable on registries in Ontario and in Buffalo, New York, so the problem arose that, for the purposes of provincial succession duty, one, and only one, local situs had to be chosen. At page 558, Viscount Maugham, referring to the decision of this court in R. v. National Trust, [1933] S.C.R. 670 said:

In what their Lordships take leave to describe as a very luminous judgment of the Supreme Court Chief Justice Duff formulated as the result of the authorities certain propositions pertinent to the question of situs of property with which their Lordships agree. First, property, whether movable or immovable, can, for the purposes of determining situs as among the different provinces of Canada in relation to the incidence of a tax imposed by a provincial law upon property transmitted owing to death, have only one local situation. Secondly, situs in respect of intangible property must be determined by reference to some principle or coherent system of principles, and the courts appear to have acted on the assumption that the legislature in defining in part at all events by reference to the local situation of such property the authority of the province in relation to taxation, must be supposed to have had in view the principles deducible from the common law. Thirdly, a provincial legislature is not competent to prescribe the conditions fixing the situs of intangible property for the purpose of defining the subjects in respect of which its powers of taxation under s. 92, sub-s. 2 of the British North America Act may be put into effect.

and at page 559,

One or other of the two possible places where the shares can be effectively transferred must therefore be selected on a rational ground.

The factor which impelled the court to decide in favour of New York, rather than Ontario, was the existence in Buffalo, at the date of death, of certificates in the name of the testator endorsed in blank.

The passage which I quoted makes it clear however that the rule followed ‘to determine the situs of shares in issue in the Williams case does not necessarily apply to the situs of shares for the purposes of judicial execution. The Parliament of Canada can prescribe the situs of shares in federally incorporated companies. It has done so for estate tax purposes by the combined effect of Section 38(e), Section 47(1) and Section 47(4) of the Estate Tax Act.

In my opinion, the true principles to be applied in a case of the kind we are concerned with here are those set out in Braun v. The Custodian, [1944] Ex. C.R. 30; [1944] S.C.R. 339. The question there was the situs of shares in the Canadian Pacific Railway Company, for the purpose of determining a dispute as to their ownership as between a purchaser from an alien enemy, and the Custodian of Enemy Property. The share certificates stood in the names of alien enemies, and were bought by Braun on the Berlin Exchange in October 1919. The shares were on the New York register of the company and transfers were registrable only in New York. The certificates had transfers on the back endorsed in blank by the registered owners. In April 1919, the shares had been made the subject of a vesting order under the Consolidated Orders Respecting Trading with the Enemy. In November 1919, Braun presented the certificates for registration in his name at the New York office. Registration was refused on the ground that the vesting order of April 1919 vested them in' the Canadian Custodian. It was contended that the vesting order was a nullity on the ground that the situs of the shares was New York and that therefore no Canadian court could validly deal with them.

The Exchequer Court and this Court rejected this contention and held the shares 'to be situate in Canada.

In this Court, Kerwin, J., as he then was, speaking for the Court said at p. 345 :

While ordinarily (in the present instance) the law of Germany would determine the effect of the contract to transfer the certificates, “the distinction”, as Professor Beale points out in volume 1 of his Conflict of Laws, page 446, “between the certificate of stock and the stock itself is an important one. The latter has its situs at the domicile of the corporation and there only”.

Here the situs of the shares, as distinguished from that of the certificates, was in Canada and the New York Uniform Stock Transfer Law, relied upon by the appellant, has no bearing upon the question. The fact that the Railway Company was authorized to, and did in fact, establish a transfer office in the State of New York where, only, transfers of the shares in question were registrable, cannot make any difference. This was a mere matter of convenience and did not detract from the power of Canada to deal with the title to the shares of the Canadian company.

The appellant also relied on the decision of the Privy Council in Rex v. Williams (2). There the Province of Ontario attempted to collect succession duty upon shares of a mining company incorporated by letters patent under the Ontario Companies Act and which had two transfer offices, one in Toronto and the other in Buffalo, New York, at either of which shareholders might have their shares registered and transferred in the books of the company. The shares in question were those of a testator who died domiciled in New York and the share certificates themselves were physically located there. Viscount Maugham pointed out that “One or other of the two possible places where the shares can be effectively transferred must therefore be selected on a rational ground”’ (p. 559); and further: “In a business sense the shares at the date of the death could effectively be dealt with in Buffalo and not in Ontario” (p. 560). The considerations which apply to a discussion as to the situs of shares for provincial succession duty purposes where a provincial legislature is restricted to direct taxation within the province cannot affect the matter at present under review.

I can see no valid reason why the same considerations should not apply, to determine the situs of shares for the purpose of judicial execution, as for the purpose of a dispute as to ownership. In both cases, the dominant consideration is the jurisdiction of the Court to which the company is ultimately subject.

The appeal should be dismissed with costs.