Her Majesty the Queen in Right of the Province of British Columbia v. Her Majesty the Queen in Right of the Province of British >>columbia as Represented by the Minister of Labour and Consumer Services, Employment Standards Branch, and Her Majesty the Queen in Right of Canada, Revenue Canada, Taxation, [1991] 1 CTC 523

Boyd, J.:—By way of interpleader application pursuant to Rule 48, the Provincial Crown "the Province") seeks to pay the sum of $13,172.77, less its taxed costs, into court and for further order that upon payment in, its liability to any party in respect of those funds be extinguished.

The Province entered into a contract with Meadowbrook Enterprises Ltd. ("Meadowbrook") for the performance of certain services. The services were performed, as a result of which certain moneys were owing to Meadowbrook. Commencing in November 1989, the Province's office of the comptroller general ("OCG") received a garnishing order before judgment dated November 23, 1989 concerning a claim for outstanding wages. On December 6, 1989, the OCG received a requisition for payment to Meadowbrook in the sum of $3,718, which amount was paid into court on January 2, 1990. In January 1990, the OCG received a requirement to pay certificate from Revenue Canada, Taxation, with respect to Meadowbrook's alleged tax liability which attached the sum of $5,978.94 of any moneys which might be payable by the Province to Meadowbrook within 90 days following the date of the requirement to pay. On February 20, 1990 the OCG received a Demand Notice dated February 16,1990 from the Provincial Director of Employment Standards with respect to Meadowbrook's alleged wage liability, which attached the sum of $17,137 of any moneys which may be payable by the Province to Meadowbrook. The OCG has received further requirement to pay certificates from Revenue Taxation in May and August 1990.

The Director of Employment Standards and the Federal Crown each claim priority over the moneys presently held by the OCG. The OCG has been unable to determine the respective rights of the two respondents and seeks directions from the court in the form of an interpleader order.

Relevant Legislation

Employment Standards Act

Subsection 15(1) of the Employment Standards Act, 1980, S.B.C. c. 10, provides that" Notwithstanding any other Act, unpaid wages constitute a lien, charge and secured debt in favour of the director, dating from the time that the wages were earned, against all the real and personal property of the obligor, including money due or accruing due to the obligor from any source". Subsection 15(2) provides that “ Notwithstanding any other Act, the amount of a lien and charge and secured debt referred to in subsection(s) (1).. .is payable and enforceable in priority over all liens, judgments, charges or any other claims or rights including those of the Crown in the right of the Province . . .”.

Section 16 provides the Director of Employment Standards with authority to issue a demand for payment of outstanding unpaid wages.

Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the"Act"):

Subsection 224(1.2) provides:

Notwithstanding any other provision of this Act, the Bankruptcy Act, any other enactment of Canada, any enactment of a province or any law, where the Minister has knowledge or suspects that a particular person is or will become within 90 days, liable to make a payment

(b) to a secured creditor who has a right to receive the payment that, but for a security interest in favour of the secured creditor, would be payable to the tax debtor,

the Minister may, by registered letter or by a letter served personally, require the particular person to pay forthwith where the moneys are immediately payable, and in any other case, as and when the moneys become payable, the moneys otherwise payable to the tax debtor or the secured creditor in whole or in part to the Receiver General on account of the tax debtor's liability under subsection 227(10.1) or a similar provision, and on receipt of that letter by the particular persons, the amount of those moneys that is required by that letter to be paid to the Receiver General shall, notwithstanding any security interest in those moneys, become the property of Her Majesty and shall be paid to the Receiver General in priority to any such security interest.

(Italicized portion of the section added by way of amendment, subsection 1(3) of An Act to Amend the Income Tax Act, Bill C-51, assented to June 17, 1990, (hereinafter referred to as "the amending Act")).

Subsection 1(4) of the amending Act, further provides in subsection 1(4):

Any moneys received by the Receiver General pursuant to a letter issued after December 17, 1987 by the Minister of National Revenue under subsection 224(1.2) of the said Act shall be deemed to have been paid to the Receiver General as required under that subsection as if subsection (3) were applicable at the time the letter was issued.

Discussion

I should note at the outset that an almost identical priority dispute was considered by our courts in Concorde International Travel Inc. v. T.I. Travel Services (B.C.) Inc. (1989), 38 B.C.L.R. (2d) 298; affd (1990), 47 B.C.L.R. (2d) 188 (B.C.C.A.). There, the Director of Employment Standards had served the corporate defendant's bank with an identical demand notice pursuant to subsection 15(1) of the Employment Standards Act. Several weeks later, Revenue Canada served a requirement on the bank to pay to the Receiver General that money on deposit in payment of unremitted income tax, pension and unemployment deductions. As in the case at bar, Revenue Canada asserted that it was entitled to priority on the basis of subsection 224(1.2) of the Income Tax Act.

As the headnote aptly summarizes, Sheppard, C.C.J. (as he then was) held that:

(l)n the absence of a specific statutory provision which would compel a court to conclude otherwise, legislation should not be construed in a manner so as to deprive parties of their pre-existing property rights. Here, had Parliament wished to introduce a drastic change to the law by abrogating the existing rights of secured creditors, such as the Director of Employment Standards, the drafters of s. 224(1.2) should have explicitly stated that these traditional third party rights have been extinguished. In the absence of such a provision, Revenue Canada's claim to priority could not succeed and, accordingly, the director was entitled to the moneys.

In upholding this decision on appeal, Hinkson, J.A. noted at page 192:

I am unable to see in that section (s. 224(1.2) Income Tax Act) any provision that would have the effect of transferring the property in the funds to the minister or establishing a priority of Revenue Canada's claim.

In my opinion, the subsections in question do not result in the property in the funds being transferred to the minister simply by serving the notice that he did in this case nor does it purport to establish a priority of his claim. All, in my opinion, that is accomplished by proceeding under these subsections of section 224 is to transfer the funds from the taxpayer's creditor to the Minister. Where there is a contest over priorities, it is then necessary to resolve those priorities apart from the provisions of s. 224. That is what occurred here.

Here, since the Director issued a requisition for payment in December 1989 and the requirement to pay was not issued by Revenue Canada and received by OCG until late January 1990, the Director of Employment Standards relies upon the decision in Concorde, supra, to support his claim to priority over the funds.

As I understand him, the Federal Crown's counsel advances two arguments in response.

Firstly, he submits that even in its original form, prior to amendment on June 27, 1990, while subsection 224(1.2) did not operate to transfer title to the funds to the Receiver General, that legislation did require that the funds in the hands of the OCG be paid to the Receiver General. He relies upon Hinkson, J.A.'s statement in Concorde, supra, to the effect that “All . . . that is accomplished by proceeding under these sub-sections of s. 224 is to transfer the funds from the taxpayer's creditor to the Minister." Once the funds are rightfully transferred to the Receiver General, then he submits the matter of competing priorities is no longer in issue, since subsection 1(4) of the amend- ing Act resolves that issue absolutely in the Federal Crown's favour as of the date the funds are received by the Receiver General.

I do not accept that Concorde is authority for the proposition cited by counsel—that subsection 224(1.2), in its original form, required a transfer of the funds to the Receiver General. While the Court of Appeal held that section 224 was a garnishment provision, it was clear in its reasoning that nothing in that section “ (had) the effect of transferring the property of the funds to the Minister or establishing a priority of Revenue Canada's claim”. Clearly, the question of priorities remained to be determined and indeed was determined in that case in favour of the Director of Employment Standards.

Secondly, the Federal Crown's counsel submits that while the initial letters of requirement were issued before the amending Act was assented to, a number of letters of requirement were issued and received after June 27, 1990. That being the case, he submits that subsection 224(1.2) in its amended form applies. Accordingly, he submits that the OCG is not only obliged to deliver up the funds to the Receiver General, but that the section now clearly specifies that on the OCG's receipt of the letter of requirement, notwithstanding (the Director of Employment Standards'). . . security interest in those moneys, (the moneys) become the property of Her Majesty and shall be paid to the Receiver General in priority to such security interest." He submits that the defects identified by the Court of Appeal in Concorde have been cured by the amending legislation.

I also reject this second submission. This matter of the parties' competing claims clearly arose prior to the June 27,1990 amendments to the Income Tax Act. Given the decision of the County Court of British Columbia in Concorde, supra, in June 1989, as affirmed by the Court of Appeal on June 26, 1990, the Director of Employment Standards’ secured interest in the funds amounted to a "vested" right.

Clearly subsections 1(3) and (4) of the amending Act apply to any funds received after June 27, 1990. However, to the extent that these sections purport to divest any person or party of its vested property interests in those funds, the legislative intention to effect such a result must be clear and manifest. As Lambert, J.A. stated in Hornby Island Trust Committee v. Stormwell (Kramer) and Dixon Lake Properties Ltd. (1988), 30 B.C.L.R. (2d) 383 (B.C.C.A.) at 389-90:

A retroactive statute operates forward in time, starting from a point further back in time than the date of its enactment; so it changes the legal consequences of past events as if the law had been different than it really was at the time those events occurred. A retrospective statute operates forward in time, starting only from the date of its enactment, but from that time forward it changes the legal consequences of past events.

A statute should not be given a retroactive construction that has adverse effects, or a retrospective construction that interferes with "vested" rights, unless it is clear that the legislature intended that the legislation should have such a construction. The reason is that the legislature should not be presumed to have enacted a statute that treats those it affects, or some of them, not just adversely, but unfairly, with respect to acts they have undertaken in the past.

It appears to me that section 224 is only retrospective to the extent set out in subsection 1(4) of the amending Act, which provides that any moneys received by the Receiver General pursuant to a letter of requirement received after December 18, 1987 shall be deemed to be the property of the Federal Crown. The Receiver General has received no moneys from the OCG in this case. Throughout all moneys have continued to be held by the OCG and accordingly, the deeming provision in subsection 1(4) of the amending Act does not apply to the circumstances here.

Accordingly, I find that the question of priorities must be resolved in favour of the Director of Employment Standards. The funds shall be paid into Court pursuant to Rule 48. Those funds, less any taxed costs, shall be paid out to the Director in satisfaction of his claims.

Jurisdiction

As a footnote I must add that at the outset of this application, the Federal Crown challenged this Court's jurisdiction to hear this matter. The Federal Crown's counsel submitted that its claim had priority and that to the extent the Province sought an order allowing it to pay the funds into Court and thereby extinguish any liability it would otherwise have under subsection 1(4) of An Act to Amend the Income Tax Act, S.C. 1990, c. 34, this court would effectively be granting" relief” against the Federal Crown, which claim for relief lay within the exclusive jurisdiction of the Federal Court of Canada.

As I understand his submission, he relies upon the judgment of the Saskatchewan Queen's Bench in Royal Bank of Canada v. Saskatchewan Power Corp. (1990), 2 W.W.R. 655, to support this proposition. On a closer reading, I find that that decision is of no assistance to the Federal Crown here. In dispute there were two pools of funds—funds already paid to Revenue Canada and funds which continued to be held by the Power Corporation. As to the former, the Court held that it had no jurisdiction since such a matter was within the exclusive jurisdiction of the Federal Court by virtue of subsection 17(1) and more particularly subsection 17(2) of the Federal Court Act which grants the Federal Court exclusive jurisdiction "in all cases in which (a) the land, goods or money of any person is in the possession of the Crown”. However, as regards those funds which continued to be held by the Power Corporation, the Crown conceded the Court had jurisdiction.

In the alternative, the Federal Crown submits that since subsection 224(1.2) in its amended form requires that the funds be paid to the Receiver General, and since on receipt the funds become the property of the Federal Crown pursuant to subsection 1(4) of the amending Act, the question of priorities does not arise and this matter cannot properly be the subject of an interpleader application.

I have dealt with and rejected that submission earlier in these reasons. In my view, the amendments do not advance the Federal Crown's position in this case. Applying the decision in Concorde, supra, the issue of priorities was to be determined in this action, and properly so, in the context of an interpleader action.

At the outset of the application, counsel sought and obtained a consent order concerning the amendment of the style of cause. I will leave it to them to prepare and enter the appropriate order.