In Re Abernethy-Lougheed Logging Company., [1938-39] CTC 173

MurpHy, J.:—The railway belt lands were reconveyed by the Dominion to the province of British Columbia under an agreement embodied in statutes passed by the province, the Dominion and the Imperial Parliament. The transfer became effective on August 1, 1980. On that date, and for several years previously, the Miami Corporation held a timber licence covering timber berth "‘W‘‘ situate in the railway belt. Several other timber berths are included in the application before me but counsel stated that decision of the points affecting timber berth "‘W‘‘ would settle all questions in controversy. I will, therefore, deal with timber berth ‘W’’ only. On the transfer date the Miami Corporation owned the Dominion some $30,000 for timber dues and interest thereon on timber berth “W.”

On June 10, 1930, the Miami Corporation executed an absolute assignment of timber berth “W” to Abernethy-Lougheed Logging Company Ltd. (hereinafter called the bankrupt). A clause in this assignment bound the bankrupt to pay all charges due the Dominion on timber berth "W‘‘ at or prior to the date of said assignment. The assignment was not executed by the bankrupt until October 13, 1932. It was then forwarded to the Minister of Lands in Victoria. Receipt was acknowledged in a letter dated October 19, 1932 (Ex. 21), an excerpt from which reads :

" A transfer of the area from Miami Corporation to Abernethy-Lougheed Logging Company Ltd. has been filed but in filing this transfer the Department accepts no responsibility as to title or otherwise/ ‘

The agreement between the province and the Dominion bound the province to fulfil any obligations in connection with the railway belt lands that were binding on the Dominion. Under the regulations, with regard to timber, made by the Dominion, timber berths were put up for auction. The successful bidder, on paying the purchase-price and one year’s ground rent in advance, became entitled to receive a timber licence authorizing him exclusively to cut timber on the berth sold to him and vesting in him the right of property in all trees so cut. The licensee was entitled as of right to a renewal of his licence from year to year provided he fulfilled all the terms and conditions of the licence, the provisions of the Dominion Lands Act, R.S.C., 1927, eh. 113, and the regulations both of the Dominion and the province. A licence was issued to Miami Corporation for timber berth ‘‘W’’ for a period of one year from May 1, 1930, this being a renewal of previous yearly licences. On May 1, 1931, a licence for said berth was issued to the bankrupt by the province. Said licence was in the identical terms of the Dominion licence. Licences were issued from year to year in the same form up to and including 1934. In that year the bankrupt went into bankruptey. The province in due course filed with the trustee in bankruptcy a claim for the arrears of timber dues due to the Dominion up to August 1, 1930, and for such dues due to itself in its own right from the date of transfer. The claim stated the province to be an unsecured creditor. The trustee rejected the claim on various grounds and the matter now comes before me on appeal from his decision. The first point taken by counsel for the trustee is that there is no debt due by the licensee under the terms of the licence either to the Dominion or the province inasmuch as the licence contains no covenant to pay. In my opinion the terms of the licence do constitute a debt for which the Dominion could sue. The licence states that in consideration of a sum for ground rent and in consideration of the dues hereinafter mentioned (being the due in question herein) the licensor gives to the licensee the right to cut the timber covered by the licence and vests the ownership of such timber in the licensee. Further, the licence states "‘this licence is subject to the following terms and conditions,” viz., inter alia :

"‘(h) That the licensee shall pay, in addition to the said ground rent, dues in the manner prescribed in Section 20 of the Timber Regulations, and also one-half of the cost incurred by the Crown in guarding the timber from fire, the Government paying the other half. A statement will be furnished the licensee showing his share of the cost incurred, and payments thereof shall be made to the Crown within thirty days thereafter. ‘ ‘

On the last page of the licence appears these words: ‘‘I accept this licence and agree to all the terms and conditions thereof,’’ signed by the Miami Corporation by its proper officials and its corporate seal is attached thereto. I hold that these terms constitute a promise to pay on the part of Miami Corporation dues on any timber cut under the licence which promise would be enforceable in a Court of law. It is true that in see. 24 of the Dominion regulations governing the granting of such licences there is an express right of action given to the Crown to recover dues on any timber, the payment of which has been evaded by any licensee or other person by the removal of such timber or products out of Canada or otherwise and it is argued that because of the existence of this provision the Court should hold that the regulations and licence issued thereunder were intended to give a right of action only in the case of such evasion. I agree that mere non-payment of dues cannot be termed evasion but I see no reason why, because of the existence of this regulation, the Crown should not have a right of action if the terms of the licence creates a debt due from the licensee which it promised to pay which, as stated above, I hold it does. Next, counsel for the trustee argues that the provincial Government never obtained an assignment from the Dominion of the dues owing under the licences granted to the Miami Corporation and so has no status to sue even if the Dominion has. This argument I think is answered by par. 4 of the agreement between the Dominion and the province set out in B.C. Statutes 1930, ch. 60, where the agreement appears as a schedule. Said par. 4 transfers to the province any power or right which by any agreement or other arrangement relating to any interest in the lands the Dominion possessed and such power or right is made exercisable or enforceable by the proper officer of the province as fully as could be done by the Dominion. If I am right in holding that the Dominion had the right to sue the licensee for arrears of dues it follows I think from this provision that that right was transferred to the province. Next, counsel for the trustee argues that with regard to the arrears due the Dominion this is a debt of the Miami Corporation and there being no privity of contract between the province and the bankrupt with regard to such arrears there can be no debt due to the Crown in right of the province from the bankrupt in reference thereto. In my opinion this point is well taken. Counsel for the province contends that there was a novation whereby the Miami Corporation was released and the bankrupt accepted by the province as the debtor for these arrears. I do not think the evidence bears out this contention. The requirements for novation are set out in 7 Halsbury, p. 314:

"‘For novation to ensue there must be not only the substitution of some other obligation for the original one, but also the intention or animus novandi (Wilson v. Lloyd (1873) L.R.

16 Eq. 60, at 74. Rouse v. Bradford Banking Co. [1894] 2 Ch. 32).

‘‘A common form of novation occurs where A. is indebted to B. and C. is indebted to A., and all three parties mutually agree that C. shall become B.’s debtor in place of A. Certain conditions must, however, be fulfilled in order to enable B. to sue C. upon such an agreement. These conditions are—

(1) that the intermediate debt of A. to B. should be extinguished (Cuxon v. Chadley (1824) 3 B. & C. 591, 107 E.R. 853); (2) that the same or a larger amount should be due from C. to A. than from A. to B. {Fairlie v. Denton (1828) 8 B. & C. 395, 108 E.R. 1089; and (3) that a defined and ascertained amount should be transferred.''

In the case at bar all that the evidence shows is that the province did not look to the Miami Corporation for payment but did discuss the question of these arrears verbally with the bankrupt and that the bankrupt filed with the province the assignment from the Miami Corporation to itself. It follows I think from the citation hereinbefore set out that the test, whether or not a novation has taken place, depends on the answer to the question—Could the Miami Corporation, if sued by the province for these arrears, set up the defence of novation? Clearly, in my opinion, it could not. The mere fact that the province did not demand payment from the Miami Corporation but did from the bankrupt, whom it knew had agreed with the Miami Corporation to make said payments, could not be set up as a release of the Miami Corporation from its obligation. Nor could the mere filing of the assignment containing said agreement with the province so operate. Further, the province could point to the excerpt hereinbefore set out from its letter in reference to said filing. If there had been a novation the province, in my opinion, could on the facts of the case at bar, make no such reservation as- is therein set forth but must assume the same relationship as to title and otherwise to the bankrupt as existed between it as assignee of the Dominion and the Miami Corporation. It is further urged in support of the proposition that a novation has taken place that the bankrupt set up in its books an account showing these arrears as being due to the Dominion but this fact would be no proof of a novation between the bankrupt and the Dominion. There might be many reasons for such an account appearing in the bankrupt’s books. Certainly after the assignment from Miami Corporation to the bankrupt it would be necessary to have such an account in the books in order that the bankrupt might know its true financial position. I hold therefore that the province has no right to claim in the bankruptcy for these arrears. Next, counsel for the trustee argues that, as to all moneys claimed, the province is a secured creditor. He bases this on the right which the province has given it by the terms of the licence and the Dominion regulations embodied therein to cancel the licence, if arrears are not paid, to refuse a renewal thereof on the same ground and to seize any timber cut under said licence and, if need be, sell same not only for dues upon the timber so seized but for the arrears in question herein. This point I consider is also well taken. It was proven to my satisfaction that the timber still standing on timber berth "‘W‘‘ is worth more than the charges which would be made against it for ground rent and royalties under the bankrupt’s licence. By this I mean that timber people would pay to the province for the exclusive right of cutting and carrying away the timber now standing thereon a greater sum than it would realize, apart from its right of seizure for arrears, were such cutting and removal done under the bankrupt’s existing licence. But whether this be so or not in my opinion the province is a secured creditor and therefore cannot file in bankruptcy as a simple contract debtor but must comply with the provisions of secs. 106 and 107 of the Bankruptcy Act, R.S.C., 1927, ch. 11. The province, because of its right of cancellation, the right of refusal to renew on failure of dues payment, and the right of seizure for arrears, has something more than the mere promise of the licensee to make such payment. So long as the licence is in good standing the right to cut all the trees on the timber berth, and the title in the trees when cut, are the property of the licensee of which he cannot be deprived by the province. If, however, he fails to pay the dues the province can once more, if it so desires, become the owner of that which it parted with by its sale of timber berth ‘‘W’’ and the licence granted in consequence, viz., the right to cut the timber thereon and the ownership of the trees when cut. If the province prefers, it can wait until trees are cut under the existing licence or a renewal thereof and then seize and sell such trees for said arrears. Because these various rights constitute something which the province holds in addition to the licensee’s mere promise to pay, something whereby it can either compel payment, or failing that resume ownership of that which it parted with under the licence, I hold the province is in the position of being a secured creditor. On this application I am not concerned with the value of such security. Finally, the province claims that, as a simple contract creditor, it should be paid in full before other simple contract creditors receive anything because of the prerogative right of the Crown. Counsel for the province conceded that owing to the provisions of sees. 123 and 188 of the Bankruptcy Act the province cannot succeed in this contention unless it can bring these arrears for timber dues under sec. 125 of said Act as being taxes, rates or assessments but he argued that said arrears are in fact taxes. In my opinion they are not. These arrears represent timber dues payable because of the contract embodied in the licence, not because they have been imposed as taxes by a taxing body. They are payable only because the licensee has entered into a contract with the Crown to pay same and become payable only if and when he cuts the timber. They are in fact part of the purchase-price payable for the rights granted to the licensee by the licensor.

In enumerating the characteristics of what constitute a tax, compulsory imposition by an authority with taxing powers is placed first by the Lords of the Privy Council in Lower Mainland Dairy Products Sales Adjustment Committee v. Crystal Dairy [1933] A.C. 168. There is no compulsion here. The obligation to pay only arises when the licensee not only signs the contract but actually cuts the trees. My view is, I think, supported by the case of In re Hardy (1928) 62 O.L.R. 367, 10 C.B.R. 107, confirmed on appeal, 63 O.L.R. 246, 10 C.B.R. 288. It is endeavoured to distinguish this decision by making the point that in that case it was admitted by the Crown that the timber dues were part of the purchase-price but for reasons hereinbefore set out I hold these arrears in question herein are likewise part of the purchase-price of the timber berth. I hold that the Crown has no prerogative right in reference to these arrears, and that they are not due as taxes.

From all of the foregoing it follows that this appeal must be dismissed.

Appeal dismissed.