In Re Abernethy-Lougheed Logging Co., Attorney-General for British Columbia, v. Salter,, [1938-39] CTC 180

MCQUARRIE, J.A.:—I agree that the appeal should be allowed.

SLOAN, J.A.:—This is an appeal by the Attorney-General from a judgment of Murphy, J. sitting as a Judge in Bankruptcy (ante, p. 173). The learned Judge upheld the disallowance by the trustee in bankruptcy of a claim filed by the Forest Branch of the Department of Lands of the province against the estate of Abernethy-Lougheed Logging Company, Limited, in bankruptcy.

We are invited by the appellant to say that the trustee was in error in disallowing the claim and that the learned Judge below was also in error in his determination of the questions herein.

I have not found the questions easy of solution and in order to reach an understanding of the matter it is necessary to examine the facts.

It appears that the Abernethy-Lougheed Logging Company, Limited (hereinafter called the Abernethy Company) carried on business as a logging company for many years in British Columbia in the area known as the railway belt. This operation was carried on under the authority, terms and conditions of timber licences issued by the Dominion Government, pursuant to timber regulations promulgated under the Domimon Lands Act, R.S.C., 1927, ch. 113. For the purposes of this inquiry it will be convenient if such licences were to be described as covering timber berth "‘W‘‘ and ‘‘those other than

‘W’,’’ for it so happens that different as well as common considerations apply to these two groups.

From the material before us it seems that the licence to log timber berth "‘W‘‘ was issued by the Dominion to Miami Corporation for several yearly periods prior to May 1, 1930, and on May 1, 1930, a licence issued for the period of the one year expiring on April 30, 1931. Those timber berths other than "‘W‘‘ were also covered by licences issued by the Dominion to the Abernethy Company for yearly periods prior to May 1, 1930, and on that date a similar yearly licence was issued covering these berths expiring on April 30, 1931.

On June 10, 1930, Miami Corporation assigned the licence covering timber berth "W‘‘ to Abernethy Company and the assignee therein agreed to assume and pay “all royalties or other charges due in respect of any timber cut from timber berth ‘W‘ at or prior to the date’’ thereof. There is a suggestion that this document was acted upon by the assignee in 1930 by entry into timber berth "‘W‘‘ although the evidence upon this point does not seem clear. It is certain, however, that the signature of the Abernethy Company was not affixed thereto until October 13, 1932.

Returning to 1930 we find that by an agreement between the Dominion and the province—the Railway Belt Retransfer Agreement—the lands situate in the railway belt were retransferred from the Dominion to the province. This agreement was given statutory effect by the province (1930, ch. 60), by the Dominion (1930, 20-21 Geo. V., ch. 37), and confirmed by an amendment to the British North America Act. 1867, by the Imperial Parliament (1930, 20-21 Geo. V., ch. 26). The agreement became operative on August 1, 1930.

On August 1, 1930, there was owing to the Dominion on all the licences in question the sum of $27,896.34 for arrears of dues and an additional amount for scaling fees, expenses, and interest computed to July 31, 1930, which brought the total owing at that date to $30,515.61.

On and after August 1, 1930, the administration of the Crown lands in the railway belt reverted to the province by virtue of the terms of the retransfer agreement.

On October 13, 1932, the Abernethy Company wrote to the Forest Branch of the Provincial Department of Lands with respect to timber berth "W,‘‘ enclosing cheque for $744.85 made up as follows :

The letter also enclosed the assignment of timber berth "W‘‘ from the Miami Corporation to the Abernethy Company and requested the transfer of the licence and "‘licences for 1931 and 1932 covering this Berth.”

The reply to this communication was dated October 19, 1932, and is (in part) as follows:

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

“We are also enclosing herewith licences for 1931-1932 and 1932-1933, all of which we shall be obliged if you will have signed by the proper officials of your Company, the Company’s seal attached, and returned to this office so that they may be completed and one copy of each forwarded to you. ‘ ‘

Following this letter two licences were issued to the Abernethy Company by the province covering timber berth W.’”’ The one (Ex. 4) was for the period from May 1, 1931, to April 30, 1932. The other (Ex. 5) covered the period from May 1, 1982, to April 30, 1933. Both licences were dated October 21, 1932.

Licences covering the timber berths other than "‘W‘‘ were also issued yearly by the province to the Abernethy Company.

On June 8, 1934, the Abernethy Company went into bankruptcy.

There was owing by the Abernethy Company to the province on all the licences for the period from August 1, 1930, to the date of the bankruptcy, the sum of $22,173.89, made up of dues, interest on dues, scaling fees and expenses.

On January 10, 1936, the Crown (provincial) filed its claim as an unsecured creditor against the trustee in bankruptcy for the sum of $52,689.50 made up as follows:

On February 10, 1937, the trustee disallowed the claim. The notice of disallowance addressed to the Forest Branch of the Department of Lands reads (in part) as follows:

"‘1. Abernethy-Lougheed Logging Company, Limited, is not in any way indebted to you.

"2. Alternatively if the said Company is indebted to you it is not indebted in the amount claimed.

^3. Alternatively if the said Company is indebted to you, which is not admitted, but denied, then you have security for the whole of such indebtedness.’’

The Attorney-General unsuccessfully appealed to Murphy, J. from this disallowance by the trustee and now comes to us.

The trustee, in support of his disallowance of the claim, advanced submissions some of which relate exclusively to timber berth "W‘‘ and others which relate to all the licences. It would perhaps be convenient at the outset to deal with submissions relative to all the licences.

In this connection it is submitted by the trustee that the Railway Belt Retransfer Agreement did not operate as an assignment from the Dominion to the province of moneys owing the Dominion at the date the agreement became effective, i.e., August 1, 1930. When we turn to the agreement which is a schedule to the provincial Act hereinbefore referred to (1930, ch. 60) we find that there are four paragraphs which are relevant to this submission, viz., pars. 1, 2, 3, and 4. They are as follows:

"‘1. Subject as hereinafter provided, all and every interest of Canada in the lands granted by the Province to Canada as hereinbefore recited are hereby retransferred by Canada to the Province and shall, from and after the date of the coming into force of this agreement, be subject to the laws of the Province then in force relating to the administration of Crown lands therein.

"‘2. Any payment received by Canada before the coming into force of this agreement in respect of any interest in the said lands shall continue to belong to Canada, whether paid in advance or otherwise, without any obligation on the part of Canada to account to the Province therefor, and the Province shall be entitled to receive and retain any such payment made after the coming into force of this agreement without accounting to Canada therefor.

“3. The Province will carry out in accordance with the terms thereof every contract to purchase or lease any interest in any of the lands hereby transferred and every other arrangement whereby any person has become entitled to any interest therein as against Canada, and will perform every obligation of Canada arising by virtue of the provisions of any statute or order in council or regulation affecting the said lands hereby transferred to any person entitled to a grant of lands by way of subsidy for the construction of railways or otherwise, or to any railway company for grants of land for right-of-way, roadbed, stations, station grounds, workshops, buildings, yards, ballast pits or other appurtenances.

" 4. Any power or right which, by any agreement or other arrangement relating to any interest in the lands hereby transferred or by any Act of the Parliament of Canada relating to the said lands, or by any regulation made under any such Act, is reserved to the Governor in Council, or to the Minister of the Interior or any other officer of the Government of Canada, may be exercised by the Lieutenant-Governor of the Province in Council or by such officer of the Government of the Province as is authorized to exercise similar powers or rights under the laws of the Province relating to the administration of Crown lands therein. ‘ ‘

The learned Judge below in dealing with this branch of the trustee’s submission said in his reasons for judgment:

“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.”

While it may well be that par. 4 bears the meaning put upon it by the learned Judge below I prefer to base my conclusion upon another ground; the result, of course, is the same. In my view par. 1 of the agreement is the primary one to be considered in this connection. The language used is, I think, intended to be inclusive of all matters with the exception of the payments referred to in par. 2. What is to be transferred from Canada to the province under par. 1? It is ‘‘all and every interest of Canada in the lands * * *.” In my view the dues and other moneys owing the Dominion under the licences in question were owing in respect to an ‘‘interest in the land—that is, in respect of the trees which till cut were part of the freehold, and in respect of their sale off the land:’’ In re Timber Regulations; Aity.-Gen. for Man. v. Atty.-Gen. for Can. [1935] A.C. 184, at 193. Par. 1 then operating as an effective statutory assignment to the province of the moneys owing the Dominion I am in agreement with the learned Judge below that the right to sue for such moneys owing was transferred to the province not only under par. 4, but under sec. 3 of ch. 60, 1930, which reads as follows :

”3. So far as the Legislature has power to enact, the Lieutenant-Governor in Council is authorized and empowered to do all such acts as may be necessary in order to give full effect to the Agreement. ‘

There may be other reasons for holding that the right to sue was transferred to the province by the agreement but it is, in my view, unnecessary to enter into a further elaboration of the matter.

This brings me to the submission of the trustee with respect to timber berth "W,‘‘ He contends that, even if the agreement did operate as an assignment, the debt assigned was that of Miami Corporation and not that of the Abernethy Company. He submits that "‘there is no privity of contract between the province and the bankrupt’’ with regard to those sums owing the Dominion by Miami Corporation prior to August 1, 1930, and that if the province has any claim in relation to timber berth “W” it is not against the bankrupt but against Miami Corporation. The learned Judge below held that this point was well taken.

The Attorney-General contended that the learned Judge below was in error in so finding and advanced the argument that "‘there was a complete novation, an ‘animus novandi,’ on the part of all three parties concerned and a carrying out of the intention to substitute the Abernethy-Lougheed Logging Company, Limited as debtor in place of the Miami Corporation.”

Whether there has been novation in any particular case is a question of fact but I find no embarrassment in reviewing the finding of the learned Judge below on this issue, in this ease, because the determination of it depends upon the construction of documents, letters and uncontradicted evidence.

First of all, what are the essential elements necessary to establish a complete novationé The answer to that is to be found in the terse and explicit language of Begbie, C.J., in Polson v. Wulffsohn (1890) 2 B.C.R. 39, at 43 (affirmed on appeal [see footnote p. 44]). While I can find no mention of this case in my notes of argument of counsel I think that neither the earlier nor later cases cited contain any better definition that that of Sir Matthew Begbie. To bring about a complete novation he said

* * * three things must be established: First, the new debtor must assume the complete liability ; second, the creditor must accept the new debtor as a principal debtor, and not merely as an agent or guarantor; third, the creditor must accept the new contract in full satisfaction and substitution for the old contract; one consequence of which is that the original debtor is discharged, there being no longer any contract to which he is a party, or by which he can be bound.” He added:

“All these matters are in our law capable of being established by external circumstances; by letters, receipts, and payments and the course of trade or business. ‘

In other words, in the absence of an express agreement the intention of the parties may be inferred from external circumstances including conduct.

In this case we have the Abernethy Company assuming complete liability under the terms of the assignment (Ex. 19) for the debt of Miami Corporation. This assignment was recorded in the Department of Lands on or about October 19, 1932 (Ex. 21). To my mind there can be no question but that the first element necessary to be established has been proved. Also, to my way of thinking the facts indicate the second condition or element fulfilled; that is to say, the province accepted the Abernethy Company as its principal debtor and not merely as agent or guarantor.

S. W. Barclay, an official of the Forest Branch of the Department of Lands, was called as a witness and gave the following testimony relative to this matter :

“On August 1st, 1930, we took over from the Crown Agent, New Westminster, the records and books showing that the Abernethy-Lougheed Logging Company on Timber Berth W owed approximately $30,000. We went to work and checked. up with the Dominion books and also the books of the Abernethy-Lougheed Logging Company, showing that there was approximately $30,000 due to the Department for logs cut by the Abernethy-Lougheed Logging Company on Timber Berth W. Then a check was made with the company books showing that they owed to the Department of the Interior the amount which was transferred over to the Provinee under the Retransfer Act. The assignment was received in 1932, showing that the Abernethy-Lougheed Logging Company was liable.

‘MR. Peeler : Q. That is the assignment from the — A. From the Miami Corporation to the Abernethy-Lougheed Logging Company, showing that the Abernethy-Lougheed Logging Company assumed liability for the past, present and future dues. We just went after the company for the payment of the charges.’’

On eross-examination :

“A. Did you make any application to the Miami Corporation to obtain payment of any of your dues? A. No.

“Q. You didn’t know about the assignment of timber berth W until 1932 ? A. No.

“Q. From 1932 until the date of the assignment and during 1931 and during 1930 from the 1st of August, that is probably about two years, you didn’t attempt to make any collection from the Miami Corporation? A. No.

‘‘Q. Nor did you, as a matter of fact, make any attempt to make collection from the Abernethy-Lougheed Logging Company until the bankruptcy occurred, did you?. A. Oh, yes.

"‘Q. You wrote letters to them. did you? A. No, we took it up with the company.

"‘Q. Spoke to the company about it? A. Spoke to the company about it.

"‘Q. Spoke to some officer of the company? A. Yes.

‘‘Q. Didn’t you write any letters? A. There would be letters written, and then there would be interviews with the Company in regard to the arrears.”

In my view this evidence is also material upon the third element and is a clear indication of the intention of the province to accept the new contract in substitution for the old. Additional weight is given to this evidence by the fact that the province acknowledged its intention to look to the Abernethy Company and not the Miami Corporation by filing its claim with the trustees in bankruptcy: Rich v. Nor. Amer. Lbr. Co. (1913) 18 B.C.R. 543.

It is also a matter of some significance that when the province took over the records and books of account from the Dominion in August of 1930 these documents indicated that the Abernethy Company was liable for the moneys owing to the Dominion on timber berth ‘‘W.’’ (Barclay’s evidence and Ex. 30.) It is not clear to me why the accounts were in that form and therefore I did not give much credit to those items when dealing with the other issues raised but on this aspect of the case it may be mentioned as having some weight in relation to the intention of the province to look to the Abernethy Company as its debtor in the place of Miami Corporation.

In the consideration of this matter a further fact must not be lost to sight. From the material before us it appears that the 44 Lougheed” of Abernethy-Lougheed Logging Company, Limited, was the Honourable Nelson Seymour Lougheed, Minister of Lands for the province. He was charged with the administration of the Department of Lands during material times and while there is no evidence upon the subject I do not think it unreasonable to deduce that he would see to it that the covenant of the Abernethy Company, in the assignment, was accepted by the province in lieu of the obligation of Miami Corporation. That result was clearly intended by the parties and I think we may draw the inference that the Honourable Mr. Lougheed would on the part of the province, and as responsible Minister, give full effect to the assignment, the covenants therein, and what was intended thereby. But be that as it may, and apart from it, in my opinion and with the utmost deference novation has been established, the consequence of which is Miami Corporation is discharged from liability, "‘there being no * * * contract to which [it] is a party, or by which [it] can be bound”— Polson 9 s ease, supra.

I have not overlooked the somewhat curious phraseology of the letter of October 19, 1932 (reproduced above) but have concluded, with respect, that it does not contain anything inconsistent with the intention of the province to treat the Abernethy Company as its debtor in place of Miami Corporation. The reference to "‘responsibility as to title” I think possibly arises from the fact that the province was recording, in 1932, the transfer of a licence issued by the Dominion in 1930 prior to the date when the administration of the lands in the railway belt vested in the province. There is no such reference to the titles in relation to licences issued for 1932-1933.

To sum up at this point I am satisfied, with respect, that the Abernethy Company is indebted to the province in the amount claimed, i.e., $52,689.50.

This brings me now to the consideration of a question affecting this total claim which total, of course, comprises everything owing on all the licences. The question is whether or not the province is a secured or common creditor of the bankrupt company. It claimed in its proof of debt as a common or unsecured creditor. The trustee disallowed the claim upon the ground (inter alia) that the province had ‘ security for the whole of such indebtedness.’’ In this he was upheld by the learned Judge below who was of the opinion that the rights reserved to the provinee, e.g., right of cancellation, right to refuse to renew licence, right of seizure for arrears, ‘‘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 * * *’’ and in consequence he held the province to be in the position of a secured creditor.

Before us the trustee sought to uphold this finding of the learned trial Judge and as an additional ground to support his contention that the Crown was a secured creditor submitted it was secured as well by reason of the statutory charge or lien of the Crown arising out of sec. 59 of the Dominion Lands Act, R. S. C., 1927, ch. 113, sees, 128-129 of the Forest Act, R.S.B.C., 1936, ch. 102, pars. 22, 23 and 27 of the Dominion Timber Regulations and the conditions and terms contained in the licences. I do not propose to express any opinion on these submissions except to say that they are not relevant to the facts of the case because in the view I take the licences were not in existence on January 10, 1936. when the Crown filed its claim with the trustees.

The relationship between the Crown and the bankrupt at that time was that of creditor and debtor and not that of licensor and licensee.

We are not concerned with cut timber and upon expiry of the licences all uncut timber became revested in the Crown. It would be idle to suggest that the Crown was entitled to a chattel or lien on its own property and as the licences were no longer in existence there could be no existing rights of cancellation and repossession which led the learned Judge below to hold the Crown a secured creditor.

I base this conclusion upon my understanding of the relevant sections of the Dominion Lands Act, the Forest Act, timber regulations and form of the licences.

In examining this aspect of the case I feel some diffidence because counsel for both appellant and respondent maintained the the licences, when issued, remained in force until cancelled and no doubt took that same position below.

With deference I feel bound to state that I cannot find any statutory or other basis upon which that position can be supported.

The relevant section of the Dominion Lands Act reads as follows :

"51. The licence shall be for a term not exceeding one year, but shall be renewable from year to year while there is on the berth timber of the kind and dimension described in the licence, in sufficient quantity to make it commercially valuable, such renewal being subject to the payment of such dues and to such terms and conditions as are fixed by the regulations in force at the time the renewal is made.

" " 2. The Minister shall be the judge as to whether the terms and conditions of the licence and the provisions of this Act and of the regulations made hereunder respecting timber berths have been fulfilled.’’

Pars. 9 and 11 of the Dominion regulations read as follows:

“9. All timber licences shall expire on the thirtieth day of April next after the date on which they are granted.

* * *

(11. A licence shall be renewable from year to year while there is on the berth timber of the kind and dimensions described in the licence in sufficient quantity to be commercially valuable, if the terms and conditions of the licence and the provisions of the Dominion Lands Act and of the regulations affecting the same have been fulfilled:

" Provided that such renewal shall be subject to the payment of such rental and dues and to such terms and conditions as are fixed by the regulations in force at the time renewal is made.’’

The licences, the form of which is identical whether issued by the Dominion or province, contain the following (1 take Ex. 5 as an example) :

LICENCE TO Cut ‘TIMBER

“Know All Men by These Presents, that by virtue of the authority vested in me by the ‘Dominion Lands Act’ and by an Order of His Excellency the Governor-General in Council of the twenty-sixth day of March, 1924, and subsequent amending Orders in Council, and in furtherance of the agreement made the twentieth day of February, 1930, between the Dominion of Canada and the Province of British Columbia on the subject of the transfer of the Railway Belt and the Peace River Block, I, The Honourable Nelson Seymour Lougheed the Minister of Lands of the Province of British Columbia, do hereby, in consideration of the sum of Two hundred and fifty-eight dollars and fifty cents ($258.50) ground-rent now paid to me for the use of His Majesty George VI., and in consideration of the dues hereinafter mentioned, give unto

({ ABERNETHY-LOUGHEED LOGGING COMPANY, Limited

“(hereinafter called the licensee’), his executors and administrators, full right, power, and licence, subject to the conditions hereinafter mentioned and contained, and such other conditions and restrictions as are in that behalf contained in the Dominion Lands Act f and the amendments thereto, and in the regulations respecting timber passed by the Governor-General in Council and in any regulations affecting licenced timber berths issued under authority of the Provincial ‘Forest Act,’ to cut timber on the following tract of land (hereinafter called the ‘berth’ or ‘berths’), that is to say :—

“Timber Berth ‘W’ situated in the Province of British Columbia **" [here follows description] and to take and keep exclusive possession of the said lands, except as hereinafter mentioned for and during the period of one year from the first day of May, 1932, to the thirtieth day of April, 1933, and no longer.’’

I cannot escape the conclusion that the licences expire at the end of every licence year without any necessity for action by anyone.

I would point out, as I view the matter, that to the contrary of what both counsel maintained, it requires a ministerial act to renew the licences, not to cancel them. The licences automatically expire at the termination of the licence year but to renew them the applicant for renewal must satisfy the Minister of his right thereto and the Minister by reason of sec. 01(2) of the Dominion Lands Act "‘shall be the judge as to whether the terms and conditions of the licence and the provisions of this [said] Act and of the regulations made thereunder respecting timber berths have been fulfilled.’’

The Abernethy Company at the date of the bankruptcy (June 8, 1934) was logging pursuant to the authority conferred by licences issued on May 1, 1934, expiring on April 30, 1935. These licences were not renewed and in consequence at the date on which the province filed its claim herein (January 10, 1936) the bankrupt was not the holder of any subsisting licences in which it or the province had any rights of any kind.

It follows in my view on the facts of this case that the Crown cannot be regarded as a secured creditor.

There remains but one other point to be determined. The Attorney-General submitted that if the Crown was held to be an unsecured creditor then the timber dues in question are ‘“taxes, rates, or assessments’’ within sec. 125 of the Bankruptcy Act, R.S.C., 1927, ch. 11, and in consequence the Crown is entitled to payment of this part of its claim in priority to other creditors of equal degree. In my view this contention, with respect, is unsound.

I am in agreement with the learned Judge below on this phase of the dispute and am of the opinion that the obligation to pay the dues arises ex contractu. I do not feel that I can add anything to what he has said.

In the result I would allow the appeal because in my opinion, with respect, the province is entitled to claim as an unsecured ereditor against the estate of the Abernethy Company in the sum of $52,689.50.

Costs to be spoken to.

Appeal allowed.