[OFFICIAL ENGLISH TRANSLATION]
Date: 20011130
Docket: 98-1397(IT)I
BETWEEN:
YVAN LESSARD,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Bowman, A.C.J.
[1] This appeal is from an assessment
made under subsection 224(4) of the Income Tax Act on
the ground that the appellant failed to act on a third party
requirement served on him with respect to his partner
Alain Aubé. The case was heard by the late
Judge Tremblay, who died before he could render his
judgment. By consent of the parties, the case was decided on the
basis of the transcripts.
[2] The facts may be summarized in a
few words. The appellant and Alain Aubé operated a
carpet installation business under the trade name "Les
Installations Yvan et Alain". Mr. Aubé had an
unpaid tax debt for the 1992, 1993 and 1994 taxation years, which
amounted to $4,187.98 on January 5, 1996.
[3] On January 5, 1996, the
Minister of National Revenue had the following requirement to pay
served on
[TRANSLATION]
Yvan Lessard and Alain Aubé
(who occasionally operate a corporation under the name Les
Installations Yvan et Alain.).
50 Chemin Piché
Chicoutimi, QC
G7H 5A8
[4] Despite subsection 224(6) of
the Income Tax Act, the officers of the Canada Customs and
Revenue Agency ("Agency") clearly were not certain of
the validity of a requirement served on a corporation one of
whose members was the tax debtor himself. As a result, another
requirement was served that same day on
[TRANSLATION]
Yvan Lessard (who occasionally operates a corporation
under the name Les Installations Yvan et Alain)
1731 Boul. Tadoussac
St-Fulgence, QC
G0V 1S0
[5] The requirement was drafted in
both official languages. The English text is reproduced
below.
|
Date
5 JAN. 1996
|
TSO
BSF
1257
|
|
Bureau des services fiscaux
Chicoutimi Tax Services Office
|
|
Contact
Tel.
Ext.
Denis
Girard
(418) 698-5554
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Tax Debtor - Débiteur fiscal
Alain Aubé
50, rue Piché
Canton Tremblay, QC
G7H 5A8
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ACCOUNT NUMBER
NUMÉRO DE
COMPTE
255492993
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You are hereby required to pay to the Receiver General on
account of the above-named tax debtor's liability under one
or more of the Acts cited below,
(1)
forthwith, the moneys otherwise and immediately payable to
the tax debtor which you are liable to pay,
(2) all other moneys
otherwise payable to the tax debtor which you will be, within one
year, liable to pay, as and when the moneys become payable,
(3) where the moneys
referred to in (1) and (2) include interest, rent, remuneration,
a dividend, an annuity or other periodic payment, all such
payments to be made by you to the tax debtor (at any time during
or after the one year period) until the liability is satisfied,
and
|
x
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(4)
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if the box on the right is x-ed, the moneys that
within 90 days you would otherwise loan or advance to,
or pay on behalf of, the tax debtor, and, if you are a
bank, credit union, trust company or other similar person,
pay in respect of a negotiable instrument issued by the tax
debtor*,
|
but do not pay hereunder more than $4,187.98
(the maximum payable).
Please make cheques or money orders payable to the Receiver
General and remit them either with one of the attached Third
Party Remittance Forms or with other identification providing the
tax debtor's name, address and account number as well as the
remitter's name, in the enclosed addressed envelopes.
Failure to pay the Receiver General the amounts required above
renders you personally liable to pay those amounts to Her
Majesty.
This requirement has been executed under one or more of the
following Acts (see reverse):
[signed]
JEAN-GUY DALLAIRE
Director,
Chicoutimi Tax Services Office
Revenue Canada
*(4) does not apply to a bank,
credit union, trust company or other similar person unless the
tax debtor is indebted to it and has granted security in respect
of the indebtedness.
[6] The appellant believed that an
agreement had been entered into between the Agency and
Mr. Aubé, and he paid no amount to the Receiver
General.
[7] Whatever the case may be, after
nearly two years, the Minister assessed the appellant in the
amount of $4,187.98.
[8] It was established that
Mr. Aubé had made a partial payment of $1,500 on his
tax debt under the terms of an agreement entered into with the
Agency's collection service. Consequently, the
appellant's obligation-if indeed there was one-according to
the third party requirement, should have been reduced by $1,500
to $2,687. Furthermore, on October 2, 1997,
Mr. Aubé filed a proposal under section 66.13 of
the Bankruptcy and Insolvency Act
("BIA"). The Agency filed a claim for
$7,062.80 and ultimately obtained a promise of a dividend of
approximately $3,350 under the proposal. I assume the Agency
ultimately received that amount.
[9] The $1,500 amount paid by
Mr. Aubé must be deducted from the debt due first, in
the absence of any indication to the contrary. The amount would
thus be imputed to the amounts owed in 1992 and 1993, which
constitute the basis of the requirement made under
subsection 224(4) of the Income Tax Act.
Article 1572 of the Civil Code of Quebec
("Code") clearly states:
In the absence of imputation by the parties, payment is imputed
first to the debt that is due.
Where several debts are due, payment is imputed to the debt which
the debtor has the greatest interest in paying.
Where the debtor has the same interest in paying several debts,
payment is imputed to the debt that became due first; if all of
the debts became due at the same time, however, payment is
imputed proportionately.
[10] It is less certain that the $3,350
dividend can also be deducted from the tax debt. I do not believe
that a provincial statute governing the imputation of payment of
debts can affect the imputation of a dividend payment under the
BIA. I will address this question later in these reasons,
after stating the main test on which I rely in allowing the
appeal.
[11] Subsection 224(1) of the Income
Tax Act provides as follows:
(1) Where the Minister
has knowledge or suspects that a person is, or will be within one
year, liable to make a payment to another person who is liable to
make a payment under this Act (in this subsection and
subsections (1.1) and (3) referred to as the "tax
debtor"), the Minister may in writing require the 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 in whole or in part to the
Receiver General on account of the tax debtor's liability
under this Act.
(1.1) Without limiting the generality of
subsection (1), where the Minister has knowledge or suspects
that within 90 days
(a) a bank, credit union,
trust company or other similar person (in this section referred
to as the "institution") will lend or advance moneys
to, or make a payment on behalf of, or make a payment in respect
of a negotiable instrument issued by, a tax debtor who is
indebted to the institution and who has granted security in
respect of the indebtedness, or
(b) a person, other than
an institution, will lend or advance moneys to, or make a payment
on behalf of, a tax debtor who the Minister knows or suspects
(i) is employed by, or is
engaged in providing services or property to, that person or was
or will be, within 90 days, so employed or engaged, or
(ii) where that person is a
corporation, is not dealing at arm's length with that
person,
the
Minister may in writing require the institution or person, as the
case may be, to pay in whole or in part to the Receiver General
on account of the tax debtor's liability under this Act the
moneys that would otherwise be so lent, advanced or paid and any
moneys so paid to the Receiver General shall be deemed to have
been lent, advanced or paid, as the case may be, to the tax
debtor.
(1.2) Notwithstanding any other provision
of this Act, the Bankruptcy and Insolvency Act, any other
enactment of Canada, any enactment of a province or any law, but
subject to subsections 69(1) and 69.1(1) of the
Bankruptcy and Insolvency Act and section 11.4 of the
Companies' Creditors Arrangement Act, where the
Minister has knowledge or suspects that a particular person is,
or will become within one year, liable to make a payment
(a) to another person (in
this subsection referred to as the "tax debtor") who is
liable to pay an amount assessed under subsection 227(10.1)
or a similar provision, or
(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 in writing 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 the
similar provision, and on receipt of that requirement by the
particular person, the amount of those moneys that is so required
to be paid to the Receiver General shall, notwithstanding any
security interest in those moneys, become the property of Her
Majesty to the extent of that liability as assessed by the
Minister and shall be paid to the Receiver General in priority to
any such security interest.
(1.3) In subsection (1.2),
"secured creditor" - "secured
creditor" means a person who has a security interest in the
property of another person or who acts for or on behalf of that
person with respect to the security interest and includes a
trustee appointed under a trust deed relating to a security
interest, a receiver or receiver-manager appointed by a secured
creditor or by a court on the application of a secured creditor,
a sequestrator or any other person performing a similar
function;
"similar provision" - "similar
provision" means a provision, similar to
subsection 227(10.1), of any Act of a province that imposes
a tax similar to the tax imposed under this Act, where the
province has entered into an agreement with the Minister of
Finance for the collection of the taxes payable to the province
under that Act;
"security interest" - "security
interest" means any interest in property that secures
payment or performance of an obligation and includes an interest
created by or arising out of a debenture, mortgage, lien, pledge,
charge, deemed or actual trust, assignment or encumbrance of any
kind whatever, however or whenever arising, created, deemed to
arise or otherwise provided for.
(1.4) Provisions of this Act that provide
that a person who has been required to do so by the Minister must
pay to the Receiver General an amount that would otherwise be
lent, advanced or paid to a taxpayer who is liable to make a
payment under this Act, or to that taxpayer's secured
creditor, apply to Her Majesty in right of Canada or a
province.
(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.
(3) Where the Minister
has, under this section, required a person to pay to the Receiver
General on account of a liability under this Act of a tax debtor
moneys otherwise payable by the person to the tax debtor as
interest, rent, remuneration, a dividend, an annuity or other
periodic payment, the requirement applies to all such payments to
be made by the person to the tax debtor until the liability under
this Act is satisfied and operates to require payments to the
Receiver General out of each such payment of such amount as is
stipulated by the Minister in the requirement.
(4) Every person who
fails to comply with a requirement under subsection (1),
(1.2) or (3) is liable to pay to Her Majesty an amount equal to
the amount that the person was required under
subsection (1), (1.2) or (3), as the case may be, to pay to
the Receiver General.
(4.1) Every institution or person that
fails to comply with a requirement under subsection (1.1)
with respect to moneys to be lent, advanced or paid is liable to
pay to Her Majesty an amount equal to the lesser of
(a) the total
of moneys so lent, advanced or paid, and
(b) the
amount that the institution or person was required under that
subsection to pay to the Receiver General.
(5) Where a person
carries on business under a name or style other than the
person's own name, notification to the person of a
requirement under subsection (1), (1.1) or (1.2) may be
addressed to the name or style under which the person carries on
business and, in the case of personal service, shall be deemed to
be validly served if it is left with an adult person employed at
the place of business of the addressee.
(6) Where persons carry
on business in partnership, notification to the persons of a
requirement under subsection (1), (1.1) or (1.2) may be
addressed to the partnership name and, in the case of personal
service, shall be deemed to be validly served if it is served on
one of the partners or left with an adult person employed at the
place of business of the partnership.
[12] I have reproduced the full text of that
provision because it is important to understand that only
subsection 224(1) is likely to apply in the instant case.
The "person" in question in subsection 224(1) is
the appellant.
[13] The amounts paid to
Mr. Aubé, as may be seen from the cheques filed as
Exhibit I-6, were not for the purpose of repaying a
debt, which the appellant had contracted with
Mr. Aubé. They merely represented the portion of the
corporation's profits owed to Mr. Aubé.
Subparagraphs 5(f), (g) and (h) of the reply to the notice
of appeal state that the Minister "made, in particular, the
following assumptions of fact":
[TRANSLATION]
(f) on
January 5, 1996, the Minister issued, inter alia, a
requirement to pay to the appellant in his capacity as a partner
of the business known under the trade name "Les
Installations Yvan et Alain";
(g) that requirement
to pay required that the appellant retain and remit to the
Receiver General every amount owed or becoming payable by
"Les Installations Yvan et Alain" to
Alain Aubé to a maximum amount of $4,187.98;
(h) a check of the
business's cancelled cheques for the period from January to
October 1996 clearly showed that the appellant had failed to
comply with the requirement to pay dated January 5,
1996.
[14] With respect to subparagraph (g),
the appellant was not required by the "requirement" to
pay the Receiver General all the amounts owed or becoming payable
by the corporation. It required the appellant to pay the Receiver
General the amounts it owed to Mr. Aubé. The
appellant owed Mr. Aubé nothing. A partner is not
liable to another partner for that other partner's share of
corporate profits. Subparagraph (h) is evidence, not a fact,
and it should not appear in the assumptions of fact. Whatever the
case may be, the fact that the appellant and Mr. Aubé
co-signed the cheques used to pay Mr. Aubé his share
of the corporation's profits is not evidence that the
appellant failed to act on the requirement.
[15] The appellant's testimony is
reproduced below.
[TRANSLATION]
Q. At that time, did
you owe Alain Aubé money?
A. No, not at all.
Q. Did you owe money
afterwards? Was there a period when you owed
Alain Aubé money?
A. No, never.
Q. You personally never
advanced sums to Alain Aubé, sums which might have
been owed on January 5, 1996, or which might have become due
after January 5, 1996?
A. No, not at all.
. . .
Q. Do you pay
Alain Aubé a salary?
A. No, I pay no salary.
I mean, we withdraw money from what we make together; I mean, if
we make $500 one week and our costs are $100, we are left with
$400. So we withdraw $200. And if we make $1,000 and
have . . . Ultimately, we make withdrawals
throughout the week based on our income and based on what we
have.
Q. You personally paid
Mr. Aubé nothing after January 5, 1996?
A. No.
Q. But we understand
that Mr. Aubé made withdrawals from the company?
A. Yes, yes.
Q. Or rather from the
corporation.
A. Yes.
Q. Tell me,
Mr. Lessard, how would you have reacted to such a
requirement if it had been addressed to Les Installations Yvan et
Alain and it had involved one of your employees?
A. Well, obviously, if
it had been an employee, I would have owed him money. In that
case, the employee would have worked for me, would have put in
hours for me, and I would owe him. I mean, I would have been
required to tell my employee: well, it's unfortunate, but
either you come to an agreement with the department, or I send
them your cheque. I mean, I would have had no other choice.
Except that I don't feel above Mr. Aubé. I mean,
in the end, we are 50-50, and I owe him nothing, but, I
mean, he's my partner, and that's that.
THE COURT:
Q. But you signed his
cheque?
A. Yes, yes, yes, I
signed his cheque. He did the same.
PAUL GUIMOND:
Q. Is he the one who
signs yours? Yes?
A. He signed mine as
well.
Q. There were two
signatures on the cheques?
A. Yes.
THE COURT:
Q. Ah! There were two
signatures?
A. There were two
signatures on the cheques.
Q. Always two
signatures?
A. All the time.
Q. I see.
A. In our account and
on our cheques.
PAUL GUIMOND:
Q. You did not have the
authority to write a cheque alone and to send it to the
department . . .
A. No.
Q. . . . for
Alain Aubé?
A. No.
Q. Legally, you were
not able to do that?
A. I necessarily needed
Mr. Aubé's signature, and you will understand
that, I mean, if I decide . . . Normally, we made
out our cheques on Fridays, and, since today is Friday, you will
understand that, today, if I decided not to sign his pay cheque,
he could decide to do the same thing as well; I
mean . . .
[16] Mr. Aubé's testimony is
reproduced below.
[TRANSLATION]
Q. The corporation
had received that requirement?
A. Well, it was not the
corporation that had received it, it was Yvan, Yvan Lessard.
It was addressed to Yvan Lessard, and Yvan Lessard is
my partner. We have a small company, which we registered here at
the courthouse, and he writes himself pay cheques, and I write
myself pay cheques. He signs my pay cheque, and I sign his, but,
I mean, he is not my boss, and I'm not his either. We work
together, and he owes me nothing, and I ultimately owe him
nothing; I mean, we earn salaries, we pay our suppliers, we pay
for our truck, and, after that, we pay ourselves salaries. But he
pays me nothing; and me, he owes me nothing; and I owe him
nothing either.
. . .
A. . . . The
corporation is . . . we operate on a 50-50
basis in the business. No, I'm not Yvan Lessard's
employee. I am not Yvan Lessard's employee¾we
work together; we are two craftsmen, and we work together. So I
do not see how he could interfere and say: I'm taking your
money, which is yours, and I am sending it to them, and, in any
case, we had an agreement with the government, and I was
trying . . . I have always been honest in
that . . .
[17] In The Queen v. National
Trust Company, F.C.A., No. A-969-97,
July 3, 1998 (98 DTC 6409), the Federal
Court of Appeal determined that subsection 224(1) of the
Income Tax Act did not apply solely to cases where there
is a debtor-creditor relationship. Isaac C.J.A. wrote as
follows in paragraph 47:
It is my respectful view, therefore, that the Tax Court Judge
was wrong in law to limit the phrase 'liable to make a
payment' only to situations where a debtor-creditor
relationship exists. In so doing, he precluded himself from
asking the only relevant question when one is confronted with
construction of the subsection. It is this: did the respondent
have a responsibility at law to make a payment to the tax debtor
on 1 February 1994?
[18] Isaac C.J.A. also stated the
following in paragraph 57:
The tax debtor had a contractual right, enforceable in law, to
have the net proceeds paid to him. The respondent had a
corresponding contractual obligation to make the payment
requested. In my respectful view, this legal obligation was
sufficient to bring the respondent within the scope of the phrase
'a person liable to make a payment' to the tax debtor
within the meaning of subsection 224(1).
[19] The point at issue in National Trust
Company was whether the appellant on whom a requirement had
been served under subsection 224(1) respecting a certain tax
debtor had an obligation to pay the tax debtor an amount in
respect of the proceeds of the RRSP that was payable to him. To
that end, the Federal Court of Appeal considered the meaning to
be given to the word "payable", in paragraphs 61
and 62 of the judgment.
[20] In the case at bar, in order to confirm
an assessment made in respect of the appellant under
subsection 224(4), the appellant must have failed to act on
a requirement served under subsection 224(1). Under
the terms of the requirement served on the appellant, he had to
refrain from paying any amount that might become payable by him
to the tax debtor. According to the Federal Court of Appeal's
decision in National Trust Company, for there to be a
violation of subsection 224(1), the appellant must have had
a responsibility at law to make a payment to the tax debtor.
[21] Under article 2186 of the
Code, partners share the pecuniary profits resulting from
the operation of a business. Article 2202 deals with the
sharing of profits:
The share of each partner in the assets, profits and losses is
equal if it is not fixed in the contract.
If the contract fixes the share of each partner in only the
assets, profits or losses, it is presumed to fix the share for
all three cases.
[22] None of the provisions in the
Code concerning partnerships states that a partner has an
obligation to pay his share of the partnership's profits to
another partner. The only provision imposing an obligation on a
partner to make a payment to another partner is
article 2227, which applies in cases where one of the
partners ceases to be a member of the partnership otherwise than
by the transfer or seizure of his share. Articles 2226 and
2227 of the Code provide as follows:
2226. A partner ceases to be a member of the
partnership by the transfer or redemption of his share or upon
his death, upon being placed under protective supervision or
becoming bankrupt, or by the exercise of his right of withdrawal;
he also ceases to be a member where such is his will, by his
expulsion or by a judgment authorizing his withdrawal or ordering
the seizure of his share.
2227. A partner who ceases to be a member of the
partnership otherwise than by the transfer or seizure of his
share may obtain the value of his share upon ceasing to be a
partner, and the other partners are bound to pay him the amount
of the value as soon as it is established, with interest from the
day on which his membership ceased.
Failing stipulations in the contract of partnership or failing
agreement among the interested persons as to the value of the
share, the value is determined by an expert designated by the
interested persons or, failing that, by the court. The expert or
the court may, however, defer the assessment of contingent assets
or liabilities.
[23] A partner's obligations toward
another partner appear to be the same in common law and in the
Code. In Erb v. Canada,
2000 DTC 1401, I wrote as follows:
[77] In Halsbury's Laws of
England, 4th Ed., Vol. 35, page 96, paragraph 147,
the following appears:
147. No indebtedness between partners.
Partners are not, as regards partnership dealings, considered as
debtor and creditor between themselves until the concern is wound
up or until there is a binding settlement of the accounts; but,
where exceptionally a partner has repeatedly requested the taking
of an account but this has been refused, that partner may be
entitled to sue his co-partners in respect of a specific debt
owed to him qua partner without such an account having been
taken. Subject thereto, it follows that one partner has no right
of action against another for the balance owing to him until
after final settlement of the accounts; and money lent to a
partnership by a partner cannot be recovered in a common law
action for money lent. This rule applies only in relation to
persons who are currently partners; and, once a partner has left
the partnership leaving the other partners to continue the
firm's business on their own account, as, for example, where
the outgoing partner has retired or has been expelled, his former
partners are creditors to him in respect of any part of his
partnership share or other agreed entitlement as has not been
paid out to him.
[24] Counsel for the respondent appears to
have contended that, even if the appellant owed the tax debtor
nothing, he is held responsible for the partnership's failure
to act on the requirement served on him. Counsel may have relied
on article 2221 of the Code, which applies to a
general partnership, or on articles 2253 and 2254 of the
Code, which involve undeclared partnerships.
2221. In respect of third persons, the partners are
jointly liable for the obligations contracted by the partnership
but they are solidarily liable if the obligations have been
contracted for the service or operation of an enterprise of the
partnership.
Before instituting proceedings for payment against a partner, the
creditors shall first discuss the property of the partnership; if
proceedings are instituted, the property of the partner is not
applied to the payment of creditors of the partnership until
after his own creditors are paid.
2253. Each partner contracts in his own name and is
alone liable towards third persons.
Where, however, to the knowledge of third persons, the partners
act in the quality of partners, each partner is liable towards
the third persons for the obligations resulting from acts
performed in that quality by any of the other partners.
2254. The partners are not solidarily liable for
debts contracted in carrying on their business unless the debts
have been contracted for the use or operation of a common
enterprise; they are liable towards the creditor, each for an
equal share, even if their shares in the undeclared partnership
are unequal.
[25] However, even if the appellant is held
responsible for the partnership's failure to remit to the
Minister the amounts payable to the tax debtor, the failure
cannot give rise to the making of an assessment under
subsection 224(4). That provision applies when
subsection 224(1) has been violated. In the instant case,
since the appellant is not responsible at law for making a
payment to the tax debtor, there can have been no violation of
subsection 224(1).
[26] The appellant was never liable to
Mr. Aubé for any amount whatever.
[27] That is sufficient to rule on the
appeal. However, although in any case I may render my decision, I
would like to return briefly to the question of the effect of the
dividend paid by the trustee under the proposal filed by
Mr. Aubé under the BIA.
[28] Since I have concluded that the appeal
must be allowed for other reasons, I need not state a final
opinion on the four possible assumptions respecting the effect of
a payment of a dividend under a proposal made under the
provisions of the BIA.
[29] The four assumptions that may be
considered are as follows:
(a) the payment of a dividend
under such a proposal, which binds the creditor, releases the
third party to the same degree that it releases the principal tax
debtor;
(b) such payment has no effect on the
third party's obligations;
(c) such payment must be imputed to
the debt due first;
(d) the payment must be imputed
proportionately to all the debts owed to the creditor by the
debtor.
[30] I shall briefly summarize the reasons
why I have decided that the fourth assumption is most closely
consistent with the object of the BIA.
[31] There are solid arguments in favour of
the first assumption.
[32] The tax debtor filed a consumer
proposal under section 66.13 of the BIA, and the
Minister filed a proof of claim in respect of the tax debt which
gave rise to the request for garnishment against the appellant.
From the moment the consumer proposal was accepted by the
creditors and approved by the courts, the tax debtor was released
from his debt to the Minister under subsection 66.28(2) of
the BIA, which reads as follows:
(2) A consumer proposal
accepted, or deemed accepted, by the creditors and approved, or
deemed approved, by the court is binding on creditors in respect
of
(a) all
unsecured claims, and
(b) secured
claims for which proofs of claim have been filed in the manner
provided for in sections 124 to 134,
but does not release the consumer debtor from the debts and
liabilities referred to in section 178, unless the creditor
assents thereto.
[33] Section 66.18 of the BIA
sets out when a consumer proposal is deemed to be accepted by the
creditors:
(1) Where, at the
expiration of the forty-five day period following the filing of
the consumer proposal, no obligation has arisen under
subsection 66.15(2) to call a meeting of creditors, the
consumer proposal is deemed to be accepted by the creditors.
(2) Where there is no
quorum at a meeting of creditors, the consumer proposal shall be
deemed to be accepted by the creditors.
[34] Section 66.22 of the BIA
sets out when a consumer proposal is deemed to be approved by the
court:
(1) Where a consumer
proposal is accepted or deemed accepted by the creditors, the
administrator shall, if requested by the official receiver or any
other interested party within fifteen days after the day of
acceptance or deemed acceptance, forthwith apply to the court to
have the consumer proposal reviewed.
(2) Where, at the
expiration of the fifteenth day after the day of acceptance or
deemed acceptance of the consumer proposal by the creditors, no
obligation has arisen under subsection (1) to apply to the
court, the consumer proposal is deemed to be approved by the
court.
[35] In The 2002 Annotated Bankruptcy and
Insolvency Act, at page 229, para. E § 18(6),
Houlden and Morawetz write as follows in the notes on
subsection 62(2) of the BIA (which, in the
context of the general provisions on proposals, is the equivalent
of subsection 66.28(2) of the BIA):
(6) By s. 4.1,
the provisions of the Act bind the Crown in right of Canada or a
province. A proposal, therefore, binds the Crown, unless it is a
claim for a fine, penalty or restitution order coming within
s. 178(1)(a) of the Act: Threfall (1937),
19 C.B.R. 80 (Que. S.C.).
[36] Accordingly, it appears that the tax
debtor is released from his debt to the Minister. However, the
amount owed to the Minister included penalties. Nevertheless,
paragraph 178(1)(a), which states the exceptions to
subsection 66.28(2), provides as follows:
(1) An order of
discharge does not release the bankrupt from
(a) any fine,
penalty, restitution order or other order similar in nature to a
fine, penalty or restitution order, imposed by a court in respect
of an offence, or any debt arising out of a recognizance or
bail.
[37] As Houlden and Morawetz state at
page 688, para. H § 22(2),
paragraph 178(1)(a) of the BIA applies only to
penalties assessed by a court in the context of criminal
proceedings:
Section 178(1)(a) only applies to fines, penalties
or restitution orders made by a court which imposes a sentence
for a criminal offence.
[38] Accordingly, the effect of implementing
the consumer proposal is that the tax debtor is released from all
debt to the Minister. The assessment made in respect of the
appellant for failure to act on the notice of requirement is thus
unfounded, even though the appellant had a responsibility at law
to make the payments to the tax debtor.
[39] Where the tax debtor's obligation
is extinguished, the third party's derivative obligation is
extinguished as well.
[40] Nevertheless, and despite these
arguments, I reject this assumption, relying on the provisions of
the BIA stipulating that the release of the principal
debtor does not release the surety.
[41] I reject the second assumption for the
simple reason that if it were admitted, the Minister could
collect the same debt twice, once from the principal tax debtor
and a second time from the third party.
[42] I reject the third assumption because,
as indicated above, the imputation of a payment under the
BIA is not governed by a provincial statute.
[43] The fourth assumption has the advantage
of not having the objections raised with respect to the three
previous assumptions apply to it: the third party is not
completely released and, at the same time, he is not required to
pay the part of the principal debtor's obligations that were
previously paid by that debtor. This is the conclusion that I
find most reasonable and logical.
[44] Thus, although I was wrong to conclude
earlier that the appellant was not liable for any amount whatever
to Mr. Aubé, the amount for which he would be
responsible does not exceed $1,274.95, calculated as follows:
[$4,187.98 - $1,500] x $3,350 / $7,062.80 =
$1,274.95
[45] The appeal is allowed with costs and
the assessment is vacated.
Signed at Ottawa, Canada, this 30th day of November 2001.
A.C.J.
Translation certified true
on this 21st day of February 2003.
Sophie Debbané, Revisor
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