Date: 20130130
Docket: ITA-7879-11
Citation: 2013 FC 93
[UNREVISED ENGLISH CERTIFIED TRANSLATION]
Ottawa, Ontario, January 30, 2013
PRESENT: The Honourable Mr. Justice
Beaudry
BETWEEN:
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IN THE
MATTER OF THE INCOME TAX ACT
and
IN THE
MATTER OF AN ASSESSMENT OR ASSESSMENTS BY THE MINISTER OF NATIONAL REVENUE
UNDER ONE OR MORE OF THE INCOME TAX ACT, THE CANADA PENSION PLAN, THE
EMPLOYMENT INSURANCE ACT,
LONDON LIFE
INSURANCE COMPANY
Moving Party-Garnishee
and
HER MAJESTY
THE QUEEN OF CANADA
Respondent-Judgment Creditor
and
PROJEXIA
CONSEILS INC.
Judgment Debtor
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REASONS FOR JUDGMENT AND JUDGMENT
[1]
London
Life, a life insurance company, is appealing against two orders made by
Prothonotary Richard Morneau under section 51 of the Federal Courts
Rules, SOR/98-106 [the Rules], namely, an order dated August 15, 2012,
allowing the motion filed by the judgment creditor, Her Majesty the Queen [the
respondent], for a final order of garnishment, and a final order of garnishment
dated August 24, 2012. The garnishment concerns the surrender value of
11 life insurance policies of which the company Projexia Conseils Inc.
[Projexia] is the owner and beneficiary. Projexia did not appear in this
matter.
[2]
London
Life is asking that the two orders be quashed or, in the alternative, that a
new order be made such that any amount due will become due when the insured
risk materializes or when the judgment debtor, Projexia, requests the surrender
value of the policies.
[3]
For
the reasons that follow, this appeal is dismissed.
Factual background
[4]
Projexia
was incorporated on September 25, 2002. The company’s sole director and
shareholder is Sylvie Bologna.
[5]
Projexia
is the owner and beneficiary of 11 insurance polices underwritten by London
Life on the life of Ms. Bologna, as follows:
I.
Policy
No. 8540527-5, issued on May 28, 1995, with a death benefit of $90,958.53
and a surrender value of $2,622.19;
II.
Policy
No. 9395052-5, issued on August 24, 1997, with a death benefit of $159,545.58
and a surrender value of $9,074.21;
III.
Policy
No. 9581633-2, issued on September 15, 1997, with a death benefit of $163,799.44
and a surrender value of $24,189.54;
IV.
Policy
No. 9707404-5, issued on July 22, 1998, with a death benefit of $98,394.78
and a surrender value of $5,696.70;
V.
Policy
No. 9707408-2, issued on July 22, 1998, with a death benefit of $73,843.31
and a surrender value of $1,828.97;
VI.
Policy
No. 9797939-9, issued on March 20, 1999, with a death benefit of $147,811.41
and a surrender value of $6,525.66;
VII.
Policy
No. B216414-1, issued on October 3, 2002, with a death benefit of $339,887.70
and a surrender value of $10,816.57;
VIII.
Policy
No. B324863-0, issued on December 2, 2003, with a death benefit of
$324,761.30 and a surrender value of $10,126.77;
IX.
Policy
No. B339599-7, issued on September 9, 2004, with a death benefit of $119,304.18
and a surrender value of $3,267.21;
X.
Policy
No. B358196-3, issued on May 28, 2004, with a death benefit of
$248,754.97 and a surrender value of $6,395.12; and
XI.
Policy
No. B631301-3, issued on May 28, 2009, with a death benefit of $106,827.14
and a surrender value of $2,634.30.
[6]
The
insurance contracts stipulate that a request to obtain the surrender value may
be made as follows:
[translation]
Surrender for cash value
Upon written request, London Life shall pay
(a)
the surrender value of the contract;
(b)
less any debts.
Payment shall be made within ninety (90) days after all rights under the
contract have been surrendered.
[7]
Loans
or advances are also available upon written request once the accumulated values
have reached a certain amount. These loans or advances are subject to annual
interest, and any balance due will be deducted from the benefit payable to the
beneficiary upon the death of the insured person. In the case at bar, Projexia
had received advances at the time the respondent instituted proceedings.
[8]
On
October 13, 2011, the respondent filed a certificate under section 223
of the Income Tax Act, RSC 1985, c 1 (5th Supp) [the ITA]. This
certificate states that Projexia owes the respondent the sum of $1,255,298.28
plus interest. According to subsection 223(3) of the Rules, this
certificate has the same effect as a judgment obtained in the Court.
[9]
The
respondent alleges that Projexia has no assets apart from the 11 insurance
policies.
[10]
On
December 1, 2011, upon presentation ex parte of a motion
record filed by the respondent alleging that the debt set out in the
certificate had still not been repaid, Prothonotary Richard Morneau made the
following interim order:
[translation]
It is hereby ordered that any amount owing or that will become owing by
the garnishee to the judgment debtor and, more specifically, any amount owing
or that will become owing under the life insurance policies with cash surrender
value bearing the contract numbers 8540527-5, 9395052-5, 9581633-2, 9707404-5,
9707408-2, 9797939-9, B216414-1, B324863-0, B339599-7, B358196-3 and B631301-3 held
by the garnishee in the name and on behalf of the judgment debtor be garnished
in satisfaction of and up to the sum of $1,255,298.28, plus interest . . . .
[11]
On
August 15, 2012, Prothonotary Morneau made a final order of garnishment (Canada
(MRN) c Projexia Consulting Inc, 2012 CF 996 [August 15 Order]) and
gave the respondent until August 22, 2012, to forward to him a draft order
that would enshrine the interim order of garnishment (IOG) in a final order of
garnishment (FOG). In the August 15 Order, he rejected London Life’s three
arguments, which are summarized at paragraphs 8 to 10:
(a)
The
right to surrender is a personal right of the policyholder, and a creditor may
not exercise it in place of the policyholder;
(b)
For
any policy to be surrendered, the policyholder must request it in writing, and
so long no such request has been received, London Life does not owe Projexia anything,
since there is no debt owing or accruing within the meaning of
subparagraph 449(1)(a)(i) of the Rules;
(c)
Exercising
the right to the surrender value has significant financial consequences for
both the policyholder and the beneficiary.
[12]
Relying
on Perron-Malenfant v Malenfant (Trustee of), [1999] 3 S.C.R. 375 [Malenfant],
he rejected London Life’s first argument and concluded that the insurance
policies in question and the rights associated with them are not covered by the
comprehensive and exhaustive set of rules governing seizability under articles 2457
and 2458 of the Civil Code of Québec [CCQ] (para 14 of the Order).
[13]
As
regards the second argument, Prothonotary Morneau relied on Canada (MNR) v
Steckmar Corp., 2004 FC 581 [Steckmar Corp.] to conclude that [translation] “. . . this
Court has recognized in the past that garnishment under Rule 449 is an
oblique remedy that allows the respondent to exercise the rights of its debtor,
in this case, Projexia” (para 17 of the Order). He also concluded that [translation] “in this case, it is
irrelevant whether the policyholder, Projexia, made a written request for
surrender. The garnishment process allows Her Majesty, as Projexia’s creditor,
to exercise Projexia’s right in this regard for her own benefit” (para 18 of
the Order).
[14]
Given
the exercise of this right to the surrender value through garnishment,
Prothonotary Morneau stated that it was unreasonable for London Life to
submit that there was no debt “owing or accruing” within the meaning of
subparagraph 449(1)(a)(i) of the Rules or that the right to
surrender is conditional on a written request from Projexia (para 19 of
the Order).
[15]
Prothonotary
Morneau then turned to London Life’s argument to the effect that section 449
of the Rules is not the appropriate procedural vehicle for obtaining the cash
surrender value of the insurance policies. Relying on Malenfant, London
Life submitted that the respondent should have seized the insurance contracts
in Projexia’s hands and then made a request to surrender in her own name, in
accordance with section 428 of the Rules. Prothonotary Morneau rejected
this argument at paragraph 23 of the Order:
[translation]
Although various provisions of the Civil Code imply that a life
insurance contract is movable property in the hands of the policyholder, these
provisions are not in themselves an authority for arguing that one must first
seize said contract before even thinking of using the garnishment process under
the rules as regards its cash surrender value.
[16]
He
added that paragraph 57 of Malenfant, according to which “the
trustee is entitled to seize the policy and exercise the surrender right to
obtain its cash surrender value”, does not mean that the respondent in the
present case should have to [translation]
“take a step-by-step approach” involving a distinct initial procedure
consisting of seizing the insurance policies (para 24 of the Order). Furthermore,
section 428 of the Rules did not apply in the present case, since this
rule covers a [translation] “very
specific situation that has nothing to do with the mechanism for seizing the
surrender value of a life insurance policy” (para 26 of the Order).
[17]
Regarding
London Life’s third submission, concerning the significant financial
consequences of cancelling the policies, Prothonotary Morneau stated that
this argument must fail, given that Projexia was both the owner and the
beneficiary of the policies, which were its only assets. He added that [translation] “[t]his situation is far
removed from those the Quebec legislature tried to and intended to protect”
(para 20 of the Order).
Issues
[18]
In
this appeal, London Life raises three issues:
(1) According to Malenfant,
does the creditor have to seize the insurance policy first before exercising
the right to its surrender value?
(2) May subparagraph 449(1)(a)(i)
of the Rules be relied upon to request payment of the insurance policies’
surrender value?
(3) What about the
significant consequences of cancelling a life insurance policy and the
importance of scrupulously applying the appropriate procedure for enforcing a
certificate registered under section 223 of the ITA?
Preliminary remarks
(A) Standing of London Life
[19] As a preliminary remark,
the respondent submits that, in the present case, London Life has no legal
standing to defend the interests of Projexia or to act in the company’s place
and stead (Crown Life Insurance Co v Perras, [1953] BR 659 [Crown
Life Insurance]). Moreover, Projexia did not object to the garnishment and
did not argue that its creditors could not request payment of the surrender
value in its place.
[20]
The
respondent also submits that the words of Justice Anderson of the Supreme
Court of British Columbia in Bel-Fran Investments Ltd v Pantuity Holdings
Ltd, [1975] BCJ 1150
at paragraph 16 [Bel-Fran], apply perfectly to the present case:
My view is that all the conditions of the term deposit receipt in the case
at bar concern only the bank and are mere matters of procedure and
administration, and are all satisfied by the service of the garnishing order.
The bank would be protected by the Court upon any protest by the defendant that
payment had been made without personal delivery of the term deposit
receipt . . . .
[21]
Similarly,
the respondent pleads that London Life does not have the legal standing to
assert in the place and stead of the insured person, Ms. Bologna, that she
would be uninsurable in the future.
[22]
London
Life, on the other hand, argues that it does indeed have an interest in the
present case, on the basis that the provisions of the life insurance contracts
must be honoured. Any claim in favour of the policyholder or the beneficiary is
subordinated to the contractual provisions in the insurance policies. These
provisions require that a written request and a waiver form be submitted before
London Life pays out the requested sums. In support of its argument, London
Life refers the Court to the insurance contracts and to Malenfant, Royal
Bank of Canada v North American Life Insurance Co, [1996] 1 S.C.R. 325 [Royal
Bank], National Trust Co v Canada, [1998] FCJ 968 [National Trust],
and DeConinck v Royal Trust Corp of Canada, [1989] 1 CTC 179 [DeConinck].
Analysis
[23]
The argument
concerning London Life’s standing was not made in very precise terms before
Prothonotary Morneau. In Crown Life Insurance, the debtor held four
life insurance policies at the time of the bankruptcy. The trustee claimed the
surrender value of the life insurance policies from the insurance company, on
the basis that it was part of the bankrupt’s assets. The trustee filed a motion
in this regard in the Quebec Superior Court. The bankrupt objected to this,
arguing that the surrender value of the insurance policies was a personal
right. The Superior Court cancelled the four insurance policies and ordered
that the surrender value be paid to the trustee in bankruptcy.
[24]
The
insurance company appealed against that judgment. However, since the bankrupt
was not a party to the appeal, the Court of Appeal considered the decision of
the Superior Court and held that there was res judicata between the
bankrupt and the trustee in bankruptcy. The Court of Appeal concluded that the
bankrupt had implicitly consented to the order by not appealing against it.
Consequently, the insurance company’s appeal was dismissed.
[25]
The
present case does not involve bankruptcy proceedings. Nevertheless, a
certificate was registered under section 223 of the ITA for the sum of $1,255,298.28
plus interest. This certificate has the same force as a judgment of this Court
and is therefore enforceable against Projexia. For this reason, the principles
laid down by the Quebec Court of Appeal in Crown Life Insurance apply in
the case at bar.
[26]
Whether
it is the judgment debtor (Projexia) or the judgment creditor (the respondent) who
requests surrender of the insurance policies, for London Life, the outcome is
the same; surrender is requested, and the policies are cancelled. London Life therefore
cannot submit that it will suffer damage, because in either case, it must pay
out the surrender value.
[27]
Nor
may London Life argue that it has legal standing in the present case because of
the advances on the insurance policies that Projexia requested. The
11 life insurance policies contain the following contractual provisions:
[translation]
Surrender for cash value: Upon written request, London Life shall pay
-
the surrender value of the contract,
-
less any debts.
Debts:
The debt on any given date consists of
-
premium advances and cash loans,
-
less any payments made to reduce the debt,
-
plus interest to that date.
[28]
Whether
London Life pays the insurance policies’ surrender value to Projexia or to the
respondent, the sum of the debts (which also includes the loans and advances
and the interest on them) will be deducted from the insurance policies’
surrender value. Thus, London Life does not suffer any damage.
[29]
Finally,
as regards London Life’s written submission that payment of the surrender value
will result in the cancellation of the insurance policies, which will have
significant financial consequences for the insured person by preventing her
from taking out similar insurance policies in the future, the Court is of the
opinion that London Life is pleading in another’s name and does not have the
required standing to make this argument.
[30]
This
on its own is enough to conclude that this motion should be denied. However,
should the Court be in error on this point, it would be appropriate for the
Court to continue the analysis and consider the merits of the motion.
(B) Standard applicable to an
appeal from a prothonotary’s order
[31]
The
principles that apply when deciding an appeal from a prothonotary’s order were
laid down in Canada v Aqua-Gem Investments Ltd [1993] 2 FC 425 [Aqua-Gem],
and restated in Merck & Co Inc v Apotex Inc, 2003 FCA 488 [Merck
& Co]. The criteria are set out at paragraph 19 of Merck &
Co, where Justice Décary, writing on behalf of the Federal Court of
Appeal, states as follows:
. . .
Discretionary orders of prothonotaries ought not be disturbed on appeal to
a judge unless:
(a) the questions raised in the motion are
vital to the final issue of the case, or
(b) the orders are clearly wrong, in the
sense that the exercise of discretion by the prothonotary was based upon a
wrong principle or upon a misapprehension of the facts.
[32]
At
paragraph 22, Justice Décary explains the significance of the word “vital” used
by Justice MacGuigan in Aqua-Gem. On this point, Justice Décary
adopts the minority reasons of Justice Issac in Aqua-Gem (which
reasons remained unchallenged by Justice MacGuigan in this regard):
In my respectful view it cannot reasonably be said
that a standard of review which subjects all impugned decisions of
prothonotaries to hearings de novo regardless of the issues involved in
the decision or whether they decide the substantive rights of the parties is
consistent with the statutory objective. Such a standard conserves neither “judge
power” nor “judge time”. In every case, it would oblige the motions judge to
re-hear the matter. Furthermore, it would reduce the office of a prothonotary
to that of a preliminary “rest stop” along the procedural route to a motions
judge. I do not think that Parliament could have intended this result.
[33]
Justice
Décary went on to state the following at paragraph 23:
One should not, therefore, come too hastily to the conclusion that a
question, however important it might be, is a vital one. Yet one should remain
alert that a vital question not be reviewed de novo merely because of a
natural propensity to defer to prothonotaries in procedural matters.
[34]
In Peter
G White Management Ltd v Canada, 2007 FC 686 at paragraph 2, Justice Hugessen
notes that
. . . the mere fact that what was sought before the prothonotary
might have been determinative of the final issues in the case does not result
in the judge hearing the matter entirely de novo. A reading of the
decisions, and particularly the key decision of the Court of Appeal in the case
of Aqua-Gem [citation omitted], makes it quite clear that it is not what
was sought but what was ordered by the prothonotary which must be determinative
of the final issues in order for the judge to be required to undertake de
novo review. . . . Put briefly, barring extraordinary
circumstances, a decision of a prothonotary not to strike out a statement of
claim is not determinative of any final issue in the case. In determining the
standard of review the focus is on the Order as it was pronounced, not on what
it might have been.
[35]
Justice
Hugessen’s interpretation has been followed many times since then (Ridgeview Restaurant Limited v Canada (Attorney General),
2010 FC 506 at paragraphs 20-24).
[36]
In
the present case, the impugned orders are clearly determinative of any final
issue in the case because, unless they were appealed, there would be no further
litigation between the parties: London Life would be obliged to pay out the insurance
policies’ surrender value to the respondent. The Court must therefore conduct
an analysis de novo.
(1) According
to Malenfant, does
the creditor have to seize the insurance policy first before exercising the
right to its surrender value?
Applicant’s arguments
[37]
London
Life first states that the 11 life insurance policies at issue in this case are
life insurance contracts within the meaning of articles 2389 and 2393 of
the CCQ. These policies are also movable property within the meaning of articles
905 et seq of the CCQ. London Life also remitted the life insurance
policy to the policyholder in accordance with article 2400 of the CCQ. The
policies are therefore not in London Life’s possession.
[38]
The
life insurance policies confer a number of rights, among others, the right to a
life insurance benefit, the right to receive advances on the policy, the right
to the surrender value and the right to a share of the proceeds. They are
incorporeal movable property, as recognized by, among other legislation, the Regulation
respecting the register of personal and movable real rights, c CCQ, r 8.
[39]
London
Life argues that its position is not adequately reflected in paragraph 8
of the August 15 Order. London Life’s position regarding Malenfant
is not, in fact, based on the argument that the exercise of the right to
surrender is a personal right of the life insurance policyholder, as the
Supreme Court has clearly rejected this doctrine.
[40]
At
paragraph 68 of its written submissions, London Life submits that Malenfant
lays down the following principles:
[translation]
(i) Articles
2457 and 2458 of the CCQ form a comprehensive and exhaustive unseizability code
for life insurance policies, such that only those situations contemplated by
these two articles render a life insurance policy unseizable;
(ii) Normally,
whether a right is a personal one or not may influence the creditor’s capacity
to seize this right and to enforce it. However, all rights under an insurance
policy are seizable; consequently, a life insurance policy that is not covered
by articles 2457 and 2458 of the CCQ is seizable, as is the surrender
right associated with the policy;
(iii)
Carole
Malenfant’s trustee in bankruptcy was entitled to seize the life insurance
policy as well as to seize and subsequently enforce the surrender right
associated with it. [Emphasis added by the Court.]
[41]
London
Life pleads that Malenfant brought to light the obligation of the
creditor to seize the life insurance policy before exercising the surrender
right. See for example paragraph 57 of that decision, where Justice Gonthier
writes as follows:
In conclusion, having regard to their language, their legislative history
and their discernible policy justification, I believe that in arts. 2552
and 2554 the Quebec legislature has enacted a comprehensive and exclusive code
regarding the unseizability of life insurance contracts, intended by the
legislature to supersede more general rules provided elsewhere in the Civil
Code or existing in the jurisprudence. This exclusive provincial code of
unseizability meshes with s. 67(1)(b) of the Bankruptcy Act. Because
the respondent’s policy does not qualify under either of the only available
exemptions, the trustee is entitled to seize the policy and exercise the
surrender right to obtain its cash surrender value. [Emphasis added by
London Life.]
[42]
London
Life goes on to argue that the underlying dispute in Malenfant was
between Carole Malenfant’s trustee in bankruptcy and Carole Malenfant, the
bankrupt, in a context in which the seizin of the bankrupt’s property had
already been transferred to the trustee in accordance with the Bankruptcy
and Insolvency Act, RSC 1985, c B-3 [BIA]. Note the following
excerpts from paragraphs 4 and 15 of Malenfant:
[4] . . . On April 16, 1993, the appellant trustee in
bankruptcy advised the Company that he was exercising the right to surrender
the policy on behalf of the respondent, and that the Company should therefore
resiliate the policy and pay into the bankruptcy its cash surrender value
. . . .
. . .
[15] . . . Article 2554 exempts from seizure the
rights of the policyholder and the beneficiary “[a]s long as the designation of
a beneficiary as irrevocable subsists”. Once again, the respondent’s policy
does not qualify for the statutory exemption, since the designation of the
respondent as beneficiary was never made irrevocable, and does not benefit from
the presumption of irrevocability of art. 2547 of the Civil Code. Articles 2552
and 2554 therefore do not operate under s. 67(1)(b) of the Bankruptcy
Act to exclude the rights attached to the respondent’s life insurance
policy from the property that passes to the bankruptcy trustee. [Emphasis
added by London Life.]
[43]
London
Life adds that this reasoning is consistent with the principles laid down in Royal
Bank, according to which all property (seizable or unseizable) in the
bankrupt’s patrimony is transferred to the trustee in bankruptcy’s possession
under the BIA.
[44]
London
Life therefore submits at paragraph 74 of its written arguments that the
respondent’s interpretation of the principles laid down in Malenfant are
insufficient to dispose of the present dispute, for the following reasons:
[translation]
(a)
The
disposition adopted by the Supreme Court does not provide that the creditor is
entitled to garnish the surrender value in the hands of the insurer;
(b)
Rather,
the disposition adopted by the Supreme Court provides that the creditor is
allowed to seize the life insurance policy from the debtor and, once the
seizure has been executed, to exercise the surrender right under the life
insurance policy in the place and stead of the judgment debtor;
(c)
On
this last point, we note that the trustee, who had in fact seized the life
insurance policy, nevertheless had to make sure that this asset was seizable
before it could legitimately exercise the surrender right in favour of the
creditors; the Supreme Court therefore held that the trustee had to seize the
policy first before claiming the surrender value, the seizure of the asset
itself being a mandatory formal requirement;
(d)
We
would add that the preliminary step of seizing the policy is consistent with
the principles laid down in Royal Bank of Canada, which states that the
trustee (and, therefore, the judgment creditor) must assess the seizability of
the asset under provincial legislation before seizing it.
[45]
Therefore,
the respondent would have to seize the insurance policies first before being
able to exercise the surrender right by making a written request on behalf of
the policyholders and filling out the waiver form.
Respondent’s arguments
[46]
The
respondent, on the other hand, alleges that garnishment is her only means of
seizing the surrender value of a life insurance policy.
[47]
First
of all, it is incorrect to claim that the creditor, who intends to request the
surrender value in the place of the debtor, should first have to obtain a copy
of the policy from the debtor, since in so doing, the creditor would have to
undertake a step that is not even required of the debtor under the insurance
contract. The insured person is under no contractual obligation to give London
Life a copy of the policy before requesting that the surrender value be paid
out. The creditor should be able to make the request just as the debtor does.
[48]
Since
the preliminary step advocated by London Life is not required by law, it is hard
to imagine that Justice Gonthier, in Malenfant, had
in mind the physical seizure of a life insurance policy as a precondition for
requesting payment of the surrender value, and it would be absurd to interpret
that judgment as creating such a requirement.
Analysis
[49]
Malenfant concerned a bankruptcy,
while in the present case, Projexia has not made an assignment of its property
or declared bankruptcy. Nevertheless, the certificate under section 223 of
the ITA for the sum of $1,255,298.28 plus interest was registered. This
certificate is enforceable against Projexia.
[50]
However,
apart from the surrender value of the 11 life insurance policies described at
paragraph 5 of this judgement, Projexia does not have any assets. It is
therefore hardly surprising that the respondent wants to obtain the surrender
value of these policies.
[51]
The
parties concede that Malenfant settled the issue of the seizability of
the surrender value of life insurance policies similar to the ones at issue
here. The present case therefore turns on the manner in which the respondent
must proceed to obtain the surrender value.
[52]
Subsection
224(1) of the ITA, under the marginal note “Garnishment”, provides as follows:
|
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 224(1.1) and 224(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.
|
S’il sait ou
soupçonne qu’une personne est ou sera, dans les douze mois, tenue de faire un
paiement à une autre personne qui, elle-même, est tenue de faire un paiement
en vertu de la présente loi […] le ministre peut exiger par écrit de cette
personne que les fonds autrement payables au débiteur fiscal soient en
totalité ou en partie versés, sans délai si les fonds sont immédiatement
payables, sinon au fur et à mesure qu’ils deviennent payables, au receveur
général au titre de l’obligation du débiteur fiscal en vertu de la présente
loi.
|
[53]
This
Court cannot agree with London Life’s interpretation of Malenfant. To
support its claim, London Life relies heavily on the next-to-last
sentence of paragraph 57 of that judgment: “. . . the trustee
is entitled to seize the policy and exercise the surrender right to obtain its
cash surrender value”. The Court is of the opinion that the Supreme Court is
merely answering the questions that were before it without necessarily
establishing a step-by-step procedure. Nowhere in this paragraph (or in its
judgment, for that matter) does the Supreme Court state that seizing an
insurance policy is a prerequisite for obtaining its surrender value. With
respect, the Court finds that imposing such a step-by-step procedure would run
counter to the urgency of garnishment. Moreover, in Malenfant, the
trustee in bankruptcy already had the seizin of the bankrupt’s property; why
then would the trustee have to seize the insurance policy? This is yet another
argument against London Life’s thesis.
(2) May
subparagraph 449(1)(a)(i) of the Rules be relied upon to request payment
of the insurance policies’ surrender value?
Applicant’s arguments
[54]
London Life pleads that
subparagraph 449(1)(a)(i) of the Rules cannot be relied upon to
request payment of the policies’ surrender value. According to this provision,
three conditions must be met for a garnishment to be enforceable, namely: (i) there
must be a debt, (ii) the debt must be owing or accruing and (iii) the debt must
be owing or accruing from a third party.
[55]
In
the present case, Projexia does not have a debt owing or accruing from London
Life, and London Life did not owe Projexia anything at the time of the
garnishment. To obtain the surrender value, the respondent must seize the life
insurance policies as stated above and then make a written request to the
applicant.
[56]
London
Life pleads that the proceeds of a life insurance policy, unlike a bank
account, do not create a “debtor-creditor” relationship between the parties (Maritime
Life Assurance Co v Canada, [1997] 3 CTC 2561 [Maritime Life Assurance Co]
at paragraph 7). Similar distinctions were made in Delaire v
Delaire [1996] SJ 514 (in the matter of a trust company administering an
RRSP and its beneficiary), and the same reasoning was applied in Re
Bliss, Kirsh and Doyle et al, [1983] OJ 3247.
[57]
Therefore,
absent a seizure of the insurance policies allowing the creditor to request the
surrender value from the insurer, the insurer has no obligation to pay, in the
absence of a debt owing. To find otherwise would be inconsistent with the
contractual rules governing life insurance policies.
[58]
London
Life cites Choken v Lake St Martin Indian Band, 2004 FCA 248, at
paragraphs 20 and 22:
[20] It is fair to say that the words “a debt owing or accruing” mean, in
the context of garnishment proceedings, a sum of money which is now payable or
will become payable in the future by reason of an existing and certain
obligation and which is or will become recoverable in an action . . . .
. . .
[22] . . . [F]or a debt to exist, the creditor must “have
the legal right to unconditional payment.”
[59]
Author
David Norwood expresses a similar view (Norwood, David and Wier, John P, Norwood
On Life Insurance Law, 3d ed, Toronto, Carswell, 2002):
Garnishment is clearly not available to force surrender of an in-force
policy since there is no enforceable debt currently due and owing from the
insurer where the insured himself has not demanded surrender. There is no debit
in praesenti to surrender . . . . The forced pay-out of money in a current bank
account in a bank may be argued to be in nature of performance of the essence
of the banking contract, whereas surrender of a life insurance policy is
cancellation of the contract and its insurance benefits upon the happening of
the event insured against The insurer may pay a cash surrender value for this
release, but forcing surrender would destroy the basic purpose of the contract.
[60]
London
Life submits that there is no debt here because the surrender right was not
exercised in accordance with the contractual provisions of the insurance
policies and that the insured person is not deceased. Therefore, there is no “creditor”
or “debtor” (Maritime Life Assurance Co at para 16). The surrender
value of a life insurance policy is not a payable debt; therefore, there is no
obligation on the part of the insurer to pay out the surrender value unless the
policyholder has requested it (Bank of Nova Scotia v Robson, [1987] OJ
1693); National Trust; DeConinck at para 14).
[61]
London
Life goes on to state that the appropriate remedy is seizure in execution under
articles 580 et seq of the Code of Civil Procedure (CCP). According
to subsections 56(3) and (4) of the Federal Courts Act, RSC 1985,
c F-7, as well as section 448 of the Rules, provincial law applies to
the execution of orders of this Court and to the execution of certificates
registered under section 223 of the ITA (see Newcourt Financial Ltd v
Canada, 2004 FCA 91; Canada v Piccott, 2004 FCA 291; Canada (MNR)
v National Bank of Canada, 2004 FCA 92).
Respondent’s arguments
[62]
London
Life admits at paragraphs 46 to 48 of its written submissions that it will
become indebted to the policyholder once the policyholder has sent it a written
request. The respondent submits that a garnishment under the Rules is
equivalent to a demand by a judgment debtor, according to Canada c Bidner,
[1984] ACF 1114 [Bidner], in which Justice Hugessen writes, [translation] “We are all of the view
that the Trial Division erred in law in finding that a debt payable on demand
was a conditional debt. On the contrary, a debt payable on demand is one which
is immediately due, and service of the garnishment in the case at bar
operated as a demand” (emphasis added by the respondent).
[63]
The
Alberta Court of Appeal came to the same conclusion regarding the effect of
garnishment demands made by the Canada Revenue Agency. In Hutterian Brethen
Church et al v Provincial Treasurer of Alberta et al, 80 DTC 6228, that
Court explains that a garnishment demand issued in accordance with
subsection 224(1) of the ITA has the same effect as a depositor’s request
to withdraw monies held by the bank in term
deposit certificates. The same is true for a non-transferable term deposit receipt, according
to Bel-Fran, above at para 21.
[64]
London
Life relies on author David Norwood to support its argument to the effect that
it is not a debtor of Projexia. However, the author himself notes at
page 356 of the work cited above that Malenfant made surrender
value seizable in Quebec:
But in the process, the Court’s overthrow of the “personal right” doctrine
seems to have exposed an unprotected beneficiary in Quebec to attack by
ordinary creditors where the doctrine has long been recognized as a shield
barring exigibility.
[65]
In
any event, the interpretation that London Life proposes at paragraph 91 of
its written submissions for the words “debt owing or accruing” in section 449
of the Rules was rejected in In Re Gero (1979), 79 DTC 5228 [In Re
Gero]. Justice Walsh of this Court held as follows:
On a strict interpretation of Rule 2300 of the Rules of this Court it is
arguable that these sums are not debts ‘owing or accruing’ to the judgment
debtor unless and until he requests the trust companies to make payment to him,
but it would be contrary to the whole principle of garnishment proceedings to
adopt such an interpretation and hence provide a means for an individual to
shelter his assets from seizure by his creditors.
[66]
Garnishment
is a special form of oblique action that allows the creditor, under article 1627
of the CCQ, to exercise rights and actions of the debtor (Steckmar Corp.,
above, para 13, at paras 33-35 and 38). In the present case, all of the
conditions for an oblique action have been met, and Projexia is evidently still
neglecting to require payment of the surrender value even though it is its only
asset.
[67]
Furthermore,
London Life’s argument to the effect that a written request is necessary for
the surrender value to be considered to be a debt amounts to cancelling out the
effect of Malenfant. It would be surprising, to say the least, if
Justice Gonthier had intended that the effect of his decision could be
sidestepped by requiring a “written request” that only the debtor may make. In
this regard, he stresses the importance of the surrender value twice, at
paragraphs 39, 41 and 51:
[39] . . . For a creditor, the most valuable right
in his debtor’s in-force life insurance policy is the right to surrender the
policy for its cash surrender value. In this case, for example, that value
amounted to $84,900. Indeed, it is the only right in an in-force life
insurance policy that has the potential to create an immediate realization of
value for the seizing creditor . . . (emphasis added by the
respondent).
. . .
[41] . . . [T]he right to surrender, as we have seen, is
the principal component of the life insurance contract that is being protected
by these provisions. . . . The legislature chose to protect two
particular classes of policies from seizure because it perceived a significant
threat to these, namely the threat that creditors, to whom the right to
surrender a life insurance policy was otherwise generally available, could
terminate a policy by exercising the right.
. . .
[51] Against this background, it defies common sense to assume that the
legislator wished to remain silent, in its exemption provisions, on the most
important value of a life insurance policy for creditors—the cash surrender
value. . . . It makes much more sense to conclude that
the legislator wanted this value to be available to creditors, unless the
policies themselves were exempt. [Emphasis added by the respondent.]
[68]
The
respondent adds that with a simple contractual clause, an insurance company
could immunize itself from the Malenfant principles regarding the
seizability of the surrender value of insurance policies. The respondent also
rejects the proposition that she would have to fill out the waiver form
required by London Life to collect on the debt.
[69]
In Robitaille
v Hins-Dion, [1979] 1 S.C.R. 359 [Robitaille], the Supreme Court had to
determine whether Ms. Robitaille could avail herself of an
exemption-from-seizure clause in a life insurance policy payable to the
beneficiaries. At paragraph 7, Justice Pigeon writes the following on
behalf of the Court:
In this Court counsel for the respondent contended that effect should be
given to the exemption from seizure clause even towards the insured and his
estate, because this would not be prohibited. He cited no authority in support
of this submission which is quite simply untenable. It is quite clear that one
cannot by a contract protect one’s property from seizure by one’s creditors
except under a special enactment such as in the Supplemental Pension Plans
Act (S.Q. 1965, c. 25, s. 31).
[70]
Garnishment
is the appropriate procedural vehicle, given the nature of the dispute (Charles
Belleau, “L’exécution forcée des jugements”, (2011) Collections de droit
2011-2012, École du Barreau du Québec, Vol 2). Garnishment allows a
debtor’s right to be exercised and implemented for the benefit of the creditor.
Analysis
[71]
This
Court is of the opinion that subparagraph 449(1)(a)(i) of the
Rules, that is, garnishment, applies in this case and that the conditions set
out under that provision have been met, for the following reasons.
[72]
First,
the Court agrees with Prothonotary Morneau that garnishment is the appropriate
procedural vehicle in the present case, as amply demonstrated in his decision
in Steckmar Corp. Article 569 of the CCP, too, sets out the difference
between garnishment and seizure in execution:
569. A creditor may seize and sell the movable
property of his debtor which is in the possession of the latter, that in his
own possession and that in the possession of third parties who consent thereto.
He may, in all cases, seize by garnishment in the hands of a third party
sums and effects due or belonging to the debtor.
He may also seize in execution the immovable property in the possession of
the debtor.
[73]
This
article expressly provides that the respondent may garnish in the hands of
London Life the sums belonging to Projexia.
[74]
Article
1627 of the CCQ provides that “[a] creditor whose claim is
certain, liquid and exigible may exercise the rights and actions belonging to
the debtor, in the debtor’s name, where the debtor refuses or neglects to
exercise them to the prejudice of the creditor”. Here, at the time of the garnishment, Projexia had
still not exercised its rights to obtain the surrender value and thereby pay
off the $1,255,298.28 debt owing to the respondent. The respondent was
therefore entitled to do so in Projexia’s name (Malenfant at para 57).
[75]
In
serving the garnishment demand on London Life, the respondent prevented Projexia
from exercising this right itself, which would have allowed Projexia to shelter
the surrender value of its various life insurance policies from its creditors (Robitaille;
In Re Gero). The Court therefore finds that garnishment is a form of “oblique
action” (see on this point Steckmar Corp. at paras 33-40).
[76]
London
Life correctly pointed out to the Court that in Canada (MNR) v Steckmar
Corp., [2004] FC 1568 (i.e., the appeal decision affirming Prothonotary Morneau’s
order dated April 19, 2004, in Steckmar Corp.), at paragraph 30,
“[t]he parties were agreed in saying that this was a term obligation. The
garnishee acknowledged its debt to the debtor, but the term itself was in
dispute, that is, exactly when the obligation became payable”.
[77]
Despite
this distinction raised by London Life, the Court finds that the conditions set
out in subparagraph 449(1)(a)(i) of the Rules have been met in this
case.
[78]
Subjecting
the respondent’s garnishment rights to contractual provisions, as London Life
argues, is unacceptable according to Robitaille at para 7:
. . . It is quite clear that one cannot by a contract
protect one’s property from seizure by one’s creditors except under a special
enactment such as in the Supplemental Pension Plans Act (S.Q. 1965,
c. 25, s. 31).
[79]
The
Court finds that the respondent is correct in relying on Bidner,
according to which service of the garnishment demand on London Life in this
case is equivalent to a request to obtain the surrender value of the life
insurance policies. Bidner recognizes that [translation] “a debt payable on demand is one which is
immediately due”. For these reasons, the garnishment is justified.
(3) What about the significant
consequences of cancelling a life insurance policy and the importance of
scrupulously applying the appropriate procedure for enforcing a certificate
registered under section 223 of the ITA?
Applicant’s submissions
[80]
London
Life challenges Prothonotary Morneau’s conclusion at paragraph 20 of the
August 15 Order that [translation] “the
fact that the surrender results in the cancellation of the policies does not
hold up as an argument in the present case”. London Life also disagrees
with paragraph 24 of the August 15 Order, which states that the
exemption from garnishment provided under paragraph 449(1)(a) of
the Rules is merely [translation] “a
step-by-step approach” (see paras 113-114 of London Life’s written
submissions).
[81]
London
Life also submits that the right to garnish the surrender value of a life
insurance policy has considerable financial and practical consequences, and for
this reason, in addition to the importance allotted to the applicable case law
principles and statutory provisions in this case, this Court should give
special attention to these practical and financial consequences.
[82]
At
paragraph 117 of its written submissions, London Life notes the following
consequences:
[translation]
(a)
In
demanding to be paid the surrender value, the policyholder, among other things,
relieves the insurer of its obligation to pay out a death benefit and thus
deprives the beneficiary or the beneficiary’s estate of important financial protection;
(b)
The
cancellation of the policy therefore affects a third party to the contract,
namely, the beneficiary—or, in the absence of a designated beneficiary, the
policyholder’s estate—who is deprived of the potential right to receive a death
benefit when the risk materializes;
(c)
Such
an eventuality usually also entails the possibility that the insured person
will no longer be insurable because of his or her age or health, such that the
policyholder could be denied a new policy to replace the one resiliated after
the surrender value has been paid out;
(d)
In
the present case, London Life, which paid the policyholder advances on the
policy, is currently owed interest on these advances. This interest will cease
to accrue once the surrender value has been reimbursed.
[83]
As
an illustration of this, London Life submits that in his reasons for judgment
in Maritime Life Assurance Co, Justice Bowie took into account the
adverse financial consequences of the payment of the surrender value of an
annuity issued by an insurer, for both the creditor and the beneficiary. The
surrender request would have cancelled the annuity contract at issue.
[84]
The
situation is the same here: paying out the surrender value of the life
insurance policy will result in its cancellation. The payout would therefore
permanently deprive the policyholder of other benefits provided under the life
insurance policy, which the policyholder would no longer be able to exercise.
This demonstrates the importance of scrupulously applying the appropriate procedure
for enforcing the certificate registered under section 223 of the ITA.
[85]
Finally,
London Life pleads that the respondent’s motion for a final order of garnishment
and the orders made in this matter by Prothonotary Morneau on the basis of
this motion are unfounded in fact and in law.
Analysis
[86]
In
its oral arguments, London Life made little mention of the consequences alleged
in paragraph 117 of its written submissions mentioned above. The Court
does not agree with these arguments because, with the exception of
subparagraph (d), London Life is pleading on behalf of a third party,
namely, Projexia, the beneficiary and owner of the life insurance policies. As
regards paragraph 117, subparagraph (d), London Life will be
able to deduct the advances, loans and interest paid to Projexia from the sums
its will have to pay to the respondent.
[87]
London
Life submitted at the hearing that if this appeal is dismissed, the
consequences for the life insurance industry in Quebec will be disastrous, in
that all life insurance policies will have to be reviewed and amended. The
Court is of the opinion that this argument does not bar the respondent from
using garnishment to recover its debt from Projexia.
[88]
Finally,
the Court agrees with the respondent and confirms the orders of Prothonotary Morneau
dated August 15 and 24, 2012.
[90] The parties agreed that a sum of $2,500 as
costs, plus disbursements, would be awarded to the successful party.
JUDGMENT
THE COURT ORDERS that
1.
This
appeal be dismissed.
2.
The
applicant shall pay the respondent the sum of $2,500 as costs, plus
disbursements.
“Michel Beaudry”
Certified true translation
Michael Palles
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