Robinson v. Countrywide Factors Ltd., [1978] 1 SCR 753

Supreme Court of Canada

Robinson v. Countrywide Factors Ltd., [1978] 1 S.C.R. 753

Date: 1977-01-25

Donald A. Robinson, Trustee in Bankruptcy of Kozan Furniture (Yorkton) Ltd. (Plaintiff) Appellant;

and

Countrywide Factors Ltd. (Defendant) Respondent.

1976: February 17, 18; 1977: January 25.

Present: Laskin C.J. and Martland, Judson, Ritchie, Spence, Pigeon, Dickson, Beetz and de Grandpré JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR SASKATCHEWAN

Bankruptcy—Debtor and creditor—Fraudulent preferences—Whether The Fraudulent Preferences Act, R.S.S. 1965, c. 397, ultra vires provincial Legislature—Alternatively whether ss. 3 and 4 of Act, while being within legislative competence of provincial Legislature, in conflict with valid federal legislation—Bankruptcy Act, R.S.C. 1970, c. B-3, ss. 50(6), 73.

The appellant was trustee in bankruptcy of K Co. pursuant to a receiving order of November 19, 1968. On November 19, 1966, K Co. entered into a transaction with a pressing creditor, the respondent, whereby it sold certain stock-in-trade to a third person (payment being made to the respondent which reduced the indebtedness of K Co. accordingly) and also agreed to give the respondent a debenture on its stock-in-trade for its remaining indebtedness. The debenture was executed in March 1967 and duly registered. After the receiving order against K Co. was made, proceedings were taken by the appellant to set aside the transaction of November 19, 1966, as constituting a fraudulent preference under ss. 3 and 4 of The Fraudulent Preferences Act, R.S.S. 1965, c. 397, and to recover the money paid to the respondent and to annul the debenture.

The trial judge found that K Co. was insolvent at the time of the transaction of November 19, 1966, that there was a concurrent intention of K Co. and the respondent to give and receive a preference, and that, consequently, both the payment made to the respondent and the debenture constituted fraudulent preferences under The Fraudulent Preferences Act and were hence impeachable. On appeal, this judgment was set aside on the view of the majority of the Court of Appeal that the appellant had failed to prove that K Co. was insolvent on November 19, 1966.

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Upon the trustee in bankruptcy obtaining leave to appeal to this Court, the respondent, in accordance with the Rules of this Court, and in view of the fact that it wished to argue the ultra vires character of The Fraudulent Preferences Act, applied for directions and this Court ordered that notice be served on the Attorney General of Canada and the Attorneys General of the Provinces of the following questions: 1. Whether The Fraudulent Preferences Act, R.S.S. 1965, c. 397, is ultra vires of the Legislature of the Province of Saskatchewan. 2. Alternatively, whether ss. 3 and 4 of The Fraudulent Preferences Act, while being within the legislative competence of the Legislature of the Province of Saskatchewan, are in conflict with valid legislation of the Parliament of Canada relating to bankruptcy and insolvency, namely, the Bankruptcy Act, R.S.C. 1970, c. B-3.

Held (Laskin C.J. and Martland, Dickson and de Grandpré JJ. dissenting on the constitutional issue): The appeal should be allowed and the judgment at trial restored.

Per Judson, Ritchie, Spence, Pigeon and Beetz JJ.: The Fraudulent Preferences Act is not ultra vires and ss. 3 and 4 of the Act are not in conflict with the provisions of the Bankruptcy Act.

On a consideration of the main cases on the subject, the better view is to confine the effect of s. 73 of the Bankruptcy Act to providing for the invalidity of transactions within its exact scope, i.e. transactions within the three-month period provided for in the section. To that extent, the Parliament of Canada, by valid legislation upon “bankruptcy” and “insolvency”, has covered the field but has refrained from completely covering the whole field of transactions avoided by provincial legislation. The enactment in 1949 of the provisions now found in s. 50(6) of the Bankruptcy Act is a plain indication that Parliament recognized that provisions in provincial statutes dealing with preferential transactions were still valid provincial enactments in reference to “property” and “civil rights” and were valuable aids to trustees in bankruptcy in attacking the validity of such transactions and should be available to the said trustees in bankruptcy.

The appellant trustee had produced a prima facie case to show that the debtor was unable to pay his debts in full by realization of his assets in November 1966, and, accordingly, s. 4 of The Fraudulent Preferences Act applied to avoid the transaction in question.

Per Pigeon and Beetz JJ.: When the exclusive power to make laws in relation to bankruptcy and insolvency was bestowed upon Parliament, it was not intended to

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remove from the general legal systems which regulated property and civil rights a cardinal concept essential to the coherence of those systems, namely the concept of insolvency in the non-statutory sense. The main purpose was to give to Parliament exclusive jurisdiction over the establishment by statute of a particular system regulating the distribution of a debtor’s assets. However, given the nature of general legal systems, the primary jurisdiction of Parliament cannot easily be exercised together with its incidental powers without some degree of overlap in which case federal law prevails. On the other hand, provincial jurisdiction over property and civil rights should not be measured by the ultimate reach of federal power over bankruptcy and insolvency any more than provincial competence in relation to the administration of justice can be determined by every conceivable and potential use of the criminal law power.

Laws provincial in their purpose, object and nature cannot be rendered ultra vires because of virtual federal paramountcy: they can only become inoperative in case of actual repugnancy with valid federal laws. Section 50(6) of the Bankruptcy Act provides a clear indication that Parliament, far from intending to depart from the rule of operational conflict, did in fact aim at the highest possible degree of legal integration of federal and provincial laws: attacks upon transactions within the three-month period provided by s. 73 of the Bankruptcy Act constitute a minimum but the trustee in bankruptcy is entitled to avail himself of all other rights and remedies provided by provincial law “as supplementary to and in addition to the rights and remedies provided by” the Bankruptcy Act.

Per Laskin C.J. and Martland, Dickson and de Grandpré JJ., dissenting on the constitutional issue: Provincial legislation which purports to provide for impeachment of preferences to creditors given by a person who is then insolvent, where insolvency is the sine qua non of impeachability, is invalid as a direct invasion of exclusive federal power in relation to bankruptcy and insolvency. Hence, ss. 3 and 4 of the Saskatchewan Fraudulent Preferences Act are ultra vires. Moreover, in so far as these sections prescribe an impeachment period which enables a creditor to set aside a preference made beyond the period fixed by the Bankruptcy Act, and hence not impeachable under that Act, it interferes with the operation of the Bankruptcy Act and is, indeed, repugnant to it. It must be remembered that where, as in the present case, there has been a receiving order, the intrusion of provincial legislation relating to transactions entered into by an insolvent, must interfere with the

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rateable distribution of the bankrupt’s property according to the scheme of distribution prescribed by the Bankruptcy Act. Whether that scheme is faulty in the view of a Court is immaterial; the correction must come from the responsible Legislature. No more under bankruptcy and insolvency law than under the criminal law can a Province make unlawful what is lawful under valid federal legislation, nor make lawful what is unlawful under valid federal legislation.

[A.G. Ont. v. A.G. Can., [1894] A.C. 189; Re Davison (1922), 52 O.L.R. 244; Hoffar Ltd. v. Canadian Credit Men’s Trust Association Ltd., [1929] 1 W.W.R. 557, leave to appeal refused, [1929] S.C.R. 180; Re Pommier (1930), 65 O.L.R. 415; Re Trenwith, [1934] O.R. 326; Re Bozanich, A.H. Boulton Co. Ltd. v. Trusts & Guarantee Co. Ltd., [1942] S.C.R. 130; Totem Radio Supply Co. Ltd. v. Stone et al. (1959), 29 W.W.R. 552; A.G. Alta. v. Nash and Guelph Engineering Co. (1964), 50 W.W.R. 155; Re Panfab Corp. Ltd., [1971] 2 O.R. 202; Traders Finance Corporation Ltd. v. Levesque, [1961] S.C.R. 83; Gingras v. General Motors Products of Canada Ltd., [1976] 1 S.C.R. 426, referred to.]

APPEAL from a judgment of the Court of Appeal for Saskatchewan[1], allowing an appeal from a judgment of MacPherson J. Appeal allowed, Laskin C.J. and Martland, Dickson and de Grandpré JJ. dissenting.

D.G. McLeod, Q.C., and G. Morris, for the plaintiff, appellant.

W.N. Lawton, Q.C., for the Attorney General of Saskatchewan.

J. Polika, for the Attorney General of Ontario.

W.G. Burke-Robertson, Q.C., for the Attorney General of British Columbia.

W. Henkel, Q.C., for the Attorney General of Alberta.

E.J. Moss, Q.C., and B.J. Scherman, for the defendant, respondent.

T.B. Smith, Q.C., for the Attorney General of Canada.

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The judgment of Laskin C.J. and Martland, Dickson and de Grandpré JJ. was delivered by

THE CHIEF JUSTICE (dissenting)—There are two issues in this appeal which is here by leave of this Court. The first is whether a certain transaction and, in particular, a certain debenture, granted on a debtor’s stock-in-trade in pursuance of the transaction between the debtor and the respondent creditor, was a fraudulent preference that was impeachable under ss. 3 and 4 of The Fraudulent Preferences Act, R.S.S. 1965, c. 397; and the second is whether, if it was so impeachable, those provisions of the provincial Act were ultra vires as an invasion of exclusive federal power in relation to bankruptcy and insolvency or, alternatively, were inoperative in the face of the preference provisions of the Bankruptcy Act, R.S.C. 1970, c. B-3.

The appellant is trustee in bankruptcy of Kozan Furniture (Yorkton) Ltd. pursuant to a receiving order of November 19, 1968. On November 19, 1966, Kozan entered into a transaction with a pressing creditor, the respondent, whereby it sold certain stock-in-trade to a third person (payment being made to the respondent which reduced Kozan’s indebtedness accordingly) and also agreed to give the respondent a debenture on its stock-in-trade for its remaining indebtedness. The debenture was executed on or about March 20, 1967, and duly registered. After the receiving order against Kozan was made, proceedings were taken by the appellant trustee in bankruptcy to set aside the transaction of November 19, 1966, as constituting a fraudulent preference under the provincial Fraudulent Preferences Act and to recover the money paid to the respondent and to annul the debenture.

MacPherson J. found that Kozan was insolvent at the time of the transaction of November 19, 1966, that there was a concurrent intention of Kozan and the respondent to give and receive a preference, and that, consequently, both the payment made to the respondent and the debenture constituted fraudulent preferences under the provincial statute and were hence impeachable. On appeal, this judgment was set aside on the view of the majority of the Saskatchewan Court of Appeal

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that the appellant had failed to prove that Kozan was insolvent on November 19, 1966. The trial judge was not called upon to deal with any constitutional issue, and the majority of the Court of Appeal did not have to do so in view of its finding on insolvency. Hall J.A. who dissented supported the trial judge’s finding of insolvency, and in a one sentence assertion, in reliance upon Re Panfab Corp. Ltd.[2], he rejected the contention that The Fraudulent Preferences Act was ultra vires.

I would not interfere with the findings of the judge of first instance that Kozan was insolvent at the material time and that Kozan intended to give and the respondent intended to receive a preference. This is the view of my brother Spence who, in exhaustive reasons, also concluded that The Fraudulent Preferences Act as a whole was not ultra vires nor was either s. 3 or s. 4 inoperative in the face of the Bankruptcy Act. I have a different opinion on the constitutional issue in this case, as appears from what now follows. That issue does not invite this Court to pronounce on the validity of provincial legislation dealing with fraudulent conveyances or with fraudulent transactions in general. Thus, to take as an example the Fraudulent Conveyances Act, R.S.O. 1970, c. 182, nothing said in these reasons is to be taken as impugning the validity of that or similar enactments. They do not, ex facie, depend on proof of insolvency or on bankruptcy. In so far as any of the case law, some of it canvassed by my brother Spence, relates to such legislation and carries it into a consideration of the validity of provincial preference legislation which depends, as do ss. 3 and 4 of the Saskatchewan Fraudulent Preferences Act, on a condition of insolvency, I find it inapt for the determination of the constitutional question in this appeal.

Sections 3 and 4 aforesaid are in the following terms:

3. Subject to sections 8, 9, 10 and 11 every gift, conveyance, assignment or transfer, delivery over or payment of goods, chattels or effects or of bills, bonds, notes or securities or of shares, dividends, premiums or

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bonus in a bank, company or corporation, or of any other property real or personal, made by a person at a time when he is in insolvent circumstances or is unable to pay his debts in full or knows that he is on the eve of insolvency, with intent to defeat, hinder, delay or prejudice his creditors or any one or more of them, is void as against the creditor or creditors injured, delayed or prejudiced.

4. Subject to sections 8, 9, 10 and 11 every gift, conveyance, assignment or transfer, delivery over or payment of goods, chattels or effects or of bills, bonds, notes or securities or of shares, dividends, premiums or bonus in a bank, company or corporation, or of any other property real or personal, made by a person at a time when he is in insolvent circumstances or is unable to pay his debts in full or knows that he is on the eve of insolvency to or for a creditor, with intent to give that creditor preference over his other creditors or over any one or more of them, is void as against the creditor or creditors injured, delayed, prejudiced or postponed.

Sections 8, 9, 10 and 11, to which each of the foregoing provisions is subject, do not affect the constitutional issue, being concerned with bona fide sales or payments to innocent purchasers, to valid sales for consideration and to protection of security given up by a creditor. The present cases does not involve ss. 8 to 11.

I approach the question of validity on principle and on authority. So far as principle is concerned, the starting point is in relevant words of the British North America Act, namely s. 91(21), “bankruptcy and insolvency”, as they relate to s. 92(13), “property and civil rights in the Province”. The elucidation of the meaning and scope of s. 91(21), as of the meaning and scope of any other heads of legislative power, can hardly ever be a purely abstract exercise, even where an attempt is made at neutral definition; but I see no reason why judicial pronouncements, especially at the appellate level where they are those of the Court, should not be considered as throwing light upon the integrity of the head of power in the scheme of the British North America Act as a whole.

Four things stand out. First, s. 91(21) is an exclusive federal power; second, it is a power con-

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fided to the Parliament of Canada notwithstanding anything else in the Act; third, it is a power, like the criminal law power, whose ambit, did not and does not lie frozen under conceptions held of bankruptcy and insolvency in 1867: see the Farmers’ Creditors Arrangement Act reference, Attorney-General for British Columbia v. Attorney General for Canada[3], at pp. 402‑403; and, fourth, the term “insolvency” in s. 91(21) has as much an independent operation in the reservation of an exclusive area of legislative competence to the Parliament of Canada as the term “bankruptcy”; see Canadian Bankers Association v. Attorney-General of Saskatchewan[4], per Rand J., at p. 46.

The view taken by the Privy Council and by this Court as to the meaning of “insolvency”, as well after as before the abolition of Privy Council appeals, has been a uniform one. Lord Thankerton, speaking for the Privy Council in the Farmers Creditors Arrangement Act reference, supra, at p. 402, expressed it as follows:

In a general sense, insolvency means inability to meet one’s debts or obligations; in a technical sense, it means the condition or standard of inability to meet debts or obligations, upon the occurrence of which the statutory law enables a creditor to intervene with the assistance of a Court, to stop individual action by creditors and to secure administration of the debtor’s assets in the general interest of creditors; the law also generally allows the debtor to apply for the same administration.

This definition was referred to with approval in the majority judgment of the Supreme Court of Canada delivered by Kerwin C.J.C. in Reference re Validity of the Orderly Payment of Debts Act, 1959 (Alta.)[5], at p. 576. Earlier in Reference re Alberta Debt Adjustment Act[6], at p. 40, Duff C.J.C. speaking for all but one of the members of the Court took as an additional ground for invalidating the challenged provincial legislation in that case that the powers of the provincial statu-

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tory tribunal set up under that legislation would normally “come into operation when a state of insolvency exists”; and he continued: “It is not too much to say that it is for the purpose of dealing with the affairs of debtors who are pressed and unable to pay their debts as they fall due that these powers and duties are created.” If it is for Parliament alone to deal with insolvency, indeed to define it where it chooses to do so and to leave it otherwise to judicial definition, there can be no argument about unlawful invasion of provincial power in relation to property and civil rights. A limitation upon such power necessarily inheres in the federal catalogue of powers in s. 91, and it was recognized as early as 1880 in Cushing v. Dupuy[7], at p. 415, in respect of the federal bankruptcy and insolvency power.

I refer to two other propositions before turning to what I consider to be the relevant cases. First, there is the well-recognized proposition that federal abstinence from legislation in relation to an exclusive head of legislative power does not leave that legislative area open to provincial action: see Union Colliery Co. v. Bryden[8], at p. 588. The principle of our Constitution as it relates to legislative power is not one of simple concurrency of authority subject only to a variable doctrine of paramountcy. Exclusiveness is central to the scheme of distribution, save as to a specified number of concurrent powers, such as those in s. 95. It is only under the umbrella of the doctrine of exclusiveness that the relative scope of federal and provincial authority is assessed, the assessment being carried forward to determine whether there is preclusion or supersession where both federal and provincial legislation are in competition. This brings me to the second point. I take the same view here that was taken by Duff C.J.C. in the Alberta Debt Adjustment Act reference and I adopt his words at p. 40, namely that although the motives of a provincial Legislature may be laudable ones, it is precluded from seeking to realize its object by

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entering into a field not open to it.

Attorney-General of Ontario v. Attorney-General for Canada[9], generally known as the Voluntary Assignments case, stands as the general support for provincial legislation of the kind or allied to the kind of legislation that is challenged in the present case. It concerned only one section, s. 9, of the Ontario Assignments and Preferences Act, R.S.O. 1887, c. 124, first enacted in 1885 by 1885 (Can.), c. 26. That section was as follows:

An assignment for the general benefit of creditors under this Act shall take precedence of all judgments and of all executions not completely executed by payment, subject to the lien, if any, of an execution creditor for his costs, where there is but one execution in the sherrif’s hands, or to the lien, if any, of the creditor for his costs, who has the first execution in the sherriff’s hands.

This Act replaced the earlier pre-Confederation legislation found in C.S.U.C. 1859, c. 26, under the title The Indigent Debtors Act, which was continued in the post-Confederation legislation of Ontario as An Act respecting The Fraudulent Preference of Creditors by persons in insolvent circumstances, and included in R.S.O. 1877, c. 118. What is significant in this earlier legislation is that (as set out in s. 2 of R.S.O. 1877, c. 118) it dealt with “any person being at the time in insolvent circumstances or unable to pay his debts in full, or knowing himself to be on the eve of insolvency”. The substituted Act of 1885 continued the reference to insolvency in respect of preferences, but it also introduced new provisions respecting assignments for the benefit of creditors and these provisions, as was noted in the Voluntary Assignments case, were not predicated on insolvency and, indeed, were to a large degree separated from the preference provisions of the Act, as is reflected in s. 3 of R.S.O. 1887, c. 124.

Certainly, as the Privy Council noted, the challenged provision, s. 9, had to be taken in the context of the entire Act. There is no doubt, as well, that the issue of validity was recognized as

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arising at a time when there was no federal bankruptcy or insolvency legislation in force, the only such legislation, the Insolvency Act of 1875 having been repealed in 1880 by 1880 (Can.), c. 1. The majority of the Ontario Court of Appeal, to which the question of the validity of s. 9 had been referred, found that it was ultra vires as invading exclusive federal power in relation to bankruptcy and insolvency; see Re Assignments and Preferences Act, Section 9[10]. The reversal of this judgment by the Privy Council was accompanied by an acknowledgement of the broad scope of federal power under s. 91(21) when affirmatively exercised but it was held that this power was not invaded by an enactment relating to an assignment that was purely voluntary.

The explanation for this result is found in two passages of the Privy Council’s reasons. First, “it is to be observed that an assignment for the general benefit of creditors has long been known to the jurisprudence of this country and also of Canada, and has its force and effect at common law quite independently of any system of bankruptcy or insolvency, or any legislation relating thereto” (at p. 198). Second, “the operation of an assignment for the benefit of creditors was precisely the same, whether the assignor was or was not insolvent… The validity of the assignment and its effect would in no way depend on the insolvency of the assignor, and their Lordships think it clear that the 9th section would equally apply whether the assignor was or was not insolvent” (at p. 199). What is evident, therefore, from that case is that, unlike the situation here, the operation of the provincial enactment did not depend on insolvency and the Privy Council was willing to treat s. 9 as having an object that was independent of it. This may even be a supportable view today, albeit there is a range of existing federal legislation dealing with bankruptcy and insolvency. I should note, however, that in the majority judgment of this Court in Reference re the Validity of the Orderly Payment of Debts Act, 1959 (Alta.)[11], at pp. 576-577, Kerwin C.J.C. referring to the Voluntary Assignments reference, said “it is doubtful whether in view of later pronouncements of the Judicial Committee it

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would at this date be decided in the same sense, even in the absence of Dominion legislation upon the subject of bankruptcy and insolvency”.

The later pronouncements of the Privy Council include its judgment in the Alberta Debt Adjustment Act reference[12], as well as in the Farmers’ Creditors Arrangement Act reference, supra. Equally important is the judgment of this Court in Canadian Bankers Association v. Attorney-General of Saskatchewan[13], dealing with the validity of provincial moratorium legislation. It was in line with the decision in the Alberta Debt Adjustment Act reference in finding an invasion of federal power in relation to bankruptcy and insolvency. I think it enough, for present purposes, to refer to what Locke J., speaking for the majority of the Court, said, at p. 42:

Power to declare a moratorium for the relief of the residents of a Province generally in some great emergency, such as existed in 1914 and in the days of the lengthy depression in the thirties is one thing, but power to intervene between insolvent debtors and their creditors irrespective of the reasons which have rendered the debtor unable to meet his liabilities is something entirely different.

Although judgments of the Privy Council and of this Court (and I add to those already cited Royal Bank of Canada v. Larue[14]) have recognized the broad power of Parliament to embrace in its legislation in relation to bankruptcy or insolvency provisions which might otherwise fall within provincial competence, I know of no case in those Courts, other than Ladore v. Bennett[15], where provincial legislation has been sustained, either in the absence of or in the face of federal legislation, when such provincial legislation depends for its operation only upon insolvency. Ladore v. Bennett can best be explained as involving municipal reorganization and hence as being concerned with the amalgamation and financial restructuring of units

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of local government for which the provincial Legislature has a direct responsibility, albeit some of the municipalities involved in the legislatively-directed reorganization were insolvent. It is, indeed, a special case of a piece of special legislation enacted in pursuance of the power conferred by s. 92(8) of the British North America Act, and I do not regard it as offering any lead to continuing legislation relating to private debtors and their creditors.

It is plain to me that if provincial legislation avowedly directed to insolvency, and to transactions between debtor and creditor consummated in a situation of insolvency, can be sustained as validly enacted, unless overborne by competent federal legislation, there is a serious breach of the principle of exclusiveness which embraces insolvency under s. 91(21). This Court so held in a series of cases where the encroachment on the federal bankruptcy and insolvency power was less obvious than that exhibited here. I refer, of course, to the Alberta Debt Adjustment Act reference, supra, to the Canadian Bankers’ Association case, supra, and to the Orderly Payment of Debts Act 1959 (Alta.) reference, supra. It would be a curious reversal of the proposition, enunciated in Madden v. Nelson and Fort Sheppard Railway Co.[16], namely, that you cannot do indirectly what you cannot do directly, to hold that the Province can do directly what it cannot do indirectly.

The case put forward by the appellant and by the intervening Provinces which supported him goes even farther. It is contended that notwithstanding the existence of federal bankruptcy legislation dealing with preferences, the challenged provincial legislation can still operate in respect of a particular preference which is given outside of the time limits within which the federal control operates, so long at least as the provincial provision is not more stringent.

I do not follow this line of reasoning, especially on the submission of greater or lesser stringency.

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The relevant federal provision is s. 73 of the Bankruptcy Act which reads as follows:

73. (1) Every conveyance or transfer of property or charge thereon made, every payment made, every obligation incurred, and every judicial proceeding taken or suffered by any insolvent person in favour of any creditor or of any person in trust for any creditor with a view to giving such creditor a preference over the other creditors shall, if the person making, incurring, taking, paying or suffering the same becomes bankrupt within three months after the date of making, incurring, taking, paying or suffering the same, be deemed fraudulent and void as against the trustee in the bankruptcy.

(2) Where any such conveyance, transfer, payment, obligation or judicial proceeding has the effect of giving any creditor a preference over other creditors, or over any one or more of them, it shall be presumed prima facie to have been made, incurred, taken, paid or suffered with a view to giving such creditor a preference over other creditors, whether or not it was made voluntarily or under pressure and evidence of pressure shall not be receivable or avail to support such transaction.

(3) For the purposes of this section, the expression “creditor” includes a surety or guarantor for the debt due to such creditor.

This provision cannot be taken in isolation. The Bankruptcy Act is a code on the subject of bankruptcy and insolvency, defining what is an act of bankruptcy, who is an insolvent person, prescribing what are vulnerable settlements as well as what are vulnerable preferences, declaring what is comprised in a bankrupt’s estate, providing for priorities in distribution and for rateable distribution. It provides also, as in the present s. 31(1), for the making of an assignment by an insolvent person for the benefit of creditors as well as providing by s. 24(1)(a) that it is an act of bankruptcy to make an assignment for the benefit of creditors whether the assignment is or is not authorized by the Bankruptcy Act. In short, apart from the question whether provincial legislation predicated on insolvency is ipso facto invalid, I see no room for any assertion that such provincial legislation can continue to have operative effect in the face of the

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scope of the Bankruptcy Act embracing both bankruptcy and insolvency in its provisions.

It is worth a reminder that there is no common law of bankruptcy and insolvency, and hence it cannot be said that there was an existing common law course of decision which was being embraced by provincial legislation. The common law did not distinguish the fraudulent from the insolvent debtor; it was through legislation that such a distinction was made. If a provincial Legislature wishes to proscribe fraudulent transactions, it is compelled by the British North America Act to ensure that its legislation dealing with such transactions does not focus on insolvency.

Of the many cases cited in argument before this Court, I can put to one side Re Davison[17] and Re Panfab Corp. Ltd.[18], both of which, decisions of single judges, dealt largely with the Ontario Fraudulent Conveyances Act which, as I have already said, does not depend for its activation either on insolvency or on bankruptcy nor on any question of preference such as that presented here. Similarly, I put to one side Allison & Burnham Concrete Ltd. v. Mountain View Construction Ltd.[19], a judgment of Ruttan J. of the British Columbia Supreme Court, in so far as it was concerned with the British Columbia Fraudulent Conveyances Act, akin to the Ontario Act of the same name.

Chronologically, the first of the cited cases that calls for consideration here is Hoffar Ltd. v. Canadian Credit Men’s Trust Association Ltd.[20]; leave to appeal refused[21]. It was a judgment of the British Columbia Court of Appeal involving the question whether s. 3 of the provincial Fraudulent Preferences Act (similar to ss. 3 and 4 of the Saskatchewan Act in the present case) was in conflict with the then preference provision, s. 64, of the federal Bankruptcy Act.

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It is important to note, as stated by British Columbia Chief Justice Macdonald, that no argument was raised in the Hoffar case as to the validity of either the provincial Fraudulent Preferences Act or the Bankruptcy Act. A second significant aspect of the decision is that the Court felt it was immaterial that the federal Act prescribed a three-month period for invalidation of a transaction while the provincial Act prescribed a 60-day period. In fact, the transaction sought to be impugned was made less than 60 days before an assignment under the Bankruptcy Act, and there was a finding that the debtor was insolvent at the time of the transaction. The judge of first instance found that although the transaction had the effect of giving a preference it was not made with a view thereto. Under the Bankruptcy Act, there was a rebuttable presumption in such a case that the transaction was concluded with a view to a preference and it was found that there was rebutting evidence. However the provincial Act made the transaction void irrespective of rebutting evidence, and the judge at first instance applied this Act.

The British Columbia Court of Appeal reversed this decision holding that the provincial provisions were inoperative because they were in conflict with the federal Act. A fortiori, the provincial provisions would be inoperative, in my view, if a transaction was made with a view to giving a preference. Leave to appeal was refused by Mignault J. in the Supreme Court of Canada on the ground that the decision sought to be appealed was plainly right; and he added a reference to a passage in the reasons in the Voluntary Assignments case where the Privy Council spoke of the preclusion of the provincial Legislature from interfering with federal bankruptcy legislation.

This preclusive principle of non-interference is as applicable in connection with the federal power in relation to bankruptcy and insolvency as it is in the field of criminal law. In that connection, I point to the words of the late Justice Rand in

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Johnson v. Attorney General of Alberta[22], at p. 138, and adapt them here to say that “any local legislation of a supplementary nature that would tend to weaken or confuse [the] enforcement [of the Bankruptcy Act] would be an interference with the exclusive power of Parliament”.

It is worth adding that in his reasons in the British Columbia Court of Appeal in the Hoffar case M.A. Macdonald J.A. indicated that provincial fraudulent conveyances legislation could be invoked where the Bankruptcy Act did not apply on the facts, even if provincial fraudulent preference legislation could not be.

The next case for consideration is Re Pommier[23], a judgment of Fisher J.A. sitting in bankruptcy. I accept one of its premises, namely, that the Bankruptcy Act did not oust all provincial legislation respecting fraudulent transactions, as for example, the Ontario Fraudulent Conveyances Act. This was the same point taken in the Hoffar case. However, unlike the result in the Hoffar case (which was cited but not followed) the Court in Re Pommier held that in the case of a preferential transaction which took place more than three months before an assignment in bankruptcy (and therefore outside the preference period under the federal Act), resort could be had to the provincial Assignments and Preferences Act, R.S.O. 1927, c. 162 to impeach it. The learned judge invoked a so-called doctrine of overlapping, which he distinguished from a situation of conflict, in holding the provincial Act to be available. In my opinion, he misconceived its purport as it was enunciated in Grand Trunk Railway Co. v. Attorney General of Canada[24], at p. 68. The proposition there related to a situation where “the field is clear” to one Legislature or the other. The Privy Council noted that “if the field is not clear and in such a domain the two legislations meet, then the Dominion legislation must prevail”.

[Page 770]

It is only necessary to add that Re Pommier was overruled by the Ontario Court of Appeal in Re Trenwith[25], where Masten J.A. said at p. 333 (after referring to the Voluntary Assignments case, to Royal Bank of Canada v. Larue and to the Hoffar case):

…it seems clear to me that the common field of legislation respecting the distribution of the estates of insolvents having now become occupied by the Dominion Bankruptcy Act, the provisions of the Assignments and Preferences Act respecting the preference of one creditor over another have been thereby superseded and have ceased to have any operation. If I am right in this conclusion, the effect is to overrule… Re Pommier.

Davis J.A. who dissented on other grounds was also of the opinion that “since the enactment of bankruptcy legislation by the Dominion Parliament this provincial statute cannot be invoked” (at p. 343).

To the same effect was the opinion of this Court expressed by Duff C.J.C. in In re Bozanich[26], at p. 136, that “the provisions of R.S.O. 1927, c. 162 in relation to preferences are superseded by s. 64 of the Bankruptcy Act, and that the authority of the Ontario Legislature to enact such legislation is, in consequence of the enactment of s. 64, suspended in view of the concluding clause of s. 91 [of the British North America Act]”.

Three judgments at first instance may be mentioned before I go on to consider the unanimous judgment of the Alberta Appellate Division, sitting as a Bench of five, in Attorney-General of Alberta v. Nash and Guelph Engineering Co.[27] The three cases are Crown Coal Co. Ltd. v. Swanson Lumber Co. Ltd.[28]; Gard v. Yates[29]; and Totem Radio Supply Co. Ltd. v. Stone[30]. All three of these cases concerned issues of alleged conflict between provincial and federal legislation respecting rights of creditors of a person who has made an authorized

[Page 771]

assignment or was insolvent at a material time. The Crown Coal Co. Ltd. case, an Alberta judgment, did not turn on a constitutional issue and, at any rate, it cannot stand in the face of the Nash and Guelph Engineering Co. case. I am, similarly, unable to appreciate how either Gard v. Yates or the Totem Supply case, both British Columbia decisions, can stand against the reasoning in Nash and Guelph Engineering, the views expressed in Re Trenwith and those expressed by Duff C.J.C. in In re Bozanich. The first represents a decision overtaken by later authority, and the second cites no authorities at all, but on the point of alleged conflict between the respective provincial and federal preference provisions is content to say simply that there is no conflict where the preference is given outside the three-month period fixed by the federal Bankruptcy Act when the provincial Act fixes a larger period for impeachment. Reliance was placed on the then s. 41(6), now s. 50(6) of the Bankruptcy Act to which I will return later in these reasons. I should add that in another later British Columbia case, the Allison & Burnham Concrete Ltd. case, already mentioned, also a judgment of a single judge, Ruttan J. did canvass later authorities but decided to rest on earlier decisions, such as Gard v. Yates, to justify a construction that avoided any constitutional infirmity if the provincial Act gave a longer impeachment period than the federal Act. In effect, his view was to leave the constitutional issue to a higher Court. That is where it now is.

Attorney-General of Alberta v. Nash and Guelph Engineering Co. came before Milvain J., as he then was, through a proceeding by a trustee in bankruptcy to set aside payments made by the bankrupt company to its creditors within one year prior to bankruptcy but, save as to one payment, beyond the three-month period under the then s. 64, now s. 73, of the Bankruptcy Act. The trustee relied on s. 4 of the Alberta Fraudulent Preferences Act which, like the Saskatchewan provisions in issue here, is predicated for its operation on insolvency. It fixes a one-year period within which

[Page 772]

a transaction having the effect of giving a preference may be impeached as being utterly void. Milvain J. held that the Alberta Act was ultra vires as being in pith and substance insolvency legislation.

In the Alberta Appellate Division, Johnson J.A., speaking for a unanimous Court of five, was content to consider the Alberta Fraudulent Preferences Act, first enacted in 1922, and, in particular, s. 4 (with a 60-day impeachment period, enlarged in 1931 to one year) from the standpoint of its preclusion by the prior enactment of the federal Bankruptcy Act and its preference provisions. After a canvass of the authorities to date, he said this (at pp. 160-161):

There can, I think, be no doubt that the impugned Act was ultra vires of the legislature when it was passed. Whatever can be said for similar legislation that was passed before the Bankruptcy Act become [sic] operative, this legislation, viewed in the light of sec. 64, becomes an attempt to cover the same ground that section covers. The enlargement of the time from 60 days to one year must be viewed as an attempt to strengthen the remedy which sec. 64 gives to creditors. Sec. 4 cannot be looked upon as legislation which was intended to deal with contracts and which only incidentally and as part of a larger scheme dealt with matters which were within the scope of one or more of the subjects mentioned in sec. 91. This section is what it purports to be. Legislation intended to prevent a person “at a time when he is in insolvent circumstances or is unable to pay his debts in full or knows that he is on the eve of insolvency” (4 [a]), from disposing of his property in such a manner as to prefer one creditor over another. It is exactly what sec. 64 of the Bankruptcy Act was passed to prevent. If it is not in pith and substance insolvency legislation under the earlier cases, it has become so under the enlarged definition [of later cases] and also by virtue of sec. 64 of the Bankruptcy Act.

Viewing sec. 64 as being ancillary to bankruptcy and insolvency legislation, there can be no doubt of the conflict between that section and this section of The Fraudulent Preferences Act. Sec. 64 fixes three months as the time within which proceedings must be taken to avoid preferential dealings. Transactions beyond that

[Page 773]

period cannot be attacked under that section and are, therefore, legal. To enlarge that period to one year is to render void payments and transfers of property which were valid under sec. 64. The exclusions from the operation of the two sections, while similar, exhibit a differing approach and there can be little doubt that sec. 64 gives a wider exemption than sec. 7 of The Fraudulent Preferences Act.

In coming to the conclusion that s. 4 of the Alberta Act was in conflict with the then s. 64 of the Federal Act, the learned judge in the Nash and Guelph Engineering case took into consideration s. 41(6) of the Bankruptcy Act, now s. 50(6), which reads as follows:

41. …

(6) The provisions of this Act shall not be deemed to abrogate or supersede the substantive provisions of any other law or statute relating to property and civil rights that are not in conflict with this Act, and the trustee is entitled to avail himself of all rights and remedies provided by such law or statute as supplementary to and in addition to the rights and remedies provided by this Act.

In my opinion, this provision is not designed to enlarge provincial authority, and Johnson J.A. rightly held that because of conflict it had no application. The provision aforesaid does not provide for the effacement of federal legislation to allow provincial legislation to operate but relates to provincial provisions which satisfy two conditions: first, they must be provisions which are independently valid; and, second, they must be provisions which do not conflict with the application and operation of federal provisions. I do not see how provincial legislation whose operation is predicated on insolvency can be anything but insolvency legislation, nor do I see how a provincial statute can validly provide that what a federal statute says is not impeachable can nonetheless be impeached. There is no difference, in my view, between the situation where a Province seeks to narrow the period of impeachability of a transaction and the situation where it seeks to enlarge it, especially when in either case it is doing this from the standpoint of insolvency as the triggering factor. This is a different thing from legislation dealing only with fraudulent preferences apart

[Page 774]

from or unrelated to insolvency. Here, although such legislation may be valid in the absence of federal legislation, there may nonetheless be operative incompatibility in particular cases but no general supersession or preclusion.

I wish now to address myself to an issue which, I think, has influenced the approach by single judges to the constitutional question in this case, and wrongly so. That issue is the undesirability of interfering with what appeared to be a practical way of reaching as many alleged preferences in fraud of creditors as possible, to use provincial legislation where federal legislation did not reach far enough, and to use provincial insolvency legislation if nothing else was available. Hence, the approach by way of construction, albeit a dip into a constitutional area was inevitable, avoiding a direct constitutional confrontation. There are cases even in this Court and on this very subject which have proceeded on a straight construction basis to examine whether operative effect can be given to provincial legislation in the face of a federal enactment. Two examples are Traders Finance Corp. Ltd. v. Levesque[31], and Produits de Caoutchouc Marquis Inc. v. Trottier[32]. I do not regard either of these cases as requiring a decision on constitutional grounds. The Traders Finance case concerned a largely procedural matter, namely, whether the failure of a trustee in bankruptcy to impeach a preference illegal under the Bankruptcy Act, precluded a suit by a creditor to that end. The Trottier case dealt with the effect of the Bankruptcy Act on the extent of a landlord’s claim to rank as a preferred creditor.

There are numerous illustrations in other branches of the law where practices carried on for some time without objection on constitutional grounds were brought to an end when the constitutional question was raised directly. Perhaps the most celebrated instance was that considered by the Privy Council in Nadan v. The King[33], where a

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federal enactment of 1888 purporting to exclude appeals to the Privy Council in criminal matters was invalidated almost forty years later. Equally significant, because the issue was well known to the Ontario Bar which seems to have agreed to live with it as a matter of convenience, was the constitutional propriety of provincial legislation vesting jurisdiction in the Master to try mechanics’ lien actions in the County of York. Once the constitutional issue was squarely raised the Courts did not back away from it and held that s. 96 of the British North America Act was offended: see Attorney-General for Ontario and Display Service Co. Ltd. v. Victoria Medical Building Ltd.[34]

There have been a number of recent cases where this Court has proceeded on a construction basis rather than on a constitutional basis in respect of the operation of both federal and provincial legislation, although aware that a constitutional question was involved but unwilling to deal with it unless raised by a party so that necessary notice could be given to the Attorneys-General, federal and provincial. One example is Les Immeubles Fournier Inc. v. Construction St-Hilaire Ltée[35], involving s. 8 of the Interest Act, R.S.C. 1970, c. I-18. Another is Canada Labour Relations Board v. Canadian National Railway Co.[36], which concerned the scope of s. 53(g) of the federal Industrial Relations and Dispute Investigation Act, R.S.C. 1952, c. 152 (now s. 108, Part V of the Canada Labour Code, R.S.C. 1970, c. L-1) and whether it embraced (validity not put in issue) a hotel operated by the respondent railway.

Finally, on this phase of the case, I refer to Gingras v. General Motors Products of Canada Ltd.[37], which involved a question of prescription in respect of an action by a trustee in bankruptcy to set aside an illegal preference under the Bankruptcy Act. No constitutional question was directly involved, and the majority judgment held that a certain prescriptive provision of the Civil Code of

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Quebec did not apply so as to limit the trustee’s right of action.

I conclude, therefore, as follows. Provincial legislation which purports to provide for impeachment of preferences to creditors given by a person who is then insolvent, where insolvency is the sine qua non of impeachability, is invalid as a direct invasion of exclusive federal power in relation to bankruptcy and insolvency. Hence, ss. 3 and 4 of Saskatchewan Fraudulent Preferences Act are ultra vires. Moreover, in so far as these sections prescribe an impeachment period which enables a creditor to set aside a preference made beyond the period fixed by the Bankruptcy Act, and hence not impeachable under that Act, it interferes with the operation of the Bankruptcy Act and is, indeed, repugnant to it. It must be remembered that where, as in the present case, there has been a receiving order, the intrusion of provincial legislation relating to transactions entered into by an insolvent, must interfere with the rateable distribution of the bankrupt’s property according to the scheme of distribution prescribed by the Bankruptcy Act. Whether that scheme is faulty in the view of a Court is immaterial; the correction must come from the responsible Legislature. No more under bankruptcy and insolvency law than under the criminal law can a Province make unlawful what is lawful under valid federal legislation, nor make lawful what is unlawful under valid federal legislation.

In the result, I would answer the two questions in issue here in the affirmative. The judgment of the Saskatchewan Court of Appeal should be varied so as to restore the finding of insolvency by the trial judge but the appeal should otherwise be dismissed in view of the affirmative answers aforesaid. Leave is also given for a reference to determine the amount due under the debenture if the parties are unable to agree thereon. The respondent should have its costs in this Court but there should be no order as to costs to or against any of the intervenors.

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Judson, Ritchie and Pigeon JJ. concurred with the judgment delivered by

SPENCE J.—This is an appeal from the judgment of the Court of Appeal for Saskatchewan pronounced on March 14, 1974. By that judgment, the Court of Appeal allowed an appeal from the judgment of MacPherson J. pronounced on June 16, 1971. By the latter judgment, MacPherson J. had declared that the payment of the sum of $9,152.31 to the respondent was void as a preference under An Act respecting Fraudulent or Preferential Transfers, R.S.S. 1965, c. 397, and had given judgment in favour of the appellant against the respondent for that amount.

The issue determined by MacPherson J., in so far as may be adjudged from a perusal of the reasons for judgment delivered by the learned trial judge, was simply whether the transaction was or was not a preferential one voided by the provisions of that statute.

On the appeal to the Court of Appeal, the present respondent not only dealt with that issue but with the issue of whether the provincial statute was available to the appellant in this Court, there respondent, in an attack on the transaction.

Maguire J.A., in giving reasons for the majority of the Court of Appeal, held that the transaction was not a preferential one within the meaning of the section in the provincial Act respecting Fraudulent or Preferential Transfers and, therefore, was not called upon to determine whether that statute was available in whole or in part to the trustee in bankruptcy. Hall J.A., giving a dissenting judgment, found that the transaction was a preferential one within The Fraudulent Preferences Act and was, therefore, called upon to deal with the issue as to the validity and applicability of the provisions of The Fraudulent Preferences Act. Perhaps realizing that his reasons were dissenting, he did so in a very short paragraph, which I quote:

The appellant contends that The Fraudulent Preferences Act, supra, is ultra vires of the legislation of the Province. For the reasons given in Re Panfab Corp. Ltd. [1971] 2 O.R. 202, with which I agree, this contention must be rejected.

[Page 778]

Upon the trustee in bankruptcy obtaining leave to appeal to this Court, the respondent Countrywide Factors Ltd., in accordance with the Rules of this Court, and in view of the fact that it wished to argue the ultra vires character of the provincial Fraudulent Preferences Act, applied to this Court for directions and this Court ordered that notice of two questions be served on the Attorney General of Canada and the Attorneys General of the Provinces. The two questions were:

1. Whether The Fraudulent Preferences Act, R.S.S. 1965, Chapter 397, is ultra vires of the Legislature of the Province of Saskatchewan.

2. Alternatively, whether sections 3 and 4 of The Fraudulent Preferences Act, R.S.S. 1965, Chapter 397, while being within the legislative competence of the Legislature of the Province of Saskatchewan, are in conflict with valid legislation of the Parliament of the Dominion of Canada relating to bankruptcy and insolvency, namely, the Bankruptcy Act, R.S.C. 1970, Chapter B-3.

As will be demonstrated hereafter, the transaction attacked by the trustee in bankruptcy occurred on November 19, 1966, or, at any rate, not later than March 20, 1967.

Kozan Furniture (Yorkton) Ltd. was the subject of a receiving order in bankruptcy on November 19, 1968. Therefore, the Bankruptcy Act provisions as to preferential transactions contained in s. 73 of the Bankruptcy Act, R.S.C. 1970, c. B-3, which provides:

73. (1) Every conveyance or transfer of property or charge thereon made, every payment made, every obligation incurred, and every judicial proceeding taken or suffered by any insolvent person in favour of any creditor or of any person in trust for any creditor with a view to giving such creditor a preference over the other creditors shall, if the person making, incurring, taking, paying or suffering the same becomes bankrupt within three months after the date of making, incurring, taking, paying or suffering the same, be deemed fraudulent and void, as against the trustee in the bankruptcy.

(2) Where any such conveyance, transfer, payment, obligation or judicial proceeding has the effect of giving

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any creditor a preference over other creditors, or over any one or more of them, it shall be presumed prima facie to have been made, incurred, taken, paid or suffered with a view to giving such creditor a preference over other creditors, whether or not it was made voluntarily or under pressure and evidence of pressure shall not be receivable or avail to support such transaction.

(3) For the purposes of this section, the expression “creditor” includes a surety or guarantor for the debt due to such creditor.

has no application nor has s. 5 of The Fraudulent Preferences Act, R.S.S. 1965, c. 397. In the Bankruptcy Act, the interval between the transaction and the declaration of bankruptcy is limited to three months and in The Fraudulent Preferences Act, s. 7 only applies if the attack is made within 60 days after the transaction. Therefore, in order to succeed, the appellant must have available to him the provisions of ss. 3 and 4 of the said Fraudulent Preferences Act. It is the submission of the respondent that either of those sections, or indeed the whole statute, is ultra vires of the Province of Saskatchewan or that ss. 3 and 4, while being within the legislative competence of the Legislature of the Province, are in conflict with the legislation of the Parliament of Canada relating to bankruptcy and insolvency. That problem is one which has plagued the Courts from 1894 on.

The Bankruptcy Act was only enacted in the year 1919 but in Attorney-General of Ontario v. Attorney-General for the Dominion of Canada[38], the Judicial Committee dealt with the problem of whether s. 9 of an Ontario statute, the then counterpart of the present Ontario Assignments and Preferences Act, R.S.O. 1970, c. 34, was intra vires of the Province of Ontario. It is to be remembered that s. 91, subheading 21, of the British North America Act granted exclusive legislative jurisdiction to the Parliament of Canada on subjects entitled “Bankruptcy and Insolvency”. Section 9 of the Ontario statute read as follows:

An assignment for the general benefit of creditors under this Act shall take precedence of all judgments and of all executions not completely executed by payment, subject to the lien, if any, of an execution creditor

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for his costs, where there is but one execution in the sheriffs hands, or to the lien, if any, of the creditor for his costs, who has the first execution in the sheriffs hands.

The Judicial Committee held that such a provision was within the constitutional powers of the Province as granted in s. 92, heading 13, of the British North America Act, i.e., “Property and Civil Rights in the Province”. The Lord Chancellor said at pp. 198-9:

But it is argued that inasmuch as this assignment contemplates the insolvency of the debtor, and would only be made if he were insolvent, such a provision purports to deal with insolvency, and therefore is a matter exclusively within the jurisdiction of the Dominion Parliament. Now it is to be observed that an assignment for the general benefit of creditors has long been known to the jurisprudence of this country and also of Canada, and has its force and effect at common law quite independently of any system of bankruptcy or insolvency, or any legislation relating thereto. So far from being regarded as an essential part of the bankruptcy law, such an assignment was made an act of bankruptcy on which an adjudication might be founded, and by the law of the Province of Canada which prevailed at the time when the Dominion Act was passed, it was one of the grounds for an adjudication of insolvency.

It is to be observed that the word “bankruptcy” was apparently not used in Canadian legislation, but the insolvency law of the Province of Canada was precisely analogous to what was known in England as the bankruptcy law.

Moreover, the operation of an assignment for the benefit of creditors was precisely the same, whether the assignor was or was not in fact insolvent. It was open to any debtor who might deem his solvency doubtful, and who desired in that case that his creditors should be equitably dealt with, to make an assignment for their benefit. The validity of the assignment and its effect would in no way depend on the insolvency of the assignor, and their Lordships think it clear that the 9th section would equally apply whether the assignor was or was not insolvent.

and at pp. 200-1 continued:

It is not necessary in their Lordships’ opinion, nor would it be expedient to attempt to define, what is covered by the words “bankruptcy” and “insolvency” in sect. 91 of the British North America Act. But it will be

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seen that it is a feature common to all the systems of bankruptcy and insolvency to which reference has been made, that the enactments are designed to secure that in the case of an insolvent person his assets shall be rateably distributed amongst his creditors whether he is willing that they shall be so distributed or not. Although provision may be made for a voluntary assignment as an alternative, it is only as an alternative. In reply to a question put by their Lordships the learned counsel for the respondent were unable to point to any scheme of bankruptcy or insolvency legislation which did not involve some power of compulsion by process of law to secure to the creditors the distribution amongst them of the insolvent debtor’s estate.

In their Lordships’ opinion these considerations must be borne in mind when interpreting the words “bankruptcy” and “insolvency” in the British North America Act. It appears to their Lordships that such provisions as are found in the enactment in question, relating as they do to assignments purely voluntary, do not infringe on the exclusive legislative power conferred upon the Dominion Parliament. They would observe that a system of bankruptcy legislation may frequently require various ancillary provisions for the purpose of preventing the scheme of the Act from being defeated. It may be necessary for this purpose to deal with the effect of executions and other matters which would otherwise be within the legislative competence of the provincial legislature. Their Lordships do not doubt that it would be open to the Dominion Parliament to deal with such matters as part of a bankruptcy law, and the provincial legislature would doubtless be then precluded from interfering with this legislation inasmuch as such interference would affect the bankruptcy law of the Dominion Parliament. But it does not follow that such subjects, as might properly be treated as ancillary to such a law and therefore within the powers of the Dominion Parliament, are excluded from the legislative authority of the provincial legislature when there is no bankruptcy or insolvency legislation of the Dominion Parliament in existence.

It will be seen, therefore, that the Judicial Committee in this decision only determined that a system providing for voluntary assignments enacted in a province prior to the enactment of any federal Bankruptcy Act was intra vires but acknowledged that a subsequently enacted Bankruptcy Act by the federal Parliament might well overcome the provisions of the provincial statute. It would seem that the decision is quite silent as to the effect of provisions in a provincial Assignments

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and Preferences Act other than one permitting a voluntary assignment of debts except that one might well argue that by implication provisions in the provincial statute dealing with fraudulent preferences would be equally within the purview of the province under “property” and “civil rights” unless and until overcome by federal legislation ancillary to its power in bankruptcy and insolvency.

In 1922, Orde J. gave a decision in Re Davison[39], in a matter where a mortgage was being attacked by a trustee in bankruptcy as void under The Fraudulent Conveyances Act and also The Assignments and Preferences Act. The mortgagee submitted that if the transaction could not be avoided under s. 31 [now s. 73] of the Bankruptcy Act, it could not be set aside at all. In other words, that the provincial statutes aforesaid were no longer applicable in the province when bankruptcy occurs, having been superseded by the provisions of the Bankruptcy Act. At p. 245, the learned justice said:

This is a startling suggestion, and, if sound, would turn back the clock for three centuries and enable a debtor to commit a deliberate fraud upon his creditors, and by holding off his bankruptcy for three months to validate the transaction. There is nothing in sec. 31 or in any other part of the Bankruptcy Act which either expressly or impliedly abrogates the existing law of each Province as to the invalidity of fraudulent transactions. On the contrary, in the enumeration of the different kinds of acts of bankruptcy in sec. 3, para. (b), it is clearly intended to include cases of fraudulent conveyances which are fraudulent quite independently of the Bankruptcy Act, those which are fraudulent under the Act being mentioned in para. (c). Rule 120 clearly contemplates other laws than the Bankruptcy Act itself, under which a transaction may be declared invalid, though, if the effect of the Act is as Mr. White contends, the Rules cannot nullify that effect.

Orde J. was the first judge dealing with bankruptcy matters in Ontario after the enactment of the statute. The report books for the years following the enactment of the statute are filled with his wise decisions in reference to bankruptcy and, in my view, he firmly established the course of bank-

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ruptcy law in Ontario and largely affected the course of the law throughout Canada in the early years of bankruptcy administration. I am of the view that his observation which I have cited is a very sound one and is still applicable today. I might even go further: it is not only possible for a debtor to hold off his bankruptcy for three months in order to validate the transaction but it is quite possible for a creditor, improperly and fraudulently preferred, to support a debtor and enable him to postpone the date of his eventual declaration of bankruptcy beyond the three months.

The view expressed by Orde J. seems to have prevailed for a considerable length of time.

In Hoffar Ltd. v. Canadian Credit Men’s Trust Association Ltd.[40], the Court of Appeal for British Columbia had considered a situation where a transfer had been made by a debtor less than 60 days before the debtor’s assignment under the provisions of the Bankruptcy Act. The transaction was attacked under two grounds: firstly, that it was avoided by the provisions of s. 64 [now s. 73] of the Bankruptcy Act, and, secondly, that it was utterly void as against the trustee under the provisions of s. 3(2) of the Fraudulent Preferences Act of British Columbia. It was found, at trial, and not contested on appeal, that s. 64 of the Bankruptcy Act could not apply because it had not been proved that the transaction was made with a view to prefer one creditor over another and, in the Court of Appeal, it was also held that s. 3 of the provincial statute had been rendered inoperative by the enactment of s. 64 of the Bankruptcy Act. M.A. Macdonald J.A. said:

The Dominion statute adds however subsec. (2) quoted ante, stating when the view or intent to prefer shall be presumed. If it has the effect of giving a preference it is prima facie proof that it was made with that intent. That is a presumption and evidence may be adduced to rebut it. That right is given by the Dominion Act on a state of facts common to both Acts. The provincial statute denies that right. Given the insolvency as in the Dominion Act and the intent as in the Dominion Act (“with a view of”) the transfer is utterly void

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under sec. 3(1) without any right to offer evidence to rebut it. And under sec. 3, subsec. (2), if action is taken within 60 days or if an assignment follows within 60 days the transfer is void.

The provincial Act is not dealing with a new situation; the variation in words and figures does not affect the subject-matter. But the result is different. Under the provincial Act the transfer is void; under the Dominion Act it is deemed void with however the right to rebut. If this is given by Dominion legislation a provincial Act destroying it is ultra vires to the extent of the conflict. Under the Dominion Act the assignor has the benefit of that right. Under the provincial Act invalidity is an irrebuttable presumption. That is the conflict.

M.A. Macdonald J.A. added the very important comment:

This is not to say that the trustee cannot resort to a provincial Act to impeach a transaction. Provincial legislation respecting fraudulent conveyances may be resorted to. The Bankruptcy Act does not abrogate provincial Acts simply because they deal with preferential transactions. But obviously both Parliaments cannot enact that one result shall follow in one case and a different result in the other. Counsel for respondent submitted that the section in the provincial Act deals with a topic not dealt with by the Dominion Act. I cannot agree. He also urged that there is no conflict where the Dominion Act voids a transaction on one ground and a provincial Act avoids it on other and additional grounds; in other words, the Dominion Act does not say that transactions of another kind shall be lawful. That is not this case. We are dealing with legislative results following the same transaction and the results differ. That result in case of conflict must be determined by the Dominion Act. The test is, can both sections be enforced?

So, in Hoffar, the Court of Appeal for British Columbia acknowledged that, of course, valid federal legislation on the subject of bankruptcy and insolvency would overcome provincial legislation on the subject of property and civil rights but only to the extent of the conflict. In that case, the Court found a conflict but foresaw cases where there would be no conflict and where, therefore, the provincial legislation would still be in full force

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and effect. Leave to appeal to this Court in the Hoffar case was refused by Mignault J.[41]

In Re Pommier[42], Fisher J.A. considered an application to set aside as preferential a transaction between the bankrupt and the creditor which took place more than three months before the making of the authorized assignment and which, therefore, was not within the prohibition in s. 64 [now s. 73] of the Bankruptcy Act. At pp. 419-20, the learned justice said:

After careful consideration of the provisions of the Bankruptcy Act, the Assignments and Preferences Act, and the decisions to which I shall make reference, I am unable to give effect to Mr. Hellmuth’s contentions.

I frankly admit that conflict is to be found when sec. 64 is read in connection with sec. 5 of the Assignments and Preferences Act and the following sections, except possibly sec. 12, and that, the Bankruptcy Act being Dominion legislation, as to this conflict the Dominion Act prevails; but, in my opinion, sec. 64 does not attempt to interfere directly with provincial legislation dealing with the same subject-matter, because it is quite clear that subsecs. (3) and (4) of sec. 4 of the Assignments and Preferences Act cover transactions not covered by the Bankruptcy Act, and in those respects are not in conflict with the Bankruptcy Act, and that these subsections are still operative; but, even if it could be said that these subsections do deal with the same subject-matter, it is not one of conflict but of “overlapping”.

And at p. 422, said:

It appears to me, and I am of opinion, that the combined effect of Rule 142, sec. 64, and the other sections of the Acts to which I have referred, is to give to a trustee in bankruptcy, without special enabling words, power to impeach all fraudulent or preferential transactions which may by the Bankruptcy Act or provincial law be avoided; that neither the Assignments and Preferences Act nor the Fraudulent Conveyances Act has been abrogated, and that these Acts, apart from the conflicting sections mentioned, are still running concurrently with the provisions of the Bankruptcy Act and may be resorted to by a trustee under that Act, if it is found that relief cannot be obtained thereunder, or, to

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adopt the words of Macdonald, J.A., in the Hoffar case:—

Unless on the same state of facts we find a different result arising, resort may be had to the provisions of whichever legislation fits the case.

So, therefore, another most eminent and experienced judge in bankruptcy matters came to the like conclusion that the provincial statute in so far as it was not overcome by the provisions of the Bankruptcy Act was still available to the trustee in bankruptcy.

However, the Court of Appeal for Ontario in Re Trenwith[43], again considered a transaction allegedly preferential which had occurred much more than three months prior to the petition which resulted in the receiving order. Kerwin J., as he then was, had at trial set aside the impugned transaction using the provisions of The Assignments and Preferences Act being of the opinion that he was so required by the decision in Re Pommier, supra. But upon appeal Masten J.A. said at p. 332:

The question is therefore open for adjudication by this court, and on a consideration of the cases of Attorney-General of Ontario v. Attorney-General for Canada, [1894] A.C. 189, at p. 200; Royal Bank of Canada v. Larue, [1928] A.C. 187, 8 C.B.R. 579, and Canadian Credit Men’s Trust Association Ltd. v. Hoffar Ltd., [1929] S.C.R. 180, 10 C.B.R. 374, it seems clear to me that the common field of legislation respecting the distribution of the estates of insolvents having now become occupied by the Dominion Bankruptcy Act, the provisions of The Assignments and Preferences Act respecting the preference of one creditor over another have been thereby superseded and have ceased to have any operation. If I am right in this conclusion, the effect is to overrule the view expressed by Fisher J. in Re Pommier (1930), 65 O.L.R. 415, 11 C.B.R. 449.

The Court of Appeal for Ontario, therefore, came to exactly the opposite conclusion, not to the actual decision in Hoffar but to the reservation made by M.A. Macdonald J.A. and which I have cited above and to a conclusion opposite to that reached by Fisher J.A. in Re Pommier. The conclusion, however, may well be considered obiter because Masten J.A. follows the statement which I

[Page 787]

have quoted above with a holding that although the transaction could not be attacked under either s. 64 of the then Bankruptcy Act or under The Assignments and Preferences Act of the Province it could be attacked as a settlement under the then s. 60 [now s. 69] of the Bankruptcy Act.

The statement which I have quoted above, however, is plainly that by enacting the then s. 64 of the Bankruptcy Act the federal Parliament enacting valid legislation on the subject of bankruptcy and insolvency has covered the field and, therefore, cannot be reconciled with decisions to which I have referred which reduce the deleterious effect of the federal legislation to points of actual conflict only. The decision, however, has some support in this Court and in the Courts of Appeal of the Provinces. In Re Bozanich, A.H. Boulton Co. Ltd. v. Trusts & Guarantee Co. Ltd.[44], this Court considered whether a chattel mortgage was or was not a settlement within the meaning of the then s. 60 of the Bankruptcy Act and held it was not such a settlement. There seems to have been no allegation whatsoever that the transaction could be subject to attack under the provisions of the Ontario Assignments and Preferences Act or the Ontario Fraudulent Conveyances Act, but Duff C.J. said at p. 136:

I may add that, in my opinion the provisions of R.S.O. 1927, Chap. 162, in relation to preferences are superseded by section 64 of the Bankruptcy Act, and that the authority of the Ontario Legislature to enact such legislation is, in consequence of the enactment of section 64, suspended in virtue of the concluding paragraph of section 91.

The statement is, of course, plainly obiter and it is not reflected in the reasons for judgment of Rinfret J. who came to the same result as did the Chief Justice.

In 1949, the Parliament of Canada enacted an amendment to the Bankruptcy Act which now appears as s. 50, subs. (6) of the statute and which provides:

(6) The provisions of this Act shall not be deemed to abrogate or supersede the substantive provisions of any

[Page 788]

other law or statute relating to property and civil rights that are not in conflict with this Act, and the trustee is entitled to avail himself of all rights and remedies provided by such law or statute as supplementary to and in addition to the rights and remedies provided by this Act.

In Totem Radio Supply Co. Ltd. v. Stone et al.[45], Whittaker J., sitting in single judge court, held that the Fraudulent Preferences Act, R.S.B.C. 1948, c. 132, was not in conflict with s. 64 [now s. 73] of the Bankruptcy Act, and at p. 553, said:

Prior to 1949 there were conflicting decisions as to whether or not the dominion legislation entirely superseded provincial Acts dealing with preferences, but this matter is now resolved by sec. 41(6) of the Bankruptcy Act of 1949:

Other cases in the various provincial Courts went either way but the next case which I shall consider is Attorney-General of Alberta v. Nash and Guelph Engineering Company[46]. There the Appellate Division of the Province of Alberta held, confirming Milvain J., that The Fraudulent Preferences Act of Alberta was ultra vires. Johnson J.A. said at pp. 160-1:

There can, I think, be no doubt that the impugned Act was ultra vires of the legislature when it was passed. Whatever can be said for similar legislation that was passed before the Bankruptcy Act became operative, this legislation, viewed in the light of s. 64, becomes an attempt to cover the same ground that section covers. The enlargement of the time from 60 days to one year must be viewed as an attempt to strengthen the remedy which sec. 64 gives to creditors. Sec. 4 cannot be looked upon as legislation which was intended to deal with contracts and which only incidentally and as part of a larger scheme dealt with matters which were within the scope of one or more of the subjects mentioned in sec. 91. This section is what it purports to be. Legislation intended to prevent a person “at a time when he is in insolvent circumstances or is unable to pay his debts in full or knows that he is on the eve of insolvency” (4 [a]), from disposing of his property in such a manner as to prefer one creditor over another. It is exactly what sec.

[Page 789]

64 of the Bankruptcy Act was passed to prevent. If it is not in pith and substance insolvency legislation under the earlier cases, it has become so under the enlarged definition and also by virtue of sec. 64 of the Bankruptcy Act.

Johnson J.A. cited s. 41(6) [now s. 50(6)] of the Bankruptcy Act and then continued:

Whittaker J. of the British Columbia supreme court considered this amendment in Totem Radio Supply v. Stone (1959) 29 WWR 552, and as he could find no conflict between sec. 64 of the Bankruptcy Act and the section of the Fraudulent Preferences Act, RSBC, 1948, ch. 132 (similar to our Act), set aside a mortgage which had been given more than three months before the company became bankrupt. With respect, I must disagree with his conclusion. Having concluded, as previously stated, that there is a conflict between the two sections, it would follow that the section in the provincial Act is unaffected by the amendment.

The Court of Appeal of Ontario again considered the Assignments and Preferences Act, RSO, 1960, ch. 25, in Re Shelly Films Ltd.; Clarkson Co. v. Overland Finance Corpn. [1963] 1 OR 431, 4 CBR (NS) 186, reversing [1961] OWN 371, 3 CBR (NS) 94, and held that sec. 12(1) of that Act was abrogated by sec. 64 of the Bankruptcy Act. Because no mention was made of the amendment to the Bankruptcy Act in that case, we are asked to assume that it had been overlooked and was not considered by that court. Judicial comity would make one hesitate to impute to the court of another province such an oversight. The case does point out the conflicts in the two Acts and it is much more reasonable to assume that the amendment was in fact considered by the court.

It may be that certain sections of the Fraudulent Preferences Act are continued effective by the amendment to sec. 41 of the Bankruptcy Act, but because of the conflict between the section we are considering and sec. 64, sec. 4 is not one of them.

It would seem that Johnson J.A.’s judgment, although he commences with the statement that the Act is ultra vires, ends with the conclusion that only the section under attack in that particular decision was ultra vires. The particular section was s. 4 which avoided preferential transactions where an action had been brought within one year thereafter. The statute under consideration in this appeal, the Saskatchewan Fraudulent Preferences

[Page 790]

Act, in ss. 3 and 4 makes no reference whatsoever to any time limit. The section which does make such reference and which creates a presumption is s. 5 and it is not advanced by the trustee.

In Re Panfab Corp. Ltd.[47], Houlden J. considered an appeal from a registrar to whom an issue had been directed as to the validity of a security given by an individual to a corporation and held that s. 64A [now s. 74] did not apply. He continued at p. 206:

The next issue is whether the transaction, not being a fraudulent preference because it does not come within s. 64A, can be attacked as a fraudulent conveyance. Counsel for the appellants gave notice to the Attorney-General for Canada and the Attorney-General for Ontario pursuant to s. 33 of the Judicature Act, R.S.O. 1960, c. 197, that he proposed to argue that the Fraudulent Conveyances Act, R.S.O. 1960, c. 154, was ultra vires the Legislature of the Province of Ontario, or ineffective in that it is legislation relating to either bankruptcy or insolvency which by s. 91, para. 21 of the B.N.A. Act, 1867, is under the exclusive legislative authority of the Parliament of Canada.

And at p. 207, he expressed the view that The Fraudulent Conveyances Act in Ontario was not in pith and substance bankruptcy legislation but was valid legislation as in reference to property and civil rights within s. 92, para. 13 of the British North America Act. He continued:

The Fraudulent Conveyances Act is used constantly to attack transactions which have no connection with bankruptcy. It is an important part of the weapons available to creditors in recovering assets that have been fraudulently transferred by debtors. In my opinion, there is no conflict between the provisions of the Fraudulent Conveyances Act and the Bankruptcy Act. Section 41(6) of the Bankruptcy Act recognizes that provincial legislation such as the Fraudulent Conveyances Act exists and provides that the trustee is entitled to make use of such legislation in addition to the rights and remedies provided by the Bankruptcy Act.

Houlden J.’s decision is obiter, however, in that he found that the transaction was not within The Fraudulent Conveyances Act because it was bona

[Page 791]

fide. It is to be noted also that Houlden J.’s concern was with The Fraudulent Conveyances Act while this appeal is concerned with the exact provisions of ss. 3 and 4 of The Fraudulent Preferences Act of Saskatchewan. Perhaps it should also be noted that Houlden J., in the Panfab case had inclined to the opposite conclusion in reference to this problem which he found, in his article reported in 38 C.B.R. 114, to be one of great importance, and where he found the decision in Re Trenwith had been a block to trustees. Houlden J. does not mention Re Trenwith in his reasons for judgment in Panfab. It is to be remembered that Re Panfab Corporation was not appealed to the Court of Appeal and we, therefore, have not an opportunity to determine whether that Court had recanted from its view taken thirty-five years before in Re Trenwith.

In Traders Finance Corporation Ltd. v. Levesque[48], the Court considered a transaction, allegedly preferential, occurring within three months before the declaration of bankruptcy. The attack upon the transaction, however, was not made until more than a year after the bankruptcy when the creditor, the trustee having refused to take the action, obtained the leave of the Court to proceed under the provisions of s. 16 of the Bankruptcy Act [now s. 20]. The provisions of art. 1040 of the Civil Code purported to place a limitation period of one year upon such attack. This Court, confirming the Court of Appeal of Quebec, by a majority judgment, held that art. 1040 of the Civil Code would not apply because the action was taken within a year of the creditors’ obtaining knowledge of the payment as the said article provides. Locke J. did consider art. 1040 of the Civil Code and held that it had no application whatever to proceedings under the provisions of the Bankruptcy Act, saying at p. 90:

It may be said that provisions similar to those contained in the articles of the Civil Code to which I have referred are to be found in statutes of most of the provinces of Canada. They are to be found in British Columbia in the Fraudulent Preferences Act, R.S.B.C. 1948, c. 132, in Alberta in the Fraudulent Preferences Act, R.S.A. 1955, c. 120, in Saskatchewan in the Fraudulent Preferences Act, R.S.S. 1953, c. 362, in

[Page 792]

Manitoba in the Assignments Act, R.S.M. 1954, c. 11, and in Ontario in the Assignment and Preferences Act, R.S.O. 1950, c. 26. All of these statutes deal with the rights of creditors to set aside conveyances made by persons in insolvent circumstances, which have the effect of giving a creditor a preference over the others and all of them provide that, in the event of action being brought within a certain period of the date of the conveyance, it is to be held null and void. The remedies thus given are quite distinct from those given to the trustee in bankruptcy under c. 64 of the Bankruptcy Act. The right to enforce such claims by creditors does not depend upon the fact that the person making the transfer has been declared bankrupt and these rights may be enforced under the provincial statutes unless bankruptcy has intervened. This has been held in a number of cases in various provinces, which are to be found collected in the 3rd ed. of Bradford and Greenberg on the Bankruptcy Act, at p. 158 et seq. In Quebec the limitation provided by art. 1040 only refers to proceedings under the articles mentioned.

One might infer from Locke J.’s words that once bankruptcy has intervened then the provincial statutes have no application even to a transaction occurring before the period covered by the present s. 73. Ï am not of the view that that is a proper implication from Locke J.’s words. I am assisted in coming to that conclusion by the decision of this Court in Gingras v. General Motors Products of Canada Ltd.[49], a judgment pronounced on November 27, 1974, and as yet unreported. There, the Court of Appeal of Quebec had confirmed a decision of the Superior Court which had dismissed a “motion to cancel preferential payments” instituted by the trustee in bankruptcy. The trustee had in such motion attacked a transaction which had occurred less than three months before the declaration of the bankruptcy but had not instituted the action within one year of his appointment as provided in art. 1040 of the Civil Code.

The defendant filed an exception relying on the said art. 1040 of the Civil Code and such exception was successful in both Courts below. However, this Court, by a majority judgment, held that the trustee, in taking action under s. 73 of the Bank-

[Page 793]

ruptcy Act to attack a transaction as a preference occurring within three months before the bankruptcy, was not affected by art. 1040 of the Civil Code and was controlled alone by the provisions of the Bankruptcy Act. De Grandpré J., dissenting, was of the opinion that in proceeding in the Superior Court the trustee was governed by the procedural provisions of the Civil Code and that, therefore, art. 1040 would apply to bar the action.

It is noted that Pigeon J. giving reasons, concurred in by Martland and Dickson JJ., said at p. 8 of the English version of his reasons:

Ï would therefore allow the appeal and dismiss the exception to dismiss submitted by respondent. This does not mean that the latter will not be entitled to rely on Art. 1040 in answer to a claim based on the goods taken back, if the trustee should contend that his petition allows him to go beyond the three months preceding the bankruptcy, and base a claim not only on the Bankruptcy Act but also on Arts. 1032 to 1040 C.C.

In my view, Pigeon J., therefore, expressed the view that in the attack upon transactions not within the three month period provided by s. 73 of the Bankruptcy Act the trustee was free to use the provisions of the Civil Code as to preferential transactions.

De Grandpré J., in his dissenting reasons, at p. 4 of the English version said:

In my view, the Bankruptcy Act overrides the Paulian action only to the limited extent that it deals with acts in defraud of the debtor; all aspects of fraudulent action falling outside the provisions of the Bankruptcy Act may be considered in the light of the principles of the Civil Code.

Again, a plain statement that any reference to transactions outside of the narrow limits of the provisions of what is now s. 73 of the Bankruptcy Act, the Civil Code remained in full force and available to the trustee in bankruptcy.

I have dealt with what, in my view, are the main cases upon the subject in Canada. Upon considering them all, as well as the decision of the Judicial Committee in A.G. of Ontario v. A.G. for Canada,

[Page 794]

supra, I have come to the conclusion that the better view is to confine the effect of what is now s. 73 of the Bankruptcy Act to providing for the invalidity of transactions within its exact scope. To that extent, the Parliament of Canada, by valid legislation upon “bankruptcy” and “insolvency”, has covered the field but has refrained from completely covering the whole field of transactions avoided by provincial legislation. I am of the opinion that the enactment in 1949 of the provisions now found in s. 50(6) of the Bankruptcy Act is a plain indication that Parliament recognized that provisions in provincial statutes dealing with preferential transactions were still valid provincial enactments in reference to “property” and “civil rights” and were valuable aids to trustees in bankruptcy in attacking the validity of such transactions and should be available to the said trustees in bankruptcy.

I am assisted in coming to this conclusion by the view which I believe was behind the Lord Chancellor’s reasons in A.G. of Ontario v. A.G. for Canada, supra, that the words “bankruptcy” and “insolvency” in s. 91, para. 21, of the British North America Act were aimed at legislative schemes which had the purpose of governing the distribution of a debtor’s property amongst his creditors. There may well be, and there are, provisions in such legislative schemes, i.e., the Bankruptcy Act, dealing with “property” and “civil rights”. Such provisions are properly ancillary to the bankruptcy and insolvency legislation, and to the extent to which they go overcome existing valid provincial legislation and bar future provincial legislation contra thereto but do not purport to extend beyond that point to invalidate other valid provincial legislation upon “property” and “civil rights”.

I have, therefore, come to the conclusion that the provisions of ss. 3 and 4 of The Fraudulent Preferences Act of Saskatchewan are valid and subsisting provincial legislation available to the trustee in his attack upon the transactions with which this appeal is concerned. In my view, s. 3 of that statute dealing with transactions taken with the intent to defeat, hinder, delay or prejudice

[Page 795]

creditors is not as relevant as s. 4 which provides:

4. Subject to sections 8, 9, 10 and 11 every gift, conveyance, assignment or transfer, delivery over or payment of goods, chattels or effects or of bills, bonds, notes or securities or of shares, dividends, premiums or bonus in a bank, company or corporation, or of any other property real or personal, made by a person at a time when he is in insolvent circumstances or is unable to pay his debts in full or knows that he is on the eve of insolvency to or for a creditor, with intent to give that creditor preference over his other creditors or over any one or more of them, is void as against the creditor or creditors injured, delayed, prejudiced or postponed.

and is concerned with transactions taken with the intent to give one creditor preference over other creditors.

In order to determine whether that section applies to avoid the transaction in question in this appeal, a detailed analysis of the circumstances is necessary.

Kozan Furniture (Yorkton) Ltd. had carried on business for a period of years in Saskatchewan. Part of that business was the sale of floor coverings, paints, draperies, interior decorating material, etc. The supplier of those items was Kennedy Flooring Limited of Winnipeg, a wholly-owned subsidiary of Gaultco Limited of Winnipeg. Another wholly-owned subsidiary of the said Gaultco was Countrywide Factors Limited. By some mysterious and unspecified arrangement, Countrywide Factors Limited became the accounting firm and the billing agent for Kennedy Flooring.

The three corporations, Gaultco Limited, Kennedy Flooring Limited and Countrywide Factors Limited, were all controlled by the same officers, and we are not concerned with the arrangements between the three companies.

As early as 1965, Countrywide Factors Limited was unsatisfied with the payments being received from Kozan Furniture (Yorkton) Limited on its open account and placed Kozan Furniture (York-ton) Limited on a “C.O.D.” basis. The learned

[Page 796]

trial judge found, and it was confirmed by the majority on appeal, that by the spring of 1966 Kozan Furniture (Yorkton) Limited was not paying the accounts as they became due. One Tony Ollinger was the manager of the floor covering department in Kozan Furniture (Yorkton) Limited and he arranged with Kozan Furniture (Yorkton) Limited and its controlling shareholder George E. Kozan to purchase the floor covering inventory for the sum of $10,300. Of course, it was of crucial interest to Ollinger that he should continue to have Kennedy Flooring Limited supply him with stock. On November 19, 1966, two officers of Countrywide Factors went from Winnipeg to Yorkton, Saskatchewan, and conferred with George E. Kozan and Tony Ollinger. The two officers were Mr. David Albert Bowles, a director of Countrywide and also its solicitor, and Mr. Philip Douglas Medhurst, its credit manager. As a result of that conference, a document was drawn up and executed which read as follows:

I, Tony Ollinger, agree to pay Countrywide Factors Ltd. $10,300.00 (more or less) representing sale of inventory of floor coverings, paint & Drapery as determined by stocktaking of Sept. 21/66; payment as follows:

(a) Before Nov. 26/66                $7,000.00

(b) Before Jan. 31/67, the balance & int. at 7%

(If substantially paid—say within $300.00—this will be adequate compliance & any unpaid balance will be paid by the last day of Feb. 1967.)

Countrywide will agree to the sale of said inventory on such compliance & will reduce the account of Kozan Furniture (Yorkton) Ltd. now at $25,000.00 (more or less) by the amount of said inventory price.

George Kozan guarantees repayment of the account of Kozan Furniture (Yorkton) Ltd. as set out in his letter of Oct. 1/66 & attached. He & Kozan Furniture (Yorkton) Ltd. will give a debenture on the stock in the form attached, an assignment of book debts in Countrywide’s form & a collateral mortgage on 76 and 80 Circlebrook Drive.

Kozan Furniture (Yorkton) Ltd.                                   Countrywide Factors Ltd.

Per: “George E. Kozan”                                              Per: “D.A. Bowles”

               “Tony Ollinger”

[Page 797]

At the same time and place, George E. Kozan executed a personal guarantee of the debt to Countrywide and, in accordance with the agreement set out above, in February of 1967 Kozan Furniture (Yorkton) Limited granted to Countrywide Factors Limited a debenture in the sum of $35,512 covering all of its remaining assets. The floor coverings which under the transaction had been transferred from Kozan Furniture (Yorkton) Limited to Tony and Rudolph Ollinger were conveyed by a bill of sale which was, however, only executed on February 15, 1967. Again, a mysterious company appears. That transfer was not made by Kozan Furniture (Yorkton) Limited, the owner of the inventory, but purportedly by a corporation entitled Kozan Interiors Limited and purportedly for a consideration of $10,300. The actual inventory of the material covered in the bill of sale had only amounted to $9,152.31 and that was the exact amount of the money paid by Ollinger to Countrywide under the provisions of the agreement of November 19, 1966, which I have set out in full above.

Kozan Interiors Limited was unknown to Kennedy Flooring Limited and, in fact, the learned trial judge refers to that corporation in the words “…if ever incorporated (which is unlikely) never carried on business and never owned the assets which were the subject of D22” (the bill of sale of February 17, 1967). George E. Kozan attempted to explain the interjection of this corporate name. The learned trial judge referred to that explanation in the following words:

Mr. Kozan weakly suggested that he made the mistake when he instructed Mr. Wentzell, the solicitor who drew D 22. I suppose it is the type of error made by a businessman who is in the troes [sic] of insolvency.

Another light may be thrown on the topic by a document produced at trial and marked as Ex. P-10, which reads as follows:

[Page 798]

IN THE MATTER OF A CERTAIN SALE MADE UNDER THE BULK SALES ACT FOR THE PROVINCE OF SASKATCHEWAN.

BETWEEN:

         KOZAN INTERIORS LTD.,

         of Yorkton, in the Province

         of Saskatchewan,

—and—

ANTHONY OLLINGER and RUDOLPH OLLINGER,
both of Yorkton, in the Province of Saskatchewan,

KNOW ALL MEN BY THESE PRESENTS that Country Wide Factors Ltd., the undersigned does for the purpose of Section 6 of the Bulk Sales Act for the Province of Saskatchewan, HEREBY RENOUNCE AND WAIVE any right which the said Country Wide Factors Ltd., has under the said Act against Anthony Ollinger and Rudolph Ollinger and against any right or claim to any of the goods, draperies, paints, floorings and materials covered in the sale agreement dated the 7th day of February, A.D. 1967.

IN WITNESS WHEREOF Country Wide Factors Ltd., has hereunto set their hands and affixed their corporate seal on its behalf this 13th day of April A.D. 1967.

COUNTRY WIDE FACTORS LTD.

Certainly the transaction between Kozan Furniture (Yorkton) Limited and Ollinger whereby the title to the floor coverings was transferred from one to the other but the sale price was paid to Countrywide Factors was one within the provisions of The Bulk Sales Act, but if the vendor had, in truth, been Kozan Interiors Limited, then that company had no creditors and The Bulk Sales Act provisions would not have applied. It is, I think, significant in dealing with the bona fides of the transaction. After that transfer of the inventory of floor coverings, etc., Kozan Furniture (Yorkton) Limited was said to have paid to Countrywide Factors the following sums:

[Page 799]

As a matter of fact, the payments in March, April and June were payments by Ollinger totalling $9,152.31, the amount of the inventory, and the amount which he had agreed to pay to Countrywide Factors by the agreement of November 19, 1966.

Kozan Furniture (Yorkton) Limited continued doing business, after a fashion, until November 19, 1968, when a receiving order in bankruptcy was made out against the company.

On July 10, 1969, the trustee in bankruptcy moved for an order that the proceeds of the sale be declared a fraudulent preference contra to the provisions of ss. 3 to 6 of The Fraudulent Preferences Act and for an order directing the respondent to pay the sum of $10,300 to the said trustee. MacPherson J. directed a trial of that issue and then himself conducted the trial. MacPherson J., in written and detailed reasons, found that the transaction was a preference and directed that the trustee recover from Countrywide the sum of $9,152.31 and that the debenture given by Kozan Furniture (Yorkton) Limited to Countrywide Factors Limited be declared void. The majority of the Court of Appeal, Maguire J.A. giving reasons which were concurred in by Woods J.A., reversed that judgment holding that the trustee had failed to establish that Kozan Furniture (Yorkton) Limited, on November 19, 1966, the date of the agreement aforesaid or in March 1967, the date when the payments under that agreement to Countrywide Factors Limited commenced, was insolvent, unable to pay its debts in full or on the eve of bankruptcy. Hall J.A. dissented being of the opinion that Kozan Furniture (Yorkton) Limited was, on either of those dates and throughout, insolvent. Hall J.A. expressed the view that The Fraudulent Preferences Act was intra vires and applicable.

It would appear, from a perusal of the reasons given by Maguire J.A. for the majority, that he was of the opinion that in order to bring himself within the benefit of the section the trustee had to prove that the debtor was not only in insolvent circumstances but was also unable to pay his debts in full and knew that he was on the eve of insolvency. A reading of the section would seem to make it quite clear that those three are alternatives and

[Page 800]

not conjunctives and that all the trustee had to prove was that the debtor was insolvent or that he was unable to meet his debts in full or that he knew he was on the eve of insolvency. I am not concerned particularly with the last-named alternative as that is quite subjective and I do not find it necessary to pierce the mind of George E. Kozan.

I am in agreement with the view expressed by Hall J.A. that although the burden is on the trustee to prove the insolvency of the debtor at the time of the transaction, as the burden is always upon the plaintiff to prove his case, the trustee may adduce such a prima facie case which will call upon the defendant to adduce evidence to rebut that prima facie evidence. It must be remembered that a trustee is often faced with a situation, which faced this trustee when he was not appointed until November 1968, where he had to go back into the past and establish an insolvency which he alleged had existed in November 1966. The trustee in such a situation must deal with records which are, in many cases, fragmentary and may well be intentionally deceptive. He has no means of checking the actual stock-in-trade which existed at that date, and sometimes can place little dependence upon the evidence of the debtor. In the particular case, I am of the opinion, as was Hall J.A. and MacPherson J., that the trustee as plaintiff, here appellant, had certainly shown such a prima facie case.

Maguire J.A. giving reasons for the majority of the Court of Appeal, said:

It is established that Kozan as early at least as spring of 1966 was not paying all accounts as they became due.

In Ladore v. Bennett[50], Lord Atkin said at p. 480:

Insolvency is the inability to pay debts in the ordinary course as they become due; and there appears to be no doubt that this was the condition of these corporations.

I am of the opinion that the statement by Maguire J.A. which I have quoted above would have been sufficient to have disposed of the issue and justify a holding that the debtor was in insol-

[Page 801]

vent circumstances within the words of s. 4 of The Fraudulent Preferences Act at the time of the transaction. However, there is no need to put the decision on that single ground for I have come to the conclusion that the debtor was unable to pay his debts in full at the date of the transaction.

The Court of Appeal, as I have said, seemed to be of the opinion that the difficulty facing the trustee was that he could not prove that the debtor was unable to pay his debts in full or, to use the words appearing in Walter v. Adolph Lumber Co. et al.[51], that “he had not the means of paying his creditors in full out of the assets which could be realized upon the sale for cash or its equivalent” because the trustee could not prove the extent of the inventory possessed by the debtor on November 19, 1966. It is true that the debtor had no inventory which could be produced and to which a dollar and cents value could be attached. Mr. Medhurst, credit manager of the respondent, however, had given some evidence where he, in a very casual manner, estimated the value of that inventory at that time at about $75,000, admitting, however, he was no expert on furniture valuations. Since Mr. Medhurst was anxious to uphold the transaction and, therefore, to see that the debtor had assets sufficient to cover his liabilities, he certainly would not have underestimated the value of the inventory. Therefore, even if we take that valuation of $75,000, we have this situation, and I am quoting here figures adopted by Maguire J.A. and appearing in his majority reasons for the Court of Appeal:

Trade accounts and liabilities to bank	$    111,199.16
Shareholders’ loan	22,702.62
Total liabilities		$ 133,901.78
Accounts receivable	$      44,099.62
Value of truck—subsequently sold by trustee	1,000.00
Total of those two assets		$    45,099.62

Even adopting those figures, the other assets in inventory, that is, stock-in-trade and store fixtures, would have had to amount to $88,802.16; yet, two full years later, those remaining assets were sold

[Page 802]

for only $31,200 which sum was subject to a landlord’s lien for $3,200 leaving a net amount in the trustee’s hands of only $28,000 not $88,000. In addition, the accounts receivable shown in Maguire J.A.’s figures at $44,099.62 were reduced in December 1966 on the instructions of the debtor’s auditor to $23,598.51 so that to establish that the debtor could have paid all his debts by realization of his assets would have required an increase in the value of the stock‑in‑trade and fixtures of another $20,600, requiring the valuation of that stock-in-trade and fixtures at over $100,000, an amount for which there has been no scintilla of evidence.

I agree with Hall J.A. when he said:

There was in my opinion evidence from which the trial judge could infer the value of the stock-in-trade was nowhere near $100,000.

Under the circumstances, I am of the opinion that the trustee had produced a prima facie case to show that the debtor was unable to pay his debts in full by realization of his assets in November 1966. As MacPherson J. remarked:

Two years is a long time to continue in a state of insolvency, that is true, but the evidence indicates that that is what happened. There was no time in that period when it was not insolvent. Perhaps its affairs were worse, perhaps better, from time to time, but there was a continued state of insolvency.

For these reasons, I am of the opinion that the appeal should be allowed, the judgment of the Court of Appeal of Saskatchewan quashed and the judgment at trial restored. As I have already said, the questions upon which leave was given to the various intervenors should be answered as follows:

Question 1: No.

Question 2: Sections 3 and 4 of The Fraudulent Preferences Act, R.S.S. 1965, c. 397, are not in conflict with the provisions of the Bankruptcy Act.

The appellant should have his costs against the respondent in the Court of Appeal and in this Court. There will be no costs to intervenors.

Pigeon J. concurred with the judgment delivered by

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BEETZ J.—I have had the advantage of reading the opinions of the Chief Justice and of Mr. Justice Spence. I agree with Mr. Justice Spence. To his reasons for judgment I would however like to add some of my own.

The power to repress fraud by avoiding fraudulent conveyances and preferences is an indisputable part of provincial jurisdiction over property and civil rights. The risk of fraud is increased when a debtor finds himself in a situation of impending or actual insolvency and, in my view, provincial laws can, without undergoing a change in nature, focus upon that situation as upon a proper occasion to attain their object. Given their purpose, they do not cease to be laws in relation to property and civil rights simply because they are timely and effective or because Parliament could enact similar laws in relation to bankruptcy and insolvency.

Insolvency has been defined by Lord Thankerton in the Farmers’ Creditors Arrangement Act reference, Attorney-General for British Columbia v. Attorney-General for Canada[52], at p. 402:

In a general sense, insolvency means inability to meet one’s debts or obligations; in a technical sense, it means the condition or standard of inability to meet debts or obligations, upon the occurrence of which the statutory law enables a creditor to intervene, with the assistance of a Court, to stop individual action by creditors and to secure administration of the debtor’s assets in the general interest of creditors; the law also generally allows the debtor to apply for the same administration.

The primary meaning of “insolvency” in s. 91.21 of the Constitution is insolvency in the technical sense, not in the general sense. This Lord Thankerton made clear just a few lines after the passage quoted above: with respect to the jurisdiction of Parliament under s. 91.21, he referred to “…the statutory conditions of insolvency which enabled a creditor or the debtor to invoke the aid of the bankruptcy laws…”.

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There is no common law of bankruptcy and insolvency in the technical sense, but the disruptions resulting from insolvency in the general sense had of necessity to be taken into account by general legal systems such as the common law and the civil law. Insolvency lies at the core of those parts of the common law and of the civil law which relate to such matters as mortgage, pledge, pawning, suretyship and the securing of debts generally which are implicitly or explicitly predicated on the risk of insolvency and which produce their full effect when the risk has been converted into reality; so it is with the rules which determine the rank of privileges and hypothecs or which ordain that an insolvent or bankrupt debtor shall lose the benefit of the term (art. 1092 of the Quebec Civil Code). Some of the most fundamental principles of the civil law are expressed in arts. 1980, 1981 and 1982 of the Quebec Civil Code:

Art. 1980. Whoever incurs a personal obligation, renders liable for its fulfilment all his property, moveable and immoveable, present and future, except such property as is specially declared to be exempt from seizure.

Art. 1981. The property of a debtor is the common pledge of his creditors, and where they claim together they share its price rateably, unless there are amongst them legal causes of preference.

Art. 1982. The legal causes of preference are privileges and hypothecs.

Although not expressly referred to, insolvency forms the web of these articles; there would be little need for them, particularly the last two, were it not for insolvency. But I cannot be persuaded that they are not laws relating to property and civil rights.

When the exclusive power to make laws in relation to bankruptcy and insolvency was bestowed upon Parliament, it was not intended to remove from the general legal systems which regulated property and civil rights a cardinal concept essential to the coherence of those systems. The main purpose was to give to Parliament exclusive jurisdiction over the establishment by statute of a particular system regulating the distribution of a

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debtor’s assets. However, given the nature of general legal systems, the primary jurisdiction of Parliament cannot easily be exercised together with its incidental powers without some degree of overlap in which case federal law prevails. On the other hand, provincial jurisdiction over property and civil rights should not be measured by the ultimate reach of federal power over bankruptcy and insolvency any more than provincial competence in relation to the administration of justice can be determined by every conceivable and potential use of the criminal law power. This, I believe, is the general import of the Voluntary Assignments case, Attorney-General of Ontario v. Attorneys-General for Canada[53]. The Judicial Committee declared that the validity of the provision it had to consider and of the assignments made under the authority of that provision did not depend on the insolvency of the assignor: an assignment was also open “to any debtor who might deem his insolvency doubtful…”. All that one can say is that legislation of the type considered in the Voluntary Assignments case presents little interest for prosperous persons; it is of concern chiefly to debtors in strained circumstances whose solvency is, at best, uncertain. It should be noted that the impugned voluntary assignments enactment did not only deal with assignments: it also provided that an assignment for the general benefit of creditors should take precedence of all judgments and of all executions not completely executed by payment.

I am reinforced in those views by a consideration of the Civil Code of Lower Canada, 1866, in light of An Act Respecting Insolvency, 1864 (Can.), c. 17. Both were enacted at a time when Confederation was being discussed. The French title of The Insolvent Act of 1864, was “l’Acte concernant la faillite, 1864”, the word “faillite” being the one now currently used to translate the word “bankruptcy”. In spite of its English title, the Act was in fact a bankruptcy act. It applied to all persons in Upper Canada and to traders only in Lower Canada and it contained detailed provisions relating to fraudulent conveyances and prefer-

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ences. Nevertheless, the Civil Code comprised a section of nine articles, (arts. 1032 to 1040 incl.) entitled “Of the Avoidance of Contracts and Payments made in Fraud of Creditors”, applicable to traders and to non-traders alike except where The Insolvent Act was to prevail. The legislative history of those articles was set forth by Mr. Justice Pigeon in Gingras v. General Motors Products of Canada Ltd.[54] Some have been amended. It will suffice to quote a few of them as they then read:

1034. A gratuitous contract is deemed to be made with intent to defraud, if the debtor be insolvent at the time of making it.

1035. An onerous contract made by an insolvent debtor with a person who knows him to be insolvent is deemed to be made with intent to defraud.

1036. Every payment by an insolvent debtor to a creditor knowing his insolvency, is deemed to be made with intent to defraud, and the creditor may be compelled to restore the amount or thing received or the value thereof, for the benefit of the creditors according to their respective rights.

1037. Further provisions concerning the presumption of fraud and the nullity of acts done in contemplation of insolvency are contained in The Insolvent Act of 1864.

Article 17.23 of the Code defines “bankruptcy” (“faillite”) as meaning “the condition of a trader who has discontinued his payments”; insolvency was left undefined, the word being clearly used by the Code in the general sense. Even though articles 1034, 1035 and 1036 are predicated on insolvency, the Commissioners appointed for codifying the laws of Lower Canada in civil matters would have been astonished had they been told that those articles formed no part of the civil law: except perhaps for art. 1036 which appears to be an improvement of relatively modern origin (although it was not considered new law), such provisions were derived from a division of Roman law called Paulian law and, from time immemorial, had constituted a pivot of the civil law system. Other provisions of the Code are of the same nature and also depend on insolvency, such as art. 803 (revocation of a gift made by an insolvent debtor), and

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art. 2023 (hypothec consented to by an insolvent debtor). Other provisions still, although not expressly predicated on insolvency are related to insolvency and to the protection of creditors, for instance, art. 655 (the creditors of an heir who renounces a succession to their prejudice can have the renunciation rescinded and accept the succession in his stead).

The constitutional validity of such provisions is not in issue: they antedate Confederation and were continued by s. 129 of the Constitution. The only issue which could arise with respect to them is whether they are in conflict with federal law. But the content and integrity of the Civil Code are indicative of the extent of provincial jurisdiction over property and civil rights: Citizens Insurance Company of Canada v. Parsons[55], at pp. 110 and 111. The fact that there existed a statutory scheme of bankruptcy and insolvency to which the Code explicitly referred as to a distinct and specific body of law, without curtailing for that reason its own normal ambit, illustrates how the respective domains of property and civil rights and of bankruptcy and insolvency were viewed during the very period when the federal union was being discussed; it also reveals how it was intended that the distribution of powers should operate with respect to those domains.

In the Alberta Debt Adjustment Act reference[56], in Canadian Bankers Association v. Attorney‑General of Saskatchewan[57], and in Reference re Validity of the Orderly Payment of Debts Act, 1959[58] (Alta.), the various provincial laws found ultra vires were predicated upon insolvency. But they went further and set up elaborate statutory schemes involving one or more of the following features: the denial of creditors’ access to courts or the restriction of their right to enforce their claims, the establishment of administrative boards, mediation, composition, arrangements, moratoriums, consolidation orders, staying of proceedings

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and the relief of debtors from liability to pay their debts. No such features are to be found in the presently impugned Saskatchewan statute where all that is at stake is the avoidance of fraudulent acts for the better enforcement of civil obligations. Some doubt was expressed in the Orderly Payment of Debts Act, (1959) (Alta.) reference at pp. 576 and 577 as to whether the Voluntary Assignments case would have been decided in the same way at a later date even in the absence of federal legislation on the subject of bankruptcy and insolvency. But even if this doubt was not expressed in an obiter dictum, I would regard it as questioning not the general principles enunciated in the Voluntary Assignments case, but their application in that particular instance. Accordingly, I do not think that those previous decisions of the Judicial Committee and of this Court preclude my abiding by my conclusions: laws provincial in their purpose, object and nature as those under attack cannot be rendered ultra vires because of virtual federal paramountcy: they can only become inoperative in case of actual repugnancy with valid federal laws.

On this latter point, I believe the test of repugnancy to be applied in this case should not differ from the one which was admitted in Provincial Secretary of Prince Edward Island v. Egan[59]; O’Grady v. Sparling[60], and Ross v. The Registrar of Motor Vehicles et al.[61]: provincial law gives way to federal law in case of operational conflict. Even if the test be one of conflict of legislative policies entailing no operational inconsistency and depending solely “upon the intention of the paramount Legislature” as was said by Dixon J., in a passage of Ex p. McLean[62], at p. 483, quoted by Mr. Justice Pigeon in the Ross case (at p. 15), I am of the view that s. 50, subs. (6) of the Bankruptcy Act provides a clear indication that Parlia-

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ment, far from intending to depart from the rule of operational conflict, did in fact aim at the highest possible degree of legal integration of federal and provincial laws: attacks upon transactions within the three-month period provided by s. 73 of the Bankruptcy Act constitute a minimum but the trustee in bankruptcy is entitled to avail himself of all other rights and remedies provided by provincial law “as supplementary to and in addition to the rights and remedies provided by” the Bankruptcy Act.

I would dispose of this appeal as is proposed by Mr. Justice Spence.

Appeal allowed with costs, LASKIN C.J. and MARTLAND, DICKSON and DE GRANDPRÉ JJ. dissenting.

Solicitors for the plaintiff, appellant: Pedersen, Norman, McLeod and Todd, Regina.

Solicitors for the defendant, respondent: Balfour, Moss, MiIliken, Laschuk, Kyle, Vancise & Cameron, Regina.