Bank of Montreal v. Metropolitan Investigation & Security (Canada) Ltd., [1975] 2 SCR 546

Supreme Court of Canada

Bank of Montreal v. Metropolitan Investigation & Security (Canada) Ltd., [1975] 2 S.C.R. 546

Date: 1974-10-01

Bank of Montreal (Defendant) Appellant;

and

Metropolitan Investigation & Security (Canada) Ltd. (Plaintiff) Respondent.

Royal Bank of Canada (Defendant) Appellant;

and

Metropolitan Investigation & Security (Canada) Ltd. (Plaintiff) Respondent.

C.F.I. Operating Co. Ltd. (Defendant) Appellant;

and

Metropolitan Investigation & Security (Canada) Ltd. (Plaintiff) Respondent.

1974: June 12, 13, 14; 1974: October 1.

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

ON APPEAL FROM THE COURT OF APPEAL FOR MANITOBA

Courts—Jurisdiction—Order of one provincial Court purporting to deal with assets already captured by competent order of another provincial Court—Order not approved by Supreme Court of Canada—Supreme Court not in position to rule on validity of garnishment effected in other Province—The Builders and Workmen Act, R.S.M. 1970, c. B90, s. 3.

A judgment of the Manitoba Court of Queen’s Bench declared, in part, that certain moneys standing to the credit of the appellant company and another in branches of the appellant banks in Montreal constituted a trust fund under The Builders and Workmen Act, R.S.M. 1970, c. B90, for the benefit of various classes of persons (contractors, subcontractors and others) involved in a building project at The Pas. The judgment also directed the two banks to account for and pay the moneys to the Court’s receiver. The funds in question were subject to certain attaching orders in proceedings in the Quebec Superior Court,

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instituted more than a year before the respondent’s “mechanic’s lien” action in Manitoba. The Quebec proceedings were still on foot at the time of the hearing in this Court.

The appeal of the appellant company to the Manitoba Court of Appeal was dismissed by a bench of three, but subject to reservation, for consideration of the full Court, of a question as to the jurisdiction of the Manitoba Court of Queen’s Bench to deal with the moneys in question. The unanimous judgment of the full Court affirmed the judgment of the Court of Queen’s Bench.

Held: The judgment of the Court of Appeal should be set aside.

Since the two banks were already subject to the Quebec garnishment when the Manitoba proceedings began, the Manitoba judgment would call upon them to be faithless to the competent order of a sister judicial district. This Court, with a reviewing and controlling authority over both the Courts of Manitoba and of Quebec, could not be expected to support such a call. Unless this Court were in a position to rule on the validity of the Quebec garnishment, it could not with any propriety approve an order of one provincial Court that purported to deal with assets already captured by the competent order of another provincial Court, and particularly an order of the Court of the province where those assets were situated.

General Foods Ltd. v. Struthers Scientific and International Corporation, [1974] S.C.R. 98, referred to.

APPEALS from a judgment of the Court of Appeal for Manitoba[1], affirming a judgment of Tritschler C.J.Q.B. Appeals allowed.

P.S. Morse, Q.C., and A. Paterson, Q.C., for the defendant, appellant, Bank of Montreal.

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E.R. Yarnell and G.B. Maughan, for the defendant, appellant, Royal Bank of Canada.

K.P. Regier and P.W. Schulman, for the defendant, appellant, C.F.I. Operating Co. Ltd.

M.J. Arpin, Q.C., for the plaintiff, respondent.

The judgment of the Court was delivered by

THE CHIEF JUSTICE—These two appeals, one by the Bank of Montreal and the Royal Bank, and the second by C.F.I. Operating Company Limited, were heard together by direction of this Court after a motion by the respondent, Metropolitan Investigation & Security (Canada) Limited, to quash the second appeal failed. A judgment of the Manitoba Court of Appeal, delivered for a unanimous five-judge court by Freedman C.J.M., and common to both appeals herein, is in issue in its holding (affirming the judgment of Tritschler C.J.Q.B.), as set out in the formal order of the Manitoba Court of Appeal, that “certain money on deposit in the names and to the credit of the defendants C.F.I. Operating Co. Ltd. and Technopulp Machinery Inc. with the defendants Bank of Montreal and The Royal Bank of Canada respectively at certain branches thereof in the City of Montreal, in the Province of Quebec, be paid by the said defendants Bank of Montreal and The Royal Bank of Canada to Sydney John Down, as Receiver thereof.”

About four million dollars is held in the branches of the two banks in Montreal to the credit of C.F.I. Operating Company Limited, a Dominion company, (hereinafter referred to as Opco) and to the credit of Technopulp Machinery Inc., a New Jersey company, (hereinafter called Technopulp). The credits are represented by term deposit receipts of the Bank of Montreal and numbered term deposit accounts of the Royal Bank of Canada. The larger portion

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of the money under a term deposit receipt and under a numbered term deposit account is held to the credit of Opco, but it is unnecessary for the purposes of this case to itemize the sums held to the credit of Opco and Technopulp respectively.

The claim to the money in question is made in virtue of The Builders and Workmen Act, R.S.M. 1970, c. B90, s. 3 of which provides as follows:

Contract moneys a trust.

3(1) All sums received by a builder or contractor or a sub-contractor on account of the contract price shall be and constitute a trust fund in the hands of the builder or contractor, or of the sub-contractor, as the case may be, for the benefit of the proprietor, builder or contractor, sub-contractors, Workmen’s Compensation Board, workmen, and persons who have supplied material on account of the contract.

Application of trust moneys.

3(2) The builder or contractor or the sub-contractor, as the case may be, shall be the trustee of all such sums so received by him, and until all workmen and all persons who have supplied material on the contract and all sub-contractors are paid for work done or material supplied on the contract, and the Workmen’s Compensation Board is paid any assessment with respect thereto, may not appropriate or convert any part thereof to his own use or to any use not authorized by the trust.

The “mechanic’s lien” action in which the claim was made was launched by a statement of claim of February 2, 1972, by Metropolitan Investigation & Security (Canada) Limited (hereinafter referred to as Metropolitan) on behalf of itself and other beneficiaries of the alleged statutory trust, under s. 3 aforesaid, being creditors who had supplied materials, labour and other services in connection with the Churchill Forest Industries project at or near the town of The Pas in Manitoba. Opco and Technopulp were involved as builders or contractors in the project. Metropolitan had supplied security guard services for the project, and it alleged that the sum of $26,218.21 was owing to it for such services. Among the defendants to the action were Sydney John Down, trustee in bankruptcy

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of Churchill Forest Industries (Manitoba) Limited, against which a receiving order had been made on December 6, 1971, and Manitoba Development Corporation, which alleged in its statement of defence that it had made large loans to those engaged in the project, that those loans had been secured by indentures which created a floating charge, and that upon default by the debtors, including Churchill Forest Industries (Manitoba) Limited, it had obtained the appointment by the Court on January 7, 1971, of a receiver manager of all the assets of the debtor companies, including the moneys claimed in this action from the two banks. The two banks were also named as defendants by Metropolitan.

In its statement of defence, Manitoba Development Corporation also pleaded that it had the right to attach the moneys in question under the terms of the Court order of January 7, 1971, which was still in effect, “together with complementary litigation instituted by this Defendant, in conjunction with the receiver manager …in the Courts of Quebec”. Manitoba Development Corporation concluded its defence by stating that it sought the payment over of the moneys to the receiver manager in order that they might be distributed to creditors in accordance with their equities and priorities as determined by the Manitoba Courts.

Manitoba Rules of Court make provision for service of a statement of claim ex juris, and pursuant to such authority the statement of claim filed by Metropolitan was served upon Opco at its head office in Montreal, upon the two banks at offices in Montreal and upon Technopulp at its office in New Jersey. Opco was also served in Manitoba.

Only Manitoba Development Corporation filed a statement of defence and, in the result, final judgment was signed against Sydney John

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Down, the trustee in bankruptcy of Churchill Forest Industries (Manitoba) Limited and against certain other Manitoba defendants for the amount of Metropolitan’s claim and default interlocutory judgments were entered against them in other respects and, similarly, default interlocutory judgments were entered against Opco, Technopulp and the two banks on various dates in March 1972. A motion by Opco to set aside the interlocutory judgment against it failed. On April 19, 1972, final judgment was given against all these defendants, and Manitoba Development Corporation filed a consent to judgment going against it as well. This judgment declared that the moneys standing to the credit of Opco and Technopulp in branches of the two banks in Montreal constituted a trust fund under The Builders and Workmen Act of Manitoba for the benefit of various classes of persons (contractors, subcontractors and others) involved in the CFI project at The Pas, but subject to the prior rights, if any, of the receiver manager of Churchill Forest Industries (Manitoba) Limited and/or Manitoba Development Corporation. The judgment also appointed Sydney John Down as receiver of the moneys, and ordered the two banks to account to him for the moneys and to pay them to him in Winnipeg, Manitoba.

Certified copies of this judgment were served on Technopulp in New Jersey and on the two banks in Montreal and as well in Manitoba, but no attempt was made to have the judgment exemplified in Quebec under relevant provisions of the Quebec Code of Civil Procedure. It was conceded by the respondent Metropolitan in this Court that there is no Manitoba statute or Rule of Court which authorizes service ex juris of a Manitoba judgment simpliciter. Indeed, Metropolitan does not rely on service of copies of the judgment on the banks but simply on service of the statement of claim as being sufficient to support the jurisdiction of the Manitoba Court.

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Opco appealed to the Manitoba Court of Appeal from the judgment of April 19, 1972, and that appeal, which also involved a number of issues respecting orders for validation of service upon certain defendants and respecting an order for inclusion of additional affidavit evidence in the record on appeal (none of these issues being material here), was dismissed in reasons delivered by Guy J.A. for a bench of three, but subject to reservation, for consideration of the full Court, of a question of jurisdiction formulated by counsel for Opco as follows:

THAT the Court of Queen’s Bench does not have jurisdiction to deal with moneys located outside the Province of Manitoba, which said moneys are in the Bank of Montreal and The Royal Bank of Canada in the City of Montreal, in the Province of Quebec, and stand to the credit of the Defendant.

This question was reserved because, due to some misunderstanding, counsel for the two banks did not appear on the appeal when it first came on, although they were served with the notice of appeal. The hearing before the full Court resulted in the judgment which is now before this Court. Although notice of the further hearing was given as well to Technopulp and to Manitoba Development Corporation neither of them appeared, nor were they represented on the hearing of the appeals in this Court.

Freedman C.J.M. approached the jurisdictional issue in the following terms:

It is proper to note that the banks in question have an undeniable presence in Manitoba. The particular funds, however, are lodged in branches of the banks in Montreal. Does that circumstance place the moneys beyond the reach of the Manitoba Court?

He answered this question in the negative, relying on the in personam jurisdiction of a Court of equity and on the power of the Court to make effective an adjudication that a trust existed under The Builders and Workmen Act in respect

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of money paid as part of the contract price of a building project in Manitoba. It had been urged by counsel for Opco that the judgment in appeal was similar to a garnishing order and that it was beyond the power of the Courts of Manitoba to deal with a debt (the moneys in question) located in Quebec. Although finding it unnecessary to treat the case on this basis, Freedman C.J.M. held, on the authority of McMulkin v. Traders Bank of Canada[2], that, treating the judgment as a garnishing order, the Manitoba Courts, under Q.B. Rule 526, could attach a debt located outside the province so long as the debtor (in this case the two banks) was within it. He refused to follow Richardson v. Richardson[3] holding, under a similar rule, that both the debt and the debtor must be within the jurisdiction.

Freedman C.J.M. also held that the authority of the McMulkin case was not impaired by the subsequent enactment in 1923, by 1923 (Can.) c. 32, of what became s. 96(4) of the Bank Act, now R.S.C. 1970, c. B-l. Moreover, he was of the opinion that although branches of banks are separate entities for certain purposes, this did not alter the fact that a branch was an agent of the parent bank. Again, it was his view that the requirement of a demand and refusal at the particular branches in Montreal as a prerequisite to suit in the Manitoba Courts did not apply in the present case where the issue was not one concerning only the relationship between the branch and a depositor but rather concerned the relationship between the branch and a creditor of the depositor acting under a special order to enforce a trust. Service of the order was itself a sufficient demand, as it would be in the case of a garnishing order.

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In concluding his reasons, the learned Chief Justice emphasized what he called “the special nature of this action”, as follows:

It is a claim for a declaration of trust and for its enforcement. That trust had its source and origin in a building project in The Pas in Manitoba. Its legal basis was a statute of Manitoba. It concerned moneys paid in Manitoba to the corporate builders or contractors engaged on the project. Part of those moneys were paid to Opco and Technopulp. But they were impressed with a trust in favour of the approximately 200 persons of whose class the plaintiff is a representative. Opco and Technopulp have lodged or caused to be lodged about $4,000,000 of these moneys with the Bank of Montreal and The Royal Bank of Canada in Montreal branches. Both banks are effectively within the Province of Manitoba. In these circumstances the Court of Queen’s Bench, having found the moneys to be subject to the statutory trust, has directed the banks to account for and pay the moneys to the Court’s receiver. This is not a case of extra-territorial execution of a Provincial judgment. The banks are here, in Manitoba. It is here that they are being asked to account. That the moneys are now lodged in Montreal branches is relevant as identifying the particular funds claimed by the plaintiff as forming part of the trust. To assert as against the plaintiff that the branches in Quebec should be regarded as separate entities, that the debt of the banks should be declared to have a Quebec locale, and that no action in respect thereof would lie in Manitoba without prior demand and refusal at Montreal, appears to us to be technical and artificial in the extreme.

This emphasis leaves out of consideration an important aspect of the case, and also asserts as a fact a point of some relevance for which I can find no support in the record, although there are surrounding circumstances out of which its existence may perhaps have been assumed. The assertion of fact for which I can find no support in the record is the statement by Freedman C.J.M., in the concluding paragraphs of his reasons quoted above, that the Manitoba action

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“concerned moneys paid in Manitoba to the corporate builders or contractors engaged on the project”. The statement of claim of Metropolitan, taken for present purposes to be incontrovertible in respect of its assertions of fact, does not allege that the moneys in issue here were received by Opco and Technopulp in Manitoba. It does say, in para. 18, that certain moneys received by Opco, Technopulp and others on account of the contract price for the Churchill Forest Industries complex “were, on January 7, 1971 and still are held” in the names of Opco and Technopulp in the two banks in offices thereof in Montreal. This is as far as the record in the Manitoba proceedings goes.

The amended declaration of Manitoba Development Corporation in the Quebec Superior Court, which is part of the record before this Court, does indicate that all or part of the funds in issue here were originally paid over in Manitoba before being directed by Opco and Technopulp to branches of the two banks in Montreal. This declaration is not, however, itself probative of the matter in Manitoba through mere assertion in the Quebec proceedings. The question whether the moneys were ever paid or received in Manitoba is material to the scope of s. 3 of The Builders and Workmen Act, that is whether it operates or, indeed, can validly operate upon moneys that were not paid or received in Manitoba. I refrain from coming to a conclusion on this matter without affording the parties a previous opportunity to have the issue of fact resolved one way or the other. It is, however, unnecessary to remit the case for this purpose because, in my opinion, the aspect of the case left out of consideration in the reasons of the Manitoba Court of Appeal is, on my view of it, decisive against the respondent’s position and requires that these appeals be allowed.

What I refer to is the effect of the institution of proceedings in the Quebec Superior Court by Manitoba Development Corporation on January

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8, 1971, more than a year before Metropolitan’s action in Manitoba. On the same date, January 8, 1971, garnishment before judgment was authorized and effected, pursuant to Quebec rules of procedure, of the very moneys claimed in the Manitoba proceedings. The Quebec proceedings were still on foot at the time of the hearing in this Court.

Freedman C.J.M. referred to the Quebec proceedings in the following terms and then said no more about them:

It is perhaps appropriate to mention that the funds in Montreal are subject to certain attaching orders, in proceedings in the Courts of Quebec, at the suit of Manitoba Development Corporation and others. The validity of these attaching orders has been questioned, but that is not a matter which needs to be determined in the present appeal.

Subject to the effect of the consent of the Manitoba Development Corporation to the judgment which is the subject of the appeals to this Court, the Quebec proceedings, including the garnishment before judgment, must be taken as being competent proceedings in a Court having jurisdiction over the two banks (which were named as garnishees therein) in as full a manner as jurisdiction over them has been declared by the Manitoba Courts in the Manitoba proceedings. The garnishment in Quebec took the moneys out of the control of the two banks, pending the determination of the proceedings instituted therein, and I do not see how the later in personam jurisdiction asserted by the Manitoba Courts can be given effect in respect of those moneys when, apart from any question of comity, the issue comes before this Court with its unifying jurisdiction over the Manitoba Courts as well as over those of Quebec: see General Foods Limited v. Struthers Scientific and International Corporation[4].

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Since the two banks were already subject to the Quebec garnishment when the Manitoba proceedings began, the Manitoba judgment calls upon them to be faithless to the competent order of a sister judicial district. This Court, with a reviewing and controlling authority over both the Courts of Manitoba and of Quebec, cannot be expected to support such a call. Unless this Court is in a position (and it is not in these appeals) to rule on the validity of the Quebec garnishment, it cannot with any propriety approve an order of one provincial Court that purports to deal with assets already captured by the competent order of another provincial Court, and particularly an order of the Court of the province where those assets are situated.

Neither the consent of the Manitoba Development Corporation to the judgment entered in favour of Metropolitan nor the reservation in that judgment of the prior rights, if any, of the Manitoba Development Corporation and of the receiver manager of Churchill Forest Industries (Manitoba) Limited diminishes let alone eliminates the effect of the Quebec garnishment upon the two appellant banks. It may be that Manitoba Development Corporation is indifferent as to the Court through which the moneys held by the two banks is distributed to those entitled thereto. Its consent to the Manitoba judgment was not, however, followed by any attempt to discontinue the Quebec proceedings, and I cannot regard that consent as in itself sufficient to annul the garnishment effected in Quebec. The reservation in the Manitoba judgment of prior rights does not advance Metropolitan’s position vis-à-vis the Quebec garnishment. If the prior rights refer to the Quebec proceedings, which in my opinion is unlikely, then there has been a removal of the entire subject-matter of the present appeals from the grasp of the Manitoba judgment, at least until the Quebec proceedings have been concluded or otherwise terminated, and this might very well be by distribution of the moneys held by the

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two banks to those found to be entitled thereto. The unlikelihood that the reference in the Manitoba judgment to prior rights is to the Quebec proceedings is underlined by the fact that the judgment directs the banks to account to and pay over the moneys in question to the receiver Down in Winnipeg without explicit reference to the Quebec garnishment.

It follows that the judgment of the Manitoba Court of Appeal cannot stand and should be set aside. I do not think, however, that this is a case where the appeals should be allowed and the action dismissed without more. In view of the present subsistence of the Quebec proceedings I would set aside the final judgment dated April 19, 1972. I would grant leave to the respondent, Metropolitan, so far as such leave may be necessary, to move again for final judgment against the defendants Opco, Technopulp, the two banks and Manitoba Development Corporation. In view of this disposition it is unnecessary to consider other points raised in argument such as the correctness of the McMulkin case and the effect of s. 96(4) of the Bank Act.

Opco should have its costs throughout and the appellant banks should have their costs in this Court.

Appeals allowed with costs.

Solicitors for the defendant, appellant, Bank of Montreal: Aikins, MacAulay & Thorvaldson and McMaster, Meighen, Minnion, Patch, Coredau, Hyndman & Legge, Winnipeg.

Solicitors for the defendant, appellant, Royal Bank of Canada: Fillmore & Riley, Winnipeg, and Ogilvy, Cope, Porteous, Hansard, Marler, Montgomery & Renault, Montreal.

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Solicitor for the defendant, appellant, C.F.I. Operating Co. Ltd.: Kenneth P. Regier, Winnipeg.

Solicitors for the plaintiff, respondent: Arpin & Co., Winnipeg.