Entreprises Forestieres P.S. Inc. v. Newcourt Financial Ltd., docket ITA-1223-00

                                                                                                                                    Date: 20000920

                                                                                                                           Docket: ITA-1223-00

MONTRÉAL, QUEBEC, SEPTEMBER 20, 2000

Before:            RICHARD MORNEAU, PROTHONOTARY

In re the Income Tax Act

                                                                         - and -

In re one or more assessments made by the Minister of National Revenue pursuant to one or more of the following statutes: the Income Tax Act, the Canada Pension Plan and the Employment Insurance Act

AGAINST:

                                      LES ENTREPRISES FORESTIÈRES P.S. INC.

                                                                                                                                 Judgment debtor

                                                                          AND

                                                   NEWCOURT FINANCIAL LTD.

                                                                                                                                              Objector

                                                Motion objecting to seizure of movables.

                                                [Article 597 Code of Civil Procedure]

                                                                       ORDER

THE COURT:

DISMISSES the objector's motion;

AFFIRMS the seizure made herein;

ORDERS that the proceeds of realization of the assets at issue here be paid to Her Majesty in priority to any security pursuant to ss. 227(4.1) of the Income Tax Act and 86(2) of the Employment Insurance Act up to the amount of the monies held in trust by the judgment debtor for Her Majesty, but which it neglected or failed to remit;

THE WHOLE with costs against the objector.

Certified true translation

Suzanne M. Gauthier, LL.L. Trad. a.

                                                                                                                                    Date: 20000920

                                                                                                                           Docket: ITA-1223-00

In re the Income Tax Act

                                                                         - and -

In re one or more assessments made by the Minister of National Revenue pursuant to one or more of the following statutes: the Income Tax Act, the Canada Pension Plan and the Employment Insurance Act

AGAINST:

                                      LES ENTREPRISES FORESTIÈRES P.S. INC.

                                                                                                                                 Judgment debtor

                                                                          AND

                                                   NEWCOURT FINANCIAL LTD.

                                                                                                                                              Objector

                                                Motion objecting to seizure of movables.

                                                 [Article 597 Code of Civil Procedure]

                                                         REASONS FOR ORDER

RICHARD MORNEAU, PROTHONOTARY

[1]         The Court has before it a motion by the objector against the seizure of movable property, namely a grapple skidder, made by the Canada Customs and Revenue Agency ("the Agency") on March 17, 2000.

[2]         This objection was filed pursuant to art. 597 of the Code of Civil Procedure ("C.C.P."). The Agency opposed this objection, essentially raising two points. The first is that the objector could not use art. 597 C.C.P. in the circumstances to object to the sale of the property: in connection with the sale, only art. 604 C.C.P. was available to it.

[3]         Its second argument, which in my opinion has more weight, is that the deemed trust in s. 227 (4.1) of the Income Tax Act ("the Act") means that the seizure made must be affirmed so there can be a sale and the proceeds paid in priority up to the amount of the money owed by the judgment debtor.

FACTS

[4]         The facts forming the background to this case are not really in dispute and are as follows.

[5]         The company Les Entreprises Forestières P.S. Inc., the judgment debtor herein, on September 5, 2000 owed the Minister of National Revenue the total sum of $155,027.60.

[6]         This amount represented source deductions from the judgment debtor's employees' salaries which were owed for the period February 1 to October 31, 1999 and established in accordance with the Act, including the related penalties and interest.

[7]         On February 7, 2000 a certificate which under s. 223 of the Act has the effect of a judgment issued by this Court was filed herein certifying that the judgment debtor was indebted to Her Majesty the Queen in right of Canada in the amount of $147,059.39, with interest compounded daily on the said amount at the rate prescribed under the Act, from February 3, 2000 to the date of payment.

[8]         On February 7, 2000 the Registry of this Court issued a writ of seizure directing a bailiff of the province of Quebec to execute the said certificate on the judgment debtor's movable property.

[9]         In early March 2000 the Agency instructed a bailiff, who proceeded to execute the said writ of seizure against the judgment debtor's property on March 17, 2000.

[10]       On March 27, 2000, after the property was seized by the Agency, the objector registered a notice that it was exercising its hypothecary rights in the Register of Personal and Movable Real Rights.

[11]       On March 30, 2000 the judgment debtor voluntarily relinquished the property (including the property at issue) covered by the prior notice of the exercise of a hypothecary right filed by the objector.

[12]       On April 13, 2000 the objector filed its motion opposing the seizure, citing ownership of the property in question which it had acquired as a result of exercising its hypothecary rights of taking in payment.

ANALYSIS

Articles 604 v. 597 C.C.P.

[13]       According to the Agency, the objector's objection under art. 597 C.C.P. is without basis in law as, in view of art. 604 C.C.P., the objector cannot validly object to the seizure and sale of the property seized herein.

[14]       The objector's only valid remedy, it alleged, is that described in the second paragraph of art. 604, indicating that hypothecary rights can only be exercised on the proceeds of the sale.

[15]       Article 604 C.C.P. reads as follows:

604. The creditors of the debtor cannot oppose the seizure or the sale.

However, prior and hypothecary creditors may exercise their rights upon the proceeds of the sale; for that purpose, they file with the seizing officer, within 10 days after the sale, a statement of their claim, supported by an affidavit and the necessary vouchers, which documents must also be served on the debtor. Within 10 days of service of a statement of a prior or hypothecary claim, the debtor may apply to the court or to the judge to contest the claim.

[16]       The objector does not see matters in this way.

[17]       In its submission, on the day it made its objection it had become owner of the property some thirteen days before as a result of its prior notice to exercise its right and the judgment debtor's subsequent voluntary relinquishment of the property. It had succeeded in completing the stages before there was a sale and it was accordingly as owner, not as hypothecary creditor, that it objected to the sale of the property. It claimed the property as owner. Article 597 C.C.P. was thus available to it. That article reads as follows:

597. The opposition may also be taken by a third party who has a right to revendicate any part of the property seized.

[18]       Even if art. 604 applies expressly to the hypothecary creditor, I am not persuaded that the precedents on the point are clear enough to interpret art. 604 as not authorizing such a creditor to take property in payment after the seizure but before the sale so as to be able to oppose the sale of the said property based on art. 597 C.C.P.

[19]       I would therefore dismiss the Agency's first argument.

Deemed trust in s. 227(4.1) of Act

[20]       Section 227(4.1) reads as follows:

227(4.1) Extension of trust. Notwithstanding any other provision of this Act, the Bankruptcy and Insolvency Act (except sections 81.1 and 81.2 of that Act), any other enactment of Canada, any enactment of a province or any other law, where at any time an amount deemed by subsection (4) to be held by a person in trust for Her Majesty is not paid to Her Majesty in the manner and at the time provided under this Act, property of the person and property held by any secured creditor (as defined in subsection 224(1.3)) of that person that but for a security interest (as defined in subsection 224(1.3)) would be property of the person, equal in value to the amount so deemed to be held in trust is deemed

(a)            to be held, from the time the amount was deducted or withheld by the person, separate and apart from the property of the person, in trust for Her Majesty whether or not the property is subject to such a security interest, and

(b)            to form no part of the estate or property of the person from the time the amount was so deducted or withheld, whether or not the property has in fact been kept separate and apart from the estate or property of the person and whether or not the property is subject to such a security interest

and is property beneficially owned by Her Majesty notwithstanding any security interest in such property and in the proceeds thereof, and the proceeds of such property shall be paid to the receiver general in priority to all such security interests.

(Our emphasis)

[21]       It was not in dispute in the case at bar that from February to October 1999 the judgment debtor retained, but did not pay to the Agency, an amount of nearly $115,000 which under s. 227(4) that debtor was deemed to hold for Her Majesty in trust.

[22]       Reading s. 227(4.1) as a whole, therefore, one has to conclude that in February 1999 the judgment debtor's property, including the property at issue, was deemed to be held for Her Majesty in trust separate and apart from that of the judgment debtor. Further, Her Majesty was deemed at that time to have beneficial ownership in the property regardless of any other security, including a hypothec.

[23]       Finally, it is clear from the beginning of s. 227(4.1) that this provision in favour of Her Majesty applies regardless of any provincial legislation or rule of law. There is thus no need to examine the provisions of the Civil Code of Quebec or any other rule of provincial law which may conflict with s. 227(4.1): that subsection applies notwithstanding any provision of law to the contrary.

[24]       The provision is certainly one that constitutes an exception to the ordinary law, but it is the Act which the Court is obliged to apply.

[25]       The result of its application in the case at bar is that in February 1999, despite the movable hypothec which had been registered here since November 1997, the property at issue ceased to belong to the judgment debtor and was held separate and apart for Her Majesty in trust.

[26]       At the time the notice and taking of payment of the property were registered, the effect of s. 227(4.1) was that the property at issue could not be regarded as being at the disposal of the objector. At that time the property no longer belonged to the judgment debtor. Accordingly, and contrary to what was vigorously argued by the objector, I do not consider that the objector could assert a clear, valid and undisputed ownership title at any time after the seizure. Long before then, and regardless of the fact that the situation might conflict with various concepts in the Civil Code of Quebec, including the rule of publication of sureties, s. 227(4.1) had decided otherwise.

[27]       Consequently, for the foregoing reasons, I intend to:

DISMISS the objector's motion;

AFFIRM the seizure made herein;

DIRECT that the proceeds of realization of the property at issue be paid to Her Majesty in priority over any security pursuant to ss. 227(4.1) of the Income Tax Act and 86(2) of the Employment Insurance Act, up to the amount of the money held by the judgment debtor for Her Majesty in trust, but which it neglected or failed to remit;

THE WHOLE with costs against the objector.

[28]       An order shall issue accordingly.

MONTRÉAL, QUEBEC

September 20, 2000

Certified true translation

Suzanne M. Gauthier, LL.L. Trad. a.

                                                  FEDERAL COURT OF CANADA

                             NAMES OF COUNSEL AND SOLICITORS OF RECORD

COURT FILE No.:                                         ITA-1223-00

STYLE OF CAUSE:                                       In re the Income Tax Act

                                                                         - and -

In re one or more assessments made by the Minister of National Revenue pursuant to one or more of the following statutes: the Income Tax Act, the Canada Pension Plan and the Employment Insurance Act

AGAINST:

LES ENTREPRISES FORESTIÈRES P.S. INC.

                                                                                                                                    Judgment debtor

AND

NEWCOURT FINANCIAL LTD.

                                                                                                                                               Objector

PLACE OF HEARING:                                 Montréal, Quebec

DATE OF HEARING:                                   September 18, 2000

REASONS FOR ORDER BY:                      RICHARD MORNEAU, PROTHONOTARY

DATE OF REASONS FOR ORDER:          September 20, 2000

APPEARANCES:

Étienne Trépanier                                               for the judgment creditor

Patrick Vézina

Paule Lafontaine                                                for the objector

SOLICITORS OF RECORD:

Morris Rosenberg                                              for the judgment creditor

Deputy Attorney General of Canada

Eidinger & Associés                                          for the objector

Montréal, Quebec