Date: 20031023
Docket: A-643-02
Citation: 2003 FCA 397
CORAM: DESJARDINS J.A.
DÉCARY J.A.
SHARLOW J.A.
BETWEEN:
HER MAJESTY THE QUEEN
Appellant
and
ABSOLUTE BAILIFFS INC.
Respondent
Heard at Vancouver, British Columbia, on October 23, 2003.
Judgment delivered from the Bench at Vancouver, British Columbia, on October 23, 2003.
REASONS FOR JUDGMENT OF THE COURT BY: DESJARDINS J.A.
Date: 20031023
Docket: A-643-02
Citation: 2003 FCA 397
CORAM: DESJARDINS J.A.
DÉCARY J.A.
SHARLOW J.A.
BETWEEN:
HER MAJESTY THE QUEEN
Appellant
and
ABSOLUTE BAILIFFS INC.
Respondent
REASONS FOR JUDGMENT OF THE COURT
(Delivered from the Bench at Vancouver British Columbia on October 23, 2003)
DESJARDINS J.A.
[1] This is an appeal of a decision of the Tax Court of Canada [2002] T.C.J. No. 549 which concluded that the interest of a landlord who caused a bailiff to seize and sell assets belonging to its tenant pursuant to the Rent Distress Act of British Columbia (R.S.B.C. 1996, c. 403 s. 7(3)) was not that of a "secured creditor" under subsection 317(3) of the Excise Tax Act (R.S.C. 1985 c. E-15) (the "Act"), and that the respondent, as bailiff and representative of the landlord, was not obligated to pay monies to the appellant on account of the tax debtor's liability under the Act, namely that of the tenant.
[2] The facts are not in dispute.
[3] The seizure of the tenant's assets occurred on March 8, 1995, for arrears in rent in an amount of $41,160.04. On March 13, 1995, the respondent received from the Minister of National Revenue a Requirement to Pay in an amount of $84,177.59. The tenant's assets were sold the next day for the sum of $43,000.00. The landlord received $34,000.00, the difference being cost of sale. Later that same day, the tenant made an assignment in bankruptcy. The trustee in bankruptcy subsequently sought an order declaring the sale of the seized chattels invalid. A settlement was reached whereby the appellant made a payment to the trustee in an amount of $9,000.00. Revenue Canada notified the trustee of its claim but took no further action.
[4] The appellant submits that the Tax Court Judge erred in concluding that the requirements of subsection 317(3) of the Act had not been met.
[5] The appellant claims that, in enacting subsection 317(3) of the Act, Parliament was attempting to ensure the priority of the claims of the Minister of National Revenue over that of other creditors (Alberta (Treasury Branches) v. Minister of National Revenue; Toronto-Dominion Bank v. Minister of National Revenue, [1996] 1 S.C.R. 963 at 989 paragraph 39) and that a landlord, who has distrained for rent, is a "secured creditor" because he has a "security interest" in his tenant's chattels, and upon sale, a "security interest" in the proceeds of the sale of those chattels, as these words are defined in subsection 317(4) of the Act.
[6] The appellant submits that once the right of distress is exercised, the landlord has, by operation of the law, a possessory lien over the tenant's chattels. That lien is to ensure and secure payment of occupational rent. The landlord is then given by subsection 7(3) of the Rent Distress Act the right to sell the chattels seized from the tenant. The appellant argues that, but for the landlord's security interest, either from the possessory lien following the exercise of the right of distraint, or the statutory lien created following the sale of the tenant's chattels, the funds would be payable to the tax debtor, because, if the proceeds of the sale of the tenant's chattels exceeded the rent in arrears and applicable charges, the balance then belonged to the tenant (Rent Distress Act, subsection 7(4)(b)).
[7] Subsections 317(3)(b) and 317(4) of the Act contemplate the following situation:
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317. (3)Notwithstanding any other provision of this Part, any other enactment of Canada other than the Bankruptcy and Insolvency Act, any enactment of a province or any law, where the Minister has knowledge or suspects that a particular person is, or will become, within ninety days, liable to make a payment
...
(b) to a secured creditor who has a right to receive the payment that, but for a security interest in favour of the secured creditor, would be payable to the tax debtor,
the Minister may, by letter served personally or by registered mail, require the particular person to pay forthwith, if the moneys are immediately payable, and in any other case, as and when the moneys become payable, the moneys otherwise payable to the tax debtor or the secured creditor in whole or in part to the Receiver General on account of the tax debtor's liability under this Part, and on receipt of that letter by the particular person, the amount of those moneys that is required by that letter to be paid to the Receiver General shall, notwithstanding any security interest in those moneys, become the property of Her Majesty in right of Canada to the extent of that liability as assessed by the Minister and shall be paid to the Receiver General in priority to any such security interest.
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317. 3)Malgré les autres dispositions de la présente partie, tout texte législatif fédéral à l'exception de la Loi sur la faillite et l'insolvabilité, tout texte législatif provincial et toute règle de droit, si le ministre sait ou soupçonne qu'une personne est ou deviendra, dans quatre-vingt-dix jours, débitrice d'une somme à un débiteur fiscal, ou à un créancier garanti qui, grâce à un droit en garantie en sa faveur, a le droit de recevoir la somme autrement payable au débiteur fiscal, il peut, par lettre recommandée ou signifiée à personne, obliger la personne à verser au receveur général tout ou partie de cette somme, immédiatement si la somme est alors payable, sinon dès qu'elle le devient, au titre du montant dont le débiteur fiscal est redevable selon la présente partie. Sur réception par la personne de la lettre, la somme qui y est indiquée comme devant être versée devient, malgré toute autre garantie au titre de cette somme, la propriété de Sa Majesté du chef du Canada, jusqu'à concurrence du montant dont le débiteur fiscal est ainsi redevable selon la cotisation du ministre, et doit être versée au receveur général par priorité sur toute autre garantie au titre de cette somme.
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317. (4) "secured creditor" means a particular person who has a security interest in the property of another person or who acts for or on behalf of the particular person with respect to the security interest, and includes a trustee appointed under a trust deed relating to a security interest, a receiver or receiver-manager appointed by a secured creditor or by a court on the application of a secured creditor, a sequestrator and any other person performing a similar function.
"security interest" means any interest in property that secures payment or performance of an obligation, and includes an interest created by or arising out of a debenture, mortgage, hypothec, lien, pledge, charge deemed or actual trust, assignment or encumbrance of any kind whatever, however or whenever arising, created, deemed to arise or otherwise provided for.
[underlining added]
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317. 4) Un « créancier garanti » désigne une personne qui a une garantie sur le bien d'une autre personne - ou qui est mandataire de cette personne quant à cette garantie - y compris un fiduciaire désigné dans un acte de fiducie portant sur la garantie, un séquestre ou séquestre-gérant nommé par un créancier garanti ou par un tribunal à la demande d'un créancier garanti, un administrateur-séquestre ou une autre personne dont les fonctions sont semblables à celles de l'une de ces personnes.
Un « droit en garanti » est un droit sur un bien qui garantit l'exécution d'une obligation, notamment un paiement. Sont en particulier des droits en garantie les droits nés ou découlant de débentures, hypothèques, mortgages, privilèges, nantissements, sûretés, fiducies réputées ou réelles, cessions et charges, quelle qu'en soit la nature, de quelque façon ou à quelque date qu'elles soient créées, réputées exister ou prévues par ailleurs.
[nous soulignons]
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[8] According to the terms of subsection 317(3)(b) of the Act, "where the Minister has knowledge or suspects that a particular person is or will become ... liable to make a payment ... to a secured creditor who has a right to receive the payment that, but for a security interest in favour of the secured creditor, would be payable to the tax debtor.", the Minister may claim in priority the moneys otherwise payable to the secured creditor.
[9] This statutory provision allows the Minister to intercept monies that would normally be received by a "secured creditor" who has received from a particular person a payment that would have been made to the tax debtor, had the "security interest" of the "secured creditor" not existed.
[10] This provision contemplates however a situation different from that of the case at bar.
[11] Assuming without deciding that the landlord, under the Rent Distress Act, is a "secured creditor" holding a "security interest" in the tax debtor's property, he is not "a particular person who is or will become ... liable to make a payment that" but for his security interest "would be payable to the tax debtor" to the extent that the proceeds of sale cover only the overdue rent and the cost of sale.
[12] In other words, in so far as the proceeds merely cover the money due to the landlord, the landlord is not "a particular person ... liable to make a payment". The landlord is a creditor. As a creditor, he engages enforcement procedures to ensure the payment of a debt which is owed to him. The payment he receives is not a payment that, but for his security interest, would be payable to the tax debtor.
[13] It is true however that, under the Rent Distress Act, if there is an excess amount which remains once the landlord is paid, that excess is to be remitted to the tenant.
[14] In the case at bar, the proceeds of sale were in an amount of $43,000.00. The rent due was $41,160.04. After paying costs there was no excess. Therefore there was nothing to go to the tax debtor as tenant and therefore nothing to which the Requirement to Pay could apply.
[15] This appeal will be dismissed with costs.
(Sgd.) "Alice Desjardins"
J.A.
FEDERAL COURT OF APPEAL
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: A-643-02
STYLE OF CAUSE: HMQ v. Absolute Bailiffs Inc.
PLACE OF HEARING: Vancouver, BC
DATE OF HEARING: October 23, 2003
REASONS FOR JUDGMENT OF THE COURT: Desjardins, J.A., Décary, J.A., Sharlow, J.A.
DELIVERED FROM THE BENCH BY: Desjardins, J.A.
APPEARANCES:
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Ms. Margaret Clare
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FOR THE APPLICANT
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Mr. Furio De Stefanis
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FOR THE RESPONDENT
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SOLICITORS OF RECORD:
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Morris Rosenberg
Deputy Attorney General of Canada
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FOR THE APPLICANT
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De Stefanis & Co.
Vancouver, BC
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FOR THE RESPONDENT
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