Proman Ltd. v. R.C.L. Operators Limited, the Guarantee Company of North America, Minister of National Revenue, Bank of Nova Scotia, Atlantic Rental Ltd. And Maritime Framework Limited, [1994] 1 CTC 146

Creaghan, J.:—The motions before the Court request that money be paid out of court and arise from my disposal of a motion by the Guarantee Company of North America requesting interpleader relief on November 19, 1992.

Pursuant to the order for interpleader relief the Guarantee Company of North America paid $128,961.67 into court on November 27, 1992.

Now both the claimants the Minister of National Revenue and Atlantic Rentals Ltd. bring motions to have the money paid out, each maintaining it has first priority on distribution.

The facts are that the money paid into court are proceeds from a labour and material payment bond which was issued to the defendant RCL Operators Ltd. as principal by the defendant the Guarantee Company of North America as surety. The surety was bound under the bond to the benefit of N.B. Power as trustee for the benefit of claimants under the bond.

The Minister of National Revenue claims priority to the funds pursuant to a requirement to pay issued to the surety. Maritime Framework Limited claims priority, after the Minister, pursuant to an assignment of a general assignment of book debts held by the Bank of Nova Scotia on the receivables of Proman Ltd., a claimant under the bond. Atlantic Rentals Ltd. claims priority over both the Minister and Maritime Framework Limited on several grounds arising from its being a judgment creditor of Proman Ltd. and also a judgment creditor of the surety under the Garnishee Act.

Atlantic Rentals Ltd. maintains that the funds should be seen as being impressed with a trust in its favour and therefore beyond the reach of either the Minister of National Revenue or the Bank. I do not agree. Atlantic Rentals cannot be seen as a claimant under the bond as one having a direct contract with the principal. That was the position of Proman Ltd. and why the funds were payable to it.

Then Atlantic Rentals argues that subsection 224(1.2) of the Income Tax Act should not be seen to give priority to the Minister because it gives precedence over secured claims and the position of Atlantic Rentals is one of an unsecured judgment creditor. The money required to be paid to the Minister takes precedence of all claims notwithstanding that there may be a secured interest. This does not give unsecured creditors a preferred position.

Next Atlantic Rentals claims that the requirement to pay issued by the Minister should be seen as invalid. First, it argues that it was issued September 17, 1992, and created a liability to pay within 90 days. Funds were interpled on November 27, 1992, well within the period under the requirement. Second, Atlantic Rentals argues that it has not been shown that the requirement to pay was issued after a proper notice of assessment on the taxpayer. I am not satisfied that such evidence is required for me to pass upon the validity of the Minister's requirement to pay on a determination of priorities under a distribution pursuant to an interpleader application.

Then Atlantic Rentals attacks the validity of the secured claim of the bank, which is now the claim of Maritime Framework Ltd., on the basis that because the bank has admitted that its claim ranks subsequent to the Minister's, it follows that because of argument made by Atlantic Rentals that the Minister's claim is not valid, then the bank should be seen as acknowledging that its claim has no priority. Frankly, I fail to see any substance in this argument.

Then Atlantic Rentals also suggests a constitutional challenge to subsection 224(1.2) of the Income Tax Act. There is not satisfactory evidence before me that proper notification has been given to Attorneys-General as required by the Judicature Act to permit such a challenge. No indication was given by Atlantic Rentals that constitutional grounds would be relied upon on its notice of motion for distribution and to allow an adjournment to permit such a challenge at this point is untimely, unfair and was denied at the hearing.

Lastly, Atlantic Rentals argues that its claim should be given priority over those of both the Minister and the Bank because of a default judgment it has obtained against the Guarantee Company of North America as a garnishee under the Garnishee Act. Atlantic Rentals relies heavily on sections 6 and 12 of the Garnishee Act. I fail to see where the judgment obtained pursuant to the Garnishee Act should affect the priorities on a distribution upon an interpleader order. If Atlantic Rentals has a valid judgment against the Guarantee Company of North America, any payment into court by the Guarantee Company of North America is void to the extent of Atlantic Rentals’ claim except as the funds might be paid out to Atlantic Rentals.

There can be no doubt that as long as that judgment obtained by Atlantic Rentals under the Garnishee Act remains a valid judgment, the Guarantee Company of North America is liable to pay it even if the result is that it pay again on its obligation under the labour and material payment bond. However, that is an issue outside the ambit of this application.

On the motions before me I fail to see why the interpleader funds should be distributed so as to alter the priority of either the Minister or the Bank because of the judgment obtained under the Garnishee Act in favour of Atlantic Rentals. This, in effect, would result in the Minister and the Bank satisfying the judgment obtained against the Guarantee Company of North America under the Garnishee Act. To me this does not meet the test of common sense to say nothing of meeting the equities.

On the basis of the priorities as I find them, IT IS ORDERED that the interpleader funds be distributed as follows:

$113,551.19 to the Minister of National Revenue;

the balance remaining of the $128,961.67 paid into court plus accumulated interest to Maritime Framework Limited as assignee of the rights of the Bank of Nova Scotia pursuant to its registered Assignment of Book Debts.

Atlantic Rentals Limited may take whatever action may be available to it to recover its judgment against the Guarantee Company of North America and this order is not in any way intended to affect the respective rights and liabilities of the parties in that matter.

I have decided in the circumstances that all parties will bear their own costs both on the original interpleader motion and upon the two motions pertaining to the distribution of the interpleader funds.

Order accordingly.