R. v. Cyrus J. Moulton Ltd., [1975] C.T.C. 98, 75 D.T.C. 5056

Cattanach, J:

1 This is an application made by Her Majesty that judgment be issued on the pleadings and other documents pursuant to Rule 341 of the General Rules and Orders of the Federal Court of Canada which rule reads:

341. A party may, at any stage of a proceeding, apply for judgment in respect of any matter

• (a) upon any admission in the pleadings or other documents filed in the court, or in the examination of another party, or

• (b) in respect of which the only evidence consists of documents and such affidavits as are necessary to prove the execution or identity of such documents,

without waiting for the determination of any other question between the parties.

2 In Her statement of claim, Her Majesty alleges that Saverio Micucci, operating under the firm name and style of Bytown Masonry Construction, was liable under the Income Tax Act in the amount of $7,324.54, that the Minister of National Revenue on January 15, 1973 knew or suspected that the defendant was or was about to become indebted or liable to make a payment to the said Micucci, that on January 15, 1973 a letter was served personally on the defendant requiring the defendant to pay the moneys payable by it to Micucci to the Receiver General of Canada up to the amount of $7,324.54 on account of the liability of Micucci to the Minister under the Income Tax Act, that between January 15, 1973 the date of the service of the demand upon the defendant, and May 4, 1973 the defendant paid to Micucci amounts aggregating in excess of the amount payable by Micucci to the Receiver General and that no moneys were paid to the Receiver General of Canada.

3 Accordingly in the prayer for relief the Deputy Attorney General of Canada claims judgment in the amount of $7,324.54 and costs of the action.

4 By its statement of defence the defendant denied each and every allegation in the statement of claim, save an innocuous allegation in paragraph 1 thereof and “puts the Plaintiff to the strict proof thereof”.

5 It is then alleged that the defendant entered into a contract on or about March 16, 1973 with Micucci for the performance of masonry work on the Almonte Arena in Almonte, Ontario. The purport of this allegation is that the defendant was the general contractor for this construction project and Micucci was a subcontractor.

6 Paragraphs 3, 4 and 5 of the statement of defence read:

3. The said contract terminated on or about May 4, 1973, and all payments made under the said contract were made by the Defendant, payable by Bytown Masonry Construction, Saverio Micucci, for the work provided by him and his workmen. The Defendant states and the fact is, that by virtue of work and services performed by Bytown Masonry Construction and its workmen, for the said Defendant, that Bytown Masonry Construction and its workmen acquired a lien on the above property for the price of the work pursuant to Section 5 of the Mechanics' Lien Act, RSO 1970, Chapter 267.

4. The Defendant states and the fact is that pursuant to Section 2 of the Mechanics' Lien Act, RSO 1970, Chapter 267, all monies received by the Defendant on account of this project to a trust in favour of all workmen on the project and accordingly monies paid to Saverio Micucci paying his workmen their proper wages. At no time was Saverio Micucci, beneficially entitled to all the monies claimed in the proceedings herein, but rather received the largest portion of the monies as a further trustee for his workmen as their interests might be determined.

5. The Defendant therefore submits that it was not indebted to Saverio Micucci personally in the amount outlined in the Plaintiff's Statement of Claim.

7 Basically the substance of these allegations is that the moneys paid by the defendant to Micucci were impressed with a trust by virtue of section 2 of The Mechanics' Lien Act, RSO 1970, chapter 267, subsections (1) and (2) of which section read:

2. (1) All sums received by a builder, contractor or subcontractor on account of the contract price constitute a trust fund in his hands for the benefit of the owner, builder, contractor, subcontractor, Workmen's Com pensation Board, workmen, and persons who have supplied materials on account of the contract or who have rented equipment to be used on the contract site, and the builder, contractor or subcontractor, as the case may be, is the trustee of all such sums so received by him and he shall not appropriate or convert any part thereof to his own use or to any use not authorized by the trust until all workmen and all persons who have supplied materials on the contract or who have rented equipment to be used on the contract site and all subcontractors are paid for work done or materials supplied on the contract and the Workmen's Compensation Board is paid any assessment with respect thereto.

(2) Notwithstanding subsection 1, where a builder, contractor or subcontractor has paid in whole or in part for any materials supplied on account of the contract or for any rented equipment or has paid any workman who has performed any work or any subcontractor who has placed or furnished any materials in respect of the contract, the retention by such builder, contractor or subcontractor of a sum equal to the sum so paid by him shall be deemed not to be an appropriation or conversion thereof to his own use or to any use not authorized by the trust.

8 The principles governing pleadings are set out in Rule 408 and following and are the elementary principles that the pleadings shall consist of a precise statement of the material facts on which the pleading party relies. By virtue of Rule 412 a party may by his pleading raise any point of law but raising a question of law or merely asserting a conclusion of law is not an acceptable substitute for a statement of the material facts on which the conclusion of law is based. Rule 412 is a specific recognition of the well known maxim that law is not pleaded but that facts are to be pleaded.

9 It is readily apparent that to determine whether the moneys paid by the defendant to Micucci are impressed with a trust it is essential to know when the moneys were received from the owner by the defendant and if at that time the subcontractors and workmen had performed work for which they were not paid. These dates and facts are material to determining if a trust existed or, put another way, these are essential allegations of fact upon which the conclusion of law is to be based.

10 Her Majesty when faced with this dilemma solved it by demanding and receiving further and better particulars of the trust alleged to exist in paragraph 4 of the statement of defence.

11 These salient facts emerge from the reply to the demand for particulars, bearing in mind that the demand by the Minister was made on January 15, 1973 for an amount of $7,324.54 on the defendant with respect to amounts payable or about to become payable by the defendant to Micucci.

12 The demand was made on January 15, 1973 for $7,324.54.

13 There were four construction projects in which the defendant was the contractor and Micucci was the subcontractor.

14 One contract was for the construction of the Almonte Arena. With respect to this project the defendant made the following payments on the dates indicated to Micucci:

March 23, 1973                          $1,700.00
     March 30, 1973                             267.60
     April 6, 1973                            1,488.00
     April 12, 1973                           1,275.00
     April 19, 1973                           2,125.00
     May 4, 1973                              1,000.00

15 The subcontract between the defendant and Micucci was entered into on or about March 16, 1973.

16 The defendant received payment from the owner with respect to this project on the following dates in the amounts indicated:

April 20, 1973                         $29,665.00
     May 25, 1973                            48,424.50
     June 20, 1973                           67,036.95

17 It is evident from a comparison of the foregoing tables that the defendant made five payments to Micucci before the defendant received the first payment on the contract on April 20, 1973.

18 One further payment was made by the defendant to Micucci on May 4, 1973 which was prior to the second payment which the defendant received from the owner on May 25, 1973.

19 The second construction project undertaken by the defendant was for Consumers Distributing Ltd in Ottawa, Ontario.

20 The defendant paid Micucci $331.80 for work done on this project on March 23, 1973. The moneys were received by the defendant from the owner in the amount of $34,790.14 on April 30, 1973. Again it is evident that an amount of $331.80 was paid by the defendant to Micucci before the defendant received moneys from the owner.

21 A third construction project was undertaken by the defendant for the Department of Environment.

22 The defendant paid Micucci as follows:

March 30, 1973                            $935.00
     Mary 4, 1973                               212.00

23 The defendant received payments from the owner:

April 25, 1973                         $27,382.81
     June 30, 1973                            1,475.13

24 With respect to the fourth construction project the defendant paid to Micucci an amount of $1,500 on April 27, 1973 which was before the defendant received payment from the owner of $2,985 on May 30, 1973.

25 The position taken by counsel for the defendant was that resort to Rule 341 by Her Majesty was inappropriate because of the denial in the statement of defence of all allegations in the statement of claim and the specific admonition therein that the plaintiff was “put to the strict proof thereof”. By this he meant, and so stated, that Her Majesty must proceed to trial and prove each and every allegation of fact by calling competent witnesses.

26 This contention is unwarranted in the view I hold that the facts are clearly admitted and no disputed issue of fact remains to be tried.

27 In support of the notice of motion there was an affidavit as required by the rules. In that affidavit the affiant swears that the demand under subsection 224(1) of the Income Tax Act was served on the defendant on January 15, 1973 and service thereof was admitted by B Kent, an officer of the defendant. Admission of the service on that date is endorsed on the demand which is annexed to the affidavit as an exhibit.

28 Furthermore counsel for the defendant cross-examined the affiant on his affidavit as was his right to do but he did not introduce as evidence the transcript of the cross-examination to indicate any dispute of facts.

29 If there was any bona fide dispute as to the facts the defendant was at liberty to submit affidavits contradictory of the affidavit in support of the motion in accordance with the right to do so under Rule 319(2). This was not done. It is for these reasons that I have reached the view that there are no disputed facts which remain to be tried.

30 The object of Rule 341 is to enable a party to obtain a speedy judgment, without the necessity of a prolonged trial, where admissions in the pleadings or other documents filed in the Court have been made.

31 For the reasons I have expressed all essential facts have been admitted. The defendant cannot dispute that Micucci is indebted to the Minister of National Revenue in the amount of $7,324.54. That is the subject matter of dispute only between Micucci and the Minister to which the defendant is not a party. Service of the third party demand on the defendant is admitted and an admission of service is endorsed on that document. The reply for the demand for particulars, which is part and parcel of the pleadings, constitutes an admission by the defendant of the times and amounts of the payments which were made by it to Micucci all of which were made after service of the demand on it, and the dates upon which payments were made by the owners to the defendant all of which antedate the payments by the defendant to Micucci. It is implicitly admitted in the statement of defence that the defendant made no payments to the Minister pursuant to the demand therefor.

32 I simply cannot conceive of what other facts need to be proven, but to be certain I put the question to counsel for the defendant to which I received no satisfactory reply other than the assertion that the defendant was entitled to “its day in Court”. That subverts the objective sought to be achieved by Rule 341.

33 There remains the question that, accepting the admitted facts, whether the money received by the defendant is impressed with a trust under The Mechanics' Lien Act. That is a question of law following upon the facts which have been elicited which are clear and unequivocal as too are the admissions thereof. The admissions can only be understood in the one way as they have been outlined here and are susceptible of no other interpretation.

34 The submission by counsel for Her Majesty was that the statement of defence, when considered in the light of the admissions with respect to the facts thereof, does not constitute a defence to the statement of claim.

35 Counsel for the defendant repeated his submissions that the moneys received by the defendant from the owner were impressd with a trust in favour of Micucci and unpaid workmen of Micucci.

36 If the moneys so received by the defendant were impressed with a trust then the allegation that such a trust existed might well constitute a defence.

37 The question remains, however, whether in view of the indisputable facts such a trust exists.

38 The moneys received by the defendant which are impressed with the trust contemplated by The Mechanics' Lien Act are those received by it from the owner.

39 Reverting to the reply to the demand for particulars it is clear from the admissions therein that moneys were paid by the defendant to Micucci prior to the defendant having received moneys from the owner on account of the contract price.

40 There are three essentials which must be present to constitute a trust.

41 First, there must be a trustee. The trustee under The Mechanics' Lien Act would be the defendant but the defendant does not become a trustee until it has received moneys on account of the contract price from the owner.

42 Secondly, to constitute a trust there must be a corpus. In order for there to be a corpus on the facts of the present matter there must have been moneys paid to the defendant by the owner on account of the contract price. This is a condition precedent to the defendant becoming a trustee. Obviously it cannot become a trustee until a corpus comes into being and there is no corpus until moneys have been paid by the owner to the defendant on account of the contract price.

43 The third element of a trust is that there must be a cestui que trust. In the present instance this would be Micucci and workmen of Micucci if Micucci and his workmen were unpaid. The statement of defence is lacking in any allegation of the fact that either Micucci or his workmen were unpaid and in the absence of such allegations there are no beneficiaries of a trust and accordingly no trust.

44 On the undisputed facts I find that there has been no trust created.

45 Assuming that there was a trust existing, which I find did not exist for the reasons expressed above, then the payment by the defendant to the Minister pursuant to the third party demand served upon it would not be a use not authorized by the trust created under The Mechanics' Lien Act.

46 In Royal Trust Co v Trustee of the Estate of Universal Sheet Metals Ltd (1970), 8 D.L.R. (3d) 432, Schroeder, JA, in commenting on subsection 3(1) of The Mechanics' Lien Act, RSO 1960, c 233, which is now subsection 2(1) of The Mechanics' Lien Act, RSO 1970, c 267, said at page 435:

That section was enacted to ensure that the benefit of the trust thereby created would not be diverted from the subcontractor entitled to such benefit. If the claim arising under the statutory trust and the debt due from the claimant to the defendant be viewed simply as claims between American Air Filter and Universal, it cannot be said that these are not mutual debts which are subject to the right of set-off as provided by ss. 128 to 130 of the Judicature Act, RSO 1960, c. 197. The fact that the debt claimed by American Air Filter is of a different nature from the debt due by American Air Filter to Universal is not material because of the provisions of s. 129(1) of the Judicature Act which provides:

“129. (1) Mutual debts may be set against each other, notwithstanding that such debts are deemed in law to be of a different nature, except where either of the debts accrue by reason of a penalty contained in any bond or specialty.”

Thus in setting off the debt due by the claimant to Universal the trustee is not diverting from the claimant the benefit to which it is entitled under the provisions of s. 3 of the Mechanics' Lien Act.

47 Thus the setting-off of a debt due by Micucci, the subcontractor to the defendant, the contractor, is not a diversion of the benefit of the trust nor an unauthorized use of the trust by the defendant.

48 In the present matter Micucci was alleged to be indebted to the Minister under the Income Tax Act. If the defendant had paid any moneys owing by it to the Minister that payment by the defendant by virtue of subsection 224(2) of the Income Tax Act is a good and sufficient discharge of any liability by the defendant to Micucci to the extent of the payment made to the Minister. On being served with a demand for payment by the Minister the defendant stands indebted to the Minister to the like extent that Micucci was indebted to the Minister. Accordingly the debt of Micucci to the Minister becomes a debt of the defendant due to the Minister on Micucci's behalf which the defendant can recover from Micucci and, in my view, may be set off against what the defendant might owe to Micucci under the trust if it existed and accordingly would not constitute an unauthorized use of the trust.

49 I might also add that subsection 227(4) of the Income Tax Act provides:

227. (4) Every person who deducts or withholds any amount under this Act shall be deemed to hold the amount so deducted or withheld in trust for Her Majesty.

50 However counsel for the defendant persisted in his submission that resort by Her Majesty to Rule 341 was not appropriate because there was a serious question of law to be argued that is whether on the admitted facts a trust under The Mechanics' Lien Act existed.

51 In my view the propriety of resort to Rule 341 has been decided by the Appeal Division of the Federal Court in The Queen v Garry Bowl Limited, [1974] C.T.C. 457, 74 D.T.C. 6401. In that case the question was whether an appeal lay from a nil assessment to income tax by the Minister. The Tax Review Board had allowed a taxpayer's appeal from a nil assessment. The matter came before the Trial Division of the Federal Court by way of an appeal from the decision of the Tax Review Board. The Crown invoked Rule 341. The learned trial judge refused the application under Rule 341 on the ground that the issue between the parties involved a question of law. The learned trial judge suggested that Rule 474, which permits an application to set down for determination a point of law, was the appropriate rule to invoke.

52 On appeal from this order it was held that an application under Rule 341 is proper where the material facts are clearly admitted and the legal result is certain.

53 Mr Justice Thurlow speaking for the Court had this to say of Rule 341 at page 459 [6402]:

The rule is, however, limited, as the passages I have quoted appear to me to indicate, to situations where as a result of admissions etc., there is nothing in controversy either in the action as a whole or in a particular part or parts of it. Even when all the necessary facts have been admitted but the legal result of them is still in controversy the rule is not appropriate if the legal question is a serious or fairly arguable one. The rule as I understand it cannot properly be invoked as an alternative to setting down for determination before trial under Rule 474 a point of law that arises on the pleadings. Under that rule it is for the Court to determine whether a point of law which is in controversy should be dealt with before trial or not and a party is not entitled to circumvent the exercise of that discretion by bringing a motion for judgment on admissions and seeking to have the point argued and determined on the hearing of that motion. On the other hand when the material facts are clearly admitted and the result of the application of the law to them is not in doubt so that it is apparent that a plaintiff is entitled ex debito justicia to the relief which he claims in the action or that a defendant is entitled to judgment dismissing the action against him, as the case may be, a motion under Rule 341 is an appropriate procedure to obtain such relief immediately in lieu of allowing the action to proceed to a trial which in the end can have no other result.

54 In the present application I have found all material facts are clearly admitted and no disputed issue of fact remains to be tried. For the reasons I have expressed the result of the application of the law to these facts is not in doubt. Counsel were afforded the opportunity to argue fully the question of law involved and I can see no sound reason why the defendant has the right to proceed to trial. On the contrary Her Majesty the Queen is entitled ex debito justicia to the relief she claims.

55 Subsection 224(4) of the Income Tax Act provides:

224. (4) Every person who has discharged any liability to a person liable to make a payment under this Act without complying with a requirement under this section is liable to pay to Her Majesty an amount equal to the liability discharged or the amount which he was required under this section to pay to the Receiver General of Canada, whichever is the lesser.

56 Accordingly there shall be judgment in favour of Her Majesty the Queen in the amount of $7,324.54 together with Her Majesty's taxable costs.