Digests

Canada (Attorney General) v. National Bank of Canada

A-626-02, A-627-02, A-628-02, A-629-02

2004 FCA 92, Noël J.A.

5/3/04

22 pp.

Amounts held in trust--Four appeals from decisions (Canada (Attorney General) v. National Bank of Canada, 2002 DTC 7468 (F.C.T.D.); Canada (Attorney General) v. National Bank of Canada, 2002 CTC 7477 (F.C.T.D.); Canada (Attorney General) v. Caisse Populaire Desjardins de Lebel-sur-Quévillon, 2002 DTC 7493 (F.C.T.D.); Canada (Attorney General) v. Caisse Populaire d'Amos, 2002 DTC 7484 (F.C.T.D.)) dismissing appellant's actions to recover source deductions deducted and not remitted on ground appellant failed to comply with provincial law in order to give effect to deemed trust mechanism created under Income Tax Act (ITA), s. 227(4), (4.1) and Employment Insurance Act (EIA), s. 86(2.1)--Provisions stipulating every person deducting, withholding amount under Acts deemed to hold amount in trust for Her Majesty--Respondents seized, took in payment, obtained by surrender movable property secured by movable hypothec, eventually received proceeds of sale on account of claim--Under ITA, s. 227(4.1), EIA, s. 86(2.1) appellant gave formal notice to respondents to pay Receiver General proceeds from sale of property subject to security interest up to amount of source deductions "withheld but not remitted" by tax debtors--Respondents ignored notices, recovery proceedings commenced, ultimately dismissed by trial Judge--Trial Judge erred in law in characterizing respondents as bona fide purchasers, thereby excluding from deemed trust property they had taken in payment, seized or obtained by surrender--S.C.C. explained in Royal Bank of Canada v. Sparrow Electric Corp., [1997] 1 S.C.R. 411 Parliament may assign absolute priority to deemed trust by using precise language--S.C.C. also explains, in First Vancouver Finance v. M.N.R., [2002] 2 S.C.R. 720, deemed trust resembles floating charge hovering over all assets of tax debtor in amount of default--Banks, Caisses in present cases not comparable to third party purchasers escaping provisions of deemed trust--As secured creditors, property over which they asserted security interest continued to be subject to deemed trust, remained so at time of sale--Whether provincial law applied in supplementary capacity to federal scheme governing appropriate procedure by Crown in asserting rights under ITA, s. 227(4.1), EIA, s. 86(2.1)--Possibility that provincial law may apply as supplementary law now provided in Interpretation Act, ss. 8.1, 8.2--In assuring application of federal enactment in province, reference to province's law of property and civil rights as supplementary law, must be necessary, not contrary to federal law--ITA and EIA deemed trust provisions complete, explicit as to effect on property taken in possession by secured creditors in exercise of security interest--Parliament not confined to particular method in establishing collection measures--Positive obligation on secured creditor to pay Receiver General proceeds from property subject to trust could not be clearer--Secured creditor not complying with statutory obligation to pay Receiver General proceeds of property subject to deemed trust in priority over security interest personally liable, thereby liable for unpaid amount--Contrary to trial Judge's belief, appellant subject to limitation period even if civil law did not apply since Crown Liability and Proceedings Act does apply--Possible uncertainty in allowing Crown to be paid in priority justified by fact source deductions "at heart" of income tax collection in Canada--Whether common law notion of "beneficial ownership" can be used in Quebec by Parliament irrelevant--Task of courts limited to discovering Parliament's intention and giving effect to it--Trial Judge did not have to determine whether Crown's "beneficial ownership" had priority over respondents' rights under civil law--Simply had to record fact respondents had received proceeds of property subject to deemed trust, to enforce obligation to pay proceeds to Receiver General in priority over security interest--Appeals allowed--Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1, s. 227--Employment Insurance Act, S.C. 1996, c. 23, s. 86(2.1)--Interpretation Act, R.S.C., 1985, c. I-21, s. 8.1 (as enacted by S.C. 2001, c. 4, s. 8), 8.2 (as enacted idem)--Crown Liability and Proceedings Act, R.S.C., 1985, c. C-50, s. 1 (am. by S.C. 1990, c. 8, s. 21).