T-2954-80
384238 Ontario Limited and Maple Leaf Lumber
Company Limited (Plaintiffs)
v.
The Queen in right of Canada (Defendant)
Trial Division, Cattanach J.—Ottawa, March 12
and 20, 1981.
Income tax — Judgment debtor's assets seized in satisfac
tion of certificate filed under s. 223 of Income Tax Act —
Plaintiffs suing defendant for wrongful seizure and detention
of their property — Documents concerning the transfer of
property produced after filing of defence — Defendant now
moves to amend defence to plead ss. 2 and 3 of The Fraudu
lent Conveyances Act as a defence and particulars of transac
tions alleged to be fraudulent — Whether statute may be
pleaded as defence — Motion granted — There is no impedi
ment to pleading a provincial law as a defence in a matter
before this Court — Likewise, there is no impediment to
pleading the statute itself as a defence if the facts do bring the
conveyances within its terms — Income Tax Act, S.C. 1970-
71-72, c. 63, s. 223 — The Fraudulent Conveyances Act,
R.S.O. 1970, c. 182, ss. 2, 3.
McNamara Construction (Western) Ltd. v. The Queen
[1977] 2 S.C.R. 654, referred to.
MOTION.
COUNSEL:
R. Reynolds for plaintiffs.
M. Kelen for defendant.
SOLICITORS:
Reynolds, Hunter, Sullivan and Kline, Belle-
ville, for plaintiffs.
Deputy Attorney General of Canada for
defendant.
The following are the reasons for judgment
rendered in English by
CATTANACH J.: The Minister of National Reve
nue certified, under section 223 of the Income Tax
Act, S.C. 1952, c. 148, as amended by S.C. 1970-
71-72, c. 63, that Kenneth Allen had not paid tax
assessed against him and produced to this Court a
certificate to that effect, which upon production
shall be registered and upon registration all pro
ceedings may be taken thereon as if it were a
judgment of this Court which it is not.
The registration was not contested and the Min
ister obtained writs of execution and placed them
in the hands of the Sheriff of the County of
Hastings and the Sheriff of the County of Grey to
levy execution on the goods, chattels and lands and
tenements of the debtor in satisfaction of the
certificate registered.
This the Sheriffs did. The bulk of the assets
seized were horses bred or raised for the use or sale
for showing purposes. Some of those horses seized
were registered with the Livestock Branch of the
Department of Agriculture with Kenneth Allen as
the owner. Other horses seized were not registered.
By an amended statement of claim dated
November 4, 1980, the material allegations of
which are substantially the same as the preceding
instruments, the plaintiffs sue the defendant inter
alia for damages for wrongful seizure and deten
tion of their property and a declaration that the
property seized was that of the plaintiffs rather
than that of Kenneth Allen and accordingly was
not subject to seizure by a creditor of Allen.
Thus the crucial fact upon which the issues in
this action fall to be determined is the ownership
of the property that was seized. Is the owner the
plaintiffs or was it Allen, the judgment debtor of
the defendant?
By statement of defence dated November 13,
1980 the defendant denies the allegation in the
statement of claim that the assets seized were the
property of the plaintiffs but alleges that those
assets were the property of the judgment debtor
and seized as such.
Subsequent to the filing of the statement of
defence certain documents incidental to the trans
fer of the property were eventually produced, such
as a chattel mortgage and a promissory note as
consideration for a sale.
As a consequence the defendant now moves to
amend her statement of defence to plead and rely
upon sections 2 and 3 of The Fraudulent Convey
ances Act, R.S.O. 1970, c. 182, as a defence and to
plead particulars of three transactions alleged to
be fraudulent: (1) a sale of assets in June 1978
from Mrs. Emily Allen to the corporate plaintiff
identified by a number rather than a name as not
being a conveyance to a bona fide purchaser for
good consideration, (2) a chattel mortgage be
tween Emily Allen and Ken Allen and Sons Lim
ited as being without consideration for the sole
purpose of defrauding creditors, and (3) a gift of a
tractor to a minor son of the judgment debtor and
subsequent sale by the minor to the numbered but
unnamed plaintiff as being conveyances to defraud
creditors.
The defendant also moved to amend her defence
by pleading subsection 3(6) of the Crown Liability
Act, R.S.C. 1970, c. C-38, which preserves the
exemption of liability in the prerogative and statu
tory power of the Crown.
At the conclusion of the hearing of argument on
the matter I allowed the amendment to plead the
provision of the Crown Liability Act but I reserved
the application for leave to plead The Fraudulent
Conveyances Act the question being raised wheth
er that statute is susceptible of constituting a
defence and being pleaded as such.
As I appreciated the contention of counsel for
the plaintiffs in this respect it was:
(1) that, a conveyance that is fraudulent and
void as against creditors is not void but voidable
and it is well settled that it is good as between
the parties to it;
(2) that, accepting the premise that the convey
ance is voidable, rather than void ab initio, there
must be a positive declaration that the voidable
conveyance is voided;
(3) that, accepting the second premise, the
action seeking the declaratory relief (under a
combined reading of Rules 400 and 603 of the
Federal Court Rules, see Mahoney J. in Dou-
cette v. Minister of Transport T-975-79, March
27, 1979 [[1979] 2 F.C. 431]) must be by
statement of claim in this Court at least;
(4) that, a statement of claim seeking to declare
a conveyance found to be fraudulent to be void
is not within the jurisdiction of this Court not
being a law of Canada within the meaning of
McNamara Construction (Western) Ltd. v. The
Queen [ 1977] 2 S.C.R. 654.
As I conceive the effect of sections 2 and 3 of
The Fraudulent Conveyances Act to be it is that a
conveyance that is fraudulent and void as against
creditors is not absolutely void but voidable and is
good as between the parties to it. Under section 3,
section 2 (which provides that a conveyance made
to defeat creditors is void as against such persons
and their assigns) does not apply to property con
veyed upon good consideration and bona fide to a
person without knowledge at the time of the con
veyance of the intention to defraud.
Thus where a conveyance is made upon good
consideration the onus is to show the fraudulent
intent of both parties to the conveyance. Where
the conveyance is voluntary it is necessary to show
the fraudulent intention of the maker only.
The clear purpose of the defendant in seeking to
amend her statement of defence as she does by
pleading The Fraudulent Conveyances Act is for
that pleading to serve as a vehicle for allegations
of fact to permit adducing evidence to establish
these facts from which a finding of fact can be
made by the Trial Judge that title to the assets had
not been effectively vested in the plaintiffs.
The defendant does not seek declaratory relief.
I made the suggestion during argument that
there was no vital necessity to plead the statute as
such but merely the facts to bring the matter
within the operation and application of the provin
cial law. I can see no impediment to pleading a
provincial law as a defence in a matter before this
Court and I have in mind such legislation as the
Statute of Frauds and the Statute of Limitations.
If, as I believe to be the case, the facts do bring the
conveyances within The Fraudulent Conveyances
Act there can likewise be no impediment to plead
ing the statute itself as a defence.
Furthermore in the particulars in the proposed
amendment to the defence there are allegations
that the property was not conveyed upon good
consideration in the transactions in the chain of
title (two links are alleged to be defective) and
that the conveyances were not bona fide thus
excluding the conveyances from the exception in
section 3 and accordingly section 2, by which a
conveyance of property to defeat creditors is void
as against those persons, remains inviolate.
There were satisfactory reasons why this more
particular defence was not pleaded before rather
than a general denial but documents were found
and produced by the plaintiffs which were previ
ously said to be unavailable, (i.e., the promissory
note and the chattel mortgage) and accordingly
there is substance to the proposed amendment and
the amendments are essential to bring the com
plete issues in dispute before the Trial Judge.
Therefore I grant the motion made by the
defendant and she may amend her statement of
defence accordingly.
By doing so I am not to be construed as having
decided the contentions made by the plaintiffs and
counsel for the plaintiffs is at liberty to repeat
those contentions before the Trial Judge and the
Trial Judge is untrammelled by any remarks I
have here made.
Counsel for the plaintiffs suggested that if I
should reach the conclusion which I have then the
defendant should be subject to terms and condi
tions with respect to expenditures incurred by
reason of the seizure and the like.
I do not think so. The plaintiffs seek exemplary
damages and costs upon a solicitor and client basis
in the event of their success at trial.
For me to impose conditions would, in my view,
be a usurpation of the function of the Trial Judge
without the benefit of the viva voce evidence that
will be given before him and I decline to do so.
However the solicitor for the defendant did con
sent to the costs of the motion being costs to the
plaintiffs in any event in the cause regardless of
her success as being consistent with the practice in
instances such as this. I shall therefore so order.
ORDER
It is ordered that the defendant shall have leave
to amend her statement of defence in accordance
with the amended statement of defence attached to
the notice of motion herein.
Since assurances have been forthcoming from
counsel for the parties that further discoveries are
not necessary there shall be no terms in these
respects.
The plaintiffs shall be entitled to the costs of
this motion in any event in the cause.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.