T-5374-73
The Queen (Plaintiff)
v.
Cyrus J. Moulton Ltd. (Defendant)
Trial Division, Cattanach J.—Ottawa, February 13
and 19, 1975.
Income Tax—Sum claimed by Crown from taxpayer—
Demand by Crown on defendant—Whether moneys owing by
defendant to taxpayer—Defence of moneys in trust—Judg-
ment for Crown on pleadings—Income Tax Act, S.C. 1970-71-
72, c. 63, ss. 224, 227—Mechanics' Lien Act, R.S.O. 1970, c.
267, ss. 2, 5—Federal Court Rules 319, 341, 408, 474.
The plaintiff claimed from the defendant the sum of
$7,324.54 as owing for income tax by the taxpayer M, against
sums payable by the defendant to M. The statement of defence
implicitly admitted paying nothing toward the amount in ques
tion. In addition to a general denial of liability, it was asserted
that the sums paid by the defendant, as a general contractor, to
M, as a subcontractor, were subject to a trust by virtue of
sections 2 and 5 of the Mechanics' Lien Act (Ontario) for the
benefit of M's workmen. In response to the plaintiffs demand
for particulars, the defendant revealed payments to M before
the defendant received payment from the owner on the work
involved. Under Rule 341, the plaintiff moved for judgment on
the pleadings. The plaintiff's affidavit, not disputed, deposed to
service of the demand, under section 224(1), on a date prior to
the defendant's payments to M.
Held, giving judgment for the plaintiff, the question whether
the moneys received by the defendant were impressed with a
trust is a question of law following upon the elicited facts,
which were clear. The elements of a trust were lacking. There
was neither a trustee nor a corpus, since the defendant paid M
before the defendant received from the owner the moneys
which could otherwise have constituted a corpus of which the
defendant could have been constituted trustee. There was no
cestui que trust because there was no allegation in the state
ment of defence that M's workmen were unpaid. Even if a trust
existed, the payment by the defendant to the Minister, pursuant
to the third party demand served upon the defendant, would not
have been a use not authorized by the trust created under the
Mechanics' Lien Act. The plaintiff's recourse to Rule 341 for
judgment was proper where the material facts were clearly
admitted and the legal result certain.
Royal Trust co. v. Trustee of the estate of Universal Sheet
Metals Ltd. (1970) 8 D.L.R. (3d) 432; The Queen v. Gary
Bowl Ltd. [1974] 2 F.C. 146, applied.
MOTION.
COUNSEL:
B. Wallace for plaintiff.
K. Ross for defendant.
SOLICITORS:
Deputy Attorney General of Canada for
plaintiff.
Wilson & Ross, Ottawa, for defendant.
The following are the reasons for judgment
rendered in English by
CATTANACH J.: This is an application made by
Her Majesty that judgment be issued on the plead-
ings and other documents pursuant to Rule 341 of
the Federal Court Rules which Rule reads:
Rule 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 docu
ments 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.
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 Nation
al Revenue on January 15, 1973, knew or suspect
ed 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 monies 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 pay
able by Micucci to the Receiver General and that
no monies were paid to the Receiver General of
Canada.
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.
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".
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 pur
port of this allegation is that the defendant was the
general contractor for this construction project and
Micucci was a subcontractor.
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 to Bytown Masonry Construction, Sav-
erio 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 Con
struction and its workmen acquired a lien on the above property
for the price of the work pursuant to Section 5 of the Mechan
ics' Lien Act, R.S.O. 1970, c. 267.
4. The Defendant states and the fact is that pursuant to
Section 2 of the Mechanics' Lien Act, R.S.O. 1970, c. 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.
Basically the substance of these allegations is
that the monies paid by the defendant to Micucci
were impressed with a trust by virtue of section 2
of The Mechanics' Lien Act R.S.O. 1970, c. 267,
subsections (1) and (2) of which section read:
2.—(1) All sums received by a builder, contractor or sub
contractor on account of the contract price constitute a trust
fund in his hands for the benefit of the owner, builder, contrac
tor, subcontractor, Workmen's Compensation 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 Com
pensation Board is paid any assessment with respect thereto.
(2) Notwithstanding subsection 1, where a builder, contrac
tor 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.
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.
It is readily apparent that to determine whether
the monies paid by the defendant to Micucci are
impressed with a trust it is essential to know when
the monies 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.
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.
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.
The demand was made on January 15, 1973, for
$7,324.54.
There were four construction projects in which
the defendant was the contractor and Micucci was
the subcontractor.
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
Total $7,855.60
The subcontract between the defendant and
Micucci was entered into on or about March 16,
1973.
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
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.
One further payment was made by the defend
ant to Micucci on May 4, 1973, which was prior to
the second payment which the defendant received
from the owner on May 25, 1973.
The second construction project undertaken by
the defendant was for Consumers Distributing
Ltd. in Ottawa, Ontario.
The defendant paid Micucci $331.80 for work
done on this project on March 23, 1973. The
monies 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 monies from the
owner.
A third construction project was undertaken by
the defendant for the Department of Environment.
The defendant paid Micucci as follows:
March 30, 1973 $935.00
May 4, 1973 212.00
The defendant received payments from the
owner:
April 25, 1973 $27,382.81
June 30, 1973 1,475.13
Here again it is evident that the defendant paid
Micucci $935.00 on March 30, 1973, which was
prior to the receipt by the defendant of monies
from the owner on April 25, 1973, and the defend
ant paid to Micucci $212.00 on May 4, 1973,
which was prior to the receipt by the defendant of
monies from the — owner on June 30, 1973.
With respect to the fourth co_pstruction project
the defendant paid to Micucci an amount of
$1,500.00 on April 27, 1973, which was before the
defendant received payment from the owner of
$2,985.00 on May 30, 1973.
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 state
ment 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.
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.
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 section
224(1) of the Income Tax Act was served on the
defendant on January 15, 1973, and service there
of 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.
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.
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.
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 plead-
ings or other documents filed in the Court have
been made.
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 Min
ister pursuant to the demand therefor.
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 asser
tion that the defendant was entitled to "its day in
Court". That subverts the objective sought to be
achieved by Rule 341.
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.
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 state
ment of claim.
Counsel for the defendant repeated his submis
sions that the monies received by the defendant
from the owner were impressed with a trust in
favour of Micucci and unpaid workmen of
Micucci.
If the monies so received by the defendant were
impressed with a trust then the allegation that
such a trust existed might well constitute a
defence.
The question remains, however, whether in view
of the indisputable facts such a trust exists.
The monies received by the defendant which are
impressed with the trust contemplated by The
Mechanics' Lien Act are those received by it from
the owner.
Reverting to the reply to the demand for par
ticulars it is clear from the admissions therein that
monies were paid by the defendant to Micucci
prior to the defendant having received monies
from the owner on account of the contract price.
There are three essentials which must be present
to constitute a trust.
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 monies on account of the contract
price from the owner.
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
monies 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 monies have been paid by the owner to the
defendant on account of, the contract price.
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 state
ment 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.
On the undisputed facts I find that there has
been no trust created.
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.
In Royal Trust Co. v. Trustee of the Estate of
Universal Sheet Metals Ltd.' Schroeder J.A., in
commenting on section 3(1) of The Mechanics'
Lien Act, R.S.O. 1960, c. 233, which is now sec
tion 2(1) of The Mechanics Lien Act, R.S.O.
(1970) 8 D.L.R. (3d) 432.
1970, c. 267, said at pages 435-6:
That section was enacted to ensure that the benefit of the
trust thereby created would not be diverted from the subcon
tractor 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, R.S.O. 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 Mechan
ics' Lien Act.
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.
In the present matter Micucci was alleged to be
indebted to the Minister under the Income Tax
Act. If the defendant had paid any monies owing
by it to the Minister that payment by the defend
ant by virtue of section 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 unauthor
ized use of the trust.
I might also add that section 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.
It follows that any monies in the hands of the
defendant which are owing by it to Micucci after
service on the defendant of the third party demand
under section 227 of the Income Tax Act are held
by the defendant in trust for Her Majesty which
trust would be prior in time to any trust created
under The Mechanics' Lien Act. However since I
have concluded for the reasons I have expressed
that in the circumstances of this matter no trust
exists under The Mechanics' Lien Act I am not
obliged to decide the priority between conflicting
trusts.
However counsel for the defendant persisted in
his submission that resort by Her Majesty to Rule
341 was not appropriate because there was a seri
ous question of law to be argued that is whether on
the admitted facts a trust under The Mechanics'
Lien Act existed.
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. Gary Bowl
Limited 2 . 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 Fed
eral 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.
On appeal from this order it was held that an
application under Rule 341 is proper where the
2 [1974] 2 F.C. 146.
material facts are clearly admitted and the legal
result is certain.
Mr. Justice Thurlow speaking for the Court had
this to say of Rule 341 at pages 148-9:
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 justitiae 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.
In the present application I have found all ma
terial 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 ques
tion 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 justitiae to the relief she claims.
Section 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.
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.
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.