A-159-74
The Queen (Appellant) (Plaintiff)
v.
Creative Graphic Services and Craft Graphic Ser
vices Ltd. (Respondents) (Defendants)
Court of Appeal, Urie and Ryan JJ. and MacKay
D.J.—Toronto, November 14, 1975; Ottawa,
November 21, 1975.
Sales tax—Minister sending letter of demand to respondent
"Craft", requiring payment to Crown of moneys otherwise
payable to respondent "Creative"—Craft not complying-
Trial Division awarding appellant judgment of $1715.00—
Appeal—Whether demand proper—Excise Tax Act, R.S.C.
1970, c. E-13, ss. 52(6),(7),(8).
Suspecting that respondent Craft was or was about to
become indebted to respondent Creative, or Kristensen, a part
ner in Creative, the Minister of National Revenue sent a letter
of demand to Craft, requiring that it forward money otherwise
payable to Creative or Kristensen to the Receiver General.
Respondent Craft failed to comply. The Trial Division granted
appellant judgment for $1715.00 against the Creative partner
ship but the action against Craft was dismissed and it is from
this part of the judgment that the appeal is brought. Appellant
alleges that the Court erred in failing to hold that: (a) the
partners were licensees along with the firm, and personally
liable; (b) the Minister's demand would attach future indebted
ness of Craft to Kristensen; (c) the demand complied with
section 52(6); and (d) appellant was entitled to a declaration
that Kristensen was a partner of Creative.
Held, the appeal is dismissed, failure of grounds (b) and (c)
being sufficient. During his employment, at the end of each pay
period, Craft would be indebted to Kristensen for his weekly
salary. At the moment of payment, Craft would no longer be
indebted. Assuming that Kristensen was a licensee by virtue of
his being a partner, the letter of demand was effective, if at all,
only to the extent of any sum payable at the end of the pay
period immediately following receipt of the letter, and not
subsequently, because Craft was not "about to become indebt
ed"; its debt had been extinguished. Conditions precedent in the
Act must be strictly met. The third party is entitled to know
precisely to whom it is alleged to be or to be about to become
indebted, and the precise amount. If the letter could be read as
requiring payment of moneys beyond that to which the Minis
ter is entitled, the Minister has exceeded the statutory right.
The demand cannot purport to do more that the special right,
vested in the Minister by statute, allows. The implication of
subsection (6) is that the suspected indebtedness must be
imminent. The words of the letter imply that the debt was far
more extensive than one which would immediately accrue, and
might well extend to one which might or might not come into
existence at some indeterminate future time. This was the
impression intended to be created, that is, that the Minister had
a wider right than that granted by Parliament. In itself, this is
sufficient to invalidate the demand.
APPEAL.
COUNSEL:
H. Erlichman and E. Bowie for appellant.
No one appearing for respondents.
SOLICITORS:
Deputy Attorney General of Canada for
appellant.
Lang, Michener, Cranston, Farquharson &
Wright, Toronto, for respondents.
The following are the reasons for judgment
rendered in English by
URIE J.: This is an appeal from a judgment of
the Trial Division' whereby the appellant was
adjudged entitled to recover from the respondent,
Creative Graphic Services (hereinafter called
"Creative"), the sum of $1715.00 together with its
taxed costs. Its action against the respondent,
Craft Graphic Services Ltd. (hereinafter called
"Craft" or "the Company"), was dismissed with
costs and it is from this part of the judgment that
the appeal is brought.
Very briefly, the essential facts disclosed in the
agreed statement of facts are these. Creative
Graphic Services, a partnership composed of Carl
Hans Kristensen and Robert Bruce Douglas,
engaged in the business of printing, had issued to
it, on July 26, 1967, in the partnership's name, a
licence under the Excise Tax Act, R.S.C. 1952, c.
100 now R.S.C. 1970, c. E-13. As a result of the
failure of the partnership firm to remit to Her
Majesty the Queen sales tax during the period
June 1, 1967 to April 30, 19d9, each of the
partners was separately prosecuted and convicted
and each was ordered to pay fines, part of which,
in each case, was an amount equal to the tax that
should have been paid.
On or about August 17, 1971 the Department of
National Revenue sent a letter of demand pursu
ant to section 52(6) (formerly section 50(6)) of the
Act, to the respondent Craft Graphic Services
' [ 197a] 2 F.C. 75.
Ltd., by whom Mr. Kristensen was then employed,
a copy of which is set out hereunder:
DEPARTMENT OF NATIONAL REVENUE
CUSTOMS AND EXCISE
RE: DEMAND FOR PAYMENT OF EXCISE TAXES AMENDING PRIOR
DEMAND OF AUGUST 4, 1971
Registered
Craft Graphic Services Ltd., Reply to: Mr. C. MacDonald
570 Coronation Drive
West Hill, Ontario August 17, 1971
It is believed you are, or are about to become, indebted to
Creative Graphic Services, and/or Carl Kristensen, 36 Dunsa-
ny Crescent, Weston, Ontario.
hereinafter called the licensee.
You are hereby required to pay over to the Receiver General of
Canada an amount sufficient to retire the liability of the
licensee, as hereinafter shown, or the amount by which you are
or may become indebted, whichever is the lesser amount.
The liability of the licensee is as follows: $4,210.51 federal sales
tax and accrued penalty interest. (Payment at the rate of
$50.00 per week from salary, income or other monies received
will be satisfactory to the Department).
Payments may be made to
Regional Chief
Excise Tax Collections,
P.O. Box 460, Stn. "Q"
Toronto 290, Ontario who will furnish you with receipts
therefor.
Discharging any liability to the licensee after receipt hereof
renders you personally liable to the extent of the liability
discharged or the amount claimed herein, whichever is the
lesser amount.
This demand is made pursuant to section 50, subsections
(6),(7) and (8) of the Excise Tax Act, R.S.C. 1952, Chapter
100, as amended, which follows below.
Yours truly
Regional Director Excise Tax.
As at the date of the agreed statement of facts,
the respondent company had not complied with the
demand and, also, at that point in time, the
amount owed by Creative Graphic Services, the
partnership, was $1715.00, being the balance of
the sum owing for penalties and interest. It is this
sum for which the appellant was granted judgment
against the partnership. The appellant appeals
from the judgment because, it is alleged, that the
learned Trial Judge erred
(a) in failing to hold the individual partners
were licensees along with the firm and thus person
ally liable to pay Creative's indebtedness for sales
tax,
(b) in failing to hold that the Minister's
demand would attach future indebtedness of Craft
to Kristensen,
(c) in failing to find that the demand sufficient
ly complied with the requirements of section 52(6)
of the Act, and
(d) in failing to find that the appellant was
entitled to a declaration that Carl Hans Kristensen
was a partner of Creative.
It was conceded by counsel for the appellant
that if he failed on any one of the grounds (a), (b)
or (c) his appeal would not succeed. It is unneces
sary for me to express any opinion on the validity
of the appellant's submissions on either ground (a)
or (d) since I am of the opinion that the appeal
must fail on the other two grounds.
It was the appellant's submission that sections
52(6),(7) and (8) form a code of their own with
respect to one of the remedies available to the
Minister of National Revenue, in the recovery of
sales tax. Those subsections read as follows:
52. (6) When the Minister has knowledge or suspects that
any person is or is about to become indebted to a licensee he
may, by registered letter, demand of such person that the
moneys otherwise payable to the licensee be in whole or in part
paid over to the Receiver General on account of the licensee's
liability under this Act.
(7) The receipt of the Minister therefor constitutes a good
and sufficient discharge of the liability of such person to the
licensee to the extent of the amount referred to in the receipt.
(8) Any person discharging any liability to a licensee after
receipt of the registered letter referred to is personally liable to
the Receiver General to the extent of the liability discharged as
between him and the licensee or to the extent of the liability of
the licensee for taxes and penalties, whichever is the lesser
amount.
It will be seen that the following conditions
precedent must be fulfilled before the Minister is
entitled to make the demand permitted by subsec
tion (6).
(a) he must have knowledge that a person is
indebted to a licensee, or
(b) he must suspect that a person is indebted to
a licensee, or
(c) he must have knowledge that a person is
about to become indebted to a licensee, or
(d) he must suspect that a person is about to
become indebted to a licensee.
If any one of these conditions is fulfilled, then he
may make the demand on such person to pay
money, otherwise payable to the licensee, in wl - ple
or in part to the Receiver General. If the person to
whom the demand is directed makes such pay
ment, he is protected from a claim made against
him by the licensee by subsection (7). If the person
fails to make the payment demanded, if validly
given, then he shall become liable personally as
provided by subsection (8).
It is undisputed that at all material times Mr.
Kristensen was an employee of Craft earning in
excess of $50.00 per week. During his employ
ment, therefore, at the end of each pay period,
which it appears would be at the end of each week,
Craft would be indebted to Kristensen for the
salary he earned during that week. At the moment
of payment, Craft would no longer be so indebted.
For this reason and on the assumption, but
without deciding, that Mr. Kristensen was a licen
see by virtue of his being a partner of Creative
Graphic Services, the letter of demand of August
17, 1971 was effective in requiring Craft to make
payment to the Receiver General of Canada, if at
all, only to the extent of any sum payable at the
end of the pay period immediately following
Craft's receipt of the letter. It could not be effec
tive for indebtedness incurred in favour of Kris-
tensen by reason of his providing services to Craft
in subsequent pay periods, because Craft was not,
after the first compliance with the letter of
demand, then "about to become indebted" to Mr.
Kristensen. At that point in time its indebtedness
to him had been extinguished.
Again on the assumption that Mr. Kristensen
was a licensee, the demand, in my opinion, has
failed to meet the requirements of the Act. Parlia
ment has granted to the Minister a rather extraor
dinary right, namely to take a course of action to
enforce an alleged debt before having obtained a
judgment from any court. This course of action is
authorized if certain conditions precedent are met.
Concomitant with this right, it appears to me, is
the obligation to satisfy strictly the conditions
precedent. The third party who is required by the
letter of demand to make payment to the Receiver
General of moneys owing by him to someone else,
is entitled to know precisely the party to whom he
is alleged to be or about to become indebted and
the precise amount for which he is alleged to be
indebted or about to become indebted. Therefore,
if in the letter it could be construed that the
Minister is requiring him to pay over moneys
beyond that to which the Minister is entitled, he
has exceeded the statutory right which has been
granted to him and the letter of demand thus fails.
Put shortly, the demand cannot either in form or
substance purport to do more than the special
right vested in the Minister, by statute, allows.
In this case, while the form of demand may have
been questionable on several grounds, one, in my
view, was fatal and thus it becomes unnecessary to
consider the others. The words of subsection (6)
state that when the Minister suspects that any
person is about to become indebted to a licensee, a
demand may be made. The clear implication is
that the indebtedness is, as the learned Trial Judge
put it, "imminent". However, the words used in
the letter of demand here in issue are, in part
"You are ... required to pay over to the Receiver
General of Canada ... the amount by which you
are or may become indebted ...". The latter
phrase would, to my mind, convey to any reader
the impression that the indebtedness intended to
be attached was far more extensive than one lim
ited to an indebtedness to accrue imminently and
might well extend to one which might or might not
come into existence at some indeterminate time in
the future. That this was the impression intended
to be created is pointed up by the statement in the
letter that "Discharging any liability to the licen
see after receipt hereof renders you personally
liable to the extent of the liability discharged or
the amount claimed herein, whichever is the lesser
amount." The combined effect of the two sen
tences indicates that the reader was intended to
believe that the Minister had a much wider right
than that which, in fact, was granted by Parlia
ment and is sufficient in itself to invalidate the
demand.
It was argued by counsel for the appellant that
after receipt of the registered letter of demand
authorized by subsection (6), by reason of subsec
tion (8), any person (in this case Craft) "discharg-
ing any liability" (including all payments of salary
made by it to Kristensen as its employee) would
cause Craft to become personally liable in accord
ance with the subsection. The short answer to that
submission is that if the letter is invalid for pur
poses of subsection (6), it must also be invalid for
purposes of subsection (8), since it is the subsec
tion (6) letter to which subsection (8) refers. As
already found, the letter of demand delivered in
this case is invalid and life cannot be returned to it
by interpreting subsection (8) in the manner
suggested.
I would, therefore, dismiss the appeal with costs.
* * *
RYAN J.: I concur.
* * *
MACKAY D.J. concurred.
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.