A-93-75
Cyrus J. Moulton Ltd. (Appellant)
v.
The Queen (Respondent)
Court of Appeal, Thurlow, Ryan and Le Dain
JJ.—Ottawa, October 21 and 28, 1975.
Income tax—Sum claimed by Crown from taxpayer—
Demand by Crown on appellant—Whether moneys owing by
appellant to taxpayer—Defence of moneys in trust—Appeal
allowed—Income Tax Act, S.C. 1970-71-72, c. 63, ss. 222,
224—Mechanics' Lien Act, R.S.O. 1970, c. 267, ss. 2, 5—
Federal Court Rule 341.
Respondent (plaintiff) claimed from appellant (defendant)
the sum of $7,324.54 as owing for income tax by the taxpayer
M, against sums payable by appellant to M. The statement of
defence implicitly admitted paying nothing toward the amount
in question. In addition to a general denial of liability, it was
asserted that the sums paid by appellant as a general contrac
tor, 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 respondent's
demand for particulars, appellant revealed payments to M
before appellant received payment from the owner on the work
involved. Under Rule 341, respondent moved for judgment on
the pleadings. Respondent's affidavit, not disputed, deposed to
service of the demand under section 224(1), on a date prior to
appellant's payments to M. The Trial Division found for
respondent and appellant appealed.
Held, allowing the appeal, the main question was whether
amounts paid by appellant to M under the alleged contract
were paid, in whole or in part, to M upon a trust for M's
workmen, and whether a payment to M upon such a trust is, to
the extent that the workmen are the beneficiaries of the trust, a
payment to which section 224 of the Income Tax Act applies.
With such an issue raised and unresolved, procedure to obtain
judgment under Rule 341 could not be properly invoked.
Secondly, the de facto existence of the indebtedness of M to the
Crown for moneys payable under the Act at the time of the
giving of notice under section 224(2) appears to be a funda
mental fact upon which appellant's liability under section 224
depends, and there is no reason for the proposition that appel
lant is not entitled to put the existence of such fact in issue.
Thirdly, on appeal the case presented differs from that before
the Trial Division by reason of respondent's admission that
failure of appellant's counsel to introduce the transcript of the
cross-examination of the affiant referred to by the Trial Judge
was due to inadvertence. It is, therefore, not appropriate for
this Court to infer, from this failure, that the cross-examination
was unfavourable to appellant.
The Queen v. Cyrus J. Moulton Ltd. [1975] F.C. 109,
discussed. The Queen v. Gary Bowl Limited [1974] 2 F.C.
146, applied.
APPEAL.
COUNSEL:
K. Ross for appellant.
T. Ocrane for respondent.
SOLICITORS:
Wilson & Ross, Ottawa, for appellant.
Deputy Attorney General of Canada for
respondent.
The following are the reasons for judgment
rendered in English by
THURLOW J.: This appeal is from a judgment in
favour of the respondent pronounced by the Trial
Division' on a motion under Rule 341. By the
judgment it was ordered that the respondent recov
er the full amount claimed in the action and costs.
Rule 341 reads as follows:
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.
The scope and purpose of this Rule were recent
ly discussed in the reasons of this Court in The
Queen v. Gary Bowl Limited 2 . In general, proce
dure under it may properly be invoked only where
on the admitted facts one party or the other is
entitled to judgment and no fairly arguable ques
tion of law as to the right of that party to judg
ment remains to be decided or where the right of a
party to judgment flows as a matter of law from
the effect of documents. I should add that the
Rules do not provide a procedure for obtaining
summary judgment on a motion supported by
affidavits verifying the plaintiff's claim and nega-
[1975] F.C. 109.
2 [1974] 2 F.C. 146.
tiving the existence of any defence, such as is
provided for in many courts under Rules corre
sponding in general to those of English Order 14.
The respondent's claim in the action was found
ed on a notice alleged to have been given on
January 15, 1973, under subsection 224(1) of the
Income Tax Act requiring the appellant to pay to
the Receiver General for Canada any monies pay
able by the appellant to one, Saverio Micucci
operating as Bytown Masonry Construction up to
an amount of $7,324.54, and an allegation that
between January 15, 1973 and May 4, 1973 the
defendant paid to Micucci amounts the aggregate
of which exceeded $7,324.54. After referring to
sections 222 and 224 of the Act the statement
went on to submit that the appellant was liable to
the Crown in the amount of $7,324.54 and to
claim that amount.
Sections 222 and the relevant parts of section
224 read as follows:
222. All taxes, interest, penalties, costs and other amounts
payable under this Act are debts due to Her Majesty and
recoverable as such in the Federal Court of Canada or any
other court of competent jurisdiction or in any other manner
provided by this Act.
224. (1) When the Minister has knowledge or suspects that
a person is or is about to become indebted or liable to make any
payment to a person liable to make a payment under this Act,
he may, by registered letter or by a letter served personally,
require him to pay the moneys otherwise payable to that person
in whole or in part to the Receiver General of Canada on
account of the liability under this Act.
(2) The receipt of the Minister for moneys paid as required
under this section is a good and sufficient discharge of the
original liability to the extent of the payment.
(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.
As I read it the statement of claim, if it states a
cause of action under these provisions at all, does
so only by implication since it does not allege
expressly that Micucci was indebted to the Crown,
or in what amount, on the date of the giving of the
notice, nor does it allege expressly a failure by the
appellant to pay $7,324.54 to the Receiver General.
By its amended defence the appellant, in para
graph 1 admitted that it is a company incorporated
under the laws of the Province of Ontario, but
denied all the other allegations of the statement of
claim. It went on to allege as follows:
2. The Defendant entered into a contract with one Saverio
Micucci, operating a business known as Bytown Masonry Con
struction, on or about March 16, 1973, for the performance of
masonry work on premises located at the Almonte Arena in
Almonte, in the Province of Ontario.
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, 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 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, Chapter 267.
4. The Defendant states and the fact is that pursuant to
Section 2 of the Mechanics' Lien Act, R.S.O. 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 herein referred to
were made conditionally upon Saverio Micucci paying his
workmen their proper wages. At no time was Saverio Micucci,
beneficially entitled to all the monies claimed in the proceed
ings 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.
These pleas are confusing and their form and
content leave much to be desired but it seems to
me that they do raise an issue as to whether
amounts paid by the appellant to Micucci under
the alleged contract were paid, in whole or in part,
to Micucci upon a trust for Micucci's workmen
and whether a payment to Micucci upon such trust
is, to the extent that the workmen are the benefici
aries of the trust, a payment to which section 224
of the Income Tax Act applies.
To my mind this was a serious issue requiring
the ascertainment of the facts as to the extent of
the rights of the workmen in the amounts paid to
' Micucci and the determination of the question of
law as to the applicability of section 224 of the
Income Tax Act in respect of amounts payable to
them. With such an issue raised and unresolved, in
my opinion, procedure to obtain judgment under
Rule 341 could not properly be invoked.
The learned Trial Judge, in his reasons, after
citing paragraphs 3, 4 and 5 of the defence, stated
the issue accurately when he said [at page 1111:
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,....
but he went on to consider—possibly because of
the form of the plea and the nature of the argu
ments advanced—whether the monies paid by the
appellant had been received by the appellant in
trust and after finding, from certain particulars of
the defence delivered by the defendant, that such
monies had not been received by the appellant in
trust he proceeded to determine the question of
law and concluded that there was no defence.
With respect, I do not think the issue or the
defence depended on the money having been
received by the appellant upon a trust or upon
money in the appellant's hands being impressed
with a trust prior to the making of a payment to
Micucci. The critical questions raised by the plea,
as I see them were whether money was paid to
Micucci upon a trust and, if so, the extent to which
Micucci was not the beneficiary of that trust, and
whether, to the extent Micucci was not the
beneficiary, the payment was one to which section
224 of the Income Tax Act applied.
The foregoing is in my view sufficient to indi
cate that the order under appeal should not be
sustained. But there are two further matters to
which reference should be made.
The first of these is that in concluding that the
material facts had all been admitted the learned
Trial Judge held that the appellant was not en
titled to dispute that Micucci was indebted to the
Minister in the amount of $7,324.54 since that is a
subject matter of dispute only between Micucci
and the Minister to which the appellant is not a
party. With respect, the de facto existence of the
indebtedness of Micucci to the Crown for monies
payable under the statute at the time of'the giving
of a notice under subsection 224(2) appears to me
to be, on the wording of the section, a fundamental
fact upon which any liability of the appellant
under section 224 depends and I know of no reason
or authority for the proposition that the defendant
is not entitled to put the existence of such a fact in
issue.
The other matter arises on the following passage
from the reasons of the learned Trial Judge [at
pages 114-116].
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.
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
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.
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 pleadings 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 indebt
ed 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.
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.
It is first necessary to say that on the appeal the
case presented differed somewhat from that before
the learned Trial Judge by reason of an admission
contained in the memorandum of argument of the
respondent that the failure of the appellant's coun
sel to introduce the transcript of the cross-exami
nation of the affiant referred to by the learned
Trial Judge, was due to inadvertence. Accordingly,
while it may have been reasonable for the learned
Trial Judge to draw, from the failure to produce
the cross-examination, an inference that it was
unfavourable to the appellant it would not be
appropriate for this Court on its rehearing of the
matter to draw such an inference.
But apart from this, I am of the opinion that
proof of the facts by affidavit is not what is
contemplated by Rule 341 and that the appellant
was under no obligation because of the bringing of
a motion under that Rule to submit to what
appears to have been a summary trial of the action
on affidavits filed by the respondent. In my view it
is apparent that the appellant had never admitted
the fundamental fact of indebtedness on January
15, 1973, of Micucci for sums payable under the
statute in the amount set out in the notice of that
date, and, in my opinion, nothing in Rule 341
permitted the proof of that fact by affidavit or
transformed such proof as was tendered by affida
vit and the appellant's reaction thereto into an
admission by the defendant upon which judgment
might be pronounced against it under Rule 341.
Similar considerations appear to me to apply as
well to the proof by affidavit of the service of the
notice under , subsection 224(1) and of failure of
the appellant to pay the amount claimed to the
Receiver General for Canada. The latter fact was
not expressly alleged by the plaintiff and if alleged
at all is put in issue by the general denial. The
former though alleged was also denied by the plea
which, however general, and even if open to attack
on that ground, could not be ignored so long as it
remained in the defence.
I would allow the appeal and dismiss the
Crown's motion with costs in the Trial Division
and on the appeal.
* * *
RYAN J.: I concur.
* * *
LE DAIN J.: I would allow the appeal for the
reasons given by Thurlow J.
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.