A-884-77
The Clarkson Company Limited, the Receiver and
Manager of the property and undertaking of
Rapid Data Systems and Equipment Limited
(Appellant) (Plaintiff)
v.
The Queen (Respondent) (Defendant)
Court of Appeal, Jackett C.J., Le Dain J. and
MacKay D.J.—Toronto, April 18 and September
11, 1978.
Excise — Set-off — Claim for drawback for duty and taxes
paid by Rapid Data when it controlled own affairs — Receiver
appointed under debenture that created floating charge in
favour of Bank — Whether or not right to drawback vested in
Rapid Data subject to "charge" in favour of Bank that
destroyed mutuality essential to defence of set-off — Finan
cial Administration Act, R.S.C. 1970, c. F-10, ss. 79, 80, 81.
This is an appeal from a judgment of the Trial Division
dismissing appellant's application for a "duty drawback". The
drawback claimed is in respect of duty and tax paid by Rapid
Data on goods imported by it at a time when it had independ
ent direction of its own business. The right to such a drawback,
if there is such a right, arose from the exportation or destruc
tion of the goods so imported. After the importation, and before
the exportation or destruction, under a "debenture" whereby
Rapid Data had created a "floating charge" in favour of the
Bank, Clarkson was appointed receiver of Rapid Data's under
taking and property, and took control of and carried on Rapid
Data's business. The question is whether, as a result, the right
to drawback vested in Rapid Data subject to a "charge" in
favour of the Bank that destroyed the mutuality of parties
essential to the defence of set-off.
Held, the appeal is dismissed. By virtue of section 80 of the
Financial Administration Act, no "right of recovery enforce
able by action against the Crown" is assignable, and no trans
action by way of assignment had effect to confer on a third
person a right enforceable by action against the Crown, unless
specially provided for by statute. Section 81(1) does not author
ize any such assignment "purporting to be by way of charge
only". This debenture operates, in so far as a chose in action
arising after the charge crystallizes is concerned, as an equita
ble assignment thereof "by way of charge only". It follows that
it has, by virtue of section 80, at least between the assignee and
Her Majesty, no validity, unless provision is made therefor by
section 81 or some other statutory provision. It is not possible in
the action against Her Majesty to rely on the assignment by
way of charge only to show that Rapid Data (assignor) is not
claiming in its own right but is claiming only as trustee. There
was the necessary mutuality for the set-off defence.
APPEAL.
COUNSEL:
D. E. Baird, Q.C. and T. M. Dolan for appel
lant (plaintiff).
K. Braid for respondent (defendant).
SOLICITORS:
Harries, Houser, Toronto, for appellant
(plaintiff).
Deputy Attorney General of Canada for
respondent (defendant).
The following are the reasons for judgment
rendered in English by
JACKETT C.J.: This is an appeal from a judg
ment of the Trial Division [[1978] 2 F.C. 151 ]
dismissing an action brought by the appellant The
Clarkson Company Limited (hereinafter referred
to as "Clarkson") against Her Majesty for a "duty
drawback"' in the amount of $91,143. 2
The case has proceeded on the basis that one of
the appellants is entitled to judgment for the draw
back claimed unless Her Majesty is entitled to set
off taxes owed to Her Majesty by Rapid Data
Systems & Equipment Limited (hereinafter
referred to as "Rapid Data"), which company was
added as a plaintiff and an appellant by an order
made by this Court.
The conclusion that I have reached, for the
reasons hereinafter set forth, is that Her Majesty
is entitled to such set-off. 3
' "amount of excise or import duty paid back or remitted on
goods exported" — The Concise Oxford Dictionary (1951).
2 A detailed description of the proceedings is set out in
Appendix "A". I choose this unusual course because, as I
appreciate it, a consideration thereof is necessary to establish
the point that has to be decided but distracts from an apprecia
tion of the questions to be considered in deciding that point.
Had my conclusion on the set-off question been different, I
should, nevertheless, have had reservations as to the granting of
the appeal. There is no consent and, strictly speaking, Rule
1212 does not apply but, even if there were a consent to the
allowance of the appeal, I doubt whether Rule 1212 would
apply because I doubt whether the Trial Division should give a
"consent" judgment against the Crown for the payment of
(Continued on next page)
The drawback claimed is in respect of duty and
tax paid by Rapid Data on goods imported by it at
a time when it had the independent direction of its
own business. 4 The right to such drawback, if
there is such a right, 5 arose from the exportation
or destruction of the goods so imported. If Rapid
Data had still had the independent direction of its
business at the time of such exportation and
destruction, clearly, the drawback would have
been vested in Rapid Data in its own right. If that
had been the case, there would have existed the
necessary "mutuality" so that Her Majesty would
(Continued from previous page)
money on admitted facts that do not, in law, create a right
against the Crown. A judgment creates a right to payment out
of the Consolidated Revenue Fund even though Parliament has
not otherwise authorized the expenditure (section 57(3) of the
Federal Court Act). To give a consent judgment without
adjudication would defeat section 106 of The British North
America Act, 1867—one of the planks of our system of demo
cratic government. This is particularly objectionable if the
established facts do not support the judgment. I do not question
the authority of the Attorney General of Canada to admit facts
(by virtue of the authority vested in him by the Department of
Justice Act to conduct litigation on behalf of the Crown) in the
course of litigation to which the Crown is a party. I do raise a
question as to whether he can consent to judgment not support
ed in law by the established facts and, also, whether there
should ever be a consent judgment for the payment of money
by the Crown. Where there is agreement for the payment of
money, I suggest that it should be implemented out of money
appropriated by Parliament for the particular purpose or ser
vice. (I realize that I am suggesting a limitation on the opinion
expressed by the Court in Galway v. M.N.R. [1974] 1 F.C. 600
at page 603.) In this connection, reference might be made to
The King v. Hooper [1942] Ex.C.R. 193, Northrop Corp. v.
The Queen [1977] 1 F.C. 289, Galway v. M.N.R. (No. 1)
[1974] 1 F.C. 593, and Galway v. M.N.R. (No. 2) [1974] 1
F.C. 600. In this case, there was no allegation of the facts
necessary to bring the drawback or remission provisions into
play and no admission as to what person was the claimant
whose claims were "approved" (as opposed to the person who
submitted such claims).
4 Although not expressly set out in the record (as far as I can
find), this seems to be common ground.
Having regard to my conclusion, it is not necessary for me
to consider whether the various relevant provisions authorizing
remission or drawback of tax or duty create a legal right
thereto on the facts of this case or at all. As appears from
Appendix "B", various provisions are involved and they do not
necessarily have the same effect. If there are differences, it
would be impossible, on the material in the case, to decide what
part of the $91,143 is payable under each of the respective
provisions.
have had the right of set-off claimed 6 and this
appeal would have to be dismissed.
However, after the importation, and before the
exportation or destruction, under a "debenture"
whereby Rapid Data had created a "floating
charge" in favour of the Bank, Clarkson was
appointed by the Bank of Montreal "receiver" of
Rapid Data's undertaking and property, took con
trol thereof and carried on Rapid Data's business
"in order to increase the realization to be obtained
from ... the security". The question is whether, as
a result, the right to drawback vested in Rapid
Data subject to a "charge" in favour of the Bank
that destroyed the mutuality of parties essential to
the defence of set-off.
This is a case of appointment of a receiver by
the creditor under a deed creating a "floating
charge". There is no statute that has been put
forward as regulating the matter. The status of the
"receiver" and the effect of the "charge" (equita-
ble mortgage) depend, therefore, on the terms of
the "debenture" considered in the light of the
equitable principles applicable where a debtor
charges his property in favour of a creditor as
security for a liability.'
The provisions of the debenture to be considered
would appear to be:
2. As security for payment of the principal and interest and all
other moneys and liabilities from time to time hereby secured
the Company charges in favour of the Bank, its successors and
assigns, as and by way of a floating charge its undertaking and
all its property and assets, real and personal, moveable or
immoveable, of whatsoever nature and kind, both present and
future. The Company shall not be at liberty to sell or dispose of
6 Compare Odgers' Principles of Pleading and Practice, 11th
ed., ch. XII, pages 234 et seq., Law of Civil Procedure by
Williston & Rolls, pages 716 et seq., and Rule 418, which reads
as follows:
Rule 418. Where a claim by a defendant to a sum of money
(whether of an ascertained amount or not) is relied on as a
defence to the whole or part of a claim made by the plaintiff,
it may be included in the defence by way of compensation or
as a set-off against the plaintiff's claim, whether or not it is
also added as a counterclaim or cross-demand.
7 See, for example, cases digested under the heading "Float-
ing Charges" in replacement volume 10 of The English &
Empire Digest at pages 770 et seq. Cases concerning a statu
tory liquidator or a court appointed receiver would appear to
have little, if any, application to the facts of this case.
the property or assets which are the subject of the floating
charge created by this debenture otherwise than in the ordinary
course of business and for the purpose of carrying on the same.
TO HAVE AND TO HOLD the assets hereby mortgaged and
charged unto the Bank, its successors and assigns, forever but
subject to the terms and conditions herein set forth.
4. The Company hereby covenants and agrees that it will at all
times do, execute, acknowledge and deliver or cause to be done,
executed, acknowledged or delivered all and singular every such
further acts, deeds, transfers, assignments and assurances as
the holder of this debenture may reasonably require for the
better assuring, mortgaging, charging, transferring, assigning
and confirming unto the holder of this debenture the property
and assets hereby mortgaged and charged or intended so to be
or which the Company may hereafter become bound to mort
gage, charge, transfer or assign in favour of such holder and for
the better accomplishing and effectuating of this debenture.
6. The moneys hereby secured shall become payable and the
security hereby constituted shall become enforceable in each
and every of the events following:
8. Whenever the security hereby constituted shall have become
enforceable, and so long as it shall remain enforceable, the
Bank may proceed to realize the security hereby constituted
and to enforce its rights by entry; or by the appointment by
instrument in writing of a receiver or receivers of the subject
matter of such security or any part thereof ... or by proceed
ings in any court of competent jurisdiction for the appointment
of a receiver or receivers or for sale of the subject matter of
such security or any part thereof; ... Any such receiver or
receivers so appointed shall have power to take possession of the
mortgaged property or any part thereof and to carry on the
business of the Company, and to borrow money required for the
maintenance, preservation or protection of the mortgaged prop
erty or any part thereof or the carrying on of the business of the
Company and to further charge the mortgaged property in
priority to the charge of this debenture as security for money so
borrowed, and to sell, lease or otherwise dispose of the whole or
any part of the mortgaged property on such terms and condi
tions and in such manner as he shall determine. In exercising
any powers any such receiver or receivers shall act as agent or
agents for the Company and the Bank shall not be responsible
for his or their actions.
In addition the Bank may enter upon and lease or sell the
whole or any part or parts of the property and assets charged
... The term "receiver" as used in this debenture includes a
receiver and manager.
What has to be decided is, in effect, whether the
floating charge (which crystallized when the
receiver was appointed) or the operations of the
receiver under the debenture had the effect of
making what would otherwise have been a simple
right of Rapid Data to a drawback, which would
have been subject to the set-off claimed, a right to
a drawback so vested that it was not subject to the
set-off claimed. 8
As I see it, there are four conceivable possibili
ties, viz:
(a) the approved claims for drawback were
made by Rapid Data—in the course of its busi
ness as carried on through the agency of Clark-
son—as the importer of the goods on which
import duty had been paid,
(b) the approved claims were made by Rapid
Data—through the agency of Clarkson—as the
owners or exporters of the goods on which
import duty had been paid,
(c) the approved claims were made, through the
agency of Clarkson, by the Bank as exporter, or
as equitable owner by virtue of the mortgage, of
the goods on which import duty had been paid
(in which event the right to enforce payment
would be in the Bank in its own name), or
(d) the approved claims were made by Clark-
son, in its own right, as exporter or equitable
owner of the goods on which import duty had
been paid (in which event the right to enforce
payment would be in Clarkson in its own name).
The third possibility is not consistent with the
agreed statement of facts (because the claims were
not made by, or on behalf of, the Bank) and would
result in the appellant's action being dismissed as
the Bank is not a party to the action in the Trial
s A discussion of the legal character of the right, if any, to
the drawback of $91,143 is contained in Appendix "B". Some
of the submissions of both parties appear to be based on a view
that the "right" to a drawback exists before exportation or
destruction, as the case may be. In my view, there is no right
against which there could be a set-off until everything has
happened that is necessary to create the chose in action (which
includes exportation or destruction, as the case may be).
George Barker (Transport) Ltd. v. Eynon [1974] 1 W.L.R. 462
is not relevant. That case held, in effect, that the receiver, in his
efforts to increase what was available for realization on behalf
of the debenture holder, could not take advantage of a contract
entered into by the debtor prior to the appointment of the
receiver except on the basis that he was bound by the terms of
that contract.
Division. 9 The fourth possibility is inconsistent
with the express provision in the debenture that
"In exercising any powers" the receiver "shall act
as agent ... for the Company" (i.e. Rapid Data).
Such possibilities may be ignored for present
purposes.
If, on the other hand, the approved claims for
drawback were made by Rapid Data as importer,
exporter or owner of the goods, even though Rapid
Data's affairs were being carried on, at the time of
the destruction -or exportation and the making of
the claims, by Clarkson as its agent, the drawback
would be payable to Rapid Data (although, doubt
less, the money once received would be in Clark-
son's control and would be used to satisfy the
Bank's claims against Rapid Data). However, if
Her Majesty were an ordinary person, the charge
on all future assets of Rapid Data created by the
debenture would have fastened on the right to
payment of the drawback as that right came into
existence; and thus the right to the drawback
would have become, as it arose, "subject to the
equitable charge (which amounted to an equitable
assignment) to the bank as debenture- holder". 10 If
the same rule applies in the case of a claim against
Her Majesty, I see no way of avoiding the conclu
sion that the defence by way of set-off was not
available to Her Majesty.
9 The appellant suggests further that, as the goods had vested
in the Bank, if they had been sold the sale price would have
been payable to the Bank and there would have been no
question of money payable by the purchaser to the debtor and
so, here, the drawbacks were payable to the Bank. Even if
establishing that the drawbacks were payable to the Bank
would avail the appellant, in my view, this line of reasoning
would not improve the appellant's position. Drawbacks are not
proceeds of disposition but remission of tax in cases where that
is equitable. If they are remitted to someone other than the
owner, the owner has no right to them.
10 Compare N. W. Robbie & Co., Ltd. v. Witney Warehouse
Co., Ltd. [1963] 3 All E.R. 613. In the common law provinces,
where there is an assignment that is not valid by virtue of
statute (e.g. section 54 of the Ontario The Conveyancing and
Law of Property Act, R.S.O. 1970, c. 85), an assignee may
invoke the aid of equity but, in such a case, the assignor must
be a party to the legal proceeding brought to enforce the
assigned debt. See, for example, Row v. Dawson (1749) 1 Ves.
Sen. 331, 27 E.R. 1064; Whitfield v. Fausset (1749-50) 1 Ves.
Sen. 387, 27 E.R. 1097; Addison v. Cox (1872) 8 L.R.
Ch. App. 76; Brice v. Bannister (1877-78) 3 Q.B.D. 569; and
Burn v. Carvalho (1839) 4 My. & Cr. 690, 41 E.R. 265.
I turn, therefore, to the relevant provisions of
the Financial Administration Act, R.S.C. 1970, c.
F-10, viz:
79. In this Part
"Crown debt" means any existing or future debt due or becom
ing due by the Crown, and any other chose in action in
respect of which there is a right of recovery enforceable by
action against the Crown;
80. Except as provided in this Act or any other Act of the
Parliament of Canada,
(a) a Crown debt is not assignable, and
(b) no transaction purporting to be an assignment of a
Crown debt is effective so as to confer on any person any
rights or remedies in respect of such debt.
81. (1) Any absolute assignment, in writing, under the hand
of the assignor, not purporting to be by way of charge only, of a
Crown debt of any following description, namely,
(a) a Crown debt that is an amount due or becoming due
under a contract, or
(b) any other Crown debt of a class prescribed by regulation,
of which notice has been given to the Crown as provided in
section 82, is effectual in law, subject to all equities that would
have been entitled to priority over the right of the assignee if
this section had not been enacted, to pass and transfer from the
date service of such notice is effected
(c) the legal right to the Crown debt,
(d) all legal and other remedies for the Crown debt, and
(e) the power to give a good discharge for the Crown debt
without the concurrence of the assignor.
(2) An assignment made in accordance with this Part is
subject to all conditions and restrictions in respect of the right
of transfer that relate to the original Crown debt or that attach
to or are contained in the original contract.
83. This Part does not apply
(a) to any negotiable instrument, or"
Reading section 80 and section 81(1) in the
light of the definition of "Crown debt" in section
" It is important to note that these provisions were first
enacted by Parliament following such decisions as The Queen v.
Cowper [1953] Ex.C.R. 107, and Bank of Nova Scotia v. The
Queen (1961) 27 D.L.R. (2d) 120. Prior to such cases, there
was a view that a claim against the Crown could not be
assigned even where there was no objection from the point of
view of public policy as in the case of claims for salaries of
public officers.
79, 12 it would seem clear
(1) that, by virtue of section 80, no "right of
recovery enforceable by action against the
Crown" is assignable, and no transaction by way
of assignment has effect to confer on a third
person a right enforceable by action against the
Crown, unless specially provided for by statute,
and
(2) that section 81(1) does not authorize any
such assignment "purporting to be by way of
charge only".
As I understand the "debenture" here in question,
read in the light of the decisions with reference to
similar floating charges, it operates, in so far as a
chose in action arising after the charge crystallizes
is concerned, as an equitable assignment thereof
"by way of charge only". 13 It follows that it has,
by virtue of section 80, at least between the as-
signee and Her Majesty, no validity, unless provi-
12 I do not refer to section 83. It seems clear to me that the
"debenture" here is not a negotiable instrument. The ordinary
meaning of that expression is indicated by the following:
"There remain ... the same prime requirements with which an
instrument must comply before it can be accorded negotiability.
... It must be in a form which renders it capable of being sued
on by the holder of it pro tempore in his own name; and it must
be by the custom of trade transferable, like cash, by delivery."
See Halsbury, 1st ed., vol. 2, page 265. The "debenture" here
does not satisfy either of those requirements and does not fall
within any addition to that meaning added by section 2 of the
Act, which reads, in part:
2. In this Act
"negotiable instrument" includes any cheque, draft, travel
ler's cheque, bill of exchange, postal note, money order,
postal remittance and any other similar instrument;
Compare section 55 of The Conveyancing and Law of Property
Act, R.S.O. 1970, c. 85, which reads:
55. (1) The bonds or debentures of a corporation made
payable to bearer, or to a person named therein or bearer,
may be transferred by delivery, and if payable to a person or
order, after general endorsation thereof of such person, are
transferable by delivery.
(2) Any such transfer vests the property in the bond or
debenture in the holder thereof and enables him to maintain
an action thereon in his own name.
u See N. W. Robbie & Co., Ltd. v. Witney Warehouse Co.,
Ltd. [1963] 3 All E.R. 613 (C.A.); Rother Iron Works Ltd. v.
Canterbury Precision Engineers Ltd. [1973] 1 All E.R. 394
(C.A.).
sion is made therefor by section 81 or some other
statutory provision. Our attention has not been
drawn to any other statutory provision for this
assignment of the claim for drawback 14 and provi
sion is not made therefor by section 80 because
section 80 applies only to an "absolute assignment
. not purporting to be by way of charge".
There remains for consideration the question
whether, while the result of section 80 is that, as
between the Bank and Her Majesty, the equitable
assignment of Rapid Data's right to be paid draw
back does not exist, it is, nevertheless, good as
between Rapid Data and the Bank with the result
that Rapid Data's action is as trustee for the Bank,
and not in its own right and there did not exist,
therefore, the mutuality essential for the defence
of set-off. The answer to that question, in my
mind, lies in the fact that the exception in section
81 of an assignment "by way of charge only"
shows that section 80 applies to an assignment "by
way of charge only". It follows that, in my view, it
is not possible in the action against Her Majesty to
rely on the assignment by way of charge only to
show that Rapid Data (assignor) is not claiming in
its own right but is claiming only as trustee.
My conclusion is, therefore, that there was the
necessary mutuality for the set-off defence and, for
that reason, even assuming that the appellant had
a legal claim for drawback, the appeal should be
dismissed, but, having regard to the circumstances
that the respondent did not raise section 80 of the
Financial Administration Act, upon which, in my
14 Both parties seem to have interpreted the remission and
drawback provisions as being provisions, within section 80,
providing for assignment of "Crown debts". In my view, if the
interpretation placed by the parties on those provisions is
correct, what they do is authorize, in certain unspecified cir
cumstances, payment, by Her Majesty to a third person who
had become owner or exporter of the imported goods, of
amounts received by Her Majesty from the importer as tax or
duty instead of repayment thereof to the importer. In such a
case, if Her Majesty did become bound to make such payment
to an exporter or owner, as I see it, such obligation was the
original "Crown debt" and not a Crown debt assigned by the
importer to the owner or exporter.
view, the appeal turns, there should be no order for
costs of the appeal.
For the above reason, I am of opinion that the
appeal should be dismissed without costs.
* * *
LE DAIN J.: I agree.
* * *
MACKAY D.J.: I agree.
APPENDIX "A"
The action was launched by a statement of
claim bearing date January 20, 1976, and amend
ed March 11, 1976, in which the plaintiff was
described as "The Clarkson Company Limited, the
Receiver and Manager of the property and under
taking of Rapid Data Systems & Equipment
Limited". The allegations in the statement of
claim, in so far as relevant for present purposes,
may be summarized as follows:
a. Rapid Data Systems & Equipment Limited
(hereinafter referred to as "Rapid Data") is "in
the business of manufacturing electronic cal
culators".
b. By a debenture dated September 18, 1973,
Rapid Data gave to the Bank of Montreal a
floating charge on all its property and
undertaking.
c. On March 1, 1974, the Bank appointed the
plaintiff Receiver and Manager "of Rapid
Data" pursuant to the debenture and the plain
tiff thereupon "took control" of the assets and
undertaking of Rapid Data and "carried on its
business for the benefit of ... the Bank".
d. During the period from March 1 to Septem-
ber 1974, the plaintiff "in its capacity as Receiv
er and Manager" of Rapid Data exported cer
tain goods "for which the plaintiff is entitled to
duty drawback" and destroyed certain goods
"for which the plaintiff is entitled to duty draw
back" in a total net amount of $91,143, all of
such goods being goods that Rapid Data had
imported and paid duty on before the plaintiff
was appointed Receiver and Manager.
e. The plaintiff submitted its claims pursuant to
section 44 of the Excise Tax Act claiming duty
drawback and its claims were "duly approved by
the defendant as represented by the Minister of
National Revenue in the amount of $91,143."
f. The defendant refused to pay the duty draw
back to the plaintiff.
The statement of defence admitted that Rapid
Data was in the business of manufacturing elec
tronic computers, that the floating charge was
created, that the appointment of the plaintiff as
Receiver and Manager of Rapid Data was made
and that the goods that the plaintiff exported and
destroyed were goods that Rapid Data had import
ed and paid duty on before the appointment of the
plaintiff as Receiver and Manager but did "not
admit" that, upon its appointment, the plaintiff
took control of the assets and undertaking of
Rapid Data and carried on its business for the
benefit of the debenture holder. In effect, the
statement of defence admits that the plaintiff,
after it became Receiver and Manager, exported
and destroyed goods that Rapid Data had previ
ously imported and paid duty on and that duty
drawback in the amount of $91,348.23 became
payable as a result, but the statement of defence
says that Rapid Data became entitled to such
"duty drawback". Furthermore, the statement of
defence says that the plaintiff submitted the claims
therefor as agent for Rapid Data (under regula
tions made under the Customs Act, R.S.C. 1970,
c. C-40, and the Financial Administration Act,
R.S.C. 1970, c. F-10) and that the defendant
approved claims by Rapid Data for the period in
question in a total net amount of $91,348.23.
Finally, the statement of defence pleads that the
duty drawback had been set off against indebted
ness of Rapid Data under the Income Tax Act,
S.C. 1970-71-72, c. 63, and the Excise Tax Act,
R.S.C. 1970, c. E-13, and expressly denies owing
duty drawback to the plaintiff.
By its reply, the appellant alleged, inter alia,
that the defendant was indebted to the plaintiff for
the claims for drawback "in its capacity as the
Receiver and Manager" of Rapid Data pursuant
to the debenture and that the arrears of excise tax
and income tax claimed by the defendant from
Rapid Data could not be set off against them.
While there does not seem to be anything in the
Appeal Book to show it, it is common ground (and
the minutes of the trial show) that the action went
to trial on the basis of an agreed statement of facts
and issues that appears in the Appeal Book.
The agreed statement has attached to it a copy
of the debenture. By that document, Rapid Data,
as security for an indebtedness, "charges in favour
of the Bank ..., as and by way of a floating
charge its undertaking and all its property and
assets ... both present and future". The document
provides that "the security hereby constituted shall
become enforceable" inter alia if Rapid Data
makes any default and, when the security becomes
enforceable, the Bank may realize the security and
enforce its rights, inter alia, by the appointment of
a "receiver ... of the subject matter of such
security or any part thereof". It further provides
that any receiver so appointed, inter alia, may take
possession of the mortgaged property, may "carry
on the business of the Company" and may "bor-
row money" for "the carrying on of the business of
the Company" and that "In exercising any powers
any such receiver ... shall act as agent ... for the
Company" (i.e., Rapid Data) "and the Bank shall
not be responsible for his ... actions".
By the agreed statement, the parties agree inter
alia on the following facts:
1. Rapid Data defaulted under the debenture
and on March 1, 1974, the Bank appointed the
plaintiff as "the Receiver and Manager of the
undertaking, property, and assets of Rapid Data
pursuant to the terms of the .. . debenture in
order to realize its security".
2. Upon its appointment the plaintiff "took con
trol" of the undertaking, property and assets of
Rapid Data and "carried on its business for the
benefit of the debenture holder in order to
increase the realization to be obtained from the
enforcement of the security".
3. When the plaintiff was appointed receiver,
Rapid Data was indebted to the respondent for
excise tax and income tax unrelated to "the
money paid for customs duty and excise taxes
which is the subject matter of this action".
4. In September of 1974 the plaintiff submitted
fifteen drawback claims (of which "representa-
tive copies" describing the capacity of the plain
tiff to make such claims were attached to the
agreed statement) and the said claims were
approved "by the defendant" pursuant to the
following Regulations and Orders:
General Excise and Sales Tax Regulations, SOR/72-61,
pursuant to the Excise Tax Act;
Goods Imported and Exported Drawback Regulations,
SOR/73-97, pursuant to sections 114 and 275 of the Cus
toms Act and section 44 of the Excise Tax Act;
Obsolete or Surplus Goods Remission Order, SOR/65-174
and Obsolete or Surplus Goods Remission Order SI/74-34,
pursuant to the Financial Administration Act.
in an amount of which $91,348.23 was payable
"as a result of transactions" which took place
after the appointment of the plaintiff as
receiver.
The agreed statement concludes as follows:
10. The plaintiff claims that the amount of $91,348.23, being
that part of the drawback claim relating to transactions be
tween March 1, 1974 and September of 1974 when the plaintiff
was the Receiver and Manager of Rapid Data pursuant to the
terms of the debenture referred to in paragraph 2, above,
cannot be set off by the defendant against the indebtedness of
Rapid Data to the defendant because the claims were submit
ted by the plaintiff with respect to transactions occurring
during the receivership. The plaintiff therefore claims that the
sum of $91,348.23 is payable by the defendant to the plaintiff.
11. The defendant's position is that the set off referred to in
paragraph 9 above is a proper set off pursuant to s. 95(1) of the
Financial Administration Act and that no part of the drawback
claim referred to in paragraph 6 above is owing to the plaintiff
by the defendant's
15 The only relevant portion of section 95 would appear to be
section 95(1) which reads:
95. (1) Where, in the opinion of the Minister of Justice,
any person is indebted to Her Majesty in right of Canada in
any specific sum of money, the Treasury Board may author
ize the Receiver General to retain by way of deduction or
set-off the amount of any such indebtedness out of any sum
of money that may be due or payable by Her Majesty in
right of Canada to such person.
(Continued on next page)
ISSUES:
The issue in this case is whether the defendant can set off
against the plaintiffs claim for drawbacks to unrelated indebt
edness of Rapid Data for Income Tax and Excise Tax which
arose prior to the appointment of the plaintiff.
Such was the state of the record in so far as
relevant, as I appreciate it, on which the matter
went to trial. The Trial Division dismissed the
action with costs. The learnéd Trial Judge stated
the issue involved as follows [at page 152]:
The issue to be determined in this case is whether the
defendant can set off against the plaintiffs claim for drawbacks
the unrelated indebtedness of Rapid Data Systems & Equip
ment Limited for income tax and excise tax which arose prior
to the appointment of plaintiff as receiver.
and his conclusion—after reviewing the authori-
ties—as follows [at page 159]:
There existed before crystallization of the floating charge a
right in Rapid Data to recoup the duties paid, predicated upon
the return or destruction of the goods, and in the defendant a
rightful claim against Rapid Data for taxes. There were two
debts and there was mutuality of those debts. The fact that the
right to be reimbursed was only exercised after the appointment
of a receiver is not, in my view, a bar to the set-off of the one
debt against the other as between the two parties. The situation
would have been altogether different, of course, if all the
transactions, namely the importation of the goods, the payment
of the duties and the return or destruction of the goods, had
taken place after crystallization.
The appellant appealed to this Court.
(Continued from previous page)
While paragraph 8 of the statement of defence pleaded that the
amount of $91,348.23 had been "set-off' against the indebted
ness of Rapid Data to the defendant, there is no express plea of
Treasury Board authorization such as is contemplated by sec
tion 95(1) and no such authorization is referred to in the agreed
statement. In these circumstances, the reference to section 95
would seem to be a "red herring". The appeal has been argued
on the basis that the question is whether the defendant is
entitled to set off the tax indebtedness under the ordinary rules
concerning set-off as a defence applicable whether one of the
parties is Her Majesty or not. In my view, section 95 in no way
relates to Her Majesty's right to raise such a defence. Its
principal, if not its only purpose, is to provide machinery for
deducting, from money becoming payable by Her Majesty in
the course of the administration of one department or agency,
money becoming payable to Her Majesty in the course of the
administration of another department or agency.
In this Court, by a consent order, Rapid Data
was made an appellant and plaintiff and it was
ordered
that, where reference is made in the pleadings and in the
Agreed Statement of Facts in this action to the "Plaintiff",
such references be, and they are, hereby deemed to be refer
ences to the Plaintiff, The Clarkson Company Limited, the
Receiver and Manager of the property and undertaking of
Rapid Data Systems & Equipment Limited.
(This obviated the problem as to who should be the
plaintiff where there is an equitable assignment. 16
It does not obviate the problem of "mutuality".)
At the conclusion of the argument in this Court,
judgment was reserved and arrangements were
worked out with counsel for further representa
tions in writing, which arrangements were summa
rized as follows:
I. Counsel are given an opportunity to file memoranda for the
assistance of the Court on the following questions:
1. Whether this Court can or should take into consideration
in determining this appeal, certain provisions of the Financial
Administration Act—not mentioned in the memoranda filed
by Counsel or during argument—such provisions being s. 80
et seq. regarding assignment of claims against the Crown.
2. What application, if any, such provisions would have with
regard to the application of the line of cases represented by
the Robbie case [1963] 3 All E.R. 613.
II. Whether the statutory provisions authorizing remissions,
drawbacks and refunds of taxes (and the regulations made
thereunder) give rise to legal obligations enforceable against
the Crown, and, if so, upon the happening of what events.
III. The time worked out with Counsel for such representations
are:
(a) for appellant's memorandum: 4 weeks.
(b) for respondent's memorandum: 4 weeks.
(c) for appellant's reply: 1 week.
Memoranda have been filed in accordance with
that arrangement.
APPENDIX "B"
It would appear that in September, 1974, Clark-
son submitted a number of drawback claims in
respect of goods imported by Rapid Data before
16 Compare The King v. Snell [1947] S.C.R. 219, and The
Wawanesa Mutual Insurance Company v. The Queen [1953]
Ex.C.R. 175. Being an equitable assignment, the assignor was
probably an essential party in this case. See Brice v. Bannister
(1877-78) 3 Q.B.D. 569, per Lord Coleridge C.J. at page 575.
(N.B. Appeal dismissed without reasons expressed on this
point.)
Clarkson's appointment as receiver, some of which
were in respect of goods exported or destroyed
before that time and some of which were in respect
of goods exported or destroyed after that time.
According to the agreed statement, the claims
were "approved" by the defendant (i.e., Her
Majesty), in the total amount of $231,291.90,
pursuant to
(a) the General Excise and Sales Tax Regula
tions, SOR/72-61, pursuant to the Excise Tax
Act;
(b) the Goods Imported and Exported Draw
back Regulations, SOR/73-97, pursuant to sec
tions 114 and 275 of the Customs Act and
section 44 of the Excise Tax Act; and
(c) the Obsolete or Surplus Goods Remission
Order, SOR/65-174 and the Obsolete or Sur
plus Goods Remission Order, SI/74-34, pursu
ant to the Financial Administration Act.
Of that amount of $231,291.90, $91,348.23 was in
respect of goods exported or destroyed after Clark-
son's appointment as receiver.
We therefore know that, of claims totalling the
sum of $91,348.23, all or part is said to have been
"approved" by Her Majesty under one or more of
the Regulations or Orders enumerated. It becomes
relevant to consider each of them in the light of its
statutory authority with a view to appraising the
legal results flowing from its application to the
facts shown by the Record.
The General Excise and Sales Tax Regulations
purport to have been made by the Minister of
National Revenue pursuant to sections 31, 35 and
40 of the Excise Tax Act on March 7, 1972, which
is after the Revised Statutes of 1970 came into
force. The only portion of those sections that
would seem to be applicable in respect of the
portion of the Regulations here in question is
section 35(1), which authorizes the Minister to
make such regulations as he deems necessary or
advisable for carrying out the Act. It is presum
ably to be read with section 44(1), which reads in
part:
44. (1) A deduction from, or refund of, any of the taxes
imposed by this Act may be granted
(e) where goods are exported, under regulations prescribed
by the Minister; or
The only portion of the General Excise and Sales
Tax Regulations that would seem to be relevant is
section 8, which reads:
8. Where goods on which sales tax or excise tax has been
paid under the Act are exported without having been used in
Canada, a refund of the taxes so paid or a deduction from
future taxes payable may be granted,
(a) if evidence of payment of the tax on the purchase of the
goods, in the case of domestic goods, or
(b) if evidence of payment of the tax on the importation of
the goods in the form of a receipted copy of the original
import entry, in the case of goods imported into Canada
is maintained on file by the exporter for examination by
officers of the Department and evidence satisfactory to the
Minister is produced to establish that the goods have been
exported from Canada.
The Goods Imported and Exported Drawback
Regulations purport to have been made by the
Governor in Council under section 44 of the
Excise Tax Act and sections 114 and 275 of the
Customs Act. The reference to section 44, in the
case of these regulations, would appear to be to
subsection (8) thereof, which reads:
44. ...
(8) A drawback of ninety-nine per cent of the taxes imposed
by Parts III, IV and V and paid on or in respect of goods
(a) exported,
(b) supplied as ships' stores,
(c) used for the equipment, repair or reconstruction of ships
or aircraft, or
(d) delivered to telegraph cable ships proceeding on an
ocean voyage for use in the laying or repairing of oceanic
telegraph cables outside Canadian territorial waters,
may be granted under regulations of the Governor in Council;
The only portion of the provisions referred to in
the Customs Act that would appear to be relevant
for present purposes is section 275(1), which reads,
in part:
275. (1) The Governor in Council may, under regulations
made by him for that purpose,
(a) allow, on the exportation of goods which have been
imported into Canada and on which a duty of customs has
been paid, a drawback equal to the duty so paid with such
deduction therefrom as is provided in such regulations; and
The relevant part of the Goods Imported and
Exported Drawback Regulations would appear to
be:
3. Subject to these Regulations, the Minister shall authorize
the payment to an exporter or importer of goods of a drawback
of ninety-nine per cent of the Customs duty and excise taxes
paid on imported goods that are exported and that have not
(a) been used in Canada for any purpose other than exclu
sively in the development or production of goods that are to
be exported;
(b) been used as plant equipment; and
(c) been damaged prior to such export.
5. A claim for drawback shall
(a) be made in such form as the Minister may prescribe;
(b) be accompanied by
(i) waivers from any person, other than the claimant, who,
pursuant to these Regulations, could be entitled to claim a
drawback, and
(ii) such other evidence of entitlement to the drawback as
is satisfactory to the Minister; and
(c) be filed at a Customs office within two years of the date
of exportation shown on each export entry referred to in the
claim.
6. No payment shall be made in respect of any claim for
drawback unless the Customs duty and excise taxes on the
goods in respect of which the claim referred to in section 5 is
made were paid within the three-year period immediately
preceding the date of exportation of the imported goods and
have not been refunded.
The Obsolete or Surplus Goods Remission
Order purports to have been made by the Gover
nor in Council on April 29, 1965, under section 22
of the Financial Administration Act, which at that
time was chapter 116 of R.S.C. 1952. Section 22
then read, in part:
22. (1) The Governor in Council, on the recommendation of
the Treasury Board, whenever he considers it in the public
interest, may remit any tax, fee or penalty.
(2) A remission pursuant to this section may be total or
partial, conditional or unconditional, and may be granted
(a) before, after or pending any suit or proceeding for the
recovery of the tax, fee or penalty in respect of which it is
granted,
(b) before or after any payment thereof has been made or
enforced by process or execution, and
(c) in the case of a tax or fee, in any particular case or class
of case and before the liability therefor arises.
(3) A remission pursuant to this section may be granted
(a) by forbearing to institute a suit or proceeding for the
recovery of the tax, fee or penalty in respect of which the
remission is granted,
(b) by delaying, staying or discontinuing any suit or proceed
ing already instituted,
(e) by forbearing to enforce, staying or abandoning any
execution or process upon any judgment,
(d) by the entry of satisfaction upon any judgment, or
(e) by repaying any sum of money paid to or recovered by
the Minister for the tax, fee or penalty.
(6) No tax paid to Her Majesty on any goods shall be
remitted by reason only that after the payment of the tax and
after release from the control of customs or excise officers, the
goods were lost or destroyed.
(8) A statement of each remission of one thousand dollars or
more granted under this section shall be reported to the House
of Commons in the Public Accounts.
The Obsolete or Surplus Goods Remission Order
read in part:
3. Subject to these Regulations, remission is hereby granted
of ninety per cent of the Customs duty and excise taxes paid on
imported goods where
(a) the goods are obsolete or surplus to requirements in
Canada;
(b) the goods have not been used in Canada for any purpose;
(c) the goods are
(i) exported to the country from which they were import
ed, or
(ii) destroyed in Canada at the expense of the owner
under Customs supervision; and
(d) application for the remission in a form approved by the
Minister has been filed with a Collector of Customs and
Excise within two years from the date of payment of the
customs duty and excise taxes on the goods.
6. An application for a remission shall be accompanied by
such documentary evidence as the Minister may require
respecting the quantity and identity of the goods, the amount of
duty and taxes paid thereon and the validity of the claim.
7. A remission granted by this Order may be paid to the
importer or the owner of the imported goods.
The second Obsolete or Surplus Goods Remis
sion Order referred to above purports to revoke the
first one and to have been made on March 12,
1974, under section 17 of the Financial Adminis
tration Act, R.S.C. 1970, c. F-10, which reads, for
present purposes, the same as section 22 of the
1952 Act. The second Obsolete or Surplus Goods
Remission Order reads, in part:
3. (1) Subject to sections 6 and 7, remission is hereby
granted of ninety-nine per cent of all customs duty and excise
taxes paid or payable at time of entry on goods imported into
Canada where the goods
(a) were not used in Canada for any purpose;
(b) were found by the importer or owner of the goods to be
obsolete or surplus to requirements; and
(e) were destroyed under the direction of a customs officer
and were not damaged prior to their destruction.
(2) The remission described in subsection (1) shall be grant
ed to the importer or the owner of the goods referred to in that
subsection.
4. (1) Subject to this section and sections 6 and 7, remission
is hereby granted of ninety-nine per cent of the customs duty
paid or payable on
(a) imported materials used in, wrought into or attached to
goods, and
(b) imported materials, other than fuel or plant equipment,
directly consumed in the manufacture or production of
goods,
where such goods are found by the manufacturer, producer or
owner of the goods to be obsolete or surplus to requirements
and are destroyed under the direction of a customs officer.
(4) The remission described in subsection (1) shall be grant
ed to the manufacturer, producer or owner of the goods
referred to in that subsection.
6. A claim for remission shall be
(a) made in a form approved by the Minister;
(b) accompanied by
(i) waivers from any other person who, pursuant to this
order, is entitled to claim a remission,
(ii) proof, satisfactory to the Minister, of the identifica
tion and description of the goods referred to in subsections
3(1) and 4(1), and
(iii) such other proof of entitlement to the remission
satisfactory to the Minister; and
(c) filed at a customs office within two years of the date of
the destruction of the goods referred to in subsections 3(1)
and 4(1).
7. No payment shall be made with respect to any claim for
remission unless the customs duty or excise taxes on the
materials or goods with respect to which the claim is made were
paid within the three-year period immediately preceding the
date of the destruction of the goods and have not been
refunded.
I raise here a question, which does not require to
be answered, for purposes of this appeal, if my
views with regard thereto are correct, viz:
(a) as to whether the Financial Administration
Act authorizes a general remission order, which
in effect amends the taxing Act, as opposed to
the remission of specific tax liability (see, for
example, section 17(8) of the Act, which
requires a report to Parliament of "each remis
sion of one thousand dollars or more"), "
(b) as to whether authority to repay, pay back,
refund or "remit" a tax includes a power to pay
to one person money received as tax from
another or whether it is restricted to forgiving
the debt or repaying the amount paid as tax to
the person by whom it was paid, and
(c) as to whether, where there is authority to
repay, etc., a time will ever arise where there is
a cause of action to recover unpaid money.
Assuming, as I do in my reasons for dismissing
the appeal, that the appellant had a good cause of
action for the drawback claimed, it must be
assumed that, under the above provisions, a time
may arrive, after claims for drawback are made
and before payment thereof, when a legal right
thereto comes into existence and that the parties
had, in effect, agreed that such time had arisen in
this case when they agreed that the claims were
approved by Her Majesty. On that assumption,
and assuming that the Regulations and Orders
referred to above are valid in all respects, the
drawback claimed by the statement of claim was
legally payable to somebody
(a) as importer of the goods subsequently
exported or destroyed, or
(b) as owner or exporter of such goods.
17 I have always thought of tax remission as being similar in
this regard to the Royal Prerogative of Mercy.
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.