T-3265-75
La Banque Canadienne Nationale (Plaintiff)
v.
The Queen (Defendant)
Trial Division, Walsh J.—Montreal, February 6;
Ottawa, February 19, 1979.
Crown — Plaintiff given security pursuant to s. 88 of the
Bank Act — Before defendant given required notification of
this assignment, contract made between plaintiffs debtor and
defendant for delivery of goods — Book debts previously
assigned to plaintiff by debtor pursuant to provincial law —
Defendant set off amount of excise tax owed by debtor against
the amount defendant owed under contract — Plaintiff claim
ing that amount — Bank Act, R.S.C. 1970, c. B-1, s. 88 —
Excise Tax Act, R.S.C. 1970, c. E-13, ss. 27, 52 — Financial
Administration Act, R.S.C. 1970, c. F-10, ss. 79, 80, 81, 82
Quebec Civil Code, art. 1571d.
Canabureau Ltd., after signing a form in 1972 indicating its
intention to give section 88 security to plaintiff and registering
it with the Bank of Canada, made a general transfer of its book
debts by notarial deed and registered this transfer pursuant to
the Quebec Civil Code in March 1973. Following agreement as
to the Bank's powers, reached in April 1973, plaintiff was given
section 88 security over Canabureau's raw materials, work in
progress, finished goods, and warehouse receipts in September
1973, and took possession of the assets on March 8, 1974, with
defendant's knowledge. A contract had been signed between
Canabureau Ltd. and defendant in February 1974, and the
goods were delivered by plaintiff in April and May 1974
pursuant to defendant's requisition. Defendant claimed from
plaintiff the amount of excise tax due according to Canabu-
reau's books, and set off the amount owing under the contract
against the company's debt for excise tax; the Receiver General
only received notification of the assignment, in appropriate
form, in August 1974. Plaintiff claims that sum.
Held, the action is dismissed. While the claim against the
Crown is that of the Bank and not of Canabureau Ltd., this
must be read in the light of the provisions of section 82 of the
Financial Administration Act which must be complied with in
order to affect the Crown with the assignment by Canabureau
Ltd. to the Bank. Although the claim was validly assigned by
Canabureau Ltd. to the Bank, as between the Bank and the
Crown, the Crown was not affected by this assignment until the
notice was given, which was subsequent to the date at which
compensation had taken place. Until this notice was given,
Canabureau Ltd. must be considered, in so far as the Crown is
concerned, as the creditor of the amounts due arising from the
furniture sale, notwithstanding prior assignment of these
accounts by Canabureau Ltd. to the Bank, and hence Canabu-
reau Ltd. was the Crown's creditor as well as debtor at the
same time to the extent of the amounts due under the provi-
sions of the Excise Tax Act, so that the provisions of section
52(9) were properly applied in order to set same off by way of
compensation. It is of academic interest only whether the
set-off takes place between the Crown and Canabureau Ltd. or
between the Crown and the Bank, since in either event plain
tiff's claim was properly extinguished by compensation and
cannot be sustained.
The Clarkson Co. Ltd. v. The Queen [1979] 1 F.C. 630,
referred to. Persons v. The Queen [1966] Ex.C.R. 538,
considered. Flintoft v. Royal Bank of Canada [1964]
S.C.R. 631, considered. Banque Canadienne Nationale v.
Lefaivre [1951] K.B. (Que.) 83, considered.
ACTION.
COUNSEL:
Maurice Lebel for plaintiff.
J. C. Ruelland, Q.C. and Jean-Marc Aubry
for defendant.
SOLICITORS:
Reinhardt, Deschamps & Lebel, Montreal,
for plaintiff.
Deputy Attorney General of Canada for
defendant.
The following are the reasons for judgment
rendered in English by
WALSH J.: On July 31, 1972 a company known
as Canabureau Ltd. signed a form indicating its
intention to give security under authority of sec
tion 88 of the Bank Act, R.S.C. 1970, c. B-1, to
plaintiff and this was duly registered with the
Bank of Canada in Montreal on August 10, 1972.
By notarial deed dated March 23, 1973,
Canabureau Ltd. transferred to the Bank all debts,
claims, demands and choses in action including all
book debts then due or hereafter to become due
together with all judgments of other securities of
the said debts, claims demands and choses in
action and all other rights and benefits which then
were or might thereafter become vested in the
company, authorizing the Bank to realize on them
in such manner as it might in its discretion deem
advisable. The company further agreed that if the
amounts of any of the said debts, claims, demands,
choses in action or securities were paid to it it
would receive same as agent of the Bank and
forthwith pay over the same. This general transfer
of book debts was duly registered in the Registry
Office in Montreal on March 26, 1973, under No.
2414366. Notice of this transfer pursuant to
article 1571d of the Civil Code was duly published
in French in Le Devoir on December 31, 1973 and
in English in the Montreal Gazette on January 2,
1974. The said article of the Quebec Civil Code
reads as follows:
Art. 1571d. The sale of the whole, of a portion or of a
particular category of debts or book accounts, present or future,
of a person, firm or corporation carrying on a commercial
business, may be registered in the office of each registration
division where the vendor has a place of business.
Such registration shall avail, for all purposes, in lieu of the
signification and delivery required by article 1571, except as
regards debts or book accounts paid or otherwise discharged
before the publication of a notice of such registration, in French
in a daily newspaper published in that language in the judicial
district where the vendor has his principal place of business in
the Province of Quebec and in English in a daily newspaper
published in that language in the same district; if there is no
daily newspaper published in the French or the English lan
guage, as the case may be, in the said district, the publication
may be made in a daily newspaper published in the French or
the English language, as the case may be, in the locality nearest
to such district where such a newspaper is published.
On April 9, 1973, Canabureau Ltd. entered into
an agreement with the Bank in its standard form
setting out the powers of the Bank in relation to all
advances and securities held therefor. Clause 5 of
this agreement reads as follows:
5. If the Customer shall sell the goods or any part thereof
the proceeds of any such sale, including cash, bills, notes,
evidences of title and securities, and the indebtedness of any
purchaser in connection with such sales shall be the property of
the Bank to be forthwith paid or transferred to the Bank and
until so paid or transferred to be held by the Customer in trust
for the Bank. Execution by the Customer and acceptance by
the Bank of an assignment of book debts shall be deemed to be
in furtherance of this declaration and not acknowledgment, by
the Bank of any right or title on the part of the Customer to
such book debts.
On September 20, 1973 as security for a revolv
ing line of credit Canabureau Ltd. gave plaintiff
security under section 88 of the Bank Act on
property of which the said Canabureau Ltd. was
then or might thereafter become the owner consist
ing of raw materials, work in process, finished
goods of every description, i.e. wood office furni
ture, such as desks, chairs etc. of all kinds and
quality and on the security of warehouse receipts
and/or bills of lading covering all such property
which was then or might thereafter be in premises
at 1200 Jules Poitras Boulevard, St-Laurent,
Quebec or elsewhere. While the security was given
on a form used for giving security by virtue of
section 88(1)(a),(b),(c), or (e) of the Bank Act it
is only section 88(1)(b) which is relevant. It reads:
88. (1) The bank may lend money and make advances
(b) to any person engaged in business as a manufacturer,
upon the security of goods, wares and merchandise manufac
tured or produced by him or procured for such manufacture
or production and of goods, wares and merchandise used in
or procured for the packing of goods, wares and merchandise
so manufactured or produced;
The amended statement of claim dated January
16, 1976 indicates that a sum of $151,216.67 in
capital plus interest is still due by Canabureau
Ltd. to plaintiff and notes covering these loans
were produced as evidence. Although the exact
amount is not pertinent and not admitted by
defendant it is not disputed that the Bank is still
owed more than the amount claimed from the
defendant in the present proceedings. Plaintiff fur
ther alleges that it took possession of the assets
subject to the guarantees on March 8, 1974, that
defendant was aware of this, and that subsequent
to this date plaintiff on the requisition of defend
ant manufactured, delivered and billed to defend
ant office furnishings to a value of $49,254.30
which defendant has refused to pay to plaintiff
although it was duly required to do so by letter
dated July 14, 1975.
Defendant for her part claims that the agree
ments between plaintiff and Canabureau Ltd. do
not bind defendant whose obligation results from a
contract entered into between Canabureau Ltd.
and defendant on or about February 12, 1974, that
the transfer of accounts between Canabureau Ltd.
and plaintiff do not bind defendant because of the
provisions of the Financial Administration Act'
sections 79 and following with "Assignment of
Crown Debts".
1 R.S.C. 1970, c. F-10.
Defendant further pleads that she has no obliga
tion to plaintiff for the amount claimed as the
result of compensation which by virtue of the
Excise Tax Act 2 can be invoked against plaintiff
as well as against Canabureau Ltd. Defendant
admits that as the result of a contract dated
February 13, 1974, made by Canabureau Ltd.
with the Department of Supply and Services mer
chandise of a value of $49,254.30 was delivered
during the months of April and May 1974. On
March 18, 1974, the Director for Collection of
Excise Tax for the Minister of National Revenue
claimed from plaintiff the amount of excise tax
due according to the books of Canabureau Ltd.
and on March 25, 1974 he officially requested the
Minister of Supply and Services to pay to him
whatever sums might become due to Canabureau
Ltd. by defendant as a result of said contract, in
order to establish compensation between the two
debts in conformity with section 52(9) of the
Excise Tax Act which reads as follows:
52....
(9) Where a person is indebted to Her Majesty under this
Act the Minister may require the retention by way of deduction
or set-off of such amount as the Minister may specify out of
any amount that may be or become payable to such person by
Her Majesty.
Subsequently on April 10 and June 10, 1974, the
Director of Collection of Excise Tax advised the
Minister of Supply and Services that the amounts
due for excise tax by Canabureau Ltd. had
increased to a total of $49,312.54. In late June or
early July 1974 the Minister of Supply and Ser
vices paid to the Minister of National Revenue the
sum of $49,254.30 the amount due to Canabureau
Ltd. as partial compensation for the debt of that
company in the amount of $49,312.54 for excise
tax. It is contended that as the result of this
compensation the debt of the defendant to
Canabureau Ltd. or plaintiff was extinguished.
It was further pleaded that the guarantees and
transfers effected by Canabureau Ltd. in favour of
plaintiff on March 23 and September 30, 1973,
had the effect of making plaintiff liable and
responsible to defendant for payment of excise tax
then due or to become due on merchandise and
2 R.S.C. 1970, c. E-13.
material already manufactured, in course of
manufacture or which would in future be fabricat
ed and that these guarantees were still in existence
on March 8, 1974, when plaintiff took possession
of the assets subject to the realization of these
guarantees. Defendant pleads that furthermore
after March 8, 1974, plaintiff must be considered
as itself the manufacturer in the sense of section
27 of the Excise Tax Act and thus responsible for
the payment to defendant of excise tax on the
merchandise on which it exercised its rights. Sec
tion 27(3) of the said Act reads as follows:
27....
(3) In case any person other than the manufacturer or
producer or importer or transferee or licensed wholesaler or
jobber hereinbefore mentioned acquires from or against any
one of these persons the right to sell any goods, whether as a
result of the operation of law or of any transaction not taxable
under this section, the sale of such goods by him shall be
taxable as if made by the manufacturer or producer or importer
or transferee or licensed wholesaler or jobber as the case may
be and the person so selling is liable to pay the tax.
It is not disputed that defendant was aware of
the Bank's interest in the amounts payable by
virtue of the invoices. The invoices were all direct
ed to the Department of Supply and Services c/o
The Department of National Revenue, Regional
Director, Excise or alternatively to the Depart
ment of Supply and Services c/o The Department
of National Revenue, District Manager, Montreal,
and with one exception bore the notation above the
signatures "This invoice is the property of the
Banque Canadienne Nationale under Section 88 of
the Canadian Bank Act". However, it was not
until August 19, 1974 that the Receiver General
was notified in the appropriate form that by an
assignment dated August 14, 1974 Canabureau
Ltd. had assigned to the Bank the sum of $107,-
432.85 being monies due or becoming due by the
Crown as represented by the Minister of Supply
and Services for office furniture and that payment
should be made to the Bank. This form bears the
stamp "Approved on behalf of the Deputy Receiv
er General" but inter alia invoices bearing the
Nos. 66600-3-5059 were included in the total these
being the invoices which had already been set off
by defendant as the result of compensation.
The significance of this and of the date arises
from the provisions of section 80 of the Financial
Administration Act which read as follows:
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.
This general prohibition is modified by section
81. Section 81(1) reads as follows:
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.
The manner and effect of assignment is set out in
section 82 which reads as follows:
82. (1) Notice of any assignment referred to in subsection
81(1) shall be given to the Crown by serving on or sending by
registered mail to the Receiver General or a paying officer
notice thereof in prescribed form, together with a copy of the
assignment accompanied by such other documents completed in
such manner as may be prescribed.
(2) Service of the notice referred to in subsection (1) shall be
deemed not to have been effected until acknowledgment of the
notice, in prescribed form, is sent to the assignee, by registered
mail, under the hand of the appropriate paying officer.
This is the notice which was given on August 19,
1974 and in due course approved. It is common
ground that as a result of this payments due by the
Crown after that date would be payable to the
Bank. The Bank for its part does not dispute that
claims by the Crown for excise tax and other
current debts of Canabureau Ltd., such as for
example unemployment insurance and income tax
deductions from employees' wages resulting from
its continuing operations after the assignments to
the Bank would be due and payable to the Crown.
Defendant does not admit however that this notifi
cation had retroactive effect so as to negate the
effect of the compensation which defendant claims
resulted as the result of invoices which became due
and payable prior to this notification. In this con
nection defendant refers to the judgment of the
Court of Appeal in the case of The Clarkson
Company Limited, the Receiver and Manager of
the property and undertaking of Rapid Data Sys
tems & Equipment Limited v. The Queen [1979] 1
F.C. 630. This did not deal with an assignment
under the Bank Act but with the effect of a
debenture whereby Rapid Data had created a
floating charge in favour of the Bank of Montreal,
Clarkson being appointed by the Bank as a receiv
er of Rapid Data's undertaking and property and
carrying on the business. The claim was for a duty
drawback against which the Crown had set off
taxes owed to Her Majesty by the Company. Chief
Justice Jackett after concluding that the debenture
was a form of chose in action which operated as an
equitable assignment "by way of charge only"
stated [at pages 638-639]:
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.
Our attention has not been drawn to any other statutory
provision for this assignment of the claim for drawback and
provision 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 drawback 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 ....
The question of the effect of these sections of
the Financial Administration Act had previously
been dealt with by Noël J. as he then was in the
case of Persons v. The Queen'. The suppliant had
executed a document purporting to assign to the
Royal Bank of Canada certain specified debts
under a government construction contract under
which the suppliant claimed relief in the proceed
ings. The Bank had written the Chief Treasury
Officer of the Government of Canada enclosing
the Bank's Form of Assignment of Contract
respecting this. After pointing out that following
the decision of Thorson P. in Bank of Nova Scotia
v. The Queen' amendments had been made to the
Financial Administration Act by S.C. 1960 - 61, c.
48, Noël J. then refers to section 88c added by the
amendment (which is now section 81). He then
deals at page 544 with the statutory procedure for
assignment of such debts, and since it was not
complied with he concludes at the bottom of that
page:
In the circumstances, it is clear that the assignment to the
Royal Bank of Canada has not, as yet, become "effectual in
law" by virtue of section 88c of the Financial Administration
Act and, as far as I am aware, there is no other provision in
that Act or in any other Act of the Parliament of Canada that
would give it legal force.
On page 545 he states:
Without venturing into the very difficult and complex subject
of the application of provincial laws to the determination of the
rights and obligations of Her Majesty in Right of Canada, I
feel confident that a law such as Part VIIIA of the Financial
Administration Act, when enacted by Parliament, displaces any
provincial law that might otherwise be applicable in the cir
cumstances, at least to the extent that it is inconsistent with
such provincial law. Section 88B therefore operates in accord
ance with its terms and clearly has the effect that, until the
assignment here in question becomes effectual in law by virtue
of section 88c, the claims of Persons against the Crown are not
assignable and the assignment is not effective so as to confer
any rights or remedies on the Royal Bank of Canada.
Plaintiff contends however that these cases can
be distinguished as they do not deal with assign
ments made by virtue of section 88 of the Bank
Act and in support of this refers to section 89(1) of
that Act which reads in part as follows:
[1966] Ex.C.R. 538.
4 (1961) 27 D.L.R. (2d) 120.
89. (1) All the rights and powers of the bank in respect of
the property mentioned in or covered by a warehouse receipt or
bill of lading acquired and held by the bank, and those rights
and powers of the bank in respect of the property covered by a
security given to the bank under section 88 that are the same as
if the bank had acquired a warehouse receipt or bill of lading in
which such property was described, have, subject to the provi
sions of subsection 88(4) and of subsections (2) and (3) of this
section, priority over all rights subsequently acquired in, on or
in respect of such property, and also over the claim of any
unpaid vendor, ...
It is contended that as the claims of the Bank
resulted from such an assignment the Bank would
rank even ahead of an unpaid vendor, who in turn
ranks ahead of claims of the Crown (article 1994
of the Quebec Civil Code) so claim of the Bank
should prevail. Two cases were referred to by
plaintiff the first being that of Banque Canadienne
Nationale v. Lefaivre and Others, trustees of
Right Electronics Co. Ltd.' a dispute between the
Bank and trustees of the bankrupt company as to
payments due as the result of sale of merchandise
which had been assigned to the Bank by virtue of
section 88 of the Bank Act. The judgment held
that the claim of the Bank prevailed to the extent
of what was due to it by the bankrupt company
and that the transfer of accounts which the com
pany had made to the Bank by special agreement
did not even require compliance with the formali
ties of articles 1571 and following of the Quebec
Civil Code. Two dissenting judgments held that
security under section 88 of the Bank Act must
apply only to corporeal property and not to
accounts resulting from the sale of same, which
latter had to comply with the requirements of
articles 1571 and following of the Quebec Civil
Code. The finding of the dissenting judgments is
not an issue in the present case in any event since
the Bank did comply with the provisions of these
articles by publishing the required advertisements
at the end of December and early January 1974,
before the accounts were rendered to defendant. In
rendering the majority judgment Galipeault J.
stated at page 88:
[TRANSLATION] As to the extent of the right which the bank
possesses by the application of ss. 86, 88 and 89 I agree with
the appellant that it is a right of ownership which must be
recognized and which cannot be outranked by a person as the
result of an act subsequent to the guarantee. I agree also with
the argument of the appellant that this right of property
[1951] K.B. (Que.) 83.
created entirely by the Parliament of Canada is sui generis and
must only be interpreted in the light of the Bank Act and not
with respect to the Civil Code.
At page 89 he states:
[TRANSLATION] It also appears, as the appellant claims, to
recognize the purpose of s. 88 which permits the wholesaler or
manufacturer obliged to obtain advances for his business to
give up his rights to the merchandise which he transfers to the
bank without at the same time dispossessing himself of it in
order not to paralyze his business. This possession of the
merchandise which he continues to use and which he disposes
of with the consent of the bank is done for the account of the
latter by him acting as the agent, mandatary, or representative
of the latter, the proprietor.
Reference was also made by plaintiff to the
Supreme Court case of Flintoft as Trustee in
Bankruptcy of Canadian Western Millwork Ltd.
v. Royal Bank of Canada 6 again a dispute be
tween the respondent Bank holding security under
section 88(1)(b) of the Bank Act, and the trustee
in bankruptcy of the Bank's customer concerning
the ownership of certain uncollected debts owing
to the customer at the date of bankruptcy. The
trustee claimed that he was entitled to claim these
debts because an assignment of book debts held by
the Bank was void for lack of timely registration.
In rendering judgment Judson J. stated at page
634:
Section 88 is a unique form of security. I know of no other
jurisdiction where it exists. It permits certain classes of persons
not of a custodier character, in this case a manufacturer, to
give security on their own goods with the consequences above
defined. Notwithstanding this, with the consent of the bank, the
one who gives the security sells in the ordinary course of
business and gives a good title to purchasers from him. But this
does not mean that he owns the book debts when he has sold
the goods. To me the fallacy in the dissenting reasons is the
assumption that there is ownership of the book debts in the
bank's customer once the goods have been sold and that the
bank can only recover these book debts if it is the assignee of
them.
After reviewing the jurisprudence including the
case of Banque Canadienne Nationale v. Lefaivre
(supra) and finding that on the facts it cannot be
distinguished from those in the case before him he
states [at pages 636-637]:
The majority judgment is founded squarely on the ground that
the claims against the buyers of the goods became the property
of the bank by virtue of its s. 88 security and never were the
6 [1964] S.C.R. 631.
property of the customer so as to be affected by the assignment
in bankruptcy.
These latter two cases deal with disputes be
tween the Bank as owner of accounts receivable of
its customer duly assigned to it under the provi
sions of the Bank Act and the trustee in bankrupt
cy of the customer and in neither was the Crown
involved as debtor of any of these accounts receiv
able and accordingly they are not directly perti
nent. They are authority for two propositions
however.
1. In dealing with claims arising from assign
ments by virtue of section 88 of the Bank Act it
is to federal law alone which we must look in
determining priority and this is not affected by
provincial law (see also the judgment of Noël J.
in the Persons case (supra) in this connection).
2. The Bank is itself owner of the right to claim
payment of the account receivable even if the
claim is actually invoiced by the customer.
It follows that there cannot be any set off or
compensation which the purchaser of goods from
the Bank's customer may have against the said
customer. The Bank has become the real creditor
of the account receivable as a result of the assign
ment but has not assumed any liability for the
debts of the customer which claim can only be
invoked against the customer itself.
In dealing with assigned claims against the
Crown however the situation is quite different due
to the provisions of the Financial Administration
Act (supra). The judgment of Jackett C.J. in the
Court of Appeal in the Clarkson case (supra) is
authority for the proposition that sections 80 and
81 of the Financial Administration Act read in the
light of each other must be interpreted as stating
that the absolute prohibition of assignments in
section 80 only applies to assignments "by way of
charge only". As I understand it the present claim
on accounts receivable is a chose in action but the
Bank's claim is not one arising "by way of charge
only" so that it was capable of being assigned, but
to give effect to this assignment against defendant
the strict provisions of section 82 of the Financial
Administration Act have to be complied with. This
conclusion is in conformity with the conclusion of
Noël J. in the Persons case (supra).
Defendant's indebtedness arose out of a contract
dated February 13, 1974 with Canabureau Ltd.
for the purchase of merchandise which was deliv
ered during April and May 1974 and therefore
preceded the notification of the assignment of
account by Canabureau Ltd. to the Bank in the
form required by section 82 of the Financial
Administration Act, and the fact that the defend
ant was aware as a result of a notation on the
invoices of the assignment to the Bank cannot
affect this as the Act must be strictly interpreted.
There is nothing in the record to indicate the
origin of the claims for excise tax, but it is evident
that they did not specifically arise from, or certain
ly not entirely from, sales tax on the manufacture
of the merchandise sold to defendant, but rather
anteceded this. In fact plaintiff concedes that in
permitting its customer Canabureau Ltd. to carry
on business in the usual way despite the assign
ment of accounts receivable to it, it has to provide
for the payment of taxes and other accounts pay
able as a direct result of the continuation of the
business. The first letter from the Director General
of Headquarters Operations of the Department of
National Revenue to the Department of Supply
and Services Accounts Section dated March 25,
1974 refers to the amount of $29,000 due as sales
tax, and directs attention to the contract entered
into with Canabureau Ltd. and requires that when
the invoices are approved for payment cheques be
made payable to the Receiver General for Canada.
A following letter to the same effect on April 10,
1974 now states that the amount due is $40,000.
The last letter on June 10, 1974 gives the final
figure of $49,312.54. Reference is made to section
52(9) of the Excise Tax Act (supra) which pro
vides for set-off and it appears to me that this
section can and must be invoked against plaintiff.
Whether it could still be invoked following notice
of assignment of a claim against the Crown duly
given and accepted by virtue of the provisions of
section 82 of the Financial Administration Act is
not a question which I am called upon to decide in
the present proceedings. Plaintiff contends in
answer to this that there can be no such set-off
since it is Canabureau Ltd. which was indebted to
the Crown under the provisions of the Excise Tax
Act, while it is the Bank which is the creditor of
the Crown for the amounts payable by virtue of
the sale contract. I believe that the simple answer
to this is that while by virtue of the Flintoft case in
the Supreme Court (supra) the claim made
against the Crown is certainly that of the Bank
and not of Canabureau Ltd., this must be read in
the light of the provisions of section 82 of the
Financial Administration Act which must be com
plied with in order to affect the Crown with the
assignment by Canabureau Ltd. to the Bank.
While the claim was undoubtedly validly assigned
by Canabureau Ltd. to the Bank, as between the
Bank and the Crown, the Crown was not affected
by this assignment until the notice was given,
which was subsequent to the date at which com
pensation had taken place. Until this notice was
given Canabureau Ltd. must be considered in so
far as the Crown is concerned as the creditor of
the amounts due arising from the furniture sale,
notwithstanding prior assignment of these
accounts by Canabureau Ltd. to the Bank, and
hence Canabureau Ltd. was the Crown's creditor
as well as debtor at the same time to the extent of
the amounts due under the provisions of the Excise
Tax Act, so that the provisions of section 52(9)
thereof were properly applied in order to set same
off by way of compensation.
Defendant raised another argument to the effect
that the Crown is not bound in any event by the
provisions of sections 88 and following of the Bank
Act. In support of this reference was made to
section 16 of the Interpretation Act 7 which reads
as follows:
16. No enactment is binding on Her Majesty or affects Her
Majesty or Her Majesty's rights or prerogatives in any manner,
except only as therein mentioned or referred to.
and defendant contends that there is no provision
to be found anywhere in the Bank Act specifically
making it binding on Her Majesty unlike the
Bankruptcy Act 8 for example in which section 183
specifically states:
183. Nothing in this Act shall interfere with or restrict the
rights and privileges conferred on banks and banking corpora
tions by the Bank Act.
7 R.S.C. 1970, c. I-23.
8 R.S.C. 1970, c. B-3.
There may be some force to this argument but I
will not make any definitive finding in connection
therewith in view of the far-reaching conse
quences. If section 88 is not binding on the Crown
in any circumstances then this would include
claims for income tax, unemployment insurance
and Canada pension plan remittances and so forth,
and not be limited to excise tax claims which is
what the Court is dealing with in the present case,
and would, as plaintiff points out seriously hinder
commercial banking if a bank upon making a loan
guaranteed by a section 88 assignment had to
investigate to see whether there were any out
standing tax claims of any sort due to the Crown,
the amount of which might well exceed the value
of the security obtained under section 88 of the
Bank Act.
Defendant raises a further argument based on
section 27(3) of the Excise Tax Act (supra) which
is to the effect that a person other than the manu
facturer or producer (such as the Bank in this
case) who acquires from or against any one of
these persons the right to sell goods whether as a
result of the operation of law or of a transaction
not otherwise taxable, himself becomes taxable
upon the sale of such merchandise. The definition
section of the said Act, section 2(1), reads as
follows:
2. (1) ...
"manufacturer or producer" includes
(a) the assignee, trustee in bankruptcy, liquidator, executor,
or curator of any manufacturer or producer and, generally,
any person who continues the business of a manufacturer or
producer or disposes of his assets in any fiduciary capacity,
including a bank exercising any powers conferred upon it by
the Bank Act and a trustee for bondholders, [emphasis
mine].
By virtue of this argument the Bank by continuing
the business of the manufacturer Canabureau Ltd.
and selling the goods for its own account itself
became liable to payment of the tax. If this argu
ment is upheld then there would be a clear right of
compensation or set off between the Crown and
the Bank.
Plaintiff contends that this definition, read to
gether with section 27(3) and section 52(9) merely
means that the Bank, if it carries on or permits the
business of the customer to be carried on following
the assignment of the customer's accounts to it, is
liable for any taxation resulting from sales made
by the customer and that such taxes can of course
be set off against amounts due by the Crown. The
wording of section 52(9) would not seem to limit
the Crown's claim for excise tax to taxes due on
that specific sale, however, and in the present case,
it is evident that the claim is for excise tax due on
other sales, and, from the amount it is a reasonable
conclusion that the taxes claimed arose after the
assignment to the Bank under section 88 which
took place in 1973.
It appears to be of academic interest only how
ever whether the set-off takes place between the
Crown and Canabureau Ltd. in accordance with
my first conclusion, or whether it takes effect
between the Crown and the Bank in accordance
with this last contention of defendant, since in
either event plaintiffs claim was properly extin
guished by compensation and cannot be sustained.
Plaintiffs action will therefore be dismissed
with 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.