T-3607-78
In re the Income Tax Act and in re the certificate
of Benk Development Ltd.
Trial Division, Smith D.J.—Winnipeg, April 5 and
August 9, 1979.
Practice — Income tax — Taxation of bill of costs —
Poundage — Company owed income tax arrears, with interest
and penalty, but created a situation eliminating the tax owing,
except of interest and penalty, through carry-back of loss —
Sheriff ineffective in executing writ of fieri facias — Sheriff's
poundage paid (under protest) along with the new assessment
for tax liability — Whether or not poundage is applicable
Federal Court Rules 2005(6), 2104 — The Executions Act,
R.S.M. 1970, c. E160, s. 13(1),(2).
This is a motion by Benk Development Ltd. ("Benk") for the
taxation of the bill of a Sheriff for poundage in respect of a writ
of execution issued out of this Court in respect of a certificate
filed in this Court under the Income Tax Act. As Benk was
unable to meet the minimum payment required and security for
the balance, it entered into an agreement for an exchange of
land which would result in a loss that could be carried back to
the 1977 taxation year and eliminate the tax payable for that
year, except for penalty and interest, once its 1978 tax return
was filed. The land transfer was delayed because of the regis
tration of the certificate under the Income Tax Act, and
consequently Benk's accountant did not have the information
necessary to file the 1978 tax return. When Benk failed to meet
the time limit imposed for filing its 1978 tax return, the Justice
Department took steps to collect the debt. The Sheriffs office
attempted to realize Benk's assets, and seized all interest in
Benk monies at a bank and seized $70,000 in advances receiv
able. Nothing was realized. When the problem concerning the
land transfer had been resolved, Benk paid both its 1977
income tax assessment—amounting to only the penalty and
interest payable for arrears—and the Sheriffs costs, pursuant
to a trust condition, but objected to and protested against
having been forced to pay poundage on the ground that it was
not part of the Sheriffs costs of seizure.
Held, the application is allowed. Poundage is a charge made
by the sheriff, based on the amount of money realized for the
execution creditor by reason of the sheriffs seizure of goods,
chattels, land and tenements of the execution debtor. Common
ly the money realized is the proceeds of the sale by the sheriff
of the property seized up to the amount of the writ, but if the
seizure results in money being paid by or on behalf of the
debtor, even though none of the seized items of property have
been sold, the sheriff is entitled to poundage on the amount so
paid. No money, however, was realized from the Sheriffs
seizure of Benk's bank account. The purported seizure of the
$70,000 in advances receivable was a nullity. Under English
law, execution by writ of fieri facias cannot be used to attack
unsecured debts. Neither the Rules of the Federal Court nor
Manitoba's The Executions Act contain anything to indicate
that a Sheriff may seize book or other unsecured debts under a
writ of fi. fa. The immediate cause of payment of interest and
the Sheriffs bill was the trust condition, not the writ of fi. fa.
or the pressure put on Benk for the registration of its certificate
in the Land Titles Office. The Sheriff had no right to poundage
on the cash amount paid for interest on arrears of income tax.
APPLICATION.
COUNSEL:
J. Donald for Attorney-General of Manitoba.
K. Dalton for Benk Development Ltd.
SOLICITORS:
Deputy Attorney-General of Manitoba, Win-
nipeg, for Attorney-General of Manitoba.
McArthur & Company, Winnipeg, for Benk
Development Ltd.
The following are the reasons for judgment
rendered in English by
SMITH D.J.: This is a motion by Benk Develop
ment Ltd., hereinafter generally called "Benk", for
the taxation of the bill of the Sheriff of the East
ern Judicial District of Manitoba, for poundage in
respect of a writ of execution issued out of this
Court in respect of a certificate filed in this Court
under the Income Tax Act, S.C. 1970-71-72, c. 63,
as T-3607-78.
The essential facts are not in dispute. They may
be summarized, mainly from the affidavit of the
Company's president Frank Quiring, as follows:
By notice of assessment dated April 20, 1978
Benk was notified that the aggregate amount of
income tax owing by it was $564,766.74. It nego
tiated with the Department of National Revenue
with a view to providing security for the debt. One
of the items proposed as security was a real prop
erty mortgage for $300,000, registered in the Win-
nipeg Land Titles Office, under which mortgage
Benk was mortgagee and Park West Development
Ltd. was mortgagor. The Department required
$280,000 as a minimum payment and security for
the balance. The Company, being unable to pay
$280,000, entered into an agreement in writing, in
July 1978, for the exchange of land in Manitoba
owned by it for an apartment complex in Regina.
As a result of this transaction Benk suffered a loss
of $1,143,631. This loss in 1978 was sufficiently
large to allow enough to be carried back to 1977 to
eliminate all the Company's liability for income
tax for 1977, except for penalty and interest, once
its income tax return for 1978 was filed. Penalties
and interest on arrears of tax could not be elimi
nated in this way.
The Department of National Revenue notified
the Company's legal adviser that it must file by
August 20, 1978 an income tax return for the
period ending July 31, 1978, evidencing the
alleged loss, otherwise the Department would take
any action it considered necessary to collect the
indebtedness due to the Crown. That return was
not filed by August 20, 1978.
On August 15, 1978 the Department registered
in the Federal Court a certificate that under the
Income Tax Act there was owing to Her Majesty
the Queen by Benk the sum of $400,637.63 of
which $378,331.58 was income tax for 1977 and
$22,306.05 was interest thereon to August 12,
1978. On the same day a writ of fieri facias was
issued out of the Court addressed to the Sheriff of
the Eastern Judicial District of Manitoba and
received by the Sheriff on August 28, 1978, com
manding the Sheriff to realize the said sum of
$400,637.63, with interest on $378,331.58 from
August 12, 1978, from the goods and chattels,
lands and tenements of Benk.
The certificate on registration had the same
force and effect as a judgment of the Court and
bore the Court suit No. T-3607-78. On August 20,
1978 a certificate of the certificate registration
was registered in the Winnipeg Land Titles Office
as No. 199193.
On October 18 Mr. Quiring was advised by the
solicitor who was handling for the Company the
exchange of Manitoba land for the Regina prop
erty that the transfer of the Manitoba land could
not be completed because of the registration of the
certificate, No. 199193. Until the transaction was
completed Benk's accountant could not get, from
the accountant for the vendor of the Regina prop
erty, information needed to complete the Compa-
ny's income tax return for the period ending July
31, 1978. Consequently, in an attempt to remove
this apparent impasse, a meeting was held the next
day, October 19, 1978, attended by Mr. Quiring,
his legal adviser, a representative of the Depart
ment and a lawyer from the Department of
Justice.
At that meeting there was delivered to the Jus
tice Department the duplicate registered mortgage
which had been given to it by Park West Develop
ment Ltd. as security for the sum of $300,000,
together with a mortgage of that mortgage from
the Company to Her Majesty the Queen. Para
graph 20 of Mr. Quiring's affidavit states that
these documents were given:
... for the purpose of inducing the Department of National
Revenue to release the property of Benk Developments Ltd.
from execution under a Certificate registered in the Federal
Court of Canada under No. T 3607/78, pending the filing of
the 1978 Income Tax Return for Benk Developments Ltd. and
the payment of any amount due by virtue of penalties and
interest which could not be offset by the losses aforesaid.
Paragraphs 21 and 22 of Mr. Quiring's affidavit
indicate that sometime after October 19, 1978 he
was advised that as the transfer of Manitoba land
(in exchange for Regina property) had been execu
ted prior to registration of the certificate No.
199193, a statutory declaration to that effect filed
in the Land Titles Office would enable the regis
tration of the transfer to be completed; that on
November 27, 1978 he made such a declaration;
and that, in giving the above mentioned duplicate
mortgage and mortgage thereof to the Department
of Justice on October 19, 1978, he "was motivated
solely by the interests of the company in complet
ing the transaction necessary to create a loss for
the 1978 taxation year sufficient to carry back to
offset the income tax payable in respect of the
1977 taxation year".
Prior to October 19, 1978, the Sheriff's office
had made some attempts to realize money from
the assets of Benk Investments Ltd. to apply on the
amount owing as specified in the writ of fi. fa. A
report by Sheriff's officer, W. Budge, entitled
"Inventory of Goods and Chattels" and marked
Exhibit "C" to the affidavit of E. C. Baker,
Deputy Sheriff, filed, states that on September 21,
1978 he had seized all of the interest of Benk
Development Ltd. in advances receivable in the
amount of $70,000. From Exhibit "A" also
attached to the affidavit of E. C. Baker it appears
that this amount was due from Boundaries De
velopment Ltd., 118 Sherbrook Street, Winnipeg.
Exhibit "D" attached to the affidavit of E. C.
Baker is another report of W. Budge. It states that
on October 3, 1978 he had seized all the interest of
the Benk Company in monies held by the Bank
Canadian National, 185 Carlton Street, Winnipeg.
Nothing was realized from these seizures. They
had been unable to see Mr. Quiring though numer
ous attempts to do so had been made. They did not
seize the mortgage from Park West for $300,000,
nor the interest of Benk in that mortgage.
Apparently the delivery of the duplicate mort
gage and mortgage thereof on October 19, 1978
produced results. A report by Sheriff's Officer W.
Budge, attached to affidavit of E. C. Baker as
exhibit "F" thereto, states that on that day Mr.
Andersen of the Taxation Branch requested that
no further action be taken "stating that our actions
to date had forced Mr. Quiring to make arrange
ments to satisfy these writs."
By February 5, 1979 Benk's income tax assess
ment for the 1977 taxation year was complete. On
that day Mr. B. Meronek of the Department of
Justice wrote Benk's solicitor returning the dupli
cate registered mortgage and mortgage thereof,
which latter instrument had not been registered.
These documents were returned in trust, on condi
tion that within 10 days the Department of Na
tional Revenue receive a certified cheque for
$26,642.71 for income tax assessment for 1977
and a further cheque to cover Sheriff's costs in
connection with the writ of fi. fa. The $26,642.71
was accumulated interest on arrears of income tax.
On February 6, 1979, E. C. Baker, Deputy
Sheriff, on instructions from the Department of
National Revenue, wrote Benk's solicitor stating
that the amount of poundage due on the amount of
$26,642.71 was as follows:
Poundage on the first $500.00 @ 10% $ 50.00
Poundage on the next $3500.00 @ 5% 175.00
Poundage on the balance of $22,642.71 @ 2 1 / 2 % 566.06
TOTAL $791.06
Benk paid both the balance of income tax,
$26,642.71 and the amount claimed for poundage,
but protested the claim for poundage, giving notice
that this application would be made.
One additional fact was stated by counsel for
the applicant. He stated that Benk had a fifty per
cent interest in Boundaries Development Ltd.
Counsel's first submission to the Court was that
the above sum of $26,642.71 was paid by reason of
the pressure put upon Benk by the registration in
the Winnipeg Land Titles Office of the certificate
No. 199193, and not by reason of the writ of fi. fa.
in the hands of the Sheriff. This can scarcely be
correct, as the pressure arising out of the Land
Titles Office registration had been removed by the
filing of Mr. Quiring's statutory declaration, men
tioned supra, long before payment of that sum of
$26,642.71 was made, and registration of the
transfer of land from Benk to the vendor of the
Regina apartment complex must have been com
pleted. Otherwise, according to Mr. Quiring's
affidavit, Benk would not have been able to com
plete its income tax return for 1978.
There is no doubt that the $300,000 mortgage
and the mortgage to Her Majesty of that mortgage
were delivered to the Justice Department as secu
rity for payment of Benk's arrears of income tax,
pending filing of Benk's income tax return to July
31, 1978, which was expected to show a loss for
the 1978 taxation year large enough to allow for
enough to be carried back to eliminate all arrears
of income tax owing by Benk, other than penalty
and interest. Nor is there any doubt that Benk
knew that any penalty that had been incurred and
the interest on the arrears would have to be paid in
cash. To ensure that the interest would be paid and
the whole matter cleared up, Mr. Meronek, when
returning the mortgage documents to Benk's solici
tor, did so in trust that the interest and the Sher
iff's costs in connection with the issuance of the
writ of fi. fa. be paid within 10 days. The immedi
ate cause of the payment of interest and the
Sheriffs bill was that such payment was required
by the terms of the trust condition on which the
mortgage documents were returned to Benk's
solicitor, and failure to comply with those terms
would have resulted in the solicitor being required
to return the mortgage documents to the Depart
ment of Justice.
Benk had no objection to paying the interest or
the Sheriff's costs of effecting seizures under the
writ of fi. fa., but objected to and protested against
having been forced to pay poundage, which Benk's
counsel maintained was not part of the Sheriff's
costs of seizure.
Poundage is a charge made by the sheriff, based
on the amount of money realized for the execution
creditor by reason of the sheriff's seizure of goods
and chattels and land and tenements of the execu
tion debtor. Commonly the money realized is the
proceeds of the sale by the sheriff of the property
seized up to the amount shown on the writ, but if
the seizure results in money being paid by or on
behalf of the debtor, even though none of the
seized items of property have been sold, the sheriff
is entitled to poundage on the amount so paid.
In this case the two reports of the Sheriff's
officer, mentioned supra, state Benk's bank
account and $70,000 in advances receivable had
been seized. There is no evidence before the Court
to indicate what steps were taken to effect these
"seizures". What happened with respect to the
bank account, following the "seizure", was that on
the next day, October 4, 1978, the manager of the
branch of the Bank Canadian National at 185
Carlton Street, Winnipeg, wrote the Sheriff's
office (Exhibit "E" referred to in the affidavit of
E. C. Baker), as follows:
We wish to advise there is no debt, obligation or liability owing,
payable or accruing due from us to Benk Development Ltd.
Our client's bank account shows a debit balance.
It is apparent that no money was realized from
this "seizure", and there is no evidence that the
Sheriff's office took any further steps in respect of
it.
With respect to the $70,000 in advances receiv
able (from Boundaries Development Ltd.), this, so
far as the evidence goes, was simply an unsecured
book debt. No money was paid as a result of and
no further steps were taken after the "seizure". No
argument was advanced to indicate that the "sei-
zure" of it was valid, and in my view it was not
valid. Halsbury, 3rd Edition, Vol. 16, page 79,
paragraph 119 has this to say about the law on this
point, under the heading: Attachment of Debts:
Attachment of debts is a process by means of which a judgment
creditor is enabled to reach money due to the judgment debtor
which is in the hands of a third person. For this purpose the
ordinary methods of execution are inapplicable; ....
This statement clearly indicates that execution
by writ of fi. fa. cannot be used to attach
unsecured debts, under English law. The rule
could, of course, be altered by statute or under the
authority of statute.
The Federal Court Act, R.S.C. 1970 (2nd
Supp.), c. 10, contains no provisions concerning
what may be seized or taken under execution
issued out of the Court, but under the rule-making
authority given by section 46 of the Act Rules of
the Court have been enacted which deal with a
number of matters in connection with writs of
execution.
Rule 2005(6) provides:
Rule 2005. .. .
(6) In every case of execution the party entitled to execution
may levy the interest, the sheriff's fees and the expenses of
execution over and above the sum recovered.
And Rule 2104 provides:
Rule 2104. Any interest equitable as well as legal of an
execution debtor in goods or lands may be sold under writs of
fieri facias.
This Rule speaks of interests in goods or lands.
It says nothing about unsecured debts, which of
course do not give the creditor an interest in any
goods or lands. I consider that the effect of the
Rule, in so far as unsecured debts are concerned, is
similar to that of section 13 of the Manitoba The
Executions Act, R.S.M. 1970, c. E160, subsection
(1) of which directs the sheriff to seize mortgages
of real or personal estate or other securities for
money, but does not mention book debts. In other
words, neither the Rules of the Federal Court of
Canada, nor the Manitoba The Executions Act
contain anything to indicate that a sheriff may
seize book or other unsecured debts under a writ of
fi. fa. The purported seizure of the $70,000 in
advances receivable was therefore a nullity.
Subsection (2) of section 13 of the Manitoba
The Executions Act provides:
13(2) For the purpose of this Act, the interest of a mortgagee
of real property is personal property and is subject to seizure
and execution.
In my view Rule 2104 of the Federal Court, cast
in broader terms, includes the interest of a mort
gagee of real property. Thus, if the Sheriff, in the
present case, had seized the interest of Benk in the
$300,000 mortgage, he would have had an asset in
his hands which he could lawfully sell. However he
did not succeed in seizing that interest. In the
result the Sheriff was never in possession of any
thing he could sell under the writ of fi. fa.
Whatever pressure the writ of fi. fa. exercised
on Benk when it was first issued must have evapo
rated by October 19, 1978, following receipt on
October 18 of information which he thought
meant that registration of the transfer of Manito-
ba land in exchange for Regina property had been
blocked. Paragraph 20 of Mr. Quiring's affidavit
does state that the purpose of delivering the mort
gage documents to the Justice Department was "to
release the property of Benk Developments Ltd.
from execution under a Certificate registered in
the Federal Court of Canada under No. T 3607/
78". This certainly indicates pressure caused by
the writ. On the other hand paragraph 22 states
positively that in delivering the mortgage docu
ments to the Department of Justice Mr. Quiring
was motivated solely by the interests of Benk in
completing the exchange of Manitoba property for
Regina property which would produce a sufficient
loss by Benk in 1978 that by carrying some of it
back to apply on the Company's 1977 tax return,
the whole of the amount owing for income tax for
1977 would be wiped out. The completion of the
exchange of properties was vitally important to
Benk. The writ of fi. fa. had nothing to do with the
holdup of registration in the Winnipeg Land Titles
Office. What caused that holdup was the registra
tion in the Land Titles Office of the Court certifi
cate, (which had the same effect as registration of
a certificate of judgment) that Benk owed Her
Majesty the amount of $400,637.63 plus interest
from August 12, 1978.
In the light of all the circumstances it is my
opinion that paragraph 20 of Mr. Quiring's affida
vit was not as carefully drawn as it might have
been and that paragraph 22 of that affidavit states
the true reason for the delivery of the mortgage
documents to the Justice Department.
I find that the Sheriff, in the circumstances of
this case had no right to poundage on the cash
amount paid for interest on arrears of income tax.
Benk paid the poundage, $791.06, under protest.
This sum should be repaid by the Sheriff to Benk.
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.