Alberta (Treasury Branches) v. M.N.R.; Toronto-Dominion Bank v. M.N.R.

Alberta (Treasury Branches) v. M.N.R.; Toronto-Dominion Bank v. M.N.R.
Collection
Supreme Court Judgments
Date
1996-04-25
Report
[1996] 1 SCR 963
Case number
24056
Judges
La Forest, Gérard V.; Cory, Peter deCarteret; McLachlin, Beverley; Iacobucci, Frank; Major, John C.
On appeal from
Alberta
Subjects
Bankruptcy and insolvency
Taxation
Notes
SCC Case Information: 24056
Decision Content
Alberta (Treasury Branches) v. M.N.R.; Toronto‑Dominion Bank v. M.N.R., [1996] 1 S.C.R. 963
Her Majesty The Queen Appellant
v.
Province of Alberta Treasury Branches Respondent
and between
Her Majesty The Queen Appellant
v.
Province of Alberta Treasury Branches Respondent
and between
Her Majesty The Queen Appellant
v.
The Toronto‑Dominion Bank Respondent
Indexed as: Alberta (Treasury Branches) v. M.N.R.; Toronto‑Dominion Bank v. M.N.R.
File No.: 24056.
1995: October 12; 1996: April 25.
Present: La Forest, Cory, McLachlin, Iacobucci and Major JJ.
on appeal from the court of appeal for alberta
Taxation ‑‑ Income tax ‑‑ Goods and Services Tax ‑‑ Garnishment ‑‑ Income tax and GST legislation providing for garnishment enabling Minister of National Revenue to intercept monies owed to tax debtors ‑‑ Whether provisions give Minister priority over creditors who have received general assignment of book debts from tax debtor ‑‑ Meaning of "secured creditor" ‑‑ Income Tax Act, S.C. 1970‑71‑72, c. 63, s. 224(1.2), (1.3) ‑‑ Excise Tax Act, R.S.C., 1985, c. E‑15, s. 317(3) , (4) .
Bankruptcy ‑‑ Priorities ‑‑ General assignments of book debts ‑‑ Income tax and GST legislation providing for garnishment enabling Minister of National Revenue to intercept monies owed to tax debtors ‑‑ Whether provisions give Minister priority over creditors who have received general assignment of book debts from tax debtor.
The first case involved in these appeals arose from a loan made by the respondent Alberta Treasury Branches to a hotel operator which was secured in part by a general assignment of book debts ("GABD"). The hotel operator was in arrears to the Minister of National Revenue ("MNR") for unremitted GST, plus interest and penalties. The MNR served requirements to pay under s. 317(3) of the Excise Tax Act ("ETA ") on all possible debtors of the hotel operator. That section provides for a form of garnishment which enables the MNR in certain circumstances to intercept monies owed to a tax debtor. It applies to a "secured creditor", defined as "a person who has a security interest in the property of another person". After the hotel operator made an assignment under the Bankruptcy Act, the trustee estimated the realization of the assets of the estate would leave a shortfall to Alberta Treasury Branches. The Court of Queen's Bench, in an application to determine priorities, held that the MNR had priority by virtue of the provisions of the ETA . In the second case, an excavation company borrowed money from Alberta Treasury Branches and granted it a GABD. After the company completed certain contract work, the client held holdback funds which were claimed by various creditors of the company, including the MNR, to whom the company was indebted for unremitted employee source deductions, interest and penalties. The MNR served two requirements to pay on the client, under s. 224(1.2) of the Income Tax Act ("ITA"), which provides for a garnishment remedy identical to the one provided for in the ETA . On an application to determine priority to the monies in question, the master decided that Alberta Treasury Branches had priority through its GABD. This decision was upheld on appeal. In the third case, a drilling company borrowed money from the respondent bank which was secured in part by a GABD. The company owed the MNR unremitted GST, interest and penalties. The MNR served requirements to pay under s. 317(3) ETA on the company's trade debtors. Another of its creditors successfully filed a petition under the Bankruptcy Act to have the company declared a bankrupt. In an application to determine priority, the Court of Queen's Bench held that the MNR had priority under the provisions of the ETA . In all three cases the Court of Appeal held that the lending institution had priority over the MNR.
Held (Iacobucci and Major JJ. dissenting): The appeals should be allowed.
Per La Forest, Cory and McLachlin JJ.: The definition of "security interest" is broad enough to include a GABD, and the wording of s. 224(1.2) ITA and s. 317(3) ETA is sufficiently clear and unequivocal to allow a transfer of property in the garnished funds to the MNR and to grant him a priority in circumstances where the balance of the section applies. Moreover, an assignee of a GABD is a "secured creditor" within the meaning of s. 224(1.3) ITA or s. 317(3) ETA because the assignee holds a security interest "in the property of another person". Each assignment of book debts made in these cases provides that it is to be a "continuing collateral security". Further, all the assignments limit liability to the extent of the outstanding indebtedness. Thus, if the loan secured by the GABD was repaid, the lending institution would have no further interest in the assignment. Since the assignment by its terms can be redeemed by payment of the debt, it should not be construed as an absolute assignment. Neither the lending institutions nor the debtor companies by their actions gave any indication that the institutions were the owners of the book debts. The lending institutions made no efforts whatsoever to realize upon the book debts or in any way to act as "owners" of them until the debtor companies were obviously in severe financial difficulty if not bankrupt. Both the wording of the documents and the actions of the parties indicate that they regarded the assignment to be given as collateral security for the indebtedness. So long as the possibility of redemption exists, the GABD remains as collateral security.
When there is neither any doubt as to the meaning of the legislation nor any ambiguity in its application to the facts, then the statutory provision must be applied regardless of its object or purpose. However, the very history of this case with the clear differences of opinion expressed as between the trial judges and the Court of Appeal indicates that for able and experienced legal minds, neither the meaning of the legislation nor its application to the facts is clear. Even if the ambiguity were not apparent, it is significant that in order to determine the clear and plain meaning of the statute it is always appropriate to consider the scheme of the Act, the object of the Act and the intention of Parliament. The Parliamentary intent was to confirm the overriding right of the MNR to collect by garnishment the taxes collected which ought to have been remitted by the debtor company to the MNR. These amounts so collected could be said to belong not to the collecting debtor entities but to the government. In those circumstances the priority granted to the MNR to recover such funds cannot possibly be said to be expropriation without compensation.
The same instrument cannot be both a "security interest" and an "absolute assignment". If an instrument is an absolute assignment, then since it is complete and perfect in itself, there cannot be a residual right remaining with the debtor to recover the assets. Pursuant to the instruments presented in this case the borrower retains the right to redeem the book debts once the debt is paid off. This right of redemption irrefutably demonstrates that the assignment is something less than absolute. A GABD represents a security interest with the legal title being with the lender and the equitable title remaining with the borrower. This conclusion is supported by s. 63 of the Alberta Personal Property Security Act, which stipulates the basis upon which the right of redemption in personal property, including book debts, will be terminated. To conclude that a GABD results in a change of ownership as a result of its absolute nature rather than constituting collateral security for a debt will have serious implications. It could result in a change in the ordering of priorities provided by the Bankruptcy and Insolvency Act , the Companies’ Creditors Arrangement Act and the Canada Business Corporations Act . Further, it could constitute the means by which an unscrupulous debtor company, knowingly or unknowingly abetted by a creditor company, could so order its affairs that many other bona fide creditors could be adversely affected.
Per Major J. (dissenting): A GABD falls within the definition of "security interest" in s. 224(1.3) ITA. The phrase an "assignment . . . of any kind whatever" is broad enough to encompass the absolute assignments of book debts which are at issue in these appeals. The lending institutions, however, do not fall within the definition of "secured creditor" because they do not hold a security interest "in the property of another person". An assignment passes title and therefore property in the book debts is held by the lending institution and not by the tax debtor. The assignments in each of the three cases involved here all contain language which makes it clear that they are immediate and absolute. The fact that the GABD is referred to as "continuing collateral security" in the instruments does not make the GABD anything less than absolute. While the tax debtor retains an equity of redemption upon an assignment of its book debts, here the value of the loans secured by the book debts far exceeds the value of the debts themselves and there is thus no value in the equity of redemption. Further, an absolute assignment of book debts makes those book debts the property of the assignee, and they remain the property of the assignee until the assignor actually exercises his equitable right to redeem. In determining whether the book debts, once assigned, are the "property" of the assignor or of the assignee, the court must interpret the word in its plain and ordinary sense. The plain and ordinary meaning of "property" is legal title and not a contingent future equitable right to reacquire property which one does not presently hold. In the circumstances of these appeals, a strict reading of the taxation statute is appropriate. In the absence of clear and unequivocal language, there is a presumption that proprietary rights are not to be taken away without provision being made for compensation. In the context of these appeals, the interpretation urged by the MNR would have the effect of expropriating property to which the lender is legally entitled under its security agreement with the tax debtor. The plain and ordinary meaning of the statutory words simply does not bear the strained interpretation of property that, absent the security interest, is the property of another person. In addition to offending the principle that extra words should not be read into a section unless absolutely necessary, this proposed reading attempts to read in wording which can be expressly found in another part of the same section. If there is an ambiguity in the meaning of the word "property", then the specific effect of this section warrants a strict resolution of any ambiguity in favour of the respondent lending institutions.
Per Iacobucci J. (dissenting): While the general principles of statutory interpretation outlined by Cory J. were agreed with, the general assignments of book debts in this case were tantamount to an absolute transfer of property, as found by Major J.
Cases Cited
By Cory J.
Referred to: Friesen v. Canada, [1995] 3 S.C.R. 103; Pembina on the Red Development Corp. v. Triman Industries Ltd., [1991] 6 W.W.R. 481; Thermo King Corp. v. Provincial Bank of Canada (1981), 34 O.R. (2d) 369, leave to appeal refused, [1982] 1 S.C.R. xi; Bonavista (Town) v. Atlantic Technologists Ltd. (1994), 117 Nfld. & P.E.I.R. 19; Bank of Montreal v. Baird (1979), 33 C.B.R. (N.S.) 256, leave to appeal refused, [1980] 1 S.C.R. v; R.V. Demmings & Co. v. Caldwell Construction Co. (1955), 4 D.L.R. (2d) 465; R. in Right of B.C. v. F.B.D.B. (1987), 17 B.C.L.R. (2d) 273; Evans Coleman and Evans Ltd. v. R.A. Nelson Construction Ltd. (1958), 27 W.W.R. 38; Federal Business Development Bank v. Quebec (Commission de la santé et de la sécurité du travail), [1988] 1 S.C.R. 1061; Canada v. National Bank of Canada, [1993] 2 F.C. 206; TransGas Ltd. v. Mid‑Plains Contractors Ltd. (1993), 101 D.L.R. (4th) 238, aff'd [1994] 3 S.C.R. 753; Berg v. Parker Pacific Equipment Sales, [1991] 1 C.T.C. 442; Lundrigans Ltd. (Receivership) v. Bank of Montreal (1993), 110 Nfld. & P.E.I.R. 91.
By Major J. (dissenting)
Royal Bank of Canada v. R. (1984), 52 C.B.R. (N.S.) 198, aff'd (1986), 60 C.B.R. (N.S.) 125; Lloyds Bank of Canada v. International Warranty Co. (1989), 68 Alta. L.R. (2d) 356, rev'g (1989), 64 Alta. L.R. (2d) 340; Re Lamarre; University of Calgary v. Morrison, [1978] 2 W.W.R. 465; Attorney General of Canada v. Royal Bank of Canada, [1979] 1 W.W.R. 479, aff'g (1977), 25 C.B.R. (N.S.) 233; Pembina on the Red Development Corp. v. Triman Industries Ltd., [1991] 6 W.W.R. 481; Concorde International Travel Inc. v. T.I. Travel Services (B.C.) Inc. (1990), 72 D.L.R. (4th) 405; Royal Bank of Canada v. Saskatchewan Power Corp., [1991] 1 W.W.R. 1, aff'g [1990] 2 W.W.R. 655; Touche Ross Ltd. v. M.N.R. (1990), 71 D.L.R. (4th) 648; Evans Coleman and Evans Ltd. v. R.A. Nelson Construction Ltd. (1958), 27 W.W.R. 38; Lettner v. Pioneer Truck Equipment Ltd. (1964), 47 W.W.R. 343; Toronto‑Dominion Bank v. Minister of National Revenue (1990), 39 F.T.R. 102; Friesen v. Canada, [1995] 3 S.C.R. 103; Johns‑Manville Canada Inc. v. The Queen, [1985] 2 S.C.R. 46.
Statutes and Regulations Cited
Bankruptcy and Insolvency Act, R.S.C., 1985, c. B‑3 [am. 1992, c. 27] (formerly Bankruptcy Act).
Canada Business Corporations Act, R.S.C., 1985, c. C‑44 .
Companies' Creditors Arrangement Act, R.S.C., 1985, c. C‑36 .
Excise Tax Act, R.S.C., 1985, c. E‑15, s. 317(3) , (4) [ad. 1990, c. 45, s. 12].
Income Tax Act, S.C. 1970‑71‑72, c. 63, ss. 153, 224(1) [rep. & sub. 1980‑81‑82‑83, c. 140, s. 121], (1.2) [ad. 1987, c. 46, s. 66; am. 1990, c. 34, s. 1], (1.3) [ad. 1987, c. 46, s. 66].
Personal Property Security Act, S.A. 1988, c. P‑4.05, ss. 62, 63.
Authors Cited
Black's Law Dictionary, 6th ed. St. Paul, Minn.: West Publishing Co., 1990.
Burgess, Robert. Corporate Finance Law, 2nd ed. London: Sweet & Maxwell, 1992.
Halsbury's Laws of England, vol. 32, 4th ed. London: Butterworths, 1980.
Pearce, Robert A. "Fixed Charges over Book Debts", [1987] J. Bus. L. 18.
APPEALS from a judgment of the Alberta Court of Appeal (1994), 16 Alta. L.R. (3d) 1, 149 A.R. 34, 63 W.A.C. 34, [1994] 4 W.W.R. 685, 24 C.B.R. (3d) 257, 94 D.T.C. 6650, [1995] 1 C.T.C. 75, reversing decisions of Forsyth J. (1992), 5 Alta. L.R. (3d) 141, 134 A.R. 124, [1993] 1 W.W.R. 639, 15 C.B.R. (3d) 143, and MacLeod J. and affirming a decision of Hunt J. (1993), 9 Alta. L.R. (3d) 349, 139 A.R. 295, [1993] 5 W.W.R. 756, [1994] 1 C.T.C. 108, 5 P.P.S.A.C. (2d) 117, concerning priorities. Appeals allowed, Iacobucci and Major JJ. dissenting.
Edward R. Sojonky, Q.C., and Michael J. Lema, for the appellant.
Written submissions only by J. Gary Greenan and Scott Watson, for the respondent Province of Alberta Treasury Branches.
Jeffery D. Vallis and C. Bryce Code, for the respondent the Toronto‑Dominion Bank.
The judgment of La Forest, Cory and McLachlin JJ. was delivered by
I. Cory J. -- At issue on these appeals is whether, on the facts of this case, lending institutions are secured creditors pursuant to the provisions of s. 224 of the Income Tax Act, S.C. 1970‑71‑72, c. 63 (ITA) and s. 317 of the Excise Tax Act, R.S.C., 1985, c. E‑15 (ETA ), which are practically identical in their provisions.
II. The facts giving rise to these appeals and the decisions of the court below have been ably set out in the reasons of Justice Major.
III. Both the ITA and the ETA provide for the collection of funds due to the federal government by way of income tax deductions from the wages of employees and for the remission of monies owing for the Goods and Services Tax (GST). The sections under review provide for the recovery of monies owing from those who are responsible for the collection and remission of income tax deductions and GST collections by way of garnishment. This system of collection and remission of income tax is exceedingly important. For example, in 1987 some 87 per cent of all personal income tax was collected through employer’s deduction and remission.
IV. In the cases under consideration, the company responsible for collection and remission of income tax and GST borrowed money from a lending institution. To secure their indebtedness the debtor companies made a general assignment of book debts (GABD) to the lending institution. If the submissions of the appellant prevail then the Government of Canada will recover the monies which ought to be paid to it by way of employees’ income tax or GST. If the respondents are correct in their position, then the lending institutions will retain the funds which have come into their possession as a result of the GABD. Thus the decision in this case will have a very real significance for both the federal government and lending institutions.
V. In essence, s. 224(1.2) provides a form of garnishment enabling the federal government to intercept monies owed to tax debtors. It is not available for the collection of income tax generally, but is limited to the recovery of funds owing by a person or company which has withheld monies from another person, usually an employee, for income tax purposes pursuant to s. 153 ITA and has failed to remit the withheld amounts to the federal government. A similar garnishment remedy is provided by s. 317(3) ETA . It is applicable in circumstances where a company or an individual has failed to remit GST which was collected as required by the provisions of the ETA .
VI. Major J. has concluded that the Alberta Court of Appeal was correct in finding that an assignee of a GABD is not a “secured creditor”within the meaning of s. 224(1.3) ITA or s. 317(3) ETA because the assignee does not hold a security interest “in the property of another person”. Rather, the assignee is the owner of those book debts. With respect I cannot agree with that conclusion. However I am in complete agreement with these conclusions:
1.The definition of “security interest” is broad enough to include a general assignment of book debts even where that assignment is absolute.
2.The wording of s. 224(1.2) ITA as amended in 1990 is sufficiently clear and non-equivocal to allow a transfer of property in the garnished funds to the Minister of National Revenue (MNR) and to grant him a priority in circumstances where the balance of the section applies.
The Provisions of the GABD Made in These Cases
VII. It would be helpful first to consider the assignment of book debts made in these cases in order to ascertain the apparent intentions of the parties. The two assignments in which the Treasury Branch was the lender provide:
THE PRESENT assignment and transfer shall be a continuing collateral security to Treasury Branches for the payment of all and every present and future indebtedness and liability of the undersigned to Treasury Branches. . . . [Emphasis added.]
To a similar effect, the Toronto Dominion assignment reads in part:
PROVIDED and it is hereby distinctly understood and agreed that these presents are and shall be a continuing collateral security to the Bank for the general balance due at any time by the Assignor to the Bank. . . .
PROVIDED ALWAYS and it is hereby distinctly agreed that these presents are and shall be continuing and collateral security to the present and any future indebtedness of the Assignor to the Bank. . . . [Emphasis added.]
VIII. Further, all the assignments limit liability to the extent of the outstanding indebtedness. Thus, if the loan secured by the GABD was repaid the Bank or Treasury Branch would have no further interest in the assignment. The documents themselves refer to the assignment as being a continuing collateral security for the payment of the indebtedness. The clear intention of the parties is that the assignment is given as security for the payment of a debt and upon payment of the debt the GABD is to be of no force or effect. That is to say the lending institution could not, after payment of the debt, make use of the GABD to realise upon any of the book debts of the assignor. In my view since the assignment by its terms can be redeemed by payment of the debt it cannot or at least should not be construed as an absolute assignment.
IX. Neither the lending institutions nor the debtor companies by their actions gave any indication that the respondents were the owners of the book debts. This is demonstrated by the fact that the lending institutions made no efforts whatsoever to realise upon the book debts or in any way to act as “owners” of them until the debtor companies were obviously in severe financial difficulty if not bankrupt. Only then did the lending institutions seek to realise upon their security. Both the wording of the documents and the actions of the parties indicate that they regarded the assignment to be given as collateral security for the indebtedness. In commercial affairs, it is well known that a GABD is indeed a means of granting collateral security for a debt. In my view, so long as the possibility of redemption exists, the GABD remains as collateral security.
X. In light of this customary commercial understanding of a GABD, it may be helpful to review the legislation to determine if, by its wording, it renders a GABD something other than collateral security for a debt and makes the assignee the owner of the book debts.
Pertinent Provisions of the ITA and the ETA and Their History
XI. As Major J. pointed out, prior to 1987 the provisions of the garnishment remedy in the ITA (s. 224(1)) were almost unanimously interpreted by the courts in such a way that a demand made under the section was ineffective to attach any of the assigned debts. The courts held that by the assignment the tax debtor had transferred all its interest in the accounts to the assignee with the result that there was nothing left for the Minister of National Revenue (MNR) to attach by garnishment.
XII. In an attempt to address these decisions, Parliament amended the ITA in 1987 by adding two new subsections. They provided that the MNR could garnish funds owed by a tax debtor to a “secured creditor” and defined the terms “secured creditor” and “security interest”. As Major J. observed, there was a divergence of opinion in the provincial courts of appeal as to whether the 1987 amendments permitted the MNR to effectively garnish funds in the hands of an assignee of a GABD.
XIII. In order to further clarify the situation and resolve the differences of opinion in the appellate courts, Parliament again amended the ITA with the apparent aim of granting priority to the MNR. It may be helpful to set out s. 224(1.2) ITA as it now appears following the 1990 amendment:
224. . . .
(1.2) Notwithstanding any other provision of this Act, the Bankruptcy Act, any other enactment of Canada, any enactment of a province or any law, where the Minister has knowledge or suspects that a particular person is or will become, within 90 days, liable to make a payment
(a) to another person (in this subsection referred to as the “tax debtor”) who is liable to pay an amount assessed under subsection 227(10.1) or a similar provision, or
(b) to a secured creditor who has a right to receive the payment that, but for a security interest in favour of the secured creditor, would be payable to the tax debtor,
the Minister may, by registered letter or by a letter served personally, require the particular person to pay forthwith, where the moneys are immediately payable, and in any other case, as and when the moneys become payable, the moneys otherwise payable to the tax debtor or the secured creditor in whole or in part to the Receiver General on account of the tax debtor’s liability under subsection 227(10.1) or a similar provision, and on receipt of that letter by the particular person, the amount of those moneys that is required by that letter to be paid to the Receiver General shall, notwithstanding any security interest in those moneys, become the property of Her Majesty and shall be paid to the Receiver General in priority to any such security interest. [Emphasis added.]
(1.3) In subsection (1.2),
“secured creditor” means a person who has a security interest in the property of another person or who acts for or on behalf of that person with respect to the security interest and includes a trustee appointed under a trust deed relating to a security interest, a receiver or receiver‑manager appointed by a secured creditor or by a court on the application of a secured creditor, a sequestrator or any other person performing a similar function;
“security interest” means any interest in property that secures payment or performance of an obligation and includes an interest created by or arising out of a debenture, mortgage, hypothec, lien, pledge, charge, deemed or actual trust, assignment or encumbrance of any kind whatever, however or whenever arising, created, deemed to arise or otherwise provided for;
XIV. The question then is how should these sections be interpreted. At the outset it should be remembered that Parliament was responding to the division of opinion in the appellate courts and attempting to make it clear that the MNR could undertake garnishment procedure in those situations where a GABD has been made. The appropriate principles to be considered in interpreting taxation legislation were clearly set out in Friesen v. Canada, [1995] 3 S.C.R. 103, at pp. 112‑14. There the principles were summarized in these words:
C. Principles of Interpretation
The central question on this appeal of whether the appellant is entitled to take advantage of the inventory valuation method in s. 10 of the Act involves a careful examination of the wording of the provisions of the Act and a consideration of the proper interpretation of these sections in the light of the basic structure of the Canadian taxation scheme which is established in the Income Tax Act.
In interpreting sections of the Income Tax Act, the correct approach, as set out by Estey J. in Stubart Investments Ltd. v. The Queen, [1984] 1 S.C.R. 536, is to apply the plain meaning rule. Estey J. at p. 578 relied on the following passage from E. A. Driedger, Construction of Statutes (2nd ed. 1983), at p. 87:
Today there is only one principle or approach, namely, the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.
The principle that the plain meaning of the relevant sections of the Income Tax Act is to prevail unless the transaction is a sham has recently been affirmed by this Court in Canada v. Antosko, [1994] 2 S.C.R. 312. Iacobucci J., writing for the Court, held at pp. 326‑27 that:
While it is true that the courts must view discrete sections of the Income Tax Act in light of the other provisions of the Act and of the purpose of the legislation, and that they must analyze a given transaction in the context of economic and commercial reality, such techniques cannot alter the result where the words of the statute are clear and plain and where the legal and practical effect of the transaction is undisputed: Mattabi Mines Ltd. v. Ontario (Minister of Revenue), [1988] 2 S.C.R. 175, at p. 194; see also Symes v. Canada, [1993] 4 S.C.R. 695.
I accept the following comments on the Antosko case in P. W. Hogg and J. E. Magee, Principles of Canadian Income Tax Law (1995), Section 22.3(c) “Strict and purposive interpretation”, at pp. 453‑54:
It would introduce intolerable uncertainty into the Income Tax Act if clear language in a detailed provision of the Act were to be qualified by unexpressed exceptions derived from a court’s view of the object and purpose of the provision. . . . (The Antosko case) is simply a recognition that “object and purpose” can play only a limited role in the interpretation of a statute that is as precise and detailed as the Income Tax Act. When a provision is couched in specific language that admits of no doubt or ambiguity in its application to the facts, then the provision must be applied regardless of its object and purpose. Only when the statutory language admits of some doubt or ambiguity in its application to the facts is it useful to resort to the object and purpose of the provision.
XV. Thus, when there is neither any doubt as to the meaning of the legislation nor any ambiguity in its application to the facts then the statutory provision must be applied regardless of its object or purpose. I recognize that agile legal minds could probably find an ambiguity in as simple a request as “close the door please” and most certainly in even the shortest and clearest of the ten commandments. However, the very history of this case with the clear differences of opinion expressed as between the trial judges and the Court of Appeal of Alberta indicates that for able and experienced legal minds, neither the meaning of the legislation nor its application to the facts is clear. It would therefore seem to be appropriate to consider the object and purpose of the legislation. Even if the ambiguity were not apparent, it is significant that in order to determine the clear and plain meaning of the statute it is always appropriate to consider the “scheme of the Act, the object of the Act, and the intention of Parliament”. What then was Parliament’s intention in enacting the 1990 legislation?
The Purpose of the Legislation
XVI. There can be no doubt of the importance of levying taxation. The ITA entrusts to employers the duty of deducting income tax from the wages of employees and remitting it on their behalf. Similarly the ETA imposes on those who provide goods and services to others the duty to collect and remit the GST which is payable. In essence, companies collect taxes which they hold in trust for the government.
XVII. The purpose of the 1987 legislation, which I think is even more appropriately applied to the 1990 legislation, was very clearly and forcefully set forth in Pembina on the Red Development Corp. v. Triman Industries Ltd., [1991] 6 W.W.R. 481 (Man. C.A.). There, at pp. 488‑89, Scott C.J.M. observed:
To determine the dominant characteristic of the legislation, it is important to know the governmental policy behind the section. The tax debtor’s bank is in the best position to know its customer and to structure its business arrangements accordingly. Revenue Canada, on the other hand, does not have the same opportunity to become acquainted with the affairs of the tax debtor or its creditors. It must therefore rely solely on the provisions of the legislation to mandate the employer to remit the employee income tax deductions as required by the [Income Tax] Act, and to establish its collectability in the event of default.
. . .
The purpose of the Act is not only to levy tax, but to collect it. There is a strong public duty on employers to remit; indeed, this is central to the scheme of self‑assessment under the Act.
Further, Lyon J.A., dissenting in the result, stated at pp. 506‑7:
One must always remember that the withholding tax or source deduction to which s. 224 applies is at the heart of the collection procedures for personal income taxation in Canada. Indeed, if one makes a calculation from the statistics reported in “Taxation Statistics, 1987," a publication of Revenue Canada Taxation, catalogue No. RV‑1987, one finds that 87 per cent of all personal income taxes paid in Canada are collected by source deductions. It can thus be seen that Parliament in passing s. 224(1.2) made it as all-encompassing as it is in order to ensure its continued viability. No other system is so crucial to the overall collection procedure adopted by the Crown. Parliament clearly meant to protect this system. Using the employer as a tax collector requires such extra protection in cases such as the one at bar where the employer converts the withheld tax money to its own purposes. Understandably, that conversion cannot be countenanced if the integrity of that system is to be preserved. Parliament, therefore, acting within its constitutional authority, has taken this extraordinary remedy to protect a major collection source.
. . .
In my opinion it was intended by Parliament that anyone who, in the ordinary course of business, made credit arrangements with a tax debtor involving assignments of accounts receivable, did so subject to the overriding right of the Crown to satisfy the primary obligations of the tax debtor to collect and remit taxes withheld from its employees. The words of the statute can mean nothing less. The section is cast in the broadest of possible terms precisely because it was meant to interfere with and interrupt payments under such assignments and divert them to meet this statutory obligation. I do not know what other words Parliament could use to make its overriding intention and claim more clear.
XVIII. These statements can be applied even more forcefully to the 1990 amendments. The Parliamentary intent was to confirm the overriding right of the MNR to collect by garnishment the taxes collected which ought to have been remitted by the debtor company to the MNR.
What is the Nature of a General Assignment of Book Debts?
XIX. Like Major J., I am of the view that a GABD is a form of security for a loan which is always subject to the right of the debtor to redeem. It will be remembered that s. 224(1.3) defines the “security interest” in these words:
“security interest” means any interest in property that secures payment or performance of an obligation and includes an interest created by or arising out of a debenture, mortgage, hypothec, lien, pledge, charge, deemed or actual trust, assignment or encumbrance of any kind whatever, however or whenever arising, created, deemed to arise or otherwise provided for;
This definition encompasses the general assignments of book debts which are at issue in these appeals. However, I cannot agree with Major J.’s conclusion that the creditors are not secured creditors. I find it difficult, indeed impossible, to conclude that the same document can be both a security interest and an absolute assignment. The same document cannot, simultaneously, embrace two such conflicting concepts.
XX. Basically, security is something which is given to ensure the repayment of a loan. Black’s Law Dictionary (6th ed. 1990), at p. 1357, gives a clear definition of a “security interest” in these terms:
The term “security interest” means any interest in property acquired by contract for the purpose of securing payment or performance of an obligation or indemnifying against loss or liability. A security interest exists at any time, (A) if, at such time, the property is in existence and the interest has become protected under local law against a subsequent judgment lien arising out of an unsecured obligation, and (B) to the extent that, at such time, the holder has parted with money or money’s worth.
XXI. This definition is consistent with that set out in the ITA. It is in sharp contrast to the definition of the word “absolute” set out in the same source at p. 9 in these terms:
Complete; perfect; final, without any condition or incumbrance; as an absolute bond (simplex obligatio) in distinction from a conditional bond. Unconditional; complete and perfect in itself; without relation to or dependence on other things or persons.
XXII. These definitions are, in my view, correct. If that is the case, then it can be seen that the same instrument cannot be both a “security interest” and an “absolute assignment”. If an instrument is an absolute assignment, then since it is complete and perfect in itself, there cannot be a residual right remaining with the debtor to recover the assets. By definition, a complete and perfect assignment cannot recognize the concept of an equity of redemption. An absolute assignment cannot function as a means of “securing” the payment of a debt since there would be no basis for the debtor to recover that which has been absolutely assigned. An absolute assignment is irrevocable. To say that the same instrument can operate both as an absolute assignment and as a security interest is to simultaneously put forward two incompatible positions. The two conflicting concepts cannot live together in the same document.
Cases Which Have Considered the Nature of a General Assignment of Book Debts
XXIII. Major J. expressed the opinion that it is “well‑established law” that a GABD, such as those in issue, has the effect of transferring all title and ownership in the property assigned so that they can no longer be considered to be the property of the assignor. Yet ordinarily, in the world of commerce, a GABD is considered to be a security interest. As a security interest, it simply cannot transfer all “right, title and ownership in and to the property assigned”. This conclusion has found support in other cases.
XXIV. In Thermo King Corp. v. Provincial Bank of Canada (1981), 34 O.R. (2d) 369 (C.A.), leave to appeal refused, [1982] 1 S.C.R. xi, Wilson J.A. (as she then was) held, for a unanimous court, that a GABD is a security document. In that case she was required to consider an instrument which was very similar if not identical to those presented in these appeals. At p. 381 she concluded:
While these provisions appear on their face to constitute the assignor a trustee for the bank of any payments it receives from its customers and to permit the bank to appropriate them at will, whether or not any debt is then due to the bank by the assignor, this seems to be quite incompatible with the nature of the instrument as a collateral security. [Emphasis in original.]
Similarly, in Bonavista (Town) v. Atlantic Technologists Ltd. (1994), 117 Nfld. & P.E.I.R. 19, Osborn J. considered a GABD. He wrote (at p. 24):
One may ask, if the assignment is absolute to the point of ownership, why does it specifically give to the Bank the power to collect or dispose of the debts. Are not such powers incidents of ownership? Similarly, if the assignment is absolute, what remaining rights reside in the customer that may be “extinguished” if the Bank buys the accounts at a sale?
In my view, the assignment contemplates that it will operate as a security interest. It vests in the Bank title to the debts owed to Atlantic, but such vesting is for the purpose of security; it is not to transfer ownership, as that term is commonly understood . . . . The Bank is a “secured creditor”. The nature of the interest held by the Bank, even if considered to be an absolute assignment, cannot be divorced from the circumstances in which it arose. The commercial reality is that the Bank held a security interest in the property of Atlantic. Atlantic transferred its receivable to the Bank to secure payment of money Atlantic owed to the Bank. Once Atlantic paid off the Bank, it was entitled, not to a reassignment of the debt, but, by the wording of the assignment, “to the cancellation hereof”. The Bank was a secured creditor holding a security interest. [Emphasis added.]
XXV. I agree with the reasoning expressed in these cases. As well, I would note that the Newfoundland Court of Appeal in Bank of Montreal v. Baird (1979), 33 C.B.R. (N.S.) 256, leave to appeal refused, [1980] 1 S.C.R. v, dealt with a GABD as a security interest. Further, the New Brunswick Court of Appeal in R.V. Demmings & Co. v. Caldwell Construction Co. (1955), 4 D.L.R. (2d) 465, found that a bank holding a GABD was a secured creditor, subject to an equity of redemption in the as