Robinson v. Countrywide Factors Ltd.

Robinson v. Countrywide Factors Ltd.
Collection
Supreme Court Judgments
Date
1977-01-25
Report
[1978] 1 SCR 753
Judges
Laskin, Bora; Martland, Ronald; Judson, Wilfred; Ritchie, Roland Almon; Spence, Wishart Flett; Pigeon, Louis-Philippe; Dickson, Robert George Brian; Beetz, Jean; de Grandpré, Louis-Philippe
On appeal from
Saskatchewan
Subjects
Bankruptcy and insolvency
Decision Content
Supreme Court of Canada
Robinson v. Countrywide Factors Ltd., [1978] 1 S.C.R. 753
Date: 1977-01-25
Donald A. Robinson, Trustee in Bankruptcy of Kozan Furniture (Yorkton) Ltd. (Plaintiff) Appellant;
and
Countrywide Factors Ltd. (Defendant) Respondent.
1976: February 17, 18; 1977: January 25.
Present: Laskin C.J. and Martland, Judson, Ritchie, Spence, Pigeon, Dickson, Beetz and de Grandpré JJ.
ON APPEAL FROM THE COURT OF APPEAL FOR SASKATCHEWAN
Bankruptcy—Debtor and creditor—Fraudulent preferences—Whether The Fraudulent Preferences Act, R.S.S. 1965, c. 397, ultra vires provincial Legislature—Alternatively whether ss. 3 and 4 of Act, while being within legislative competence of provincial Legislature, in conflict with valid federal legislation—Bankruptcy Act, R.S.C. 1970, c. B-3, ss. 50(6), 73.
The appellant was trustee in bankruptcy of K Co. pursuant to a receiving order of November 19, 1968. On November 19, 1966, K Co. entered into a transaction with a pressing creditor, the respondent, whereby it sold certain stock-in-trade to a third person (payment being made to the respondent which reduced the indebtedness of K Co. accordingly) and also agreed to give the respondent a debenture on its stock-in-trade for its remaining indebtedness. The debenture was executed in March 1967 and duly registered. After the receiving order against K Co. was made, proceedings were taken by the appellant to set aside the transaction of November 19, 1966, as constituting a fraudulent preference under ss. 3 and 4 of The Fraudulent Preferences Act, R.S.S. 1965, c. 397, and to recover the money paid to the respondent and to annul the debenture.
The trial judge found that K Co. was insolvent at the time of the transaction of November 19, 1966, that there was a concurrent intention of K Co. and the respondent to give and receive a preference, and that, consequently, both the payment made to the respondent and the debenture constituted fraudulent preferences under The Fraudulent Preferences Act and were hence impeachable. On appeal, this judgment was set aside on the view of the majority of the Court of Appeal that the appellant had failed to prove that K Co. was insolvent on November 19, 1966. Upon the trustee in bankruptcy obtaining leave to appeal to this Court, the respondent, in accordance with the Rules of this Court, and in view of the fact that it wished to argue the ultra vires character of The Fraudulent Preferences Act, applied for directions and this Court ordered that notice be served on the Attorney General of Canada and the Attorneys General of the Provinces of the following questions: 1. Whether The Fraudulent Preferences Act, R.S.S. 1965, c. 397, is ultra vires of the Legislature of the Province of Saskatchewan. 2. Alternatively, whether ss. 3 and 4 of The Fraudulent Preferences Act, while being within the legislative competence of the Legislature of the Province of Saskatchewan, are in conflict with valid legislation of the Parliament of Canada relating to bankruptcy and insolvency, namely, the Bankruptcy Act, R.S.C. 1970, c. B-3.
Held (Laskin C.J. and Martland, Dickson and de Grandpré JJ. dissenting on the constitutional issue): The appeal should be allowed and the judgment at trial restored.
Per Judson, Ritchie, Spence, Pigeon and Beetz JJ.: The Fraudulent Preferences Act is not ultra vires and ss. 3 and 4 of the Act are not in conflict with the provisions of the Bankruptcy Act.
On a consideration of the main cases on the subject, the better view is to confine the effect of s. 73 of the Bankruptcy Act to providing for the invalidity of transactions within its exact scope, i.e. transactions within the three-month period provided for in the section. To that extent, the Parliament of Canada, by valid legislation upon “bankruptcy” and “insolvency”, has covered the field but has refrained from completely covering the whole field of transactions avoided by provincial legislation. The enactment in 1949 of the provisions now found in s. 50(6) of the Bankruptcy Act is a plain indication that Parliament recognized that provisions in provincial statutes dealing with preferential transactions were still valid provincial enactments in reference to “property” and “civil rights” and were valuable aids to trustees in bankruptcy in attacking the validity of such transactions and should be available to the said trustees in bankruptcy.
The appellant trustee had produced a prima facie case to show that the debtor was unable to pay his debts in full by realization of his assets in November 1966, and, accordingly, s. 4 of The Fraudulent Preferences Act applied to avoid the transaction in question.
Per Pigeon and Beetz JJ.: When the exclusive power to make laws in relation to bankruptcy and insolvency was bestowed upon Parliament, it was not intended to remove from the general legal systems which regulated property and civil rights a cardinal concept essential to the coherence of those systems, namely the concept of insolvency in the non-statutory sense. The main purpose was to give to Parliament exclusive jurisdiction over the establishment by statute of a particular system regulating the distribution of a debtor’s assets. However, given the nature of general legal systems, the primary jurisdiction of Parliament cannot easily be exercised together with its incidental powers without some degree of overlap in which case federal law prevails. On the other hand, provincial jurisdiction over property and civil rights should not be measured by the ultimate reach of federal power over bankruptcy and insolvency any more than provincial competence in relation to the administration of justice can be determined by every conceivable and potential use of the criminal law power.
Laws provincial in their purpose, object and nature cannot be rendered ultra vires because of virtual federal paramountcy: they can only become inoperative in case of actual repugnancy with valid federal laws. Section 50(6) of the Bankruptcy Act provides a clear indication that Parliament, far from intending to depart from the rule of operational conflict, did in fact aim at the highest possible degree of legal integration of federal and provincial laws: attacks upon transactions within the three-month period provided by s. 73 of the Bankruptcy Act constitute a minimum but the trustee in bankruptcy is entitled to avail himself of all other rights and remedies provided by provincial law “as supplementary to and in addition to the rights and remedies provided by” the Bankruptcy Act.
Per Laskin C.J. and Martland, Dickson and de Grandpré JJ., dissenting on the constitutional issue: Provincial legislation which purports to provide for impeachment of preferences to creditors given by a person who is then insolvent, where insolvency is the sine qua non of impeachability, is invalid as a direct invasion of exclusive federal power in relation to bankruptcy and insolvency. Hence, ss. 3 and 4 of the Saskatchewan Fraudulent Preferences Act are ultra vires. Moreover, in so far as these sections prescribe an impeachment period which enables a creditor to set aside a preference made beyond the period fixed by the Bankruptcy Act, and hence not impeachable under that Act, it interferes with the operation of the Bankruptcy Act and is, indeed, repugnant to it. It must be remembered that where, as in the present case, there has been a receiving order, the intrusion of provincial legislation relating to transactions entered into by an insolvent, must interfere with the rateable distribution of the bankrupt’s property according to the scheme of distribution prescribed by the Bankruptcy Act. Whether that scheme is faulty in the view of a Court is immaterial; the correction must come from the responsible Legislature. No more under bankruptcy and insolvency law than under the criminal law can a Province make unlawful what is lawful under valid federal legislation, nor make lawful what is unlawful under valid federal legislation.
[A.G. Ont. v. A.G. Can., [1894] A.C. 189; Re Davison (1922), 52 O.L.R. 244; Hoffar Ltd. v. Canadian Credit Men’s Trust Association Ltd., [1929] 1 W.W.R. 557, leave to appeal refused, [1929] S.C.R. 180; Re Pommier (1930), 65 O.L.R. 415; Re Trenwith, [1934] O.R. 326; Re Bozanich, A.H. Boulton Co. Ltd. v. Trusts & Guarantee Co. Ltd., [1942] S.C.R. 130; Totem Radio Supply Co. Ltd. v. Stone et al. (1959), 29 W.W.R. 552; A.G. Alta. v. Nash and Guelph Engineering Co. (1964), 50 W.W.R. 155; Re Panfab Corp. Ltd., [1971] 2 O.R. 202; Traders Finance Corporation Ltd. v. Levesque, [1961] S.C.R. 83; Gingras v. General Motors Products of Canada Ltd., [1976] 1 S.C.R. 426, referred to.]
APPEAL from a judgment of the Court of Appeal for Saskatchewan[1], allowing an appeal from a judgment of MacPherson J. Appeal allowed, Laskin C.J. and Martland, Dickson and de Grandpré JJ. dissenting.
D.G. McLeod, Q.C., and G. Morris, for the plaintiff, appellant.
W.N. Lawton, Q.C., for the Attorney General of Saskatchewan.
J. Polika, for the Attorney General of Ontario.
W.G. Burke-Robertson, Q.C., for the Attorney General of British Columbia.
W. Henkel, Q.C., for the Attorney General of Alberta.
E.J. Moss, Q.C., and B.J. Scherman, for the defendant, respondent.
T.B. Smith, Q.C., for the Attorney General of Canada. The judgment of Laskin C.J. and Martland, Dickson and de Grandpré JJ. was delivered by
THE CHIEF JUSTICE (dissenting)—There are two issues in this appeal which is here by leave of this Court. The first is whether a certain transaction and, in particular, a certain debenture, granted on a debtor’s stock-in-trade in pursuance of the transaction between the debtor and the respondent creditor, was a fraudulent preference that was impeachable under ss. 3 and 4 of The Fraudulent Preferences Act, R.S.S. 1965, c. 397; and the second is whether, if it was so impeachable, those provisions of the provincial Act were ultra vires as an invasion of exclusive federal power in relation to bankruptcy and insolvency or, alternatively, were inoperative in the face of the preference provisions of the Bankruptcy Act, R.S.C. 1970, c. B-3.
The appellant is trustee in bankruptcy of Kozan Furniture (Yorkton) Ltd. pursuant to a receiving order of November 19, 1968. On November 19, 1966, Kozan entered into a transaction with a pressing creditor, the respondent, whereby it sold certain stock-in-trade to a third person (payment being made to the respondent which reduced Kozan’s indebtedness accordingly) and also agreed to give the respondent a debenture on its stock-in-trade for its remaining indebtedness. The debenture was executed on or about March 20, 1967, and duly registered. After the receiving order against Kozan was made, proceedings were taken by the appellant trustee in bankruptcy to set aside the transaction of November 19, 1966, as constituting a fraudulent preference under the provincial Fraudulent Preferences Act and to recover the money paid to the respondent and to annul the debenture.
MacPherson J. found that Kozan was insolvent at the time of the transaction of November 19, 1966, that there was a concurrent intention of Kozan and the respondent to give and receive a preference, and that, consequently, both the payment made to the respondent and the debenture constituted fraudulent preferences under the provincial statute and were hence impeachable. On appeal, this judgment was set aside on the view of the majority of the Saskatchewan Court of Appeal that the appellant had failed to prove that Kozan was insolvent on November 19, 1966. The trial judge was not called upon to deal with any constitutional issue, and the majority of the Court of Appeal did not have to do so in view of its finding on insolvency. Hall J.A. who dissented supported the trial judge’s finding of insolvency, and in a one sentence assertion, in reliance upon Re Panfab Corp. Ltd.[2], he rejected the contention that The Fraudulent Preferences Act was ultra vires.
I would not interfere with the findings of the judge of first instance that Kozan was insolvent at the material time and that Kozan intended to give and the respondent intended to receive a preference. This is the view of my brother Spence who, in exhaustive reasons, also concluded that The Fraudulent Preferences Act as a whole was not ultra vires nor was either s. 3 or s. 4 inoperative in the face of the Bankruptcy Act. I have a different opinion on the constitutional issue in this case, as appears from what now follows. That issue does not invite this Court to pronounce on the validity of provincial legislation dealing with fraudulent conveyances or with fraudulent transactions in general. Thus, to take as an example the Fraudulent Conveyances Act, R.S.O. 1970, c. 182, nothing said in these reasons is to be taken as impugning the validity of that or similar enactments. They do not, ex facie, depend on proof of insolvency or on bankruptcy. In so far as any of the case law, some of it canvassed by my brother Spence, relates to such legislation and carries it into a consideration of the validity of provincial preference legislation which depends, as do ss. 3 and 4 of the Saskatchewan Fraudulent Preferences Act, on a condition of insolvency, I find it inapt for the determination of the constitutional question in this appeal.
Sections 3 and 4 aforesaid are in the following terms:
3. Subject to sections 8, 9, 10 and 11 every gift, conveyance, assignment or transfer, delivery over or payment of goods, chattels or effects or of bills, bonds, notes or securities or of shares, dividends, premiums or bonus in a bank, company or corporation, or of any other property real or personal, made by a person at a time when he is in insolvent circumstances or is unable to pay his debts in full or knows that he is on the eve of insolvency, with intent to defeat, hinder, delay or prejudice his creditors or any one or more of them, is void as against the creditor or creditors injured, delayed or prejudiced.
4. Subject to sections 8, 9, 10 and 11 every gift, conveyance, assignment or transfer, delivery over or payment of goods, chattels or effects or of bills, bonds, notes or securities or of shares, dividends, premiums or bonus in a bank, company or corporation, or of any other property real or personal, made by a person at a time when he is in insolvent circumstances or is unable to pay his debts in full or knows that he is on the eve of insolvency to or for a creditor, with intent to give that creditor preference over his other creditors or over any one or more of them, is void as against the creditor or creditors injured, delayed, prejudiced or postponed.
Sections 8, 9, 10 and 11, to which each of the foregoing provisions is subject, do not affect the constitutional issue, being concerned with bona fide sales or payments to innocent purchasers, to valid sales for consideration and to protection of security given up by a creditor. The present cases does not involve ss. 8 to 11.
I approach the question of validity on principle and on authority. So far as principle is concerned, the starting point is in relevant words of the British North America Act, namely s. 91(21), “bankruptcy and insolvency”, as they relate to s. 92(13), “property and civil rights in the Province”. The elucidation of the meaning and scope of s. 91(21), as of the meaning and scope of any other heads of legislative power, can hardly ever be a purely abstract exercise, even where an attempt is made at neutral definition; but I see no reason why judicial pronouncements, especially at the appellate level where they are those of the Court, should not be considered as throwing light upon the integrity of the head of power in the scheme of the British North America Act as a whole.
Four things stand out. First, s. 91(21) is an exclusive federal power; second, it is a power con- fided to the Parliament of Canada notwithstanding anything else in the Act; third, it is a power, like the criminal law power, whose ambit, did not and does not lie frozen under conceptions held of bankruptcy and insolvency in 1867: see the Farmers’ Creditors Arrangement Act reference, Attorney-General for British Columbia v. Attorney General for Canada[3], at pp. 402‑403; and, fourth, the term “insolvency” in s. 91(21) has as much an independent operation in the reservation of an exclusive area of legislative competence to the Parliament of Canada as the term “bankruptcy”; see Canadian Bankers Association v. Attorney-General of Saskatchewan[4], per Rand J., at p. 46.
The view taken by the Privy Council and by this Court as to the meaning of “insolvency”, as well after as before the abolition of Privy Council appeals, has been a uniform one. Lord Thankerton, speaking for the Privy Council in the Farmers Creditors Arrangement Act reference, supra, at p. 402, expressed it as follows:
In a general sense, insolvency means inability to meet one’s debts or obligations; in a technical sense, it means the condition or standard of inability to meet debts or obligations, upon the occurrence of which the statutory law enables a creditor to intervene with the assistance of a Court, to stop individual action by creditors and to secure administration of the debtor’s assets in the general interest of creditors; the law also generally allows the debtor to apply for the same administration.
This definition was referred to with approval in the majority judgment of the Supreme Court of Canada delivered by Kerwin C.J.C. in Reference re Validity of the Orderly Payment of Debts Act, 1959 (Alta.)[5], at p. 576. Earlier in Reference re Alberta Debt Adjustment Act[6], at p. 40, Duff C.J.C. speaking for all but one of the members of the Court took as an additional ground for invalidating the challenged provincial legislation in that case that the powers of the provincial statu- tory tribunal set up under that legislation would normally “come into operation when a state of insolvency exists”; and he continued: “It is not too much to say that it is for the purpose of dealing with the affairs of debtors who are pressed and unable to pay their debts as they fall due that these powers and duties are created.” If it is for Parliament alone to deal with insolvency, indeed to define it where it chooses to do so and to leave it otherwise to judicial definition, there can be no argument about unlawful invasion of provincial power in relation to property and civil rights. A limitation upon such power necessarily inheres in the federal catalogue of powers in s. 91, and it was recognized as early as 1880 in Cushing v. Dupuy[7], at p. 415, in respect of the federal bankruptcy and insolvency power.
I refer to two other propositions before turning to what I consider to be the relevant cases. First, there is the well-recognized proposition that federal abstinence from legislation in relation to an exclusive head of legislative power does not leave that legislative area open to provincial action: see Union Colliery Co. v. Bryden[8], at p. 588. The principle of our Constitution as it relates to legislative power is not one of simple concurrency of authority subject only to a variable doctrine of paramountcy. Exclusiveness is central to the scheme of distribution, save as to a specified number of concurrent powers, such as those in s. 95. It is only under the umbrella of the doctrine of exclusiveness that the relative scope of federal and provincial authority is assessed, the assessment being carried forward to determine whether there is preclusion or supersession where both federal and provincial legislation are in competition. This brings me to the second point. I take the same view here that was taken by Duff C.J.C. in the Alberta Debt Adjustment Act reference and I adopt his words at p. 40, namely that although the motives of a provincial Legislature may be laudable ones, it is precluded from seeking to realize its object by entering into a field not open to it.
Attorney-General of Ontario v. Attorney-General for Canada[9], generally known as the Voluntary Assignments case, stands as the general support for provincial legislation of the kind or allied to the kind of legislation that is challenged in the present case. It concerned only one section, s. 9, of the Ontario Assignments and Preferences Act, R.S.O. 1887, c. 124, first enacted in 1885 by 1885 (Can.), c. 26. That section was as follows:
An assignment for the general benefit of creditors under this Act shall take precedence of all judgments and of all executions not completely executed by payment, subject to the lien, if any, of an execution creditor for his costs, where there is but one execution in the sherrif’s hands, or to the lien, if any, of the creditor for his costs, who has the first execution in the sherriff’s hands.
This Act replaced the earlier pre-Confederation legislation found in C.S.U.C. 1859, c. 26, under the title The Indigent Debtors Act, which was continued in the post-Confederation legislation of Ontario as An Act respecting The Fraudulent Preference of Creditors by persons in insolvent circumstances, and included in R.S.O. 1877, c. 118. What is significant in this earlier legislation is that (as set out in s. 2 of R.S.O. 1877, c. 118) it dealt with “any person being at the time in insolvent circumstances or unable to pay his debts in full, or knowing himself to be on the eve of insolvency”. The substituted Act of 1885 continued the reference to insolvency in respect of preferences, but it also introduced new provisions respecting assignments for the benefit of creditors and these provisions, as was noted in the Voluntary Assignments case, were not predicated on insolvency and, indeed, were to a large degree separated from the preference provisions of the Act, as is reflected in s. 3 of R.S.O. 1887, c. 124.
Certainly, as the Privy Council noted, the challenged provision, s. 9, had to be taken in the context of the entire Act. There is no doubt, as well, that the issue of validity was recognized as arising at a time when there was no federal bankruptcy or insolvency legislation in force, the only such legislation, the Insolvency Act of 1875 having been repealed in 1880 by 1880 (Can.), c. 1. The majority of the Ontario Court of Appeal, to which the question of the validity of s. 9 had been referred, found that it was ultra vires as invading exclusive federal power in relation to bankruptcy and insolvency; see Re Assignments and Preferences Act, Section 9[10]. The reversal of this judgment by the Privy Council was accompanied by an acknowledgement of the broad scope of federal power under s. 91(21) when affirmatively exercised but it was held that this power was not invaded by an enactment relating to an assignment that was purely voluntary.
The explanation for this result is found in two passages of the Privy Council’s reasons. First, “it is to be observed that an assignment for the general benefit of creditors has long been known to the jurisprudence of this country and also of Canada, and has its force and effect at common law quite independently of any system of bankruptcy or insolvency, or any legislation relating thereto” (at p. 198). Second, “the operation of an assignment for the benefit of creditors was precisely the same, whether the assignor was or was not insolvent… The validity of the assignment and its effect would in no way depend on the insolvency of the assignor, and their Lordships think it clear that the 9th section would equally apply whether the assignor was or was not insolvent” (at p. 199). What is evident, therefore, from that case is that, unlike the situation here, the operation of the provincial enactment did not depend on insolvency and the Privy Council was willing to treat s. 9 as having an object that was independent of it. This may even be a supportable view today, albeit there is a range of existing federal legislation dealing with bankruptcy and insolvency. I should note, however, that in the majority judgment of this Court in Reference re the Validity of the Orderly Payment of Debts Act, 1959 (Alta.)[11], at pp. 576-577, Kerwin C.J.C. referring to the Voluntary Assignments reference, said “it is doubtful whether in view of later pronouncements of the Judicial Committee it would at this date be decided in the same sense, even in the absence of Dominion legislation upon the subject of bankruptcy and insolvency”.
The later pronouncements of the Privy Council include its judgment in the Alberta Debt Adjustment Act reference[12], as well as in the Farmers’ Creditors Arrangement Act reference, supra. Equally important is the judgment of this Court in Canadian Bankers Association v. Attorney-General of Saskatchewan[13], dealing with the validity of provincial moratorium legislation. It was in line with the decision in the Alberta Debt Adjustment Act reference in finding an invasion of federal power in relation to bankruptcy and insolvency. I think it enough, for present purposes, to refer to what Locke J., speaking for the majority of the Court, said, at p. 42:
Power to declare a moratorium for the relief of the residents of a Province generally in some great emergency, such as existed in 1914 and in the days of the lengthy depression in the thirties is one thing, but power to intervene between insolvent debtors and their creditors irrespective of the reasons which have rendered the debtor unable to meet his liabilities is something entirely different.
Although judgments of the Privy Council and of this Court (and I add to those already cited Royal Bank of Canada v. Larue[14]) have recognized the broad power of Parliament to embrace in its legislation in relation to bankruptcy or insolvency provisions which might otherwise fall within provincial competence, I know of no case in those Courts, other than Ladore v. Bennett[15], where provincial legislation has been sustained, either in the absence of or in the face of federal legislation, when such provincial legislation depends for its operation only upon insolvency. Ladore v. Bennett can best be explained as involving municipal reorganization and hence as being concerned with the amalgamation and financial restructuring of units of local government for which the provincial Legislature has a direct responsibility, albeit some of the municipalities involved in the legislatively-directed reorganization were insolvent. It is, indeed, a special case of a piece of special legislation enacted in pursuance of the power conferred by s. 92(8) of the British North America Act, and I do not regard it as offering any lead to continuing legislation relating to private debtors and their creditors.
It is plain to me that if provincial legislation avowedly directed to insolvency, and to transactions between debtor and creditor consummated in a situation of insolvency, can be sustained as validly enacted, unless overborne by competent federal legislation, there is a serious breach of the principle of exclusiveness which embraces insolvency under s. 91(21). This Court so held in a series of cases where the encroachment on the federal bankruptcy and insolvency power was less obvious than that exhibited here. I refer, of course, to the Alberta Debt Adjustment Act reference, supra, to the Canadian Bankers’ Association case, supra, and to the Orderly Payment of Debts Act 1959 (Alta.) reference, supra. It would be a curious reversal of the proposition, enunciated in Madden v. Nelson and Fort Sheppard Railway Co.[16], namely, that you cannot do indirectly what you cannot do directly, to hold that the Province can do directly what it cannot do indirectly.
The case put forward by the appellant and by the intervening Provinces which supported him goes even farther. It is contended that notwithstanding the existence of federal bankruptcy legislation dealing with preferences, the challenged provincial legislation can still operate in respect of a particular preference which is given outside of the time limits within which the federal control operates, so long at least as the provincial provision is not more stringent.
I do not follow this line of reasoning, especially on the submission of greater or lesser stringency. The relevant federal provision is s. 73 of the Bankruptcy Act which reads as follows:
73. (1) Every conveyance or transfer of property or charge thereon made, every payment made, every obligation incurred, and every judicial proceeding taken or suffered by any insolvent person in favour of any creditor or of any person in trust for any creditor with a view to giving such creditor a preference over the other creditors shall, if the person making, incurring, taking, paying or suffering the same becomes bankrupt within three months after the date of making, incurring, taking, paying or suffering the same, be deemed fraudulent and void as against the trustee in the bankruptcy.
(2) Where any such conveyance, transfer, payment, obligation or judicial proceeding has the effect of giving any creditor a preference over other creditors, or over any one or more of them, it shall be presumed prima facie to have been made, incurred, taken, paid or suffered with a view to giving such creditor a preference over other creditors, whether or not it was made voluntarily or under pressure and evidence of pressure shall not be receivable or avail to support such transaction.
(3) For the purposes of this section, the expression “creditor” includes a surety or guarantor for the debt due to such creditor.
This provision cannot be taken in isolation. The Bankruptcy Act is a code on the subject of bankruptcy and insolvency, defining what is an act of bankruptcy, who is an insolvent person, prescribing what are vulnerable settlements as well as what are vulnerable preferences, declaring what is comprised in a bankrupt’s estate, providing for priorities in distribution and for rateable distribution. It provides also, as in the present s. 31(1), for the making of an assignment by an insolvent person for the benefit of creditors as well as providing by s. 24(1)(a) that it is an act of bankruptcy to make an assignment for the benefit of creditors whether the assignment is or is not authorized by the Bankruptcy Act. In short, apart from the question whether provincial legislation predicated on insolvency is ipso facto invalid, I see no room for any assertion that such provincial legislation can continue to have operative effect in the face of the scope of the Bankruptcy Act embracing both bankruptcy and insolvency in its provisions.
It is worth a reminder that there is no common law of bankruptcy and insolvency, and hence it cannot be said that there was an existing common law course of decision which was being embraced by provincial legislation. The common law did not distinguish the fraudulent from the insolvent debtor; it was through legislation that such a distinction was made. If a provincial Legislature wishes to proscribe fraudulent transactions, it is compelled by the British North America Act to ensure that its legislation dealing with such transactions does not focus on insolvency.
Of the many cases cited in argument before this Court, I can put to one side Re Davison[17] and Re Panfab Corp. Ltd.[18], both of which, decisions of single judges, dealt largely with the Ontario Fraudulent Conveyances Act which, as I have already said, does not depend for its activation either on insolvency or on bankruptcy nor on any question of preference such as that presented here. Similarly, I put to one side Allison & Burnham Concrete Ltd. v. Mountain View Construction Ltd.[19], a judgment of Ruttan J. of the British Columbia Supreme Court, in so far as it was concerned with the British Columbia Fraudulent Conveyances Act, akin to the Ontario Act of the same name.
Chronologically, the first of the cited cases that calls for consideration here is Hoffar Ltd. v. Canadian Credit Men’s Trust Association Ltd.[20]; leave to appeal refused[21]. It was a judgment of the British Columbia Court of Appeal involving the question whether s. 3 of the provincial Fraudulent Preferences Act (similar to ss. 3 and 4 of the Saskatchewan Act in the present case) was in conflict with the then preference provision, s. 64, of the federal Bankruptcy Act. It is important to note, as stated by British Columbia Chief Justice Macdonald, that no argument was raised in the Hoffar case as to the validity of either the provincial Fraudulent Preferences Act or the Bankruptcy Act. A second significant aspect of the decision is that the Court felt it was immaterial that the federal Act prescribed a three-month period for invalidation of a transaction while the provincial Act prescribed a 60-day period. In fact, the transaction sought to be impugned was made less than 60 days before an assignment under the Bankruptcy Act, and there was a finding that the debtor was insolvent at the time of the transaction. The judge of first instance found that although the transaction had the effect of giving a preference it was not made with a view thereto. Under the Bankruptcy Act, there was a rebuttable presumption in such a case that the transaction was concluded with a view to a preference and it was found that there was rebutting evidence. However the provincial Act made the transaction void irrespective of rebutting evidence, and the judge at first instance applied this Act.
The British Columbia Court of Appeal reversed this decision holding that the provincial provisions were inoperative because they were in conflict with the federal Act. A fortiori, the provincial provisions would be inoperative, in my view, if a transaction was made with a view to giving a preference. Leave to appeal was refused by Mignault J. in the Supreme Court of Canada on the ground that the decision sought to be appealed was plainly right; and he added a reference to a passage in the reasons in the Voluntary Assignments case where the Privy Council spoke of the preclusion of the provincial Legislature from interfering with federal bankruptcy legislation.
This preclusive principle of non-interference is as applicable in connection with the federal power in relation to bankruptcy and insolvency as it is in the field of criminal law. In that connection, I point to the words of the late Justice Rand in Johnson v. Attorney General of Alberta[22], at p. 138, and adapt them here to say that “any local legislation of a supplementary nature that would tend to weaken or confuse [the] enforcement [of the Bankruptcy Act] would be an interference with the exclusive power of Parliament”.
It is worth adding that in his reasons in the British Columbia Court of Appeal in the Hoffar case M.A. Macdonald J.A. indicated that provincial fraudulent conveyances legislation could be invoked where the Bankruptcy Act did not apply on the facts, even if provincial fraudulent preference legislation could not be.
The next case for consideration is Re Pommier[23], a judgment of Fisher J.A. sitting in bankruptcy. I accept one of its premises, namely, that the Bankruptcy Act did not oust all provincial legislation respecting fraudulent transactions, as for example, the Ontario Fraudulent Conveyances Act. This was the same point taken in the Hoffar case. However, unlike the result in the Hoffar case (which was cited but not followed) the Court in Re Pommier held that in the case of a preferential transaction which took place more than three months before an assignment in bankruptcy (and therefore outside the preference period under the federal Act), resort could be had to the provincial Assignments and Preferences Act, R.S.O. 1927, c. 162 to impeach it. The learned judge invoked a so-called doctrine of overlapping, which he distinguished from a situation of conflict, in holding the provincial Act to be available. In my opinion, he misconceived its purport as it was enunciated in Grand Trunk Railway Co. v. Attorney General of Canada[24], at p. 68. The proposition there related to a situation where “the field is clear” to one Legislature or the other. The Privy Council noted that “if the field is not clear and in such a domain the two legislations meet, then the Dominion legislation must prevail”. It is only necessary to add that Re Pommier was overruled by the Ontario Court of Appeal in Re Trenwith[25], where Masten J.A. said at p. 333 (after referring to the Voluntary Assignments case, to Royal Bank of Canada v. Larue and to the Hoffar case):
…it seems clear to me that the common field of legislation respecting the distribution of the estates of insolvents having now become occupied by the Dominion Bankruptcy Act, the provisions of the Assignments and Preferences Act respecting the preference of one creditor over another have been thereby superseded and have ceased to have any operation. If I am right in this conclusion, the effect is to overrule… Re Pommier.
Davis J.A. who dissented on other grounds was also of the opinion that “since the enactment of bankruptcy legislation by the Dominion Parliament this provincial statute cannot be invoked” (at p. 343).
To the same effect was the opinion of this Court expressed by Duff C.J.C. in In re Bozanich[26], at p. 136, that “the provisions of R.S.O. 1927, c. 162 in relation to preferences are superseded by s. 64 of the Bankruptcy Act, and that the authority of the Ontario Legislature to enact such legislation is, in consequence of the enactment of s. 64, suspended in view of the concluding clause of s. 91 [of the British North America Act]”.
Three judgments at first instance may be mentioned before I go on to consider the unanimous judgment of the Alberta Appellate Division, sitting as a Bench of five, in Attorney-General of Alberta v. Nash and Guelph Engineering Co.[27] The three cases are Crown Coal Co. Ltd. v. Swanson Lumber Co. Ltd.[28]; Gard v. Yates[29]; and Totem Radio Supply Co. Ltd. v. Stone[30]. All three of these cases concerned issues of alleged conflict between provincial and federal legislation respecting rights of creditors of a person who has made an authorized assignment or was insolvent at a material time. The Crown Coal Co. Ltd. case, an Alberta judgment, did not turn on a constitutional issue and, at any rate, it cannot stand in the face of the Nash and Guelph Engineering Co. case. I am, similarly, unable to appreciate how either Gard v. Yates or the Totem Supply case, both British Columbia decisions, can stand against the reasoning in Nash and Guelph Engineering, the views expressed in Re Trenwith and those expressed by Duff C.J.C. in In re Bozanich. The first represents a decision overtaken by later authority, and the second cites no authorities at all, but on the point of alleged conflict between the respective provincial and federal preference provisions is content to say simply that there is no conflict where the preference is given outside the three-month period fixed by the federal Bankruptcy Act when the provincial Act fixes a larger period for impeachment. Reliance was placed on the then s. 41(6), now s. 50(6) of the Bankruptcy Act to which I will return later in these reasons. I should add that in another later British Columbia case, the Allison & Burnham Concrete Ltd. case, already mentioned, also a judgment of a single judge, Ruttan J. did canvass later authorities but decided to rest on earlier decisions, such as Gard v. Yates, to justify a construction that avoided any constitutional infirmity if the provincial Act gave a longer impeachment period than the federal Act. In effect, his view was to leave the constitutional issue to a higher Court. That is where it now is.
Att