Husky Oil Operations Ltd. v. Minister of National Revenue

Husky Oil Operations Ltd. v. Minister of National Revenue
Collection
Supreme Court Judgments
Date
1995-10-19
Report
[1995] 3 SCR 453
Case number
23936
Judges
Lamer, Antonio; La Forest, Gérard V.; L'Heureux-Dubé, Claire; Sopinka, John; Gonthier, Charles Doherty; Cory, Peter deCarteret; McLachlin, Beverley; Iacobucci, Frank; Major, John C.
On appeal from
Saskatchewan
Subjects
Bankruptcy and insolvency
Constitutional law
Notes
SCC Case Information: 23936
Decision Content
[1995] 3 S.C.R. Husky Oil Operations Ltd. v. Minister of National Revenue 453
Workers' Compensation Board Appellant
(Respondent)
v.
Husky Oil Operations Ltd.Respondent
(Applicant)
and
Her Majesty The Queen in right of Canada,
as represented by the Minister of National Revenue,
Her Majesty The Queen in right of the
Province of Saskatchewan, as represented by
the Minister of Human Resources, Labour
and Employment, Her Majesty The Queen in
right of the province of Saskatchewan,
as represented by the Minister of Finance,
Bank of Montreal, Eric Zimmerman, Garth Price,
Trevor Brown, Arthur Gingras, Kelly Houston,
Darcy Kuzio, Hans Bohle, Charles Pshebenicki,
Terry Sapergia, SBW--Wright Construction Inc.,
Campbell West (1991) Ltd., Fuller Austin Insulation
Inc., United Industrial Equipment Rentals Ltd.,
Atco Enterprises Ltd. and Deloitte & Touche Inc.,
as Trustee in Bankruptcy of the Estate of Metal
Fabricating & Construction Ltd. Respondents
and
The Attorney General for Saskatchewan Respondent
(Intervener in the
Court of Appeal)
and
The Attorney General for Ontario,
the Attorney General for New Brunswick,
the Attorney General of British Columbia,
the Attorney General for Alberta,
the Workers' Compensation Board of Ontario,
the Workers' Compensation Board of British Columbia,
the Workers' Compensation Board of Alberta and
the Yukon Workers' Compensation Health and Safety Board Interveners
Indexed as: Husky Oil Operations Ltd. v. Minister of National Revenue
File No.: 23936. 1995: January 25; 1995: October 19.
Present: Lamer C.J. and La Forest, L'Heureux-Dubé, Sopinka, Gonthier, Cory, McLachlin, Iacobucci and Major JJ.
ON APPEAL FROM THE COURT OF APPEAL FOR SASKATCHEWAN
Bankruptcy -- Priorities -- Set-off -- Provincial law allowing Board to seek payments of monies owed by bankrupts from the bankrupt's creditors and the creditors entitled to set off that amount from any payment made to trustee in bankruptcy -- Whether or not conflict with priorities established by Bankruptcy Act -- The Workers' Compensation Act, 1979, S.S. 1979, c. W-17.1, s. 133(1), (3) -- Bankruptcy Act, R.S.C., 1985, c. B-3, ss. 97(3) , 136 .
Constitutional law -- Division of powers -- Paramountcy -- Conflict between provincial and federal law -- Provincial law allowing Board to seek payments of monies owed by bankrupts from the bankrupt's creditors and the creditors entitled to set off that amount from any payment made to trustee in bankruptcy -- Whether or not conflict with priorities established by Bankruptcy Act.
Husky Oil Operations Ltd. (Husky) owed Metal Fabricating & Construction Ltd. (Metal Fab), a firm which, after being formally notified of its arrears to the Workers' Compensation Board (the Board) and after making a general assignment of its book debts to the Bank of Montreal, made an assignment in bankruptcy and ceased operations. The Board, when it learned that Metal Fab had ceased operations, looked to Husky for payment under s. 133(1) of The Workers' Compensation Act, 1979. Section 133(1) of the Saskatchewan Workers' Compensation Act, 1979, permitted the Board to obtain amounts owing its Injury Fund from a principal of a defaulting contractor. Husky in turn would be able to recover the amount paid on the Metal Fab's behalf by setting off that amount, pursuant to s. 133(3), from the amount it would otherwise pay Metal Fab. Husky and Metal Fab's creditors maintained that the operation of s. 133 conflicted with s. 136 of the federal Bankruptcy Act, which sets out the priorities of creditors on bankruptcy, in that the Board was able to obtain full payment to the detriment of the creditors who had a higher priority under the Bankruptcy Act. On a non-suit application made by Husky, The Workers' Compensation Act, 1979, was found to be inapplicable in a bankruptcy scenario and the Court of Appeal upheld this finding. The constitutional questions queried whether, in situations where the contractor is bankrupt, these provisions are constitutionally non-operational because of conflict with the Bankruptcy Act and whether they applied in the circumstances of this case.
Held (Sopinka, Cory, Iacobucci and Major JJ. dissenting): The appeal should be dismissed. Section 133 is inapplicable in bankruptcy when s. 133(1) of The Workers' Compensation Act, 1979, operates in tandem with s. 133(3). Section 133 was inapplicable when the contractor entered bankruptcy.
Per Lamer C.J. and La Forest, L'Heureux-Dubé, Gonthier and McLachlin JJ.: The gravamen of this appeal was the alleged conflict between s. 133 of the Saskatchewan Workers' Compensation Act, 1979, and s. 136(1)(h) of the Bankruptcy Act which set the priorities for recovery. The question, however, was not whether the provisions in s. 133 were independently valid, but rather, whether when combined they had the effect of reordering priorities in bankruptcy. The combined effect of the statutory deemed debt and the right to set off against property of the bankrupt, when s. 133(1) is read with s. 133(3), is to secure the Board's claim against the bankrupt's estate. In so doing, s. 133 read as a whole conflicts with Parliament's intention to accord the Board's claim the priority established in s. 136 of the Bankruptcy Act.
The first goal of ensuring an equitable distribution of a debtor's assets is to be pursued in accordance with the federal system of bankruptcy priorities. The quartet (Deputy Minister of Revenue v. Rainville, [1980] 1 S.C.R. 35; Deloitte Haskins and Sells Ltd. v. Workers' Compensation Board, [1985] 1 S.C.R. 785; Federal Business Development Bank v. Quebec (Commission de la santé et de la sécurité du travail), [1988] 1 S.C.R. 1061; British Columbia v. Henfrey Samson Belair Ltd., [1989] 2 S.C.R. 24) does not stand for the sole proposition that the provinces cannot "jump the queue" but rather embodies a consistent and general philosophy as to the purposes of the federal system of bankruptcy and its relation to provincial property arrangements. The following propositions can be distilled from the quartet:
(1)provinces cannot create priorities between creditors or change the scheme of distribution on bankruptcy under s. 136(1) of the Bankruptcy Act;
(2)while provincial legislation may validly affect priorities in a non-bankruptcy situation, once bankruptcy has occurred s. 136(1) of the Bankruptcy Act determines the status and priority of the claims specifically dealt with in that section;
(3)if the provinces could create their own priorities or affect priorities under the Bankruptcy Act this would invite a different scheme of distribution on bankruptcy from province to province, an unacceptable situation;
(4)the definition of terms such as "secured creditor", if defined under the Bankruptcy Act, must be interpreted in bankruptcy cases as defined by the federal Parliament, not the provincial legislatures. Provinces cannot affect how such terms are defined for the purposes of the Bankruptcy Act;
(5)in determining the relationship between provincial legislation and the Bankruptcy Act, the form of the provincial interest created must not be allowed to triumph over its substance. The provinces are not entitled to do indirectly what they are prohibited from doing directly; and
(6)there need not be any provincial intention to intrude into the exclusive federal sphere of bankruptcy and to conflict with the order of priorities of the Bankruptcy Act in order to render the provincial law inapplicable. It is sufficient that the effect of provincial legislation is to do so.
The fifth and sixth propositions bear a close resemblance to the doctrine of colourability, but with two fundamental differences. First, the doctrine of colourability is a concept which only applies in assessing the pith and substance of the impugned legislation whereas propositions 5 and 6 continue to apply after the validity of the impugned provincial law has been determined. None of the quartet cases was concerned with colourable provincial legislation. Second, a legislative intention to intrude into an exclusive federal sphere is neither necessary nor sufficient to scrutinize the applicability of provincial law. The intrusion, and not the intention to intrude, is determinative for division of powers purposes.
When ss. 133(1) and (3) operate in tandem, the contractor discharges its own liability to the Board, mediated through the legally compelled agency of the principal. This is not a scheme of joint and several liability, since the principal and the contractor are not joint co-debtors at the outset and since the Board does not have an unfettered choice as to which party to sue for recovery for outstanding fund payments. This provision, rather, is more accurately characterized as creating a form of involuntary, statutory suretyship.
While the contractor is potentially liable for two debts (the debt to the Board for the unpaid assessment and the potential debt to the principal if the principal pays the contractor's assessment) in a formal way, these in reality are one and the same as against the contractor. The contractor cannot be liable for both cumulatively. There is thus an inseparable nexus between the Board's claim against the contractor and the principal's potential claim against the contractor.
When s. 133(1) operates in combination with s. 133(3), the effect is to secure the claim of the Board against assets of the contractor. This is accomplished through the combined operation of the statutorily deemed debt imposed on the principal in the event of the contractor's default and the right of the principal to withhold and be indemnified from monies owing to the contractor. Thus, the combined effect of the deemed debt in s. 133(1) and set-off in s. 133(3) secures the Board's claim against the contractor's assets.
Parliament has recognized that the "law of set-off applies to all claims made against the estate of the bankrupt" (s. 97(3) of the Bankruptcy Act). In the bankruptcy context, the law of set-off allows a debtor of a bankrupt who is also a creditor of the bankrupt to refrain from paying the full debt owing to the estate, since it may be that the estate will only fulfil a portion, if that, of the bankrupt's debt. But there is an inherent limit to this deference to the provincial law of set-off. While the operation of set-off is permitted to allow for the party claiming set-off to recover from the estate ahead of the stipulated order of his claim under the Bankruptcy Act, it most emphatically is not permitted to allow for the operation of provincial legislation to reorder the priorities of third parties against the estate.
The operation of s. 133 has the effect of reordering federal priorities with respect to the claims of any third parties against the estate. Prior to bankruptcy, the security device created by s. 133(3) and triggered by s. 133(1) is within the province's jurisdiction. However, if applicable in the event of bankruptcy, it would enter into conflict with the scheme of distribution under the Bankruptcy Act. Parliament has expressly indicated in s. 136(1)(h) that "all indebtedness of the bankrupt under any Workmen's Compensation Act" is to rank eighth in the list of preferred claims and is to be distributed after the claims of secured creditors. By contrast, the combined effect of ss. 133(1) and (3) of the Saskatchewan Workers' Compensation Act, 1979, is to secure the Board's claim against the bankrupt's estate ahead of its priority under the Bankruptcy Act. The two laws in their operation give rise to different and inconsistent orders of priority and are thereby in conflict.
Section 133(4), which states that "[a]ll questions as to the right to and the amount of such indemnity shall be determined by the board", also has the effect of intruding into the exclusive federal sphere of bankruptcy. If allowed to apply in bankruptcy, this provision would have the effect of empowering a creditor of the estate (here the Board) to determine unilaterally the extent of its claim against the estate. As a result, the Board would be empowered to decide the size of the estate which is to remain available for the other secured, preferred and ordinary creditors. A province cannot empower a creditor of a bankrupt to determine the extent of a bankrupt's estate which is to be available for distribution. Thus, while otherwise perfectly valid provincial law, s. 133(4) is also inapplicable in the event of bankruptcy.
Section 133 is inapplicable, rather than inoperable, in bankruptcy for intruding into an exclusive federal sphere because bankruptcy is an exclusive federal domain within which provincial legislation does not apply, as distinguished from areas of joint or overlapping jurisdiction where federal legislation will prevail, rendering provincial legislation inoperable to the extent of any conflict. As bankruptcy is carved out from the domain of property and civil rights of which it is conceptually a part, valid provincial legislation of general application continues to apply in bankruptcy until Parliament legislates pursuant to its exclusive jurisdiction in relation to bankruptcy and insolvency. At that point, provincial legislation which conflicts with federal law must yield to the extent of the conflict and it becomes inapplicable to that extent. Consistent with the presumption of constitutionality -- that the enacting body is presumed to have intended to enact provisions which do not transgress the limits of its constitutional powers -- the provincial law should be interpreted so as not to apply to the matter that is outside the jurisdiction of the enacting body.
Where federal and provincial legislation potentially conflict, it must be first determined whether the laws are respectively valid federal or provincial legislation. If so, the actual operation of the laws must be examined to determine whether they are in operational conflict, and if so, the federal legislation prevails and the provincial legislation is without effect to the extent of this conflict. If the operational conflict is in a field of exclusive federal jurisdiction, the provincial legislation will be inapplicable as being ultra vires to that extent. If the conflict is in an area of concurrent or overlapping jurisdictions, the provincial legislation will remain intra vires but be inoperative. To the extent that there is operational conflict, there is no room for an incidental or ancillary effect of provincial legislation. If, on the other hand, there is no operational conflict, then both laws continue to operate and both continue to have effect to the extent that operational conflict does not arise. Short of operational conflict, provincial law may validly have an effect on bankruptcy. A clear operational conflict existed here in that ss. 133(1) and (3) in their operation together entailed a reordering or subverting of the federal order of priorities under the Bankruptcy Act. Such an intrusion into an exclusive federal sphere necessarily goes far beyond an incidental and ancillary effect.
Since as outlined s. 133 has no application in the event of bankruptcy, a number of threshold factual questions need not be addressed.
Per Sopinka, Cory, Iacobucci and Major JJ. (dissenting): Sections 133(1) and (3) of The Workers' Compensation Act, 1979, are severable and should be considered separately. Both are valid even where the contractor is or becomes bankrupt.
The doctrine of paramountcy, which arises where there is clear operational conflict between valid federal and provincial legislation, requires that the provincial legislation be declared inoperational to the extent of the conflict. Conflict for purposes of paramountcy analysis is found when compliance with the enactment of one level of government entails defiance with that of the other. Courts in applying the paramountcy doctrine should be restrained and look for co-existence rather than conflict.
A review of the legislative history and purpose of workers' compensation statutes did not give any indication that s. 133 was enacted for the purpose of improving the ranking of the Board in a bankruptcy.
The quartet of cases dealing with the paramountcy of the Bankruptcy Act over provincial enactments which directly interfered with the scheme of priorities established by s. 136 of the Act (Deputy Minister of Revenue v. Rainville, [1980] 1 S.C.R. 35; Deloitte Haskins and Sells Ltd. v. Workers' Compensation Board, [1985] 1 S.C.R. 785; Federal Business Development Bank v. Quebec (Commission de la santé et de la sécurité du travail), [1988] 1 S.C.R. 1061; British Columbia v. Henfrey Samson Belair Ltd., [1989] 2 S.C.R. 24) should be given a narrow interpretation. The quartet stands for the position that only those provincial laws which directly improve the priority of a claim upon the actual property of the bankrupt over that accorded by the Bankruptcy Act are inoperative. The broader approach, which would find a province to be improperly attempting to alter the priorities of distribution any time provincial law affected the final result of a bankruptcy, would produce unacceptable results because it risks nullifying the broad array of provincial legislation underpinning the Bankruptcy Act.
Provincial law plays a critical role in defining both the number and type of participants in the bankruptcy process and the size of the bankrupt's estate. A bankruptcy priority is a category and its precise content can and does vary to some extent from one province to the next. Because the federal legislation already contemplates that provincial law will impact upon the bankruptcy process, the respondents must do more than simply show that s. 133 has an effect on a particular bankruptcy. They must demonstrate that s. 133 actually reorders the federally established priority scheme with regard to the property of the bankrupt by directly creating interests in that property.
Section 133(1) has nothing to do with the property of the bankrupt. It creates a strict in personam obligation from the principal owing to the Board. The property of the principal is in no way subject to the Bankruptcy Act. The bankrupt is not even involved. The provision simply creates a third-party guarantee by the principal that the contractor will pay its debts to the board. Section 133(1) only alters the Board's recovery by permitting it to recover from a non-bankrupt third-party. No direct conflict within the meaning of the quartet or of paramountcy doctrine more generally exists between s. 133(1) and the Bankruptcy Act. Nothing in the Bankruptcy Act precludes any creditor, even if specifically mentioned in s. 136 , from pursuing its remedies against a third-party as well as or instead of proving a claim in bankruptcy. Section 133(1) does not involve property that is related to or part of the estate of the bankrupt and it is consequently not in operational conflict with the bankruptcy scheme. Section 136 encompasses a claim against the property of the bankrupt. The Board claim under s. 133(1) targets a solvent principal. The two provisions are co-extensive and complementary, not mutually exclusive.
Section 133(3) engages a more direct interference with the bankruptcy scheme than subs. (1) because, since it is the actual property of the bankrupt that is involved in the restitutionary claim launched by the principal, it constitutes the only linkage between the property of the principal and the estate of the bankrupt contractor.
Section 133(3) is merely declaratory of two different remedies existing at equity, set-off and indemnification. Set-off is the more intrusive of the two since it permits the principal to stand first in the priority scheme by taking away the property of the bankrupt before it enters the estate. A claim for indemnification would have only an ancillary effect on the bankrupt's estate since it only permits the principal to join the ranks of the unsecured creditors. Neither remedy is invalid as s. 97(3) of the Bankruptcy Act, which provides that the law of set-off is to persist in bankruptcy, reconciles the priority scheme of the Act with the common law of set-off (and implicity, of indemnification), and the claims embodied in s. 133(3) are merely reflective of those common law causes of action. Absent s. 133(3), such a claim would exist according to the law of restitution or the law of contract. In terms of restitution, it is settled that a person may claim for recoupment or reimbursement of monies expended by that person under compulsion of law if the effect of such a payment is to discharge the liability of another.
Set-off, independent of s. 133(3), also arises from the contractual relationship. The contracts oblige the contractor to "comply with all laws" and indemnify the principal from any expense arising from the "negligent performance, purported performance or non-performance of the contract" by the contractors.
The fact that the property of the bankrupt has been assigned to the Bank and, thus, that the debt is no longer technically owed to Metal Fab but to the Bank of Montreal, does not militate against a finding that the law of set-off applies. Equitable set-off (unlike legal set-off) can operate within the context of an assignment. The only pre-requisite to set-off against the assignee is that the claim against the assignee is to arise out of the same contract or series of events which gave rise to the original claim or be closely connected with that contract or series of events.
Although s. 133 renders the principal and the contractor jointly and severally liable to the Board, as between the principal and contractor, the primary liability lies with the contractor and, consequently, the solicitation of contribution for payments made on behalf of that contractor by the principal is consonant with commercial fairness.
Section 133(1) is still fully applicable in cases where there is either no indebtedness between the principal and the contractor or insufficient indebtedness to cover the full liability involved. To this end, not only does s. 133(1) operate in isolation of the bankruptcy, it also operates independently from s. 133(3). Subsection (1) is the key feature of s. 133 as a whole. It aims at preserving the integrity of the Injury Fund. Section 133(3) is clearly secondary in this regard and s. 133(1) accordingly was not intended to operate solely in conjunction with s. 133(3). While s. 133(3) and the equitable rights it codifies might not be able to operate independently from s. 133(1), s. 133(1) can operate independently from s. 133(3).
Cases Cited
By Gonthier J.
Considered: Deputy Minister of Revenue v. Rainville, [1980] 1 S.C.R. 35; Deloitte Haskins and Sells Ltd. v. Workers' Compensation Board, [1985] 1 S.C.R. 785; Federal Business Development Bank v. Quebec (Commission de la santé et de la sécurité du travail), [1988] 1 S.C.R. 1061; British Columbia v. Henfrey Samson Belair Ltd., [1989] 2 S.C.R. 24; disapproved: Ontario (Workers' Compensation Board) v. Evelyn Stevens Interiors Ltd. (Trustee of) (1993), 100 D.L.R. (4th) 742; referred to: Royal Bank of Canada v. Larue, [1928] A.C. 187, aff'g [1926] S.C.R. 218; Director of Labour Standards of Nova Scotia and Workers' Compensation Board of Nova Scotia v. Trustee in Bankruptcy (1981), 38 C.B.R. (N.S.) 253; R. v. Morgentaler, [1993] 3 S.C.R. 463; Madden v. Nelson and Fort Sheppard Railway Co., [1899] A.C. 626; County of Parkland No. 31 v. Stetar, [1975] 2 S.C.R. 884; Re Melton; Milk v. Towers, [1918] 1 Ch. 37; Re Coughlin & Co. (1923), 4 C.B.R. 294; Lister v. Hooson, [1908] 1 K.B. 174; Fredericton Co-operative Ltd. v. Smith (1921), 2 C.B.R. 154; Atlantic Acceptance Corp. v. Burns & Dutton Construction (1962) Ltd. (1970), 14 D.L.R. (3d) 175; Stein v. Blake, [1995] 2 All E.R. 961; Re Invitation Prêt-à-Porter Inc.; Miller v. Polbro Realty Co. (1979), 31 C.B.R. (N.S.) 54; Tennant v. Union Bank of Canada, [1894] A.C. 31; Crown Grain Co. v. Day, [1908] A.C. 504; Bank of Montreal v. Hall, [1990] 1 S.C.R. 121.
By Iacobucci J. (dissenting)
Deputy Minister of Revenue v. Rainville, [1980] 1 S.C.R. 35; Deloitte Haskins and Sells Ltd. v. Workers' Compensation Board, [1985] 1 S.C.R. 785; Federal Business Development Bank v. Quebec (Commission de la santé et de la sécurité du travail), [1988] 1 S.C.R. 1061; British Columbia v. Henfrey Samson Belair Ltd., [1989] 2 S.C.R. 24; Ontario (Workers' Compensation Board) v. Evelyn Stevens Interiors Ltd. (Trustee of) (1993), 100 D.L.R. (4th) 742, rev'g Re Evelyn Stevens Interiors Ltd. (1990), 72 D.L.R. (4th) 712; Serdula Construction Management Inc. v. Workers' Compensation Board, Q.B. (Regina), Q.B.M. 126/91 (April 12, 1991); Attorney-General of Ontario v. Attorney-General for the Dominion of Canada, [1894] A.C. 189; Royal Bank of Canada v. Larue, [1928] A.C. 187, aff'g [1926] S.C.R. 218; Multiple Access Ltd. v. McCutcheon, [1982] 2 S.C.R. 161; Bank of Montreal v. Hall, [1990] 1 S.C.R. 121; General Motors of Canada Ltd. v. City National Leasing, [1989] 1 S.C.R. 641; Medwid v. Ontario (1988), 48 D.L.R. (4th) 272; Reference re Workers' Compensation Act, 1983 (Nfld.) (1987), 44 D.L.R. (4th) 501, aff'd [1989] 1 S.C.R. 992; Re Black Forest Restaurant Ltd. (1981), 37 C.B.R. (N.S.) 176; TransGas Ltd. v. Mid-Plains Contractors Ltd., [1994] 3 S.C.R. 753; Ecarnot (Trustee of) v. Western Credit Union Ltd. (1991), 7 C.B.R. (3d) 207; John M. M. Troup Ltd. v. Royal Bank of Canada, [1962] S.C.R. 487; Panamericana de Bienes y Servicios S.A. v. Northern Badger Oil & Gas Ltd., [1991] 5 W.W.R. 577; Robinson v. Countrywide Factors Ltd., [1978] 1 S.C.R. 753; Re French River Contracting Co., [1937] O.W.N. 665; MacDonald v. Vapour Canada Ltd., [1977] 2 S.C.R. 134; Holt v. Telford, [1987] 2 S.C.R. 193; Lister v. Hooson, [1908] 1 K.B. 174; Moule v. Garrett (1872), L.R. 7 Ex. 101; Brook's Wharf and Bull Wharf, Ltd. v. Goodman Brothers, [1937] 1 K.B. 534; Government of Newfoundland v. Newfoundland Railway Co. (1888), 13 App. Cas. 199; Hanak v. Green, [1958] 2 All E.R. 141; Coba Industries Ltd. v. Millie's Holdings (Canada) Ltd., [1985] 6 W.W.R. 14; Federal Commerce and Navigation Ltd. v. Molena Alpha Inc., [1978] 3 All E.R. 1066, aff'd [1979] A.C. 757; New Brunswick v. Estabrooks Pontiac Buick Ltd. (1982), 44 N.B.R. (2d) 201; Manitoba Fisheries Ltd. v. The Queen, [1979] 1 S.C.R. 101; Vickery v. Nova Scotia Supreme Court (Prothonotary), [1991] 1 S.C.R. 671; R. v. Amway Corp., [1989] 1 S.C.R. 21; Board of Industrial Relations v. Avco Financial Services Realty Ltd., [1979] 2 S.C.R. 699.
Statutes and Regulations Cited
Bankruptcy Act, R.S.C., 1985, c. B-3, ss. 2 , 17(1) , 67 , 72(1) , 95 , 97(3) , 136 , 141 , 148 , 158 (a), 198 (a).
Constitution Act, 1867, ss. 91(21) , 92(13) .
Workers' Compensation Act, 1979, S.S. 1979, c. W-17.1, ss. 133(1), (3), (4).
Workers' Compensation Amendment Act, 1993, S.S. 1993, c. 63, s. 40.
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APPEAL from a judgment of the Saskatchewan Court of Appeal (1993), 116 Sask. R. 46, 108 D.L.R. (4th) 681, 11 C.L.R. (2d) 1, 22 C.B.R. (3d) 153, [1994] 1 W.W.R. 629, dismissing an appeal from a judgment of Wedge J. (1992), 104 Sask. R. 225, 96 D.L.R. (4th) 495, 3 C.L.R. (2d) 194, 16 C.B.R. (3d) 290. Appeal dismissed, Sopinka, Cory, Iacobucci and Major JJ. dissenting. Section 133 is inapplicable in bankruptcy when s. 133(1) of The Workers' Compensation Act, 1979, operates in tandem with s. 133(3). Section 133 was inapplicable when the contractor entered bankruptcy.
Robert G. Richards and Evan L. Bennett, for the appellant.
James S. Ehmann and Paul J. Harasen, for the respondent Husky Oil Operations Ltd.
Edward R. Sojonky, Q.C., and Gordon Berscheid, for the respondent Her Majesty The Queen in right of Canada.
Thomson Irvine, for the respondent the Attorney General for Saskatchewan.
Brian J. Scherman, for the respondent Bank of Montreal.
Hart Schwartz, for the intervener the Attorney General for Ontario.
Cedric L. Haines, for the intervener the Attorney General for New Brunswick.
R. Richard M. Butler, for the intervener the Attorney General of British Columbia.
Written submission only by Nolan D. Steed for the intervener the Attorney General for Alberta.
Written submission only by Elizabeth Kosmidis for the intervener the Workers' Compensation Board of Ontario.
Written submission only by Gerald W. Massing for the intervener the Workers' Compensation Board of British Columbia.
Written submission only by Douglas R. Mah for the intervener the Workers' Compensation Board of Alberta.
Written submission only by Bruce L. Willis, Q.C., for the intervener the Workers' Compensation Health and Safety Board of Yukon.
The judgment of Lamer C.J. and La Forest, L'Heureux-Dubé, Gonthier and McLachlin JJ. was delivered by
1 GONTHIER J. -- I have had the benefit of the reasons of my colleague Justice Iacobucci. I respectfully disagree with his conclusion that s. 133 of The Workers' Compensation Act, 1979, S.S. 1979, c. W-17.1, is applicable in bankruptcy, and that provincial legislation can, through the operation of set-off in this manner, effectively reorder the priorities otherwise provided in the Bankruptcy Act, R.S.C., 1985, c. B-3.
2 In my opinion, the combined effect of the deemed debt in s. 133(1) and set-off against property of the bankrupt in s. 133(3) is to secure the Workers' Compensation Board's (the Board) claim against the estate of the bankrupt. When ss. 133(1) and (3) operate in tandem as intended by the Legislature, the effect is that the Board's claim is satisfied with property of the bankrupt in the form of the monies withheld by the principal. The principal becomes nothing more than a conduit for transferring to the Board monies which form property of the bankrupt's estate. The end result is that the bankrupt's estate is diminished to the extent of the contractor's liability to the Board, and the Board is correspondingly enriched by an identical amount, thereby recovering its claim in full. On the other hand, the principal's estate or patrimony remains entirely unaffected. The Board's claim is thus secured against the bankrupt's estate, mediated through the legally compelled agency of the principal. In this way, the Board recovers against the estate ahead of the priority mandated by Parliament in s. 136(1)(h) of the Bankruptcy Act, creating an operational conflict.
3 Recourse to s. 97(3) of the Bankruptcy Act, which incorporates by reference the provincial law of set-off, does not provide much assistance to the Board in this case. It is true that set-off itself may give rise to a reordering of priorities in bankruptcy in the limited sense that the party claiming set-off will secure his or her claim against the estate rather than recover under the priority otherwise provided by the Bankruptcy Act. This much is acknowledged by Parliament in enacting s. 97(3). However, the real question is the extent to which Parliament has deferred to the relevant provincial law. Here, Parliament has deferred to the extent of allowing the party claiming set-off to recover exceptionally ahead of his priority. But Parliament has not deferred to the extent of allowing third parties the same benefit as a result of the operation of provincial legislation. Set-off, in other words, is simply a defence to the payment of a debt, not a basis for validating statutory security devices which have the effect of securing the claims of third parties against the estate ahead of the priority stipulated by Parliament. The question is thus not whether the province has created a proprietary interest, but rather, it is whether that interest can have the effect of defeating the scheme of distribution under the Bankruptcy Act. Here, s. 133 not only gives a priority to the principal claiming set-off, which is permissible under s. 97(3), it also has the effect of securing the Board's claim against the estate, which most assuredly is impermissible. As a result, if s. 133 were applicable in bankruptcy, it would enter into conflict with the order of priorities required by the Bankruptcy Act. Consistent with the presumption of constitutionality, it is my opinion that s. 133 should be read down to the extent of the conflict; that is, s. 133 is inapplicable in bankruptcy. I would therefore dismiss the appeal with costs throughout.
I. Background Facts, Relevant Legislation and the Courts Below
4 Since my colleague Iacobucci J. has helpfully summarized the relevant factual and legislative background together with the judgments of the courts below, I need not repeat that discussion. However, for reasons that will become apparent, it is important to reproduce the impugned provision, s. 133 of the Saskatchewan Workers' Compensation Act, 1979, in its entirety:
133.__(1) Where a person, whether carrying on an industry included under this Act or not, in this section referred to as the principal, contracts with any other person, in this section referred to as the contractor, for the execution by or under the contractor of the whole or any part of any work for the principal, it is the duty of the principal to ensure that any sum that the contractor or any subcontractor is liable to contribute to the fund is paid and, where the principal fails to do so and the sum is not paid, he is personally liable to pay that sum to the board.
(2) The board shall have the same powers and be entitled to the same remedies for enforcing payment under subsection (1) that it possesses in respect of an assessment under this Act.
(3) Where the principal is liable to make payment to the board under subsection (1), he is entitled to be indemnified by any person who should have made the payment and is entitled to withhold, out of any indebtedness due to that person, a sufficient amount in respect of that indemnity.
(4) All questions as to the right to and the amount of such indemnity shall be determined by the board.
II. Issues on Appeal
5 The constitutional questions raised by this appeal were stated by the Chief Justice on September 14, 1994 as follows:
1 Where a contractor as referred to in s. 133 of The Workers' Compensation Act, 1979, S.S. 1979, c. W-17.1, is in bankruptcy and but for the bankruptcy, the principal as referred to in s. 133 would be liable to pay the assessment due by the contractor under the Act, is s. 133 of the said Act inoperative or inapplicable in whole or in part, by reason of being in conflict with the Bankruptcy Act, R.S.C., 1985, c. B-3, and in particular ss. 17(1), 67, 95, 136(1)(h), 148, 158(a) and 198(a) thereof?
2 Was s. 133 of the said Act inoperative or inapplicable in the circumstances of this case?
6 I agree with my colleague Iacobucci J. that the parties before this Court focused their arguments on the alleged conflict between s. 133 of the Saskatchewan Workers' Compensation Act, 1979, and s. 136(1)(h) of the Bankruptcy Act. Certainly, that is the gravamen of this appeal. However, I respectfully disagree with Iacobucci J.'s restatement of the issues in the constitutional questions posed by the Chief Justice. Iacobucci J.'s reasons adopt the appellant's reformulation of the issues and examine the constitutional validity of ss. 133(1) and (3) separately. As will become apparent, in my view this manner of proceeding obscures the response to the constitutional questions. The question is not whether these provisions are independently valid, but rather, it is whether when combined they have the effect of reordering priorities in bankruptcy. When s. 133(1) is read together with s. 133(3), it is clear that the combined effect of the statutory deemed debt and the right to set-off against property of the bankrupt is to secure the Board's claim against the bankrupt's estate. In so doing, s. 133 read as a whole conflicts with Parliament's intention to accord the Board's claim the priority established in s. 136(1)(h) of the Bankruptcy Act.
III. Analysis
A. The Purposes of Federal Bankruptcy Legislation
7 At the outset, it is useful to remember that our bankruptcy system serves two distinct goals. The first is to ensure the equitable distribution of a bankrupt debtor's assets among the estate's creditors inter se. As one commentator has noted (Aleck Dadson, "Comment" (1986), 64 Can. Bar Rev. 755, at p. 755):
Bankruptcy serves this goal by replacing a regime of individual action with a regime of collective action. While the pre-bankruptcy regime of individual action allows creditors to pursue their separate and competing claims to the debtor's assets, bankruptcy's regime of collective action sorts out those diverse claims and deals with the debtor's assets in a way which brings benefits to creditors as a group (reduced costs, increased recovery)....
The collectivization of insolvency proceedings can only be achieved by denying to creditors the use of pre-bankruptcy remedies.
See also Peter W. Hogg, Constitutional Law of Canada (3rd ed. 1992), vol. 1, at p. 25-3. The second goal of the bankruptcy system is the financial rehabilitation of insolvent individuals (Dadson, supra, at p. 755). This goal is furthered through the opportunity for an insolvent individual's discharge from outstanding debts.
8 It has long been accepted that the first goal of ensuring an equitable distribution of a debtor's assets is to be pursued in accordance with the federal system of bankruptcy priorities. In the seminal case of Royal Bank of Canada v. Larue, [1928] A.C. 187, affirming [1926] S.C.R. 218, Viscount Cave L.C. confirmed that the exclusive federal power over bankruptcy and insolvency in s. 91(21) of the Constitution Act, 1867 enables Parliament to provide for the ranking of creditors in bankruptcy. He observed at