Date: 20041126
Docket: ITA-1096-99
Citation: 2004 FC 1568
Ottawa, Ontario, the 26th day of November 2004
PRESENT: THE HONOURABLE MR. JUSTICE BEAUDRY
In re the Income Tax Act
and
In re one or more assessments made by the
Minister of National Revenue pursuant to one or more of the following statutes:
the Income Tax Act,
the Canada Pension Plan and
the Employment Insurance Act
AGAINST:
LA CORPORATION STECKMAR /
STECKMAR CORPORATION
Judgment debtor
and
STECKMAR NATIONAL REALTY
AND INVESTMENT CORPORATION
Garnishee
REASONS FOR ORDER AND ORDER
[1] The purpose of the motion at bar is to appeal an order by the prothonotary pursuant to subsection 51(1) of the Federal Court Rules (1998), SOR/98-106 (the Rules). The latter made a final order of garnishment in favour of Her Majesty the Queen against Steckmar National Realty and Investment Corporation (the garnishee), regarding advances which it received without interest over the last 25 years from Corporation Steckmar/Steckmar Corporation (the judgment debtor).
POINT AT ISSUE
[2] Did the prothonotary err in granting Her Majesty the Queen a final order of garnishment against the garnishee?
[3] For the following reasons, I must answer this question in the negative and I will dismiss the appeal from the prothonotary's decision.
FACTUAL BACKGROUND
[4] Her Majesty the Queen (the creditor) obtained an order of garnishment against Steckmar National Realty and Investment Corporation (the garnishee) to recover a debt of $126,666.39 plus interest owed her by Steckmar Corporation (the judgment debtor).
[5] The judgment debtor advanced sums totalling $4,255,534.41 to the garnishee over a 25-year period. The garnishee, for its part, used part of this amount, namely the sum of $1,929,767, to make a loan to an American company, Marina Development Inc.
[6] The judgment debtor and the garnishee are related companies, since 49% of the judgment debtor's shares are held by Mr. Steckler, 49% by his sister and 2% by his mother, while the shares of the garnishee all belong to Mr. Steckler. The latter is also 100% owner of Marina Development Inc.
[7] Mr. Steckler acted, inter alia, as manager and director of the garnishee, and claimed to be representative of the judgment debtor and garnishee for the purposes of these proceedings.
[8] The loan between the judgment debtor and garnishee was not confirmed in writing, but they agreed it would be repayable when the garnishee's financial situation permitted. To date, only $776,525 has been repaid.
[9] In his examination in 2000, Mr. Steckler said that the garnishee and judgment debtor were in financial difficulty. He admitted that the debt held by the judgment debtor was regarded as a bad debt as the garnishee was unable to repay its debt.
IMPUGNED DECISION
[10] In making the order, the prothonotary relied inter alia on section 453 of the Rules. In the prothonotary's view, payability is an important aspect of the debt as it concerns the time the term expires. Consequently, a dispute regarding the term is sufficient to make section 453 of the Rules applicable.
| Summary determination of liability
453. Where a garnishee disputes liability to pay a debt claimed to be due or accruing to the judgment debtor, the Court may summarily determine any question of liability of the garnishee or order that it be determined in such a manner as the Court may direct. |
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Jugement sommaire quant à l'obligation du tiers
453. Lorsque le tiers saisi conteste l'obligation de payer au débiteur judiciaire la dette échue ou à échoir, la Cour peut juger par procédure sommaire toute question concernant l'obligation du tiers saisi ou ordonner qu'elle soit instruite de la manière qu'elle précise. |
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[11] The garnishee maintained that the application of section 453 does not give rise to the relief sought by Her Majesty the Queen. The Federal Court does not have jurisdiction to determine the expiry of the term, based on articles 1512 and 1627 of the Civil Code of Quebec (C.C.Q.).
[12] In response to these allegations, the prothonotary indicated that it is well settled that the Federal Court has the power necessary to resolve questions of provincial law incidental to the principal application. He mentioned that, from reading the relevant rules, it is clear that the payability of the debt was incidental to the question of the garnishments.
[13] Additionally, the prothonotary mentioned that section 453 of the Rules allows the Court to determine "any question of liability of the garnishee or order that it be determined in such a manner as the Court may direct".
[14] To determine whether the garnishee's debt was due, the prothonotary analyzed the kind of obligation which existed between the judgment debtor and the garnishee. As the term of that obligation was uncertain, the prothonotary applied article 1512 of the C.C.Q. to fix it.
[15] However, that article provides that upon the application of one of the parties the Court may intervene to fix the term. In the case at bar, the garnishee alleged that Her Majesty the Queen was not a party to the obligation. However, referring to article 1627 C.C.Q., the prothonotary's conclusion was in favour of Her Majesty the Queen.
ANALYSIS
Preliminary question: What are the Federal Court's powers on appeal from a prothonotary's decision?
[16] In Merck & Co. v. Apotex, [2003] F.C.J. No. 1925 (F.C.A.) (QL), at paragraph 19, the Court explained the standard of review applicable to discretionary orders by prothonotaries. This standard had previously been developed in Canada v. Aqua-Gem Investments Ltd., [1993] 2 F.C. 425 (C.A.).
[17] It has been held that a judge hearing an appeal from a prothonotary's discretionary order should not intervene except in the following two cases:
(a) the order deals with a question vital to the final issue of the principal matter;
(b) the order is clearly wrong, in the sense that the exercise of discretion by the prothonotary was based upon a wrong principle or a misapprehension of the facts.
[18] The effect of the prothonotary's order was that the garnishee was directed to pay the sum of $126,666.39. That surely is a question which is vital to the final issue of the principal matter. The Court must redo the analysis de novo in order to exercise its discretion.
1. What powers does the Federal Court have regarding execution of a judgment?
[19] The Federal Court derives its powers from federal legislation which expressly confers its jurisdiction. In ITO-International Terminal Operators Ltd. v. Miida Electronics, [1986] 1 S.C.R. 752, at 766, the Supreme Court of Canada set out the conditions for this:
(1) there must be a statutory grant of jurisdiction by the federal Parliament;
(2) there must be an existing body of federal law which is essential to the disposition of the case and which nourishes the statutory grant of jurisdiction;
(3) the law on which the case is based must be "a law of Canada" as the phrase is used in s. 101 of the Constitution Act, 1867.
[20] I feel that these three criteria are met in the case at bar. In this regard, Her Majesty the Queen first obtained a certificate confirming the amount owed her by the debtor pursuant to subsection 223(2) of the Income Tax Act (I.T.A.). Later, she filed this certificate in the Federal Court to have it registered (subsection 223(3) of the I.T.A.). The result of registration is to give the certificate the same effect as if an order had been made by this Court. The two subsections of the I.T.A. provide the following:
| Certificates (2) An amount payable by a person (in this section referred to as a "debtor") that has not been paid or any part of an amount payable by the debtor that has not been paid may be certified by the Minister as an amount payable by the debtor. |
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Certificat |
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| (2) Le ministre peut, par certificat, attester qu'un montant ou une partie de montant payable par une personne -- appelée "débiteur" au présent article -- mais qui est impayé est un montant payable par elle.Registration in court (3) On production to the Federal Court, a certificate made under subsection 223(2) in respect of a debtor shall be registered in the Court and when so registered has the same effect, and all proceedings may be taken thereon, as if the certificate were a judgment obtained in the Court against the debtor for a debt in the amount certified plus interest thereon to the day of payment as provided by the statute or statutes referred to in subsection 223(1) under which the amount is payable and, for the purpose of any such proceedings, the certificate shall be deemed to be a judgment of the Court against the debtor for a debt due to Her Majesty, enforceable in the amount certified plus interest thereon to the day of payment as provided by that statute or statutes. |
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Enregistrement à la cour (3) Sur production à la Cour fédérale, un certificat fait en application du paragraphe (2) à l'égard d'un débiteur est enregistré à cette cour. Il a alors le même effet que s'il s'agissait d'un jugement rendu par cette cour contre le débiteur pour une dette du montant attesté dans le certificat, augmenté des intérêts courus jusqu'à la date du paiement comme le prévoit les lois visées au paragraphe (1) en application desquelles le montant est payable, et toutes les procédures peuvent être engagées à la faveur du certificat comme s'il s'agissait d'un tel jugement. Dans le cadre de ces procédures, le certificat est réputé être un jugement exécutoire rendu par cette cour contre le débiteur pour une dette envers Sa Majesté du montant attesté dans le certificat, augmenté des intérêts courus jusqu'à la date du paiement comme le prévoit ces lois.
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[21] As the certificate is deemed to have the same effect as a judgment of the Court, Her Majesty the Queen may make use of Part 12 of the Rules to obtain enforcement of the judgment. In this regard, section 449 of the Rules provides that it is possible to obtain garnishment for payment of the debt recorded in the judgment.
2. Does the Federal Court have jurisdiction to consider questions of provincial law?
[22] In ITO, supra, at 781, the Supreme Court of Canada recognized that the Federal Court has jurisdiction to decide questions of provincial law when such questions are incidental to the principal application:
The Federal Court is constituted for the better administration of the laws of Canada. It is not, however, restricted to applying federal law in cases before it. Where a case is in "bith and substance" within the Court's statutory jurisdiction, the Federal Court may apply provincial law incidentally necessary to resolve the issues presented by the parties . . .
[23] To the same effect, we may refer to Bois de Construction du Nord (1971) Ltée v. Charles Guilbault Inc. (1986), 77 N.R. 392 (F.C.A.):
Parliament's right under s. 101 of the Constituion Act, 1867 to create "additional courts for the better administration of the laws of Canada" necessarily implies a right to give those courts the power to ensure that their judgments are executed; similarly, Parliament's power over taxation undoubtedly includes that of ensuring that taxes are collected by a provision such as s. 223 of the Income Tax Act (RSC 1952, c. 148, amended by SC 1970-71-72, c. 63). The power which the Court has to enforce its judgments (and orders and certificates, which the law treats like judgments) would be illusory if it did not carry with it a power to resolve problems raised by such enforcement, whether those problems are governed by federal or by provincial law. Thus, a court which has the jurisdiction to order that the property of a debtor be garnished must necessarily have that of ruling on any objections put forward by third parties claiming to own the garnished property.
[24] At page 223 of that judgment, Marceau J.A. said the following:
Just as the Court has the power to rule on a question of provincial law which arises incidentally in the course of exercising its jurisdictional power, so it has the power to dispose of a question of provincial law which arises in exercising its power of execution. Accordingly, it cannot be concluded merely from the fact that in the case at bar the objection made by the respondent to negative declarations raises questions of provincial law that the Court does not have jurisdiction to determine their legitimacy.
[25] A bit further on, he acknowledged there were some limits:
That is not to say that the Court can rule on all arguments which a garnisher may think it proper to make against a garnishee. The Court's jurisdiction in the matter is merely the corollary of its power to garnish debts owed to a debtor against whom it has rendered judgment: it follows that in the case of an objection to a negative declaration the only arguments which the Court can decide are those which seek to establish that, at the time of the garnishment, the judgment debtor had a claim against the garnishee which had the necessary characteristics for it to be garnished.
[26] The Court must now determine whether the question of provincial law is incidental to the principal matter or whether it is a question of substance.
Application of section 449 of Rules
[27] The question of the payability of the debt is a question incidental to a garnishment. The rule is set out in paragraph 449(1)(a) of the Rules:
| Garnishment Proceedings
449. (1) Subject to rules 452 and 456, on the ex parte motion of a judgment creditor, the Court may order |
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Saisies-arrêts
449. (1) Sous réserve des règles 452 et 456, la Cour peut, sur requête ex parte du créancier judiciaire, ordonner : |
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a) que toutes les créances suivantes du débiteur judiciaire dont un tiers lui est redevable soient saisies-arrêtées pour le paiement de la dette constatée par le jugement : |
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| (i) a debt owing or accruing from a person in Canada to a judgment debtor . . .
be attached to answer the judgment debt . . .
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(i) les créances échues ou à échoir dont est redevable un tiers se trouvant au Canada . . . |
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[28] Subsections 451(1) and (2) and section 453 determine the Court's powers when various scenarios mentioned occur. They read as follows:
| Garnishment order
451. (1) Where a garnishee has not made a payment into court under rule 450 and does not dispute the debt claimed to be due to the judgment debtor, or does not appear pursuant to a show cause order made under subsection 449(1), on motion, the Court may make an order for payment to the judgment creditor or payment into court of the debt. |
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Ordonnance de paiement
451. (1) Lorsque le tiers saisi n'a pas fait de consignation à la Cour selon la règle 450 et qu'il ne conteste pas la dette dont on le prétend redevable au débiteur judiciaire, ou lorsqu'il ne se présente pas en application de l'ordonnance rendue en vertu du paragraphe 449(1), la Cour peut, sur requête, rendre une ordonnance exigeant le paiement au créancier judiciaire ou la consignation à la Cour. |
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| Order for future payment
(2) Where a debt owed to a judgment debtor is not payable at the time an order is sought under subsection 449(1), an order may be made for payment of the debt to the judgment creditor under subsection (1) as at the time the debt becomes payable. |
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Dette non exigible
(2) Si la dette à payer au débiteur judiciaire n'est pas exigible au moment où l'ordonnance visée au paragraphe 449(1) est demandée, une ordonnance peut être rendue en vue du paiement de la dette à son échéance au créancier judiciaire selon les modalités prévues au paragraphe (1). |
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| Summary determination of liability
453. Where a garnishee disputes liability to pay a debt claimed to be due or accruing to the judgment debtor, the Court may summarily determine any question of liability of the garnishee or order that it be determined in such a manner as the Court may direct.
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Jugement sommaire quant à l'obligation du tiers
453. Lorsque le tiers saisi conteste l'obligation de payer au débiteur judiciaire la dette échue ou à échoir, la Cour peut juger par procédure sommaire toute question concernant l'obligation du tiers saisi ou ordonner qu'elle soit instruite de la manière qu'elle précise. |
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[29] In short, the Federal Court has the power to resolve this kind of question. Before applying these principles to the case at bar, the type of debt existing here must be determined.
Type of obligation existing between judgment debtor and garnishee
[30] The parties were agreed in saying that this was a term obligation. The garnishee acknowledged its debt to the debtor, but the term itself was in dispute, that is, exactly when the obligation became payable. It argued that the Court had jurisdiction under subsection 451(2), not section 453. In its submission, the Court should have made an order limited to requiring the
garnishee to pay only when its financial situation allowed it make such a payment. This is what the writers Baudouin and Jobin (J-L. Baudouin and P-G. Jobin, Les Obligations, 5th ed., Cowansville, Les Éditions Yvon Blais inc., 1998) say at pages 452 and 453, No. 573.
[TRANSLATION]
A debtor's obligation to pay "when he can" or "when he has the means to do so" is not a potestative conditional obligation, but rather a term obligation: then the Court is sometimes required to intervene to determine whether the term has actually expired.
[31] Article 1512 of the C.C.Q. provides as follows:
| 1512. Where the parties have agreed to delay the determination of the term or to leave it to one of them to make such determination and where, after a reasonable time, no term has been determined, the court may, upon the application of one of the parties, fix the term according to the nature of the obligation, the situation of the parties and the circumstances. |
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1512. Lorsque les parties ont convenu de retarder la détermination du terme ou de laisser à l'une d'elles le soin de le déterminer et qu'à l'expiration d'un délai raisonnable, elles n'y ont point encore procédé, le tribunal peut, à la demande de l'une d'elles, fixer ce terme en tenant compte de la nature de l'obligation, de la situation des parties et de toute circonstance appropriée. |
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| The court may also fix the term where a term is required by the nature of the obligation and there is no agreement as to how it may be determined. |
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Le tribunal peut aussi fixer ce terme lorsqu'il est de la nature de l'obligation qu'elle soit à terme et qu'il n'y a pas de convention par laquelle on puisse le déterminer.
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[32] The first paragraph of this article expressly states that the Court may fix the term upon the application of one of the parties. In the second paragraph, two conditions must be met: the obligation must be a term obligation and there must be no agreement as to how this is to be determined.
[33] In the case at bar, the term is [TRANSLATION] "as the garnishee's financial situation permits". There is nothing in the evidence indicating that any procedure was created to decide on the time of repayment. For example, should the garnishee wait until it has accumulated four million before beginning to make payment? Will periodic payments be made? - how often? However, one thing is certain: there was no written agreement to indicate this.
[34] Consequently, I consider that the Court may decide the question of the expiry of the term, relying on article 1512 of the C.C.Q.
[35] The judgment debtor and garnishee maintained that the Court does not have the powers to decide this question of payability, as they argued that article 1512 specifically provides that the Court may fix the term only upon the application of one of the parties. The respondent, for her part, asked the Court to allow her to exercise in the debtor's name the rights and actions which the latter has regarding the garnishee, pursuant to article 1627 of the C.C.Q.:
| 1627. A creditor whose claim is certain, liquid and exigible may exercise the rights and actions belonging to the debtor, in the debtor's name, where the debtor refuses of neglects to exercise them to the prejudice of the creditor. |
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| 1627. Le créancier dont la créance est certaine, liquide et exigible peut, au nom de son débiteur, exercer les droits et actions de celui-ci, lorsque le débiteur, au préjudice du créancier, refuse ou néglige de les exercer.However, he may not exercise rights and actions which are strictly personal to the debtor. |
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Il ne peut, toutefois, exercer les droits et actions qui sont exclusivement attachés à la personne du débiteur. |
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[36] The Court finds in favour of the respondent as in the circumstances, in view of the number of years which have elapsed without requiring the garnishee to repay the loan, the judgment debtor may surely be regarded as negligent.
Oblique action and garnishment
[37] The debtor and the garnishee argued that the creditor should proceed by action instead of a motion by summary proceeding, as we see in the case at bar. Some writers agree that garnishment is a form of oblique action:
[TRANSLATION]
Garnishment is a means of enforcement on a personal action provided for in the second paragraph of article 569, which states that in all cases the creditor may garnish from a third party monies and property owed or belonging to its debtor. It is a special form of oblique action which allows the creditor, under article 1627 of the Civil Code of Quebec, to exercise the debtor's rights and actions. The creditor thus has a practical remedy of a subrogatory nature which puts the debtor's debt in the hands of the court so it can be transferred to the creditor. (B. EMERY and D. FERLAND, Précis de procédure civile du Québec, vol. 2, 3d ed., Cowansville, Les Éditions Yvon Blais Inc., 1997, p. 198.) [Emphasis added.]
[38] The Court is not dealing here with a situation in which a judgment debtor neglected, for example, to sue the garnishee for damages to obtain what was owed. In that scenario, the judgment creditor would have to bring the action against the garnishee itself in the judgment debtor's place.
[39] In the case at bar, the parties admitted that the debt existed, that the debt was a term obligation. The dispute was as to payability. With respect for the contrary view, the Court feels that the solution is to be found in section 453 of the Rules, with the words "where a garnishee disputes liability to pay . . . the Court may summarily determine": Canada (Minister of National Revenue - M.N.R.) v. Gadbois, 2002 FCA 228, [2002] F.C.J. No. 836 (C.A.) (QL). Incidentally, articles 1512 and 1627 C.C.Q. may be used.
Whether debt payable or to become payable
[40] Several points must be considered before determining the payability of the debt. As I said earlier, the parties are agreed that this is a term obligation. No written agreement was made to determine when the term expired. The judgment debtor began making advances to the garnishee 25 years ago, without interest. Some $749,330 were repaid in 1995 and 1996 on a loan of $4,255,534.41. The interim order of garnishment was dated in December 1999. The judgment debtor and garnishee are related businesses.
[41] Taking all these factors into account, the Court finds that the debt is due.
[42] Prothonotary Morneau made no error of law or fact requiring the Court's intervention. His analysis was in great detail, painstaking and well supported by precedent and commentary.
[43] Consequently, the motion is dismissed with costs.
ORDER
THE COURT ORDERS: the motion is dismissed with costs.
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"Michel Beaudry"
Judge |
Certified true translation
K.A. Harvey
FEDERAL COURT
SOLICITORS OF RECORD
DOCKET: ITA-1096-99
STYLE OF CAUSE: In re the Income Tax Act
and
In re one or more assessments made by the Minister of National Revenue pursuant to one or more of the following statutes: the Income Tax Act, the Canada Pension Plan and the Employment Insurance Act
AGAINST:
LA CORPORATION STECKMAR /
STECKMAR CORPORATION (Judgment debtor)
and
STECKMAR NATIONAL REALTY
AND INVESTMENT CORPORATION (Garnishee)
PLACE OF HEARING: Montréal, Quebec
DATE OF HEARING: October 5, 2004
REASONS FOR ORDER
AND ORDER BY: THE HONOURABLE MR. JUSTICE BEAUDRY
DATED: November 26, 2004
APPEARANCES:
Claude Bernard FOR THE JUDGMENT DEBTOR
Virginie Paquet FOR THE JUDGMENT DEBTOR AND GARNISHEE
SOLICITORS OF RECORD:
Morris Rosenberg FOR THE JUDGMENT CREDITOR
Deputy Attorney General of Canada
Montréal, Quebec
ANGELOPOULOS, KIRIAZIS FOR THE JUDGMENT DEBTOR AND
Montréal, Quebec GARNISHEE