Date: 20010201
Docket: ITA-1384-97
Reference: 2001 FCT 3
In re the Income Tax Act,
- and -
In re one or more assessments 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 Unemployment Insurance Act.
OTTAWA, ONTARIO, FEBRUARY 1, 2001
BEFORE: TREMBLAY-LAMER J.
Between:
GILBERT GADBOIS
Judgment debtor
- and -
TRANSPORT H. CORDEAU INC.
J.L. MICHON TRANSPORT INC.
Garnishees
- and -
2951-7539 QUÉBEC INC.
Mis-en-cause
O R D E R
As only provincial courts are competent to try this matter, I decline jurisdiction: the whole with costs.
Danièle Tremblay-Lamer
JUDGE
Certified true translation
Suzanne M. Gauthier, LL.L. Trad. a.
Date: 20010201
Docket: ITA-1384-97
Reference: 2001 FCT 3
In re the Income Tax Act,
- and -
In re one or more assessments 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 Unemployment Insurance Act.
Between:
GILBERT GADBOIS
Judgment debtor
- and -
TRANSPORT H. CORDEAU INC.
J.L. MICHON TRANSPORT INC.
Garnishees
- and -
2951-7539 QUÉBEC INC.
Mis-en-cause
REASONS FOR ORDER
TREMBLAY-LAMER J.
[1] This is an appeal from a decision by the prothonotary Richard Morneau on March 7, 2000 which allowed the motion by Her Majesty the Queen, applicant-respondent ("the respondent") for a final garnishment against Transport H. Cordeau Inc., garnishee-appellant ("the appellant"), which ordered the appellant to pay the respondent the sum of $100,000 plus interest on the said sum at 1% a month from June 1, 1996, and which ordered the maintenance and lifting of the corporate veil in respect of 2951-7539 Québec Inc., mis-en-cause ("Québec Inc.").
FACTS
Québec Inc.
[2] The appellant is a transportation and snow clearance company which ran into serious financial problems in 1995.
[3] The appellant borrowed money from several people, including Québec Inc., owned by Gilbert Gadbois, a tax debtor ("Gadbois").
[4] Between February and September 1996 Québec Inc. paid the appellant sums totalling some $160,300, the said loan being recorded by a deed of loan including a second hypothec on the appellant's equipment in the amount of $325,000.
[5] The sum to be repaid to Québec Inc. by the appellant, in view of the advances of $160,300, was unilaterally set by Gadbois at $225,000 by a verbal counter-letter ("counter-letter 1"), in contrast to the sum of $325,000 which appeared officially in the deed of hypothec.
Transport Michon
[6] The appellant also borrowed money from J.L. Michon Transport Inc., garnishee ("Michon Transport").
[7] The money borrowed from Michon Transport by the appellant was secured by a deed of third hypothec in the amount of $100,000.
[8] On November 5, 1996 Michon Transport purchased Québec Inc.'s claim against the appellant in the amount of $225,000. The appellant consented to the said assignment on that date.
[9] On November 11, 1996 this debt assignment was published in the Register of Personal and Movable Real Rights.
[10] The deed of assignment of the debt of November 5, 1996 gave Michon Transport a general and final release.
[11] Subsequently Gadbois and Michon Transport agreed by a counter-letter ("counter-letter 2") that Michon Transport would remit to Gadbois any amount it received from the appellant over the sum of $225,000 which it had paid to acquire the debt assignment of $325,000.[1]
[12] The appellant was able to avoid bankruptcy and on December 2, 1996 repaid Michon Transport the sum of $225,000.
[13] On February 12, 1997 Gadbois gave Michon Transport a full and final release in respect of counter-letter 2.
[14] On March 25, 1997 Michon Transport gave the appellant a full and final release in respect of its debt of $325,000.
Gadbois
[15] On February 17, 1997 Gadbois owed the respondent the sum of $1,285,674.06.
[16] The respondent took steps to recover her debt in 1996.
[17 ] On January 9, 1997 the respondent served directly on Hubert Cordeau, the appellant's president, a peremptory demand for payment ("administrative garnishment") pursuant to ss. 224 et seq. of the Income Tax Act,[2] seeking any amount which the appellant might owe Gadbois and/or Québec Inc.
[18] On April 28, 1997 the respondent obtained an interim garnishee order which it caused to be served on all parties.
[19] There was a preliminary discussion at the hearing of the respondent's motion for a garnishee order absolute, to resolve the question of whether it was possible to set up against the respondent counter-letter 1, according to which the amount to be repaid Québec Inc. by the appellant was $225,000 instead of $325,000, as stated in the deed of hypothec.
[20] On October 27, 1999 the Federal Court of Appeal rendered a judgment in which it found that counter-letter 1 could not be set up against the respondent.
[21] The matter was referred back to the prothonotary Richard Morneau for hearing on the merits of the respondent's motion for a garnishee order absolute in respect of the appellant.
[22] The appeal at bar is from that decision.
POINT AT ISSUE
Does the Court have jurisdiction to decide the case at bar?
ANALYSIS
[23] The question of this Court's jurisdiction was not raised by the parties either in their pleadings or at the hearing. Pursuant to a directive dated December 7, 2000 I asked the parties for their comments on Wellgate International Ltd. v. Canada (Minister of National Revenue)[3] in which Rouleau J. dealing with a similar point, declined jurisdiction.
[24] Under ss. 224 et seq. of the Income Tax Act,[4] the Court may order a garnishment against a person who is liable to make a payment to a tax debtor:
| 224. (1) Where the Minister has knowledge or suspects that a person is, or will be within one year, liable to make a payment to another person who is liable to make a payment under this Act (in this subsection and subsections 224(1.1) and 224(3) referred to as the "tax debtor"), the Minister may in writing require the person to pay forthwith, where the moneys are immediately payable, and in any other case as and when the moneys become payable, the moneys otherwise payable to the tax debtor in whole or in part to the Receiver General on account of the tax debtor's liability under this Act. |
224. (1) S'il sait ou soupçonne qu'une personne est ou sera, dans les douze mois, tenue de faire un paiement à une autre personne qui, elle-même, est tenue de faire un paiement en vertu de la présente loi (appelée "débiteur fiscal" au présent paragraphe et aux paragraphes (1.1) et (3)), le ministre peut exiger par écrit de cette personne que les fonds autrement payables au débiteur fiscal soient en totalité ou en partie versés, sans délai si les fonds sont immédiatement payables, sinon au fur et à mesure qu'ils deviennent payables, au receveur général au titre de l'obligation du débiteur fiscal en vertu de la présente loi. |
|
[25] By her motion for a garnishee order absolute concerning the appellant, the respondent was not only seeking to realize on her claim against the appellant. Among other things, the respondent was also seeking to establish that the debt transfer of November 5, 1996 could not be set up against her, that in her discretion she could rely on counter-letter 2, or the apparent contract, since this was a simulation, that the releases of February 12 and March 25, 1997 could not be set up against her and that the corporate veil should be lifted against Gilbert Gadbois and Québec Inc.
[26] The respondent accordingly argued that, as these transactions were invalid, the Court could order a garnishment concerning the appellant. The respondent maintained that the Court had jurisdiction to decide these matters on a motion for a garnishee order absolute, since they are incidental to a rule of federal law.
[27] The appellant maintained, on the other hand, that based on the validity of these transactions it had no claim against Gadbois and so could not be the subject of a garnishment. The appellant therefore contended that the Court had no jurisdiction to resolve these matters on a motion for a garnishee order absolute, since they are not incidental to a federal law.
[28] The Court must therefore determine whether it has jurisdiction to decide these matters on a motion for a garnishee order absolute.
[29] The Supreme Court of Canada has adopted a test with three essential requirements for deciding on this Court's jurisdiction. In ITO-International Terminal Operators Ltd. v. Miida Electronics Inc., it said:
The general extent of the jurisdiction of the Federal Court has been the subject of much judicial consideration in recent years. In Quebec North Shore Paper Co. v. Canadian Pacific Ltd., [1977] 2 S.C.R. 1054, and in McNamara Construction (Western) Ltd. v. The Queen, [1977] 2 S.C.R. 654, the essential requirements to support a finding of jurisdiction in the Federal Court were established. They are:
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.[5]
[30] There is no doubt that the first test has been met in the case at bar, since the procedural vehicle used by the respondent to obtain a garnishee order absolute concerning the appellant was the Income Tax Act, which gives this Court jurisdiction.
[31] I will therefore examine the application of the second test in ITO-International Terminal Operators Ltd. Although the respondent relied on a majority judgment of the Federal Court of Appeal in Le Bois de Construction du Nord (1971) Ltée v. The Queen,[6] I consider that that judgment must be looked at in light of the recent judgment by the Supreme Court of Canada in Canada (Human Rights Commission) v. Canadian Liberty Net.[7] In that case the Court considered the interpretation to be given to the second test in ITO-International Terminal Operators Ltd. and said the following:
The requirement that there be valid federal law which nourishes the statutory grant of jurisdiction serves primarily to ensure that federal courts are kept within their constitutionally mandated sphere. As Wilson J. noted in Roberts, supra, the second and third requirements set out in ITO, supra, of a nourishing body of federal law, and its constitutional validity, go hand in hand (at p. 330):
While there is clearly an overlap between the second and third elements of the test for Federal Court jurisdiction, the second element, as I understand it, requires a general body of federal law covering the area of the dispute, i.e., in this case the law relating to Indians and Indian interests in reserve lands . . .
The dispute over which jurisdiction is sought must rely principally and essentially on federal law. If the dispute is only tangentially related to any corpus of federal law, then there is a possibility that assuming jurisdiction would take the Federal Court out of its constitutionally mandated role.[8] (My emphasis.)
[32] In my opinion, these comments are fully applicable to the case at bar.
[33] Under ss. 449 et seq. of the Federal Court Rules, this Court's jurisdiction is limited to ordering a garnishment and deciding matters incidental to its jurisdiction.
[34] In the case at bar, the challenge to the validity of the transactions by the respondent falls outside the scope of a motion for a garnishment against the appellant.
[35] The only federal law relied on in the case at bar is s. 224 of the Income Tax Act, which is simply the procedural vehicle used by the respondent as the basis of her claim against the appellant. The only law essential to the solution of the case at bar is provincial law, in particular arts. 1452, 1631 et seq. of the Civil Code of Quebec and art. 55 of the Quebec Code of Civil Procedure.
[36] The crux of the matter is the validity of the transactions challenged by the respondent. The validity of those transactions cannot be regarded as incidental to a question relating to the garnishment.
[37] In Wellgate International Ltd. Rouleau J. came to the same conclusion. That was a similar case in which the Crown was seeking, inter alia, to garnish a third party on the basis that certain contracts and agreements between the tax debtor and other private parties were invalid and fraudulent (transactions involving other third parties). Rouleau J. declined jurisdiction on the following grounds:
The contractual issue [the validity of the transactions] therefore cannot be considered to be in some way incidental to the Court's jurisdiction nor is it merely a phase of compulsory execution . . . nor the Federal Court Rules, which grant jurisdiction to issue a final garnishment order, can in any way seem to bestow or nourish jurisdiction on this Court to undertake an examination of the circumstances surrounding the transactions and agreements in question and to make a determination with respect to the Crown's allegations of fraud, allegations which concern incidents that occurred some 8 months prior to this event.[9]
[38] Further, there is no doubt that the questions of fraud, simulation and enforceability cannot be fairly and properly resolved on the basis solely of evidence by affidavit and the transcripts of examinations on affidavit.
[39] In order to render a decision based on these grounds, and in which the oral evidence is important, the Court must have the opportunity of assessing the credibility of witnesses. In the case at bar, if I decided the case on the merits it would be difficult, for example, to consider the defence of good faith which Michon Transport might raise in respect of the motion to exclude the debt assignment of November 5, 1996.
[40] The summary procedure for disposing of evidence contained in the Federal Court Rules therefore deprives the appellant both of the opportunity of relying on all grounds of defence and the rules of evidence which are open to it in a provincial superior court. I refer to the passage in Wellgate International Ltd., in which Rouleau J. noted that:
The allegations of fraud being made by the Minister are profound and have far-reaching consequences, not only for the parties to the litigation, but for the other signatories of the impugned agreements as well. A determination of that nature requires that the best evidence be available to the Court, namely, viva voce evidence subject to vigorous and meaningful cross-examination. It is understandable that the best evidence is not available here since the applications now before me are clearly intended to be dealt with in a summary fashion. The relevant sections of the Income Tax Act and the Federal Court Rules were never intended to deal with complex and intricate disputes of this nature nor are they procedurally designed to allow for the type of inquiry which needs to be undertaken.[10]
[41] I therefore consider that only the provincial courts are competent to decide the issue at bar. Consequently, I decline jurisdiction: the whole with costs.
Danièle Tremblay-Lamer
JUDGE
OTTAWA, ONTARIO
February 1, 2001.
Certified true translation
Suzanne M. Gauthier, LL.L. Trad. a.
FEDERAL COURT OF CANADA
TRIAL DIVISION
NAMES OF COUNSEL AND SOLICITORS OF RECORD
COURT No.: ITA-1384-97
STYLE OF CAUSE: In re the Income Tax Act,
- and -
In re one or more assessments 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 Unemployment Insurance Act.
BETWEEN:
GILBERT GADBOIS
Judgment debtor
AND
TRANSPORT H. CORDEAU INC.
J.L. MICHON TRANSPORT INC.
Garnishees
AND
2951-7539 QUÉBEC INC.
Mis-en-cause
PLACE OF HEARING: Montréal, Quebec
DATE OF HEARING: November 23, 2000
REASONS FOR ORDER BY: TREMBLAY-LAMER J.
DATED: February 1, 2001
APPEARANCES:
Chantal Comtois for the judgment creditor
Patrick Ouellet for the garnishee Transport H. Cordeau Inc.
SOLICITORS OF RECORD:
Morris Rosenberg for the judgment creditor
Deputy Attorney General of Canada
Ottawa, Ontario
Dunton, Rainville, Toupin for the garnishee Transport H. Cordeau Inc.
Montréal, Quebec
[1] As appears from the affidavit of Jean-Louis Michon, president of Michon Transport, and from the deed of release of February 12, 1996.
[2] R.S.C. 1985 (5th Supp.), c. 1, as amended.
[3] 2000 D.T.C. 6420, at 6458.
[4] Supra, note 2.
[5] [1986] 1 S.C.R. 752, at 766.
[6] [1986] 2 C.T.C. 277.
[7] [1998] 1 S.C.R. 626.
[8] Ibid., at 663.
[9] Supra, note 3, p. 6426, at para. 34.
[10] Ibid., p. 6427, at para. 36.