Date: 20000218
Docket: GST-2495-98
IN THE MATTER of an assessment or assessments by the
Minister of National Revenue under the Excise Tax Act against:
| KIM DOULL also known as KIM WAYNE DOULL |
| 18416 - 55 Avenue |
| Edmonton, Alberta T6M 1Y8 |
BETWEEN:
HER MAJESTY THE QUEEN IN RIGHT OF CANADA
as represented by the MINISTER OF NATIONAL REVENUE
Applicant
- and -
RICK POLLOCK
Respondent
______________________________________________________________________________
Docket: ITA-5194-98
IN THE MATTER of an assessment or assessments by the
Minister of National Revenue under one or more of the
Income Tax Act (Canada), Canada Pension Plan, Unemployment Insurance Act,
Employment Insurance Act and Alberta Income Tax Act against:
| KIM DOULL also known as KIM WAYNE DOULL |
| 18416 - 55 Avenue |
| Edmonton, Alberta T6M 1Y8 |
BETWEEN:
HER MAJESTY THE QUEEN IN RIGHT OF CANADA
as represented by the MINISTER OF NATIONAL REVENUE
Applicant
- and -
RICK POLLOCK
Respondent
REASONS FOR ORDER
REED, J.:
[1] The issue in this case is whether Mr. Pollack holds a perfected personal property security interest in a 1990 Lamborgini Kit Car so as to defeat writs registered by Revenue Canada in Alberta's Personal Property Registry, on July 29, 1998.
[2] The car was seized on October 31, 1997, from Mr. Pollack's business premises (Wicket Truck and Auto), by the Proceeds of Crime section of the RCMP. At that date, the car was owned by Mr. Doull. Mr. Pollock's business was the purchase and sale of automobiles. He used the services of Mr. Doull to locate vehicles for resale. Mr. Doull used Mr. Pollock's (Wicket's) business chequing account to conduct business and apparently ran up debts on that account.
[3] The affidavit evidence of Messrs. Doull and Pollock is that in the summer of 1997, as a result of the indebtedness to Mr. Pollock, Mr. and Mrs. Doull agreed that the car would become collateral for the debt owed. Mr. Doull executed an undated bill of sale under the proviso that if he should fail to repay the amount owed (not specified in the document), Mr. Pollock (Wicket) would become the legal owner of the car. This agreement was never registered under the Alberta Personal Property Security Act, S.A. 1988, c. P-4.05. Mr. Pollock paid the insurance on the car. At the date of the RCMP seizure the car did not have a vehicle identification number ("VIN"). After its seizure the RCMP gave the car a VIN.
[4] At the time of the October 1997 seizure, Mr. Doull had keys to the premises where the car was stored, but only Mr. Pollock had the keys to the car. Mr. Doull retrieved those keys from the Wicket business premises for the RCMP.
[5] On July 2, 1998, Revenue Canada filed in this Court a certificate under section 223 of the Income Tax Act, R.S.C. 1985, c. I (5th Supp.) as amended, for the sum of $37,055.70 owed by Mr. Doull. A second certificate was filed on the same day under section 316 of the Excise Tax Act, R.S.C. 1985, c. E-15, for $30,894.23 owed under that Act. Writs addressed to the Sheriff of Alberta to seize and sell Mr. Doull's real and personal property to satisfy those debts were obtained from the Court on the same day.
[6] On July 7, 1998, Revenue Canada registered the writs in the Alberta's Personal Property Registry, for the above-described amounts. On July 29, 1998, Mr. Doull informed Revenue Canada that his only asset was the car and some clothes. On the same day, Revenue Canada instructed Consolidated Rockingham Bailiff Services to seize the car owned by Mr. Doull, which was at the Crown Asset Distribution Centre, where it has been held since its October 1997 seizure by the RCMP. The car was seized the same day.
[7] On August 4, 1998, the Provincial Court of Alberta ordered, with respect to seizure under the warrant of October 1997, that the car be returned to Mr. Doull; its continued detention was no longer required for any of the purposes mentioned in subsections 490(1) or 490(4) of the Criminal Code. That order also returned a vehicle, a 1928 Ford model "A", that had been seized under the same warrant, to Mr. Pollock. The Provincial Court order reads, in part, "and upon being satisfied that the persons listed in the Schedule are the lawful owners of the items listed". The order was issued under subsection 490(5) of the Criminal Code:
490. (5) Where at any time before the expiration of the periods of detention provided for or ordered under subsections (1) to (3) in respect of anything seized, the prosecutor, or the peace officer or other person having custody of the thing seized, determines that the continued detention of the thing seized is no longer required for any purpose mentioned in subsection (1) or (4), the prosecutor, peace officer or other person shall apply to
(a) a judge of a superior court of criminal jurisdiction or a judge as defined in section 552, where a judge ordered its detention under subsection (3), or
(b) a justice, in any other case,
who shall, after affording the person from whom the thing was seized or the person who claims to be the lawful owner thereof or person entitled to its possession, if known, an opportunity to establish that he is lawfully entitled to the possession thereof, make an order in respect of the property under subsection (9). [Underlining added.]
490. (5) Lorsque, à tout moment avant l'expiration des périodes de détention prévues aux paragraphes (1) à (3) ou ordonnées en vertu de ceux-ci à l'égard d'une chose saisie, le poursuivant, l'agent de la paix ou la personne qui en a la garde décide que la détention de la chose saisie n'est plus requise aux fins visées au paragraphe (1) ou (4), il doit présenter une demande :
a) à un juge d'une cour supérieure de juridiction criminelle ou à un juge au sens de l'article 552, lorsqu'un juge a ordonné sa détention en application du paragraphe (3);
b) à un juge de paix, dans tout autre cas.
Le juge ou juge de paix doit, après avoir donné à la personne qui, au moment de la saisie, avait la possession de cette chose, ou à celui qui prétend être son propriétaire légitime ou la personne ayant droit à la possession de celle-ci, s'ils sont connus, l'occasion de démontrer qu'ils ont droit à la possession de cette chose, rendre une ordonnance à l'égard du bien en application du paragraphe (9). [C'est moi qui souligne.]
[8] On August 11, 1998, after the Provincial Court order of August 4, 1998, returning the car to him had been issued, Mr. Doull registered a notice with the bailiff, asserting that his lawyer had been dealing with Revenue Canada before its seizure of the car, and payments on the debt were being made, and it was Mr. Pollock, not Mr. Doull, who was the owner of the car. On November 9, 1998, Mr. Pollock sent a statutory declaration to the bailiff asserting ownership of the car and attaching thereto the undated bill of sale. The bailiff, then, refused to sell the car without a specific Court order addressing Mr. Pollock's claim.
[9] It is clear that it is not open to Mr. Pollock to assert that he converted his security interest to ownership before July 7, 1998, when Revenue Canada registered its writ in the Personal Property Registry. He offered no evidence concerning: (1) the repayment terms of the loans to Mr. Doull; (2) Mr. Doull's indebtedness to him as of July 7, 1998; (3) when and how Mr. Doull defaulted on the loans; (4) when he demanded payment from Mr. Doull and the terms of the demand; (5) when, if at all, he dated the bill of sale in question; (6) any other steps to appropriate the car to himself; or (7) why the Provincial Court of Alberta order of August 4, 1998, treated Mr. Doull as the owner of the vehicle.
[10] The respondent has conceded that at the date of the RCMP seizure, Mr. Pollock had possession of the car as collateral for the debt owed.
[11] Under the Alberta Personal Property Security Act, a security interest in goods, and certain instruments, can only be asserted against a third party when the security interest has been perfected (section 10). A security interest is perfected when attachment occurs and all the steps for perfection under the Act have been completed (section 19). Perfection occurs when either the security agreement is registered (section 25) or the chattel is actually held by the creditor as collateral for the debt owed (section 24).
[12] Also, a security interest can be perfected by registration of the security agreement to include a period of time antedating registration (section 23), if the chattel is held during the whole time. In addition, Mr. Pollock could have registered his security agreement at any time between October 31, 1997, and July 7, 1998, and thereby ensured its priority over a subsequently registered interest.
[13] The applicant's position is that the seizure by the RCMP on October 31, 1997, terminated Mr. Pollock's actual possession of the car, and his failure to register his security agreement at any time thereafter renders that agreement ineffective against the writs that were registered by Revenue Canada on July 7, 1998.
[14] Mr. Pollock's position is that he gave up possession of the car involuntarily, by operation of law (police seizure), on October 31, 1997, and thus under the common-law rules of possession, his possession is deemed to continue. He also cites subsection 66(3) of the Personal Property Security Act:
| (3) The principles of the common law, equity and the law merchant, except insofar as they are inconsistent with the express provisions of this Act, supplement this Act and continue to apply. |
[15] In my view, Mr. Pollock's claim is not furthered by reference to the common law principles or subsection 66(3). That subsection states that the common law principles apply "except insofar as they are inconsistent with the express provisions of this Act". Section 24 accords a security interest priority over a registered interest only when the chattel is "actually held as collateral". That section, then, to the extent that continued possession is deemed to exist at common law when actual possession does not, will be inconsistent with the common law principle.
[16] Counsel for the respondent argues that the principle of the "unity of the Crown" is relevant in this case. I understand this argument to be that the seizure by the RCMP was a seizure on behalf of the provincial Crown under the Criminal Code, while that by Revenue Canada was effected on behalf of the federal Crown, and the two should be treated as one seizure since the Crown is indivisible. I am not prepared to accept this argument. The authority that counsel cites to support his argument, 9 CED (Western) (3d) Volume 11, Title 42 - Crown, paragraph 4, refers to the indivisibility of the Crown "throughout the Commonwealth and Empire". Thus, the Crown as the head of the government of the United Kingdom is said not to be distinguishable from the Crown as head of the government of Canada. This is not sufficient authority to persuade me that the principle has any relevance for present purposes.
[17] Professor Hogg, in Liability of the Crown (1989), at page 10, writes:
| There is only one individual at any time who is the Queen (or King). The Crown accordingly has a monolithic connotation, which has sometimes been articulated in dicta such as that the Crown is "one and indivisible". For nearly all purposes the idea of the Crown as one and indivisible is thoroughly misleading. ... When the colony achieved full independence, it became an entirely separate legal entity from the United Kingdom for all practical purposes, including the making of contracts, the holding of property and the capacity to sue and be sued. ... |
| Within Canada's federal system, legal recognition of the divisibility of the Crown may be dated from Liquidators of the Maritime Bank v. Receiver General of New Brunswick (1892), which decided that a debt owing to a province was held by the Crown in right of the province, and the Crown in right of the province was entitled to the prerogative privilege of payment in priority to other creditors. This case established that each province was a separate legal entity from each other province and from the federal government. [Underlining added, footnotes omitted.] |
[18] I consider the Revenue Canada seizure of July 7, 1998, to be a seizure by a different entity from the police seizure of October 31, 1997.
[19] The question to be decided, then, is the meaning of "but only while it is actually held as collateral" in subsection 24(1) of the Personal Property Security Act. I was referred to two cases that consider the nature of a secured creditor's interest in a chattel that has been seized from his possession. In Adanac Tire and Retreaders Ltd. v. Sheriff of Judicial District of Edmonton et al. (1979), 9 Alta.L.R (2d) 66 (Dist. Ct.), the Court had to deal first with whether the interest in question arose as a result of a lien or a pledge, and second, with the effect of a sheriff's seizure on the interest. The judge considered the similarities and differences of liens and pledges and, at page 74, noted that it is clear that both require continuous possession for maintenance. He, then, quoted from 24 Hals. (3d) 171, paragraph 320:
| There is no such thing as a notional lien and the Court has no power to allow an applicant to part with possession while retaining his rights as holder of a legal lien. |
He concluded that seizure by the sheriff extinguished the lien or pledge:
| So also a pledge, in the absence of express agreement. I find therefore that seizure and removal by the sheriff extinguished the lien or pledge of the applicant. [Underlining added.] |
[20] The second case to which I was referred is Key State Bank v. Voz (1989), 67 O.R. (2d) 709 (Ont. Dist. Ct.). In that case, a creditor obtained possession of a motor vehicle as collateral for a debt owed to him. Subsequently, Canada Customs seized the vehicle in connection with alleged violations of the Customs Act. After the seizure, a second creditor, a Michigan bank ("the bank") registered a security interest in the vehicle in the Ontario Personal Property Register. Then, Canada Customs returned the vehicle to the creditor from whom it had been seized. There is discussion in the decision of the applicable principles, but the conclusion reached by the judge was that since the first creditor did not voluntarily relinquish possession of the vehicle, when it was seized by the RCMP acting for Canada Customs, possession in the hands of that creditor continued:
| Voz did not voluntarily part with the possession of the vehicle on November 26, 1987, when it was lawfully seized from him by the R.C.M.P. Canada Revenue always considered him to be the person otherwise entitled to possession and to redeem it from forfeit. I find that Voz was actually holding it as a collateral within the meaning of s. 24 with a perfected security interest in it during the period from June 26, 1987, to this day. |
[21] This decision was referred to in Canadian Imperial Bank of Commerce v. Melnitzer (Trustee of) (1993), 23 C.B.R. (3d) 161 (Ont. Gen. Div.). In that case, the Court was concerned with a loss of possession that had arisen as a result of fraud. The Court noted that the phrase "but only while it is actually held as collateral", in the last line of section 22 of the Ontario Personal Property Security Act, made it clear that once possession is gone, the security interest is gone. It held that the language of the section "makes no exception for losses of possession arising from fraud" and that loss of possession as a result of fraud, was still loss of possession. The Court distinguished the Key State Bank case, stating that different circumstances give rise to different results, and that in Key State Bank the creditor had not voluntarily released possession, while in the case before it the creditor had done so.
[22] Counsel for the applicant argues that the Key State Bank case was wrongly decided because it paid insufficient attention to the policy of the Personal Property Security Act - the policy being that possession is good against third party claimants because it puts everyone on notice that the person having possession of the chattel has an interest in it. But, once possession no longer actually exists, whether as a result of a police seizure or otherwise, notice of the creditor's interest no longer exists, and therefore, the security interest is no longer perfected. To perfect a security interest when the chattel is not in the possession of the creditor, it is necessary to register the security agreement.
[23] I am persuaded that counsel for the applicant's position is correct. I do not think there is a meaningful distinction between a person who relinquishes a chattel as a result of fraud and one who loses possession as a result of a police seizure. I do not see why an individual who has relinquished possession of a chattel, as a result of an illegal act, should be in a worse position than a person who has lost possession as a result of a legal act (the execution of a warrant). Most importantly, the policy of the personal property security register legislation is to establish systems whereby individuals can rely on the registers to ascertain priority, subject to one exception, and that is where a secured creditor has actual possession of the chattel in question. (For discussion on the policy of the legislation see, for example, J. Alpert, "Statutory Requirements for Perfection by Possession under the Ontario Personal Property Security Act" (1982/83) 7 Canadian Business Law Journal 234.
[24] In addition, even if the above analysis is wrong, I am of the view that by not asserting any right to either ownership or possession before the Alberta Court, Mr. Pollock relinquished any possessory rights he might have had.
[25] For the reasons given the orders that are requested will be granted.
Judge
OTTAWA, ONTARIO
February 18, 2000