Federal Court of Appeal Decisions

     ITA-5021-95

     ITA-1325-96

IN THE MATTER OF the Income Tax Act

- and -

IN THE MATTER OF an assessment or assessments by the Minister of National Revenue under one or more of the Income Tax Act

against:      GORDON VICTOR BUCK

44834 South Sumas Road,

of Sardis, in the Province of British Columbia

V2R 1B3

     REASONS FOR ORDER

JOHN A. HARGRAVE

PROTHONOTARY

     These reasons arise out of Mr. Gordon Buck's tax debt to the Minister of National Revenue and his motion to prevent the Minister from seizing his goods, chattels and lands and to have Class "A" shares in Gordon Buck Investments Ltd., which have been seized by the Bailiff pursuant to a writ of execution, returned to him.

BACKGROUND

     The Crown's efforts to collect the debt go back at least to 1994 when various proposals for payment over time were discussed and some payments were made. The Minister subsequently issued and filed two certificates pursuant to the Income Tax Act, one in May of 1995 for $75,250.13 and the other in February of 1996 for $15,087.38. At some point the Crown registered the certificates, behind two mortgages, against Mr. Buck's home. The Sheriff's seizure of the company shares took place in October of 1996. The Crown has to date held off actually realizing anything on the shares.

     As of September 1996, the amount owing is said, by the Minister, to be some $46,000.00. Mr. Buck feels the amount should be substantially less, but in his calculations he appears not to have taken into account various additional levies of interest by the Minister. However, the real issue is whether the Minister has overstepped what is proper by not only registering the tax certificates against Mr. Buck's home, but also by seizing his voting shares in his construction company.

     Mr. Buck, who acts for himself, feels the Minister is more than adequately secured by reason of the equity in his home and had no reason to seize the shares in his company. He indicated he had incurred personal losses and setbacks by reason of economic conditions. He went on to point out that his company, although presently cash poor by reason of the slow real estate market, had substantial net worth in the form of unsold condominiums and that loss of control of the company, through loss of the voting shares, meant he could not get on with his business.

     Counsel for the Minister pointed out that the Crown was not in the business of selling homes and that given Mr. Buck's substantial net worth, as set out in his March 24, 1995, statement of assets and liabilities, he ought to be able to pay his tax arrears.

     At the conclusion of the hearing on January 13, 1997, with the concept in mind that there must be some balance between the creditor's right to payment and the debtor's right not to be abused, I mentioned Gawler v. Chaplin (1848), 2 Ex. 503, 154 E.R. 590, in which Baron Parke said "The duty of the Sheriff, when he receives a process of execution against a man's goods, is to seize only such quantity of goods as would be reasonably sufficient to pay the amount indorsed on the writ." (E.R. p. 592)¹. I raised this principle not to detract from the right of the Crown to have properly arrived at tax certificates paid, but, as I say, to make certain that there is a proper balance between creditor and debtor and no abuse of the latter by an excess of recovery procedures. I reserved my decision. Subsequently, and before I had come to a conclusion, counsel for the Crown sought leave to make further written submissions, noting that the seized shares would not be put up for sale until the outcome of the motion had been determined. As it seemed in the interests of justice that both sides have an opportunity, within given time limits, to consider and comment upon the principle in Gawler v. Chaplin, I gave leave. The Crown has made further submissions. Mr. Buck has not.

CONSIDERATION

     The shareholder's equity in Mr. Buck's company, at least in 1995, was some $112,000.00. The debt owing, on the Crown's figures, is about $46,000.00. Counsel for the Crown points out that there is what he calls a one-valuable-asset exception to the rule in Gawler v. Chaplin to the effect that if the judgment debtor has only one asset, worth substantially more than the judgment, the Sheriff may still seize, sell and pay to the judgment creditor his or her due, holding the balance for the judgment debtor: see for example Wooddye v. Coles Baily of Southwark, [1595] Noy 59, 74 E.R. 1027. Dunlop on Creditor-Debtor Law in Canada, Carswell, 1995, refers at p. 298 to more modern affirmations of this exception, including Anderson v. Liddell (1967-1968), 117 C.L.R. 36 at 45 and 50-51, a decision of the Australian Court of Appeal involving the sale of a block of land valued at perhaps twice the amount of the judgment. In the Anderson case the Sheriff was found entitled to seize one large item, no matter what excess sum it might bring, that being his duty to the judgment creditor. But this seizure of a share certificate representing the voting shares in Mr. Buck's company, worth somewhat in excess of twice the value of the tax liability, is not the real concern. Rather it is the seizure of the company shares combined with the registration of the certificates, as the equivalent of judgments, against Mr. Buck's home. Certainly a creditor's remedies are cumulative. However, cumulative enforcement can be an abuse of process.

     Part of the answer lies in the concept that the registration against property of a judgment, or a certificate in this case, is in itself neither a seizure nor an execution: see for example Power v. Grace, [1932] 2 D.L.R. 793 at 798 (Ont. Court of Appeal) and Re Roadburg and Cedarhurst Properties Ltd. (1979), 93 D.L.R. (3d) 582 at 587 (B.C.C.A.). There must be at least advertisement of a sale and probably a transfer of a special interest in the property to the Sheriff by seizure before the process can go on to become an execution to which the rule in Gawler v. Chaplin might apply.

     Taking a slightly different approach, the rule in Gawler v. Chaplin is based on a balancing of the duty of the Sheriff, in favour of the judgment creditor, a duty constrained by fairness to the judgment debtor and reasonableness of the seizure. Is it fair and reasonable for the Crown to both register a certificate against Mr. Buck's property and then seize company shares, thus curtailing Mr. Buck's business activities, with a view to realizing on the shares in order to pay the tax arrears owing under the tax certificates? All the more so taking into account that at least half of the tax debt has been cleared, in part by payments, but largely through tax carry backs. The answer to this lies in the fact that the Crown is entitled to be paid. The Crown is neither in the business of holding mortgages, a third charge in this instance, in the form of registered tax certificates on which interest accrues, nor in the business of selling homes.

     On balance the actions of the Crown, to secure the debt against the home and then to find a more manageable asset against which to execute, are fair and reasonable. All the more so in that, as I noted earlier, the Crown has not been hasty in its procedure, but has allowed time for Mr. Buck to make payment.

     In the result the motion is dismissed, with costs to the Crown to be taxed mid-range under Column III, not as to separate motions, but rather as one motion.

                             (Sgd.) "John A. Hargrave"

                                 Prothonotary

February 21, 1997

Vancouver, British Columbia

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¹      Gawler v. Chaplin was recently applied by the Court of Appeal in Moore v. Lambeth County Court Registrar (No. 2), [1970] 1 Q.B. 560.