T-7937-96
| In the matter of the Income Tax Act, |
- and -
| In the matter of an assessment or assessments made by the Minister of National Revenue under one or more of the Income Tax Act, the Canada Pension Plan and the Unemployment Insurance Act. |
AGAINST:
CHAIM MELNICK,
Judgment Debtor,
AND
MANULIFE FINANCIAL,
Garnishee.
REASONS FOR ORDER
RICHARD MORNEAU,
PROTHONOTARY:
This is a motion by the judgment creditor, Her Majesty the Queen, seeking a final garnishment order against the garnishee, Manulife Financial.
The issue here is whether article 1631 of the C.C.Q. applies; that article provides:
| ... creditor who suffers prejudice through a juridical act made by his debtor in fraud of his rights, ... may obtain a declaration that the act may not be set up against him. |
As we shall see, the juridical act in question is a term annuity contract for which a beneficiary contemplated by article 2457 C.C.Q. has been designated.
The facts
The facts which led to the issuance of an interim garnishment order on October 21, 1996, are set out in the affidavit filed on October 11, 1996, in the record of the Court (the "record"), by the creditor, in support of the motion for that interim order. It is important to reproduce the entire body of that affidavit, since the first twelve paragraphs thereof set out facts which have not really been disputed. As we shall see, the final two paragraphs of the affidavit have a bearing on the matter before the Court:
[translation]
| 1. On October 10, 1996, a certificate was filed in the Federal Court of Canada certifying that Chaim Melnick of 11115 boulevard Cavendish, suite 1008, St-Laurent, Quebec H4R 2M9, was indebted to the Minister of National Revenue, Taxation, in the amount of $22,649.81, as set out in Exhibit A-1, filed in support of my affidavit; |
| 2. On February 22, 1994, the Minister of National Revenue informed Chaim Melnick of his liability as a director, as set out in Exhibit A-2, filed in support of my affidavit; |
| 3. Mr. Melnick's counsel, Judah Wolofsky, requested certain documents from the Minister of National Revenue in order to make submissions, as set out in Exhibit A-3, filed in support of my affidavit; |
| 4. On October 6, 1995, Mr. Wolofsky told me "that he [would not be] going ahead with this matter because it [was] not a paying case. Do what you have to do!"; |
| 5. On January 4, 1996, the Minister of National Revenue assessed Mr. Melnick for the amount of $22,649.81, as set out in Exhibit A-4, filed in support of my affidavit. |
| 6. On February 6 and March 8, 1996, I informed Mr. Melnick that the sum of $22,649.81 was still owing, as set out in Exhibit A-5, filed in support of my affidavit; |
| 7. On April 11, 1996, a formal demand for payment was sent to Manulife Financial Inc. in order to seize the registered retirement savings plan Mr. Melnick held there (hereinafter "RRSP"), as set out in Exhibit A-6, filed in support of my affidavit; |
| 8. Manulife Financial Inc. has never complied with the formal demand for payment; |
| 9. I have learned that Mr. Melnick had an RRSP with Richardson Greenshields of Canada Limited (acting as agent for Investors Group Trust Co. Ltd.), as set out in Exhibit A-7, filed in support of my affidavit; |
| 10. As a result of the merger of two bank branches, the identification number of Mr. Melnick's RRSP, 30-73025, has changed to 32-46910, as set out in Exhibit A-8, filed in support of my affidavit; |
| 11. On October 13, 1995, the RRSP was valued at $240,498.07, as set out in Exhibit A-9, filed in support of my affidavit; |
| 12. On October 16, 1995, I learned that the said RRSP had been transferred to Manulife Financial Inc. on April 22, 1994, as set out in Exhibit A-9, filed in support of my affidavit; |
| 13. After Mr. Melnick was informed of his liability on February 22, 1994, he transferred his RRSP to Manulife Financial Inc., on April 22, 1994, and designated his wife, Roslyn Melnick, as beneficiary in order to make his RRSP exempt from seizure; [emphasis in original] |
| 14. The beneficiary designation for Mr. Melnick's RRSP was prejudicial to the Minister of National Revenue since the effect was to prevent the Minister from recovering the debt owing to him. |
On December 5, 1996, the garnishee filed a statement in the record setting out the various characteristics of the annuity contract entered into by it and the judgment debtor, which characteristics are clearer in the statement that the judgment debtor eventually filed in the record, and which we shall have occasion to quote later.
It should be noted that at all material times the garnishee, quite properly, I must say, did not get involved in the approach initially taken, as we have seen, by the creditor, which was that the designation of a beneficiary by the judgment debtor may not be set up against the creditor, or even that the annuity contract in its entirety may not be set up against the creditor.
It was not until May 22, 1997, that the judgment debtor filed a statement in the record. It is worthwhile reproducing that statement in its entirety, since it discloses the aspects on which the judgment debtor bases his reply, that is, solely on the legal consequences of his annuity contract as against any creditor:
| 1 o THAT I am the policy holder of insurance contract number 7738370 with Manulife Financial, of 2000 Mansfield Street, Suite 300, in the City and District of Montreal, Province of Quebec H3A 2Y9; |
| 2 o THAT the beneficiary of my insurance policy is my wife, ROSLYN MILLMAN; |
| 3 o THAT the insurance policy is in force for various amounts, due and cashable before income taxes as follows: |
| - Deposit of $240,498,07, having a redemption value of $282,356.53 (before taxes) as of May 23, 1996. The redemption value on the due date, namely, April 22, 2000 will be $381,640.21; |
| - Deposit of $24,257.80, having a redemption value of $24,889.87 (before taxes) as of May 3, 1996. The redemption value on the due date, namely, May 3, 2000 will be $33,733.44; |
| - Deposit of $9,501.93, having a redemption value of $11,129.26 (before taxes) as of May 23, 1996. The redemption value on the due date, namely, May 3, 2000 will be $15,078.78; |
| - Deposit of $3,643.33, having a redemption value of $4,252.26 (before taxes) as of May 23, 1996. The redemption value on the due date, namely, May 20, 2000 will be $5,781.49; |
| - Deposit of $9,497.84, having a redemption value of $11,071.29 (before taxes) as of May 23, 1996. The redemption value on the due date, namely, May 26, 2000 will be $15,071.87; |
| - Deposit of $2,800.00, having a redemption value of $3,149.79 (before taxes) as of May 23, 1996. The redemption value on the due date, namely, April 22, 2000 will be $4,453.62 |
| 4 o THAT although the insurance policy is revocable, I have no intention as this time of either revoking the beneficiary or cashing in the policy before the due date; |
| 5 o THAT it is my understanding that a RRSP subscribed to in an insurance company is not seizable because the jurisprudence in the Province of Quebec is consistent: [translation] "In order for an RRSP subscribed to in an insurance company to be exempt from seizure, it must be either a life annuity or a fixed term annuity with beneficiaries designated when it is subscribed to. In the instant case, the judgment debtor invested moneys in an RRSP consisting of a deferred annuity contract. Life annuities or fixed term annuities offered by insurers are treated like life insurance, as set out in article 2473 C.C. This means that articles 2550, 2552 and 2554 C.C. apply and that the rights conferred by the contract are exempt from seizure for so long as the beneficiary has not received the insured sum. Moreover, in order for the accumulated sums invested in the RRSP to be seizable, they must be included in the patrimony of the judgment debtor. According to the terms of the contract, those sums are not in the patrimony of the judgment debtor prior to the due date, and are not included in the his or her patrimony on the renewal date unless the judgment debtor exercises one of the three options available. Because that decision is to be made by the judgment debtor, and will be made only upon renewal, the property seized from the garnishee is exempt from seizure at present." |
| 6 o THAT in virtue of my contract number 7738370, the sums of money mentioned in the said insurance policy are not seizable in virtue of the law, that is to say, in virtue of Article 2473 and 2552 under the old law, the Civil Code of Lower Canada, and in virtue of Articles 2393 and 2457 under the new law, the Civil Code of Quebec; the law is constant; |
| 7 o THAT according to the insurance policy, there is no money due and payable to either myself as policy holder or the beneficiary named in the said insurance policy at the date of the seizure by garnishment nor on the date of this Declaration - Contestation; |
| 8 o THAT in fact, Manulife Financial's obligation in virtue of the insurance policy in question shall become effective either (i) when I, as policy holder will have reached the maximal age mentioned in the policy, or (ii) at my request; |
| 9 o THAT by default, the type of pension offered by my insurance policy is a guaranteed annuity of ten years; |
| 10 o THAT only I can constitute a pension before the prescribed maturity date provided for on the insurance policy or demand its redemption before its due date, which I reiterate, I have no intention of doing at this time; |
| 11 o THAT all the facts contained herein are true and correct. |
Analysis
It must be assumed that at the time the judgment debtor filed his statement in the record - at which time he had been represented by counsel since at least the end of November 1996 - he knew what was in the record and was aware of the approach taken by the creditor in the affidavit she filed on October 11, 1996. As we have seen, the judgment debtor made no attempt in his statement to respond to the serious and specific allegation in paragraphs 13 and 14 of that affidavit. His silence on that point speaks volumes, and is thus consistent with that allegation, which must be regarded as uncontradicted.
In his statement, the judgment debtor simply states that his annuity contract designates a beneficiary contemplated by article 2457 C.C.Q.1 and that the contract gives him options which are rights that are purely personal to him.2
The only factual defence raised by the judgment debtor was advanced by his counsel at the hearing. Counsel argued that it could not be held that the contract could not be set up against the creditor because the creditor had not established that in taking out the annuity the judgment debtor was rendering or seeking to render himself insolvent. However, Article 1631 C.C.Q. is not limited solely to that line of argument. That article reads as follows, in full:
| Art. 1631. A creditor who suffers prejudice through a juridical act made by his debtor in fraud of his rights, in particular an act by which he renders or seeks to render himself insolvent, or by which, being insolvent, he grants preference to another creditor may obtain a declaration that the act may not be set up against him. |
[Emphasis mine]
The creditor's position must be examined having regard to the first part of this article. On this point, I find that the evidence in the record - the uncontradicted assertions of the creditor, together with the silence of the judgment debtor in respect thereof - leads me to conclude that the creditor has established a preponderance of evidence, by presumptions, that the factors required by article 1631 are present: prejudice and the intention to commit fraud against her.
What still remains to be determined is the extent to which the annuity may not be set up against the creditor.
The evidence in the record, together with the written submissions of the creditor,3 lead me to conclude that the annuity contract in its entirety must be regarded as not capable of being set up against the creditor under article 1631.
By transforming his rights in a share portfolio into an annuity, the judgment debtor not only secured additional protection from seizure for the beneficiary of the vehicle (which went from being the judgment debtor's "succession", under the share portfolio, to his "spouse", under the annuity), but also accomplished the same result with respect to his rights to bring the value of his investments back into his patrimony. I conclude that while he held the share portfolio, those rights could not be regarded as rights purely personal to the judgment debtor that could accordingly be exercised only by him. However, that became the situation when the annuity was taken out (on this point, see the series of common decisions cited by both counsel for the creditor, in the first footnote in his written submissions, and counsel for the garnishee, at pages 6 et seq. of his written submissions).
In view of the conclusion I have reached, counsel for the parties need not be asked to attend again to continue argument as to the impact of the contract on the creditor's right to obtain an order for immediate payment, an order of attachment or any order of garnishment. The contract cannot be set up against the creditor, and so it must be concluded that the garnishee holds the moneys in issue as a mere de facto holder or depositary, and accordingly that the creditor is entitled to an order against the garnishee requiring immediate payment of the amount it is seeking.
An order in English will issue accordingly.
Richard Morneau
Prothonotary
Montréal, Quebec
June 25, 1997
Certified true translation
C. Delon, LL.L.
ITA-7937-96
MONTREAL, QUEBEC, THIS 25th DAY OF JUNE 1997
PRESENT: RICHARD MORNEAU, ESQ., PROTHONOTARY
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, Canada Pension Plan, Unemployment Insurance Act, |
AGAINST:
CHAIM MELNICK
Debtor
AND
MANULIFE FINANCIAL
Garnishee
ORDER
It is hereby ordered that the garnishee, Manulife Financial, pay immediately to Her Majesty the Queen in Right of Canada, the sum of $22,649.81, without interest, plus the sum of $271.44 representing the costs of the present proceedings of seizure by garnishment to be paid by preference on the sum garnished by this Final Order.
Richard Morneau
Prothonotary
| Federal Court of Canada |
| Court file No. ITA-7937-96 |
| between |
| 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, the Canada Pension Plan and the Unemployment Insurance Act, |
| AGAINST: |
| CHAIM MELNICK, |
| Judgment Debtor, |
| AND |
| MANULIFE FINANCIAL, |
| Garnishee. |
| REASONS FOR ORDER |
FEDERAL COURT OF CANADA
NAMES OF COUNSEL AND SOLICITORS OF RECORD
COURT FILE NO: ITA-7937-96
STYLE OF CAUSE: 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, the Canada Pension Plan and the Unemployment Insurance Act, |
AGAINST:
CHAIM MELNICK,
Judgment Debtor,
AND
MANULIFE FINANCIAL,
Garnishee.
PLACE OF HEARING: Montréal, Quebec
DATE OF HEARING: May 30, 1997
REASONS FOR ORDER BY: Richard Morneau, Esq., Prothonotary
DATED: June 25, 1997
APPEARANCES:
Israel H. Kaufman for the judgment debtor
Claude Bernard for Her Majesty the Queen
Michel S. Paquet for the garnishee
SOLICITORS OF RECORD:
Israel H. Kaufman for the judgment debtor
Montréal, Quebec
George Thomson for Her Majesty the Queen
Deputy Attorney General of Canada
Montréal, Quebec
Michel S. Paquet for the garnishee
Montréal, Quebec
__________________1 That article reads as follows:
Art. 2457 Where the designated beneficiary of the insurance is the spouse, descendant or ascendant of the policyholder or of the participant, the rights under the contract are exempt from seizure until the beneficiary receives the sum insured.
2 This is also clear from the case law cited by both the creditor and the garnishee.
3 Submissions that the Court requested from counsel for the three parties involved at the hearing, after it was agreed to sever the issues. The parties' submissions were to deal with the extent to which it might not be possible for the annuity to be set up against the creditor. In the event that this were recognized to be so, should it be only the beneficiary designation that could not be set up, or could it be argued that the entire annuity contract could be regarded as not capable of being set up against the creditor?
Counsel for the judgment debtor made no submissions on this point within the time counsel were given. The submissions of counsel for the garnishee related only to the issue of whether the beneficiary designation could not be set up against the creditor. Only counsel for the creditor attempted to show that the annuity contract in its entirety is more onerous than the contract in existence in February 1994 and is to that extent prejudicial to the creditor.