Date: 19981029
Docket: A-316-94
MONTRÉAL, QUEBEC, THE 29th DAY OF OCTOBER 1998
CORAM: THE HONOURABLE MR. JUSTICE DÉCARY
THE HONOURABLE MR. JUSTICE LÉTOURNEAU
THE HONOURABLE DEPUTY JUSTICE CHEVALIER
BETWEEN:
CAISSE POPULAIRE DAVELUYVILLE
(ARO (1984) INC.)
Appellant
AND:
HER MAJESTY THE QUEEN
Respondent
J U D G M E N T
The appeal is dismissed with costs.
Robert Décary
J.A.
Certified true translation
M. Iveson
Date: 19981029
Docket: A-316-94
CORAM: DÉCARY J.A.
LÉTOURNEAU J.A.
CHEVALIER D.J.
BETWEEN:
CAISSE POPULAIRE DE DAVELUYVILLE
(ARO (1984) INC.)
Appellant
AND:
HER MAJESTY THE QUEEN
Respondent
Hearing held at Montréal, Quebec on Tuesday and Thursday, October 27 and 29, 1998
Judgment delivered from the bench at Montréal, Quebec on Thursday, October 29, 1998
REASONS FOR JUDGMENT OF THE COURT BY: LÉTOURNEAU J.A.
Date: 19981029
Docket: A-316-94
CORAM: DÉCARY J.A.
LÉTOURNEAU J.A.
CHEVALIER D.J.
BETWEEN:
CAISSE POPULAIRE DE DAVELUYVILLE
(ARO (1984) INC.)
Appellant
AND:
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT OF THE COURT
(Delivered from the bench at Montréal, Quebec
on Thursday, October 29, 1998)
LÉTOURNEAU J.A.
[1] We are of the view that this appeal from the decision of Mr. Justice Dubé of the Trial Division must be dismissed with costs for the following reasons.
[2] The Trial Judge did not err when he found the appellant liable, pursuant to the Excise Tax Act (Act), to pay the sales tax on the goods of Aro (1984) Inc. (Aro), which were sold between September 4 and 30, 1987, and on which the appellant held several securities including a trust deed, a general assignment of debts and a transfer of property in stock. The appellant obtained these securities as consideration for the line of credit it had extended to Aro.
[3] Subsection 27(1) of the Act imposes a consumption and sales tax on all goods produced or manufactured in Canada and requires the manufacturer or producer to levy, collect and pay it. For the purposes of collecting and paying this tax, paragraph 2(1)(a) of the Act states that the "manufacture or producer" includes an assignee and any person who continues the business of a manufacturer or producer or disposes of his assets in any fiduciary capacity. Subsection 27(3) of the Act also makes any person who acquires from a manufacturer, producer or transferee the right to sell these goods and who sells them, liable to pay the tax. In their entirety, these two sections read:
| 2(1)(a) the assignee |
| "manufacturer or producer" includes |
| the assignee, trustee in bankruptcy, liquidator, executor or curator of any manufacturer or producer and, generally, any person who continues the business of a manufacturer or producer or disposes of his assets in any fiduciary capacity, including a bank exercising any powers conferred on it by the Bank Act and a trustee for bondholders . . . . |
| 27(3) In case any person other than the manufacturer or producer or importer or transferee or licensed wholesaler or jobber hereinbefore mentioned acquires from or against any one of these persons the right to sell any goods, whether as a result of the operation of law or of any transaction not taxable under this section, the sale of such goods by him shall be taxable as if made by the manufacturer or producer or importer or transferee or licensed wholesaler or jobber as the case may be and the person so selling is liable to pay the tax. |
[4] In our view, the Trial Judge properly found that the appellant had in fact continued the business of the furniture manufacturer Aro in order to reduce the losses the appellant stood to suffer because of the credit it had extended and the immediate discontinuance of its operations. This finding of fact was amply supported by the evidence; it alone justified the dismissal of the action brought by the appellant.
[5] In fact, when Aro was in serious financial difficulty and after its sole director and shareholder had handed the keys to the business over to the appellant, the appellant provided an additional amount of $50,000 so that the business could complete the furniture in process. As the judge so clearly established from the evidence, it was the appellant who would benefit from continuing production, not the president of Aro, who took no further interest in his business.
[6] We also agree with the Trial Judge"s findings on the effect of the transfer of property in stock.
[7] The purpose of the 1982 amendments to the Bills of Lading Act (R.S.Q., 1977, c. C-53), which made it into An Act respecting bills of lading, receipts and transfers of property in stock (S.Q. 1982, c. 55) (An Act respecting the transfer of property in stock), was to improve and increase the ability of Quebec credit institutions to compete for short-term business financing by giving them the same protection as that conferred on federally chartered banks under sections 178 et seq. of the Bank Act (S.C. 1980-81, 82-83, c. 40).
[8] When these amendments came into force, an entrepreneur who previously had to give personal guarantees or security by mortgage for a loan, or agree to a commercial pledge or trust deed, with the limits inherent in these kinds of security as well as the related costs, could now borrow against his or her property in stock, and the transferee then acquired a sui generis proprietary right over the property thus transferred from the date of the transfer. The transferee may not, however, dispose of the property unless the transferor failed to fulfill his or her obligations. The definition of "property in stock" covers any moveable property, including property being processed (section 11 of the Act respecting the transfer of property in stock ), and the transfer itself may apply to future property (section 13 of the Act respecting the transfer of property in stock). In the latter case, the transfer has effect against the transferred future property only on the transferor becoming its owner.
[9] The legislator"s intention to bring about a transfer of the sui generis proprietary right from the transferor to the transferee is clear in the explanations given in the National Assembly during second reading debate by the Minister of Justice, who sponsored the Bill (Journal des Débats, Commission permanente de la Justice, December 12, 1982):
[TRANSLATION]
| p. B-11232: In the first paragraph, this section sets out the transfer of property in stock, which is the business" property in reserve or what is commonly called inventory. This transfer brings about a transfer of the proprietary rights over the entrepreneur"s property to the creditor/lender in order to guarantee the reimbursement of a loan or authorized credit. This transfer does not require the entrepreneur to give up possession of the stock, allowing him to continue the activities of his business as usual, which was not previously the case. |
| p. B-11241: The present Civil Code includes privileges which do not effect the transfer of property. The reason we included provisions which effect the transfer of property in this way is because Quebec credit institutions requested provisions comparable to, or at least which give the same guarantees as, those vested in the banks under the federal Act. |
[10] It must be said that at the time, this concept, which was borrowed from common law, was foreign to Quebec civil law and its traditional notion of assignment without transfer of property. In fact, in Multi-Stores Faber Ltée c. Yvon Nadeau Décor Inc. et Centura Québec Limitée, [1986] R.J.Q. 2334 (Prov. Ct.), the reticence to give full effect to sections 1, 11 and 12 of the Act respecting the transfer of property in stock is apparent. In that case, the Provincial Court erred in refusing to acknowledge that the Act introduced the principle of a transfer of property as it existed under the Bank Act. The Court held that the Act respecting the transfer of property in stock merely created a new security and that it could not be otherwise in civil law (p. 2339).
[11] The legal effect of a transfer of property in stock under the Quebec Act is to make the lender a transferee of the property as of the signature of the transfer. The purpose of registering the transfer in the register provided to that end under section 45 is to make the lender"s status as transferee, and similarly the sui generis proprietary right conferred on the lender over this property, in effect against third parties. In a recent decision (Compagnie Montréal Trust c. Bérard, [1997] R.J.Q. 332), the Quebec Court of Appeal did in fact recognize the transferee"s proprietary right over the transferred property.
[12] However, based on the decision of this Court in The Queen v. Canadian Imperial Bank of Commerce, 86 D.T.C. 6390, the appellant submits that for the purposes of paragraph 2(1)(a) of the Act, it can only be considered a manufacturer or producer when it exercises the rights conferred by the transfer. It adds that in the case at bar, it has waived the right to exercise this security and the rights it confers on the appellant.
[13] First, the use of the word [TRANSLATION] "security" to describe the nature of the security conferred under the Bank Act or a transfer of property and the rights associated with it is confusing, because as previously mentioned, the transferee acquires a proprietary right. In fact, on the subject of the nature of the security conferred on the lender under section 178 of the Bank Act, La Forest J. reiterates in Bank of Montreal v. Hall, [1990] 1 S.C.R. 121, at pp. 133-134, that its effect is to vest title to the property in question in the bank.
[14] That being said, given the similarity of the rights and powers conferred by the Act respecting the transfer of property in stock, we are prepared to accept that the decision of this Court in Canadian Imperial Bank of Commerce applies to the facts of the instant case, even though paragraph 2(1)(a) of the Act refers to the exercise of powers vested under the Bank Act.
[15] In our view, the exercise of the rights and powers vested in a transferee under a transfer of property in stock does not occur only in cases where the transferee takes possession of the property. It can take the form of an opposition for payment by the creditor in the case of a seizure of property in stock by another creditor (see Multi-Stores Faber Ltée c. Yvon Nadeau Décor Inc. et al., supra). Furthermore, the transferee himself or herself is not required to take possession of the property transferred as security (Leblanc et autres c. Caisse Populaire Laurier, [1988] R.J.Q. 1725 (Prov. Ct.); the actions of his or her agent suffice. In fact, section 16 of the Act respecting the transfer of property in stock provides that the transferor has the powers of a mandatary of the appellant for the purpose of carrying on the business:
| Art. 16 To carry on the business, the transferor has the powers of a mandatary of the transferee over the transferred property. The transferor remains responsible for any expenditure incurred in carrying on the undertaking. |
[16] Furthermore, like the Trial Judge, we are of the view that in the case at bar, the appellant did in fact exercise control over the property in its mandatary"s possession and that the sale of this property occurred for the sole benefit of the appellant in order to reduce the line of credit it had extended to the transferor. As we have previously mentioned, this is the reason the appellant extended more credit when the transferor"s financial difficulties were serious and the business was going to close, in order to benefit from the sale of the property which would then be produced.
[17] The evidence also indicated that once these amounts were invested and the appellant had the keys to the business, the appellant had continuous control over the operating expenditures of the business in order to complete the work. This taking of control fits into of a continuum which began with an act by the appellant which allowed the manufacturing and production operations to continue and ended with the collection of the proceeds from the sale of the manufactured goods, including the taxes owed to the government by the manufacturer or producer. Taken as a whole, the actions of the appellant indicate that the rights and powers vested in the appellant by the transfer of property in stock were exercised. The remittance by Aro"s controller, who was acting as the appellant"s mandatary, of the proceeds of the sale to the appellant, was consistent with paragraph 3 of the transfer which provided that the proceeds of the sale belonged fully to the appellant if the transferor failed to meet its obligations to the transferee. As the Trial Judge indicated, the sale of the property could not take place under paragraph 5 of the transfer without the consent of the appellant.
[18] Given our finding on the application of paragraph 2(1)(a) and accordingly subsection 27(3) of the Act, we are of the view that subsection 27(3) does not apply in the instant case, as the sale was conducted by the transferee, who is treated like the manufacturer or producer under paragraph 2(1)(a).
[19] Despite the commendable efforts of counsel for the appellant, who presented her arguments clearly, the appeal will be dismissed with costs.
Gilles Létourneau
J.A.
Certified true translation
M. Iveson
FEDERAL COURT OF CANADA
APPEAL DIVISION
Date: 19981029
Docket: A-316-94
Between:
CAISSE POPULAIRE DAVELUYVILLE
(ARO (1984) INC.)
Appellant
AND
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT
FEDERAL COURT OF APPEAL
NAMES OF COUNSEL AND SOLICITORS OF RECORD
COURT FILE NO.: A-316-94
STYLE OF CAUSE: CAISSE POPULAIRE DAVELUYVILLE
(ARO (1984) INC.)
Appellant
AND
HER MAJESTY THE QUEEN
Respondent
PLACE OF HEARING: Montréal, Quebec
DATE OF HEARING: October 27, 1998
REASONS FOR JUDGMENT OF THE COURT (THE HONOURABLE MR. JUSTICE DÉCARY, THE HONOURABLE MR. JUSTICE LÉTOURNEAU AND THE HONOURABLE DEPUTY JUSTICE CHEVALIER)
DELIVERED FROM THE BENCH BY: The Honourable Mr. Justice Létourneau
Dated: October 29, 1998
APPEARANCES:
Manon Thivierge for the appellant
Francis Archambault
Marie Bélanger and for the respondent
Yannick Houle (articling student)
SOLICITORS OF RECORD:
HEENAN BLAIKIE
Montréal, Quebec for the appellant
Morris Rosenberg
Deputy Attorney General
of Canada for the respondent