[OFFICIAL ENGLISH TRANSLATION]
98-1397(IT)I
BETWEEN:
YVAN LESSARD,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard by the late Honourable Guy Tremblay on September 18, 1998, at Chicoutimi, Quebec, and decision rendered on the basis of the transcripts by
The Honourable Associate Chief Judge D.G.H. Bowman
Appearances
Counsel for the Appellant: Paul Guimond
Counsel for the Respondent: Pascale O'Bomsawin
JUDGMENT
It is ordered that the appeal from the assessment issued under the Income Tax Act, notice of which is dated October 15, 1997, and bears number 02121, be allowed, with costs, and that the assessment be vacated.
Signed at Ottawa, Canada, this 30th day of November 2001.
|
"D.G.H. Bowman" |
A.C.J.
Translation certified true
on this 21st day of February 2003.
Sophie Debbané, Revisor
[OFFICIAL ENGLISH TRANSLATION]
Date: 20011130
Docket: 98-1397(IT)I
BETWEEN:
YVAN LESSARD,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Bowman, A.C.J.
[1] This appeal is from an assessment made under subsection 224(4) of the Income Tax Act on the ground that the appellant failed to act on a third party requirement served on him with respect to his partner Alain Aubé. The case was heard by the late Judge Tremblay, who died before he could render his judgment. By consent of the parties, the case was decided on the basis of the transcripts.
[2] The facts may be summarized in a few words. The appellant and Alain Aubé operated a carpet installation business under the trade name "Les Installations Yvan et Alain". Mr. Aubé had an unpaid tax debt for the 1992, 1993 and 1994 taxation years, which amounted to $4,187.98 on January 5, 1996.
[3] On January 5, 1996, the Minister of National Revenue had the following requirement to pay served on
[TRANSLATION]
Yvan Lessard and Alain Aubé
(who occasionally operate a corporation under the name Les Installations Yvan et Alain.).
50 Chemin Piché
Chicoutimi, QC
G7H 5A8
[4] Despite subsection 224(6) of the Income Tax Act, the officers of the Canada Customs and Revenue Agency ("Agency") clearly were not certain of the validity of a requirement served on a corporation one of whose members was the tax debtor himself. As a result, another requirement was served that same day on
[TRANSLATION]
Yvan Lessard (who occasionally operates a corporation under the name Les Installations Yvan et Alain)
1731 Boul. Tadoussac
St-Fulgence, QC
G0V 1S0
[5] The requirement was drafted in both official languages. The English text is reproduced below.
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Date 5 JAN. 1996 |
TSO BSF 1257 |
|
Bureau des services fiscaux Chicoutimi Tax Services Office |
|
|
Contact Tel. Ext. Denis Girard (418) 698-5554 |
|
Tax Debtor - Débiteur fiscal
Alain Aubé
50, rue Piché
Canton Tremblay, QC
G7H 5A8
|
ACCOUNT NUMBER NUMÉRO DE COMPTE 255492993 |
You are hereby required to pay to the Receiver General on account of the above-named tax debtor's liability under one or more of the Acts cited below,
(1) forthwith, the moneys otherwise and immediately payable to the tax debtor which you are liable to pay,
(2) all other moneys otherwise payable to the tax debtor which you will be, within one year, liable to pay, as and when the moneys become payable,
(3) where the moneys referred to in (1) and (2) include interest, rent, remuneration, a dividend, an annuity or other periodic payment, all such payments to be made by you to the tax debtor (at any time during or after the one year period) until the liability is satisfied, and
|
x |
(4) |
if the box on the right is x-ed, the moneys that within 90 days you would otherwise loan or advance to, or pay on behalf of, the tax debtor, and, if you are a bank, credit union, trust company or other similar person, pay in respect of a negotiable instrument issued by the tax debtor*, |
but do not pay hereunder more than $4,187.98 (the maximum payable).
Please make cheques or money orders payable to the Receiver General and remit them either with one of the attached Third Party Remittance Forms or with other identification providing the tax debtor's name, address and account number as well as the remitter's name, in the enclosed addressed envelopes.
Failure to pay the Receiver General the amounts required above renders you personally liable to pay those amounts to Her Majesty.
This requirement has been executed under one or more of the following Acts (see reverse):
[signed]
JEAN-GUY DALLAIRE
Director,
Chicoutimi Tax Services Office
Revenue Canada
*(4) does not apply to a bank, credit union, trust company or other similar person unless the tax debtor is indebted to it and has granted security in respect of the indebtedness.
[6] The appellant believed that an agreement had been entered into between the Agency and Mr. Aubé, and he paid no amount to the Receiver General.
[7] Whatever the case may be, after nearly two years, the Minister assessed the appellant in the amount of $4,187.98.
[8] It was established that Mr. Aubé had made a partial payment of $1,500 on his tax debt under the terms of an agreement entered into with the Agency's collection service. Consequently, the appellant's obligation-if indeed there was one-according to the third party requirement, should have been reduced by $1,500 to $2,687. Furthermore, on October 2, 1997, Mr. Aubé filed a proposal under section 66.13 of the Bankruptcy and Insolvency Act ("BIA"). The Agency filed a claim for $7,062.80 and ultimately obtained a promise of a dividend of approximately $3,350 under the proposal. I assume the Agency ultimately received that amount.
[9] The $1,500 amount paid by Mr. Aubé must be deducted from the debt due first, in the absence of any indication to the contrary. The amount would thus be imputed to the amounts owed in 1992 and 1993, which constitute the basis of the requirement made under subsection 224(4) of the Income Tax Act. Article 1572 of the Civil Code of Quebec ("Code") clearly states:
In the absence of imputation by the parties, payment is imputed first to the debt that is due.
Where several debts are due, payment is imputed to the debt which the debtor has the greatest interest in paying.
Where the debtor has the same interest in paying several debts, payment is imputed to the debt that became due first; if all of the debts became due at the same time, however, payment is imputed proportionately.
[10] It is less certain that the $3,350 dividend can also be deducted from the tax debt. I do not believe that a provincial statute governing the imputation of payment of debts can affect the imputation of a dividend payment under the BIA. I will address this question later in these reasons, after stating the main test on which I rely in allowing the appeal.
[11] Subsection 224(1) of the Income Tax Act provides as follows:
(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 (1.1) and (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.
(1.1) Without limiting the generality of subsection (1), where the Minister has knowledge or suspects that within 90 days
(a) a bank, credit union, trust company or other similar person (in this section referred to as the "institution") will lend or advance moneys to, or make a payment on behalf of, or make a payment in respect of a negotiable instrument issued by, a tax debtor who is indebted to the institution and who has granted security in respect of the indebtedness, or
(b) a person, other than an institution, will lend or advance moneys to, or make a payment on behalf of, a tax debtor who the Minister knows or suspects
(i) is employed by, or is engaged in providing services or property to, that person or was or will be, within 90 days, so employed or engaged, or
(ii) where that person is a corporation, is not dealing at arm's length with that person,
the Minister may in writing require the institution or person, as the case may be, to pay in whole or in part to the Receiver General on account of the tax debtor's liability under this Act the moneys that would otherwise be so lent, advanced or paid and any moneys so paid to the Receiver General shall be deemed to have been lent, advanced or paid, as the case may be, to the tax debtor.
(1.2) Notwithstanding any other provision of this Act, the Bankruptcy and Insolvency Act, any other enactment of Canada, any enactment of a province or any law, but subject to subsections 69(1) and 69.1(1) of the Bankruptcy and Insolvency Act and section 11.4 of the Companies' Creditors Arrangement Act, where the Minister has knowledge or suspects that a particular person is, or will become within one year, liable to make a payment
(a) to another person (in this subsection referred to as the "tax debtor") who is liable to pay an amount assessed under subsection 227(10.1) or a similar provision, or
(b) to a secured creditor who has a right to receive the payment that, but for a security interest in favour of the secured creditor, would be payable to the tax debtor,
the Minister may in writing require the particular 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 or the secured creditor in whole or in part to the Receiver General on account of the tax debtor's liability under subsection 227(10.1) or the similar provision, and on receipt of that requirement by the particular person, the amount of those moneys that is so required to be paid to the Receiver General shall, notwithstanding any security interest in those moneys, become the property of Her Majesty to the extent of that liability as assessed by the Minister and shall be paid to the Receiver General in priority to any such security interest.
(1.3) In subsection (1.2),
"secured creditor" - "secured creditor" means a person who has a security interest in the property of another person or who acts for or on behalf of that person with respect to the security interest and includes a trustee appointed under a trust deed relating to a security interest, a receiver or receiver-manager appointed by a secured creditor or by a court on the application of a secured creditor, a sequestrator or any other person performing a similar function;
"similar provision" - "similar provision" means a provision, similar to subsection 227(10.1), of any Act of a province that imposes a tax similar to the tax imposed under this Act, where the province has entered into an agreement with the Minister of Finance for the collection of the taxes payable to the province under that Act;
"security interest" - "security interest" means any interest in property that secures payment or performance of an obligation and includes an interest created by or arising out of a debenture, mortgage, lien, pledge, charge, deemed or actual trust, assignment or encumbrance of any kind whatever, however or whenever arising, created, deemed to arise or otherwise provided for.
(1.4) Provisions of this Act that provide that a person who has been required to do so by the Minister must pay to the Receiver General an amount that would otherwise be lent, advanced or paid to a taxpayer who is liable to make a payment under this Act, or to that taxpayer's secured creditor, apply to Her Majesty in right of Canada or a province.
(2) The receipt of the Minister for moneys paid as required under this section is a good and sufficient discharge of the original liability to the extent of the payment.
(3) Where the Minister has, under this section, required a person to pay to the Receiver General on account of a liability under this Act of a tax debtor moneys otherwise payable by the person to the tax debtor as interest, rent, remuneration, a dividend, an annuity or other periodic payment, the requirement applies to all such payments to be made by the person to the tax debtor until the liability under this Act is satisfied and operates to require payments to the Receiver General out of each such payment of such amount as is stipulated by the Minister in the requirement.
(4) Every person who fails to comply with a requirement under subsection (1), (1.2) or (3) is liable to pay to Her Majesty an amount equal to the amount that the person was required under subsection (1), (1.2) or (3), as the case may be, to pay to the Receiver General.
(4.1) Every institution or person that fails to comply with a requirement under subsection (1.1) with respect to moneys to be lent, advanced or paid is liable to pay to Her Majesty an amount equal to the lesser of
(a) the total of moneys so lent, advanced or paid, and
(b) the amount that the institution or person was required under that subsection to pay to the Receiver General.
(5) Where a person carries on business under a name or style other than the person's own name, notification to the person of a requirement under subsection (1), (1.1) or (1.2) may be addressed to the name or style under which the person carries on business and, in the case of personal service, shall be deemed to be validly served if it is left with an adult person employed at the place of business of the addressee.
(6) Where persons carry on business in partnership, notification to the persons of a requirement under subsection (1), (1.1) or (1.2) may be addressed to the partnership name and, in the case of personal service, shall be deemed to be validly served if it is served on one of the partners or left with an adult person employed at the place of business of the partnership.
[12] I have reproduced the full text of that provision because it is important to understand that only subsection 224(1) is likely to apply in the instant case. The "person" in question in subsection 224(1) is the appellant.
[13] The amounts paid to Mr. Aubé, as may be seen from the cheques filed as Exhibit I-6, were not for the purpose of repaying a debt, which the appellant had contracted with Mr. Aubé. They merely represented the portion of the corporation's profits owed to Mr. Aubé. Subparagraphs 5(f), (g) and (h) of the reply to the notice of appeal state that the Minister "made, in particular, the following assumptions of fact":
[TRANSLATION]
(f) on January 5, 1996, the Minister issued, inter alia, a requirement to pay to the appellant in his capacity as a partner of the business known under the trade name "Les Installations Yvan et Alain";
(g) that requirement to pay required that the appellant retain and remit to the Receiver General every amount owed or becoming payable by "Les Installations Yvan et Alain" to Alain Aubé to a maximum amount of $4,187.98;
(h) a check of the business's cancelled cheques for the period from January to October 1996 clearly showed that the appellant had failed to comply with the requirement to pay dated January 5, 1996.
[14] With respect to subparagraph (g), the appellant was not required by the "requirement" to pay the Receiver General all the amounts owed or becoming payable by the corporation. It required the appellant to pay the Receiver General the amounts it owed to Mr. Aubé. The appellant owed Mr. Aubé nothing. A partner is not liable to another partner for that other partner's share of corporate profits. Subparagraph (h) is evidence, not a fact, and it should not appear in the assumptions of fact. Whatever the case may be, the fact that the appellant and Mr. Aubé co-signed the cheques used to pay Mr. Aubé his share of the corporation's profits is not evidence that the appellant failed to act on the requirement.
[15] The appellant's testimony is reproduced below.
[TRANSLATION]
Q. At that time, did you owe Alain Aubé money?
A. No, not at all.
Q. Did you owe money afterwards? Was there a period when you owed Alain Aubé money?
A. No, never.
Q. You personally never advanced sums to Alain Aubé, sums which might have been owed on January 5, 1996, or which might have become due after January 5, 1996?
A. No, not at all.
. . .
Q. Do you pay Alain Aubé a salary?
A. No, I pay no salary. I mean, we withdraw money from what we make together; I mean, if we make $500 one week and our costs are $100, we are left with $400. So we withdraw $200. And if we make $1,000 and have . . . Ultimately, we make withdrawals throughout the week based on our income and based on what we have.
Q. You personally paid Mr. Aubé nothing after January 5, 1996?
A. No.
Q. But we understand that Mr. Aubé made withdrawals from the company?
A. Yes, yes.
Q. Or rather from the corporation.
A. Yes.
Q. Tell me, Mr. Lessard, how would you have reacted to such a requirement if it had been addressed to Les Installations Yvan et Alain and it had involved one of your employees?
A. Well, obviously, if it had been an employee, I would have owed him money. In that case, the employee would have worked for me, would have put in hours for me, and I would owe him. I mean, I would have been required to tell my employee: well, it's unfortunate, but either you come to an agreement with the department, or I send them your cheque. I mean, I would have had no other choice. Except that I don't feel above Mr. Aubé. I mean, in the end, we are 50-50, and I owe him nothing, but, I mean, he's my partner, and that's that.
THE COURT:
Q. But you signed his cheque?
A. Yes, yes, yes, I signed his cheque. He did the same.
PAUL GUIMOND:
Q. Is he the one who signs yours? Yes?
A. He signed mine as well.
Q. There were two signatures on the cheques?
A. Yes.
THE COURT:
Q. Ah! There were two signatures?
A. There were two signatures on the cheques.
Q. Always two signatures?
A. All the time.
Q. I see.
A. In our account and on our cheques.
PAUL GUIMOND:
Q. You did not have the authority to write a cheque alone and to send it to the department . . .
A. No.
Q. . . . for Alain Aubé?
A. No.
Q. Legally, you were not able to do that?
A. I necessarily needed Mr. Aubé's signature, and you will understand that, I mean, if I decide . . . Normally, we made out our cheques on Fridays, and, since today is Friday, you will understand that, today, if I decided not to sign his pay cheque, he could decide to do the same thing as well; I mean . . .
[16] Mr. Aubé's testimony is reproduced below.
[TRANSLATION]
Q. The corporation had received that requirement?
A. Well, it was not the corporation that had received it, it was Yvan, Yvan Lessard. It was addressed to Yvan Lessard, and Yvan Lessard is my partner. We have a small company, which we registered here at the courthouse, and he writes himself pay cheques, and I write myself pay cheques. He signs my pay cheque, and I sign his, but, I mean, he is not my boss, and I'm not his either. We work together, and he owes me nothing, and I ultimately owe him nothing; I mean, we earn salaries, we pay our suppliers, we pay for our truck, and, after that, we pay ourselves salaries. But he pays me nothing; and me, he owes me nothing; and I owe him nothing either.
. . .
A. . . . The corporation is . . . we operate on a 50-50 basis in the business. No, I'm not Yvan Lessard's employee. I am not Yvan Lessard's employee¾we work together; we are two craftsmen, and we work together. So I do not see how he could interfere and say: I'm taking your money, which is yours, and I am sending it to them, and, in any case, we had an agreement with the government, and I was trying . . . I have always been honest in that . . .
[17] In The Queen v. National Trust Company, F.C.A., No. A-969-97, July 3, 1998 (98 DTC 6409), the Federal Court of Appeal determined that subsection 224(1) of the Income Tax Act did not apply solely to cases where there is a debtor-creditor relationship. Isaac C.J.A. wrote as follows in paragraph 47:
It is my respectful view, therefore, that the Tax Court Judge was wrong in law to limit the phrase 'liable to make a payment' only to situations where a debtor-creditor relationship exists. In so doing, he precluded himself from asking the only relevant question when one is confronted with construction of the subsection. It is this: did the respondent have a responsibility at law to make a payment to the tax debtor on 1 February 1994?
[18] Isaac C.J.A. also stated the following in paragraph 57:
The tax debtor had a contractual right, enforceable in law, to have the net proceeds paid to him. The respondent had a corresponding contractual obligation to make the payment requested. In my respectful view, this legal obligation was sufficient to bring the respondent within the scope of the phrase 'a person liable to make a payment' to the tax debtor within the meaning of subsection 224(1).
[19] The point at issue in National Trust Company was whether the appellant on whom a requirement had been served under subsection 224(1) respecting a certain tax debtor had an obligation to pay the tax debtor an amount in respect of the proceeds of the RRSP that was payable to him. To that end, the Federal Court of Appeal considered the meaning to be given to the word "payable", in paragraphs 61 and 62 of the judgment.
[20] In the case at bar, in order to confirm an assessment made in respect of the appellant under subsection 224(4), the appellant must have failed to act on a requirement served under subsection 224(1). Under the terms of the requirement served on the appellant, he had to refrain from paying any amount that might become payable by him to the tax debtor. According to the Federal Court of Appeal's decision in National Trust Company, for there to be a violation of subsection 224(1), the appellant must have had a responsibility at law to make a payment to the tax debtor.
[21] Under article 2186 of the Code, partners share the pecuniary profits resulting from the operation of a business. Article 2202 deals with the sharing of profits:
The share of each partner in the assets, profits and losses is equal if it is not fixed in the contract.
If the contract fixes the share of each partner in only the assets, profits or losses, it is presumed to fix the share for all three cases.
[22] None of the provisions in the Code concerning partnerships states that a partner has an obligation to pay his share of the partnership's profits to another partner. The only provision imposing an obligation on a partner to make a payment to another partner is article 2227, which applies in cases where one of the partners ceases to be a member of the partnership otherwise than by the transfer or seizure of his share. Articles 2226 and 2227 of the Code provide as follows:
2226. A partner ceases to be a member of the partnership by the transfer or redemption of his share or upon his death, upon being placed under protective supervision or becoming bankrupt, or by the exercise of his right of withdrawal; he also ceases to be a member where such is his will, by his expulsion or by a judgment authorizing his withdrawal or ordering the seizure of his share.
2227. A partner who ceases to be a member of the partnership otherwise than by the transfer or seizure of his share may obtain the value of his share upon ceasing to be a partner, and the other partners are bound to pay him the amount of the value as soon as it is established, with interest from the day on which his membership ceased.
Failing stipulations in the contract of partnership or failing agreement among the interested persons as to the value of the share, the value is determined by an expert designated by the interested persons or, failing that, by the court. The expert or the court may, however, defer the assessment of contingent assets or liabilities.
[23] A partner's obligations toward another partner appear to be the same in common law and in the Code. In Erb v. Canada, 2000 DTC 1401, I wrote as follows:
[77] In Halsbury's Laws of England, 4th Ed., Vol. 35, page 96, paragraph 147, the following appears:
147. No indebtedness between partners. Partners are not, as regards partnership dealings, considered as debtor and creditor between themselves until the concern is wound up or until there is a binding settlement of the accounts; but, where exceptionally a partner has repeatedly requested the taking of an account but this has been refused, that partner may be entitled to sue his co-partners in respect of a specific debt owed to him qua partner without such an account having been taken. Subject thereto, it follows that one partner has no right of action against another for the balance owing to him until after final settlement of the accounts; and money lent to a partnership by a partner cannot be recovered in a common law action for money lent. This rule applies only in relation to persons who are currently partners; and, once a partner has left the partnership leaving the other partners to continue the firm's business on their own account, as, for example, where the outgoing partner has retired or has been expelled, his former partners are creditors to him in respect of any part of his partnership share or other agreed entitlement as has not been paid out to him.
[24] Counsel for the respondent appears to have contended that, even if the appellant owed the tax debtor nothing, he is held responsible for the partnership's failure to act on the requirement served on him. Counsel may have relied on article 2221 of the Code, which applies to a general partnership, or on articles 2253 and 2254 of the Code, which involve undeclared partnerships.
2221. In respect of third persons, the partners are jointly liable for the obligations contracted by the partnership but they are solidarily liable if the obligations have been contracted for the service or operation of an enterprise of the partnership.
Before instituting proceedings for payment against a partner, the creditors shall first discuss the property of the partnership; if proceedings are instituted, the property of the partner is not applied to the payment of creditors of the partnership until after his own creditors are paid.
2253. Each partner contracts in his own name and is alone liable towards third persons.
Where, however, to the knowledge of third persons, the partners act in the quality of partners, each partner is liable towards the third persons for the obligations resulting from acts performed in that quality by any of the other partners.
2254. The partners are not solidarily liable for debts contracted in carrying on their business unless the debts have been contracted for the use or operation of a common enterprise; they are liable towards the creditor, each for an equal share, even if their shares in the undeclared partnership are unequal.
[25] However, even if the appellant is held responsible for the partnership's failure to remit to the Minister the amounts payable to the tax debtor, the failure cannot give rise to the making of an assessment under subsection 224(4). That provision applies when subsection 224(1) has been violated. In the instant case, since the appellant is not responsible at law for making a payment to the tax debtor, there can have been no violation of subsection 224(1).
[26] The appellant was never liable to Mr. Aubé for any amount whatever.
[27] That is sufficient to rule on the appeal. However, although in any case I may render my decision, I would like to return briefly to the question of the effect of the dividend paid by the trustee under the proposal filed by Mr. Aubé under the BIA.
[28] Since I have concluded that the appeal must be allowed for other reasons, I need not state a final opinion on the four possible assumptions respecting the effect of a payment of a dividend under a proposal made under the provisions of the BIA.
[29] The four assumptions that may be considered are as follows:
(a) the payment of a dividend under such a proposal, which binds the creditor, releases the third party to the same degree that it releases the principal tax debtor;
(b) such payment has no effect on the third party's obligations;
(c) such payment must be imputed to the debt due first;
(d) the payment must be imputed proportionately to all the debts owed to the creditor by the debtor.
[30] I shall briefly summarize the reasons why I have decided that the fourth assumption is most closely consistent with the object of the BIA.
[31] There are solid arguments in favour of the first assumption.
[32] The tax debtor filed a consumer proposal under section 66.13 of the BIA, and the Minister filed a proof of claim in respect of the tax debt which gave rise to the request for garnishment against the appellant. From the moment the consumer proposal was accepted by the creditors and approved by the courts, the tax debtor was released from his debt to the Minister under subsection 66.28(2) of the BIA, which reads as follows:
(2) A consumer proposal accepted, or deemed accepted, by the creditors and approved, or deemed approved, by the court is binding on creditors in respect of
(a) all unsecured claims, and
(b) secured claims for which proofs of claim have been filed in the manner provided for in sections 124 to 134,
but does not release the consumer debtor from the debts and liabilities referred to in section 178, unless the creditor assents thereto.
[33] Section 66.18 of the BIA sets out when a consumer proposal is deemed to be accepted by the creditors:
(1) Where, at the expiration of the forty-five day period following the filing of the consumer proposal, no obligation has arisen under subsection 66.15(2) to call a meeting of creditors, the consumer proposal is deemed to be accepted by the creditors.
(2) Where there is no quorum at a meeting of creditors, the consumer proposal shall be deemed to be accepted by the creditors.
[34] Section 66.22 of the BIA sets out when a consumer proposal is deemed to be approved by the court:
(1) Where a consumer proposal is accepted or deemed accepted by the creditors, the administrator shall, if requested by the official receiver or any other interested party within fifteen days after the day of acceptance or deemed acceptance, forthwith apply to the court to have the consumer proposal reviewed.
(2) Where, at the expiration of the fifteenth day after the day of acceptance or deemed acceptance of the consumer proposal by the creditors, no obligation has arisen under subsection (1) to apply to the court, the consumer proposal is deemed to be approved by the court.
[35] In The 2002 Annotated Bankruptcy and Insolvency Act, at page 229, para. E § 18(6), Houlden and Morawetz write as follows in the notes on subsection 62(2) of the BIA (which, in the context of the general provisions on proposals, is the equivalent of subsection 66.28(2) of the BIA):
(6) By s. 4.1, the provisions of the Act bind the Crown in right of Canada or a province. A proposal, therefore, binds the Crown, unless it is a claim for a fine, penalty or restitution order coming within s. 178(1)(a) of the Act: Threfall (1937), 19 C.B.R. 80 (Que. S.C.).
[36] Accordingly, it appears that the tax debtor is released from his debt to the Minister. However, the amount owed to the Minister included penalties. Nevertheless, paragraph 178(1)(a), which states the exceptions to subsection 66.28(2), provides as follows:
(1) An order of discharge does not release the bankrupt from
(a) any fine, penalty, restitution order or other order similar in nature to a fine, penalty or restitution order, imposed by a court in respect of an offence, or any debt arising out of a recognizance or bail.
[37] As Houlden and Morawetz state at page 688, para. H § 22(2), paragraph 178(1)(a) of the BIA applies only to penalties assessed by a court in the context of criminal proceedings:
Section 178(1)(a) only applies to fines, penalties or restitution orders made by a court which imposes a sentence for a criminal offence.
[38] Accordingly, the effect of implementing the consumer proposal is that the tax debtor is released from all debt to the Minister. The assessment made in respect of the appellant for failure to act on the notice of requirement is thus unfounded, even though the appellant had a responsibility at law to make the payments to the tax debtor.
[39] Where the tax debtor's obligation is extinguished, the third party's derivative obligation is extinguished as well.
[40] Nevertheless, and despite these arguments, I reject this assumption, relying on the provisions of the BIA stipulating that the release of the principal debtor does not release the surety.
[41] I reject the second assumption for the simple reason that if it were admitted, the Minister could collect the same debt twice, once from the principal tax debtor and a second time from the third party.
[42] I reject the third assumption because, as indicated above, the imputation of a payment under the BIA is not governed by a provincial statute.
[43] The fourth assumption has the advantage of not having the objections raised with respect to the three previous assumptions apply to it: the third party is not completely released and, at the same time, he is not required to pay the part of the principal debtor's obligations that were previously paid by that debtor. This is the conclusion that I find most reasonable and logical.
[44] Thus, although I was wrong to conclude earlier that the appellant was not liable for any amount whatever to Mr. Aubé, the amount for which he would be responsible does not exceed $1,274.95, calculated as follows:
[$4,187.98 - $1,500] x $3,350 / $7,062.80 = $1,274.95
[45] The appeal is allowed with costs and the assessment is vacated.
Signed at Ottawa, Canada, this 30th day of November 2001.
|
"D.G.H. Bowman" |
A.C.J.
Translation certified true
on this 21st day of February 2003.
Sophie Debbané, Revisor