Canadian Western Bank v, 2012 ABQB 305

Court of Queen ’ s Bench of Alberta Citation: Canadian Western Bank v 702348 Alberta Ltd., 2012 ABQB 305 Date: 20120509 Docket: 0803 16256 Registry: Edmonton Between: Canadian Western Bank Plaintiff - and - 702348 Alberta Ltd. and Guild Developments Inc. Defendants _______________________________________________________ Memorandum of Decision of the Honourable Madam Justice J.M.

Ross _______________________________________________________ Introduction [ 1 ] This is the continuation of my reasons dated February 6, 2012 in the within application dealing with priority to funds in Court as between builders’ lien claimants and Canada Revenue Agency (“CRA”). The application is brought in the context of a Receivership Action brought against Guild Development Inc. (“Guild”) and 702348 Alberta Ltd. (“702348”) by the Canadian Western Bank.

[ 2 ] The funds had been paid into Court under the Builders ’ Lien Act (“ BLA ”) by Guild, the contractor for a development, in order to discharge certain liens filed against the interest of the owner 702348 in the lands on which the development was constructed.

In the February 6, 2012 decision, I determined that the funds were not reserved for the lien claimants whose liens had been discharged upon payment into Court; rather they were available to establish a lien fund for the benefit of all lien claimants. [ 3 ] The second issue addressed in the February 6, 2012 decision related to a Canada Revenue Agency (“CRA”) claim in the amount of $66,609.70 against Guild arising from unremitted employee income tax source deductions.

CRA claimed priority to the funds in Court on the basis of a deemed trust under ss 227(4) and (4.1) of the Income Tax Act , RSC, c 1 (5 th Supp) (“ ITA ”). I concluded that, if the funds remained the property of Guild, though subject to the security interest of the lienholders, then CRA had priority. This conclusion might change, however, if the payment into court under the BLA had the effect of transferring ownership of the lien funds from Guild to 702348. [ 4 ] I observed that, upon payment in, the funds stood in place of the property of 702348, as security for lien claims.

The funds secured obligations of 702348, not Guild. By virtue of the BLA , Guild’s funds when paid into Court became dedicated to stand as security in place of the property of 702348, and to answer for the obligations of 702348. [ 5 ] I concluded that the issue of ownership of the funds as between Guild and 702348 depended on what basis Guild provided the funds for 702348’s benefit.

Did Guild pay the lien funds: 1. unilaterally with no associated return benefit, or 2. on the basis of a legal agreement and receipt of a benefit in return. [ 6 ] A unilateral transfer (or transfer that is not for value) would generate a resulting trust. One party, Guild, suffers a deprivation, loss of control of the lien funds. Another, 702348, receives a corresponding benefit, clear title to the Lands. Absent the intention to make a gift, or value exchanged for the transfer of funds, Guild would have an equitable right to the lien funds: Pecore v.

Pecore , 2007 SCC 17 at paras. 43-44 , [2007] 1 SCR 795. [ 7 ] In the latter case, the lien funds would no longer belong to Guild and in my view would not be subject to the ITA s 227 deemed trust.

Property that has been transferred by the tax debtor to another person (i.e., by Guild to 702348) before the tax default would not be caught by the trust. [ 8 ] As I had not been provided with evidence as to the basis on which Guild provided the funds for 702348’s benefit, I directed the Receiver of Guild and 702348 to provide evidence about the relationship between Guild and 702348 and the basis on which Guild paid the lien funds into court to clear 702348’s title to the lands.

I also provided a time period for interested parties to provide responding affidavits and arguments. [ 9 ] The Receiver has now provided the directed information in its Sixth Report. CRA is the only party who took the opportunity to provide further submissions. Sixth Report of the Receiver [ 10 ] The Receiver reviewed financial and other records and sought advice from management of Guild and 702348. The Sixth Report details the information obtained, summarized by the Receiver as: 1. Guild and 702348 were not related companies, however, through a common shareholder they are affiliated.

2. Based upon the financial information available to the Receiver, the Lien Fund was paid into Court by Guild and is recorded as an asset of Guild, not 702348, within its financial statements. 3. The Receiver has not been able to identify supporting documentation of intercompany agreements (either within the financial statements or otherwise) indicating the basis upon which the Lien Fund was paid into Court by Guild. CRA Submissions [ 11 ] The CRA submits that the funds in Court continued to be Guild’s property.

The payment into Court by Guild did not transfer the property to 702348, rather it was the mere posting of security. There is no evidence of consideration in respect of any transfer, nor of any contractual or other legal rights or obligations between or involving Guild and 702348 that might support a transfer of property.

The funds thus remained susceptible to the Crown’s deemed trust claim, which arose after the funds were paid into Court. [ 12 ] Alternatively, the CRA submits that if there were a transfer of property, the language and scope of the deemed trust legislation is such that the deemed trust would extend to the funds in Court in any event. Analysis [ 13 ] I agree with CRA that there is no evidence that Guild’s payment of the money into Court was in respect of the discharge of any contractual or other obligation owed to 702348.

On the basis of the evidence, Guild paid the funds into court unilaterally with no associated return benefit. In my view, as indicated earlier, such a transfer has the effect of creating a resulting trust. As between Guild and 702348, the funds in Court remained the property of Guild. [ 14 ] As I previously held, the payment of funds into Court caused those funds to stand as security for the lien claims of all lienholders. Because the payment in was a unilateral transfer by Guild, and not based on a legal agreement or receipt of a benefit from 702348, it did not result in a transfer of property to 702348.

The funds remained the property of Guild subject to the security interest of all lienholders. As detailed in the February 6, 2012 decision, the payment in also did not transfer ownership of the lien funds to the lienholders, rather their interest continued to be a security interest. A security interest does not affect the priority of CRA under the deemed trust provisions of the ITA .

Conclusion [ 15 ] I conclude that the CRA claim has priority to the funds in Court. [ 16 ] It is unnecessary to consider the alternative submission of the CRA. [ 17 ] The parties may speak to me regarding costs, if they are unable to agree. Heard on the 6 th day of October, 2011. Additional submissions received on the 7 th day of March, 2012 and the 12 th day of April, 2012. Dated at the City of Edmonton, Alberta this 8 th day of May, 2012

J.M. Ross J.C.Q.B.A. Appearances : No appearance for the Plaintiff No appearance for the Defendants No appearance for the Receiver/Manager, Meyers Norris Penny Ltd. Ronald J. Young Ronald J. Young Professional Corporation for Extreme Trenching Ltd. (Applicant) Karen D. Jacobson Smith Mack LaMarsh

for Rock Solid Drilling Ltd. (Applicant) E. Bruce Corenblum Lirenman Peterson for Rexel Canada Electric (Respondent) Daniel G. Segal Tax Law Services Department of Justice Canada for Her Majesty the Queen in Right of Canada as Represented by the Minister of National Revenue (Respondent) S. Wensel Witten LLP for RIC New Brunswick Inc.