Canadian Western Bank v., 2012 ABQB 89

Court of Queen ’ s Bench of Alberta Citation: Canadian Western Bank v. 702348 Alberta Ltd., 2012 ABQB 89 Date: 20120206 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 application was brought by Extreme Trenching Ltd. (“Extreme”) and Rock Solid Drilling Ltd. (“Rock Solid”), two builder’s lien claimants, 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 builders’ liens arose from work done by Extreme and Rock Solid under contracts with Guild, the general contractor, on lands owned by 702348 (the “Lands”). Before the Receivership Action, funds were paid into court and the liens were discharged. The funds remained in court when a Receiver and Manager was appointed over both Guild and 702348. The purpose of this application, which was directed by the Court in the Receivership Action, is to determine who may claim those funds and in what priority. Facts [ 3 ] Extreme filed two builder’s liens.

The liens were discharged in proceedings (Action Nos. 0703 10821 and 0703 12630) brought by Guild for the payment of funds into Court to be held as security for the lien claims. In total, $452,210.66 was paid into Court in September and October, 2007. [ 4 ] Extreme subsequently commenced an action against Guild and 702348 on November 19, 2007 (Action No. 0703 14862), seeking judgment on the liens and an order for payment to Extreme out of the funds in Court. Guild and 702348 defended and counterclaimed against Extreme in the action.

The action was stayed when Guild and 702348 were jointly placed in receivership on November 19, 2008. [ 5 ] Rock Solid filed one lien. In a proceeding brought by Guild (Action No. 0703 15369), $217,266.00 was paid into court in November 2007 as security for the lien claim, and the lien was discharged. [ 6 ] The Court was advised that a smaller amount (approximately $7700.00) was paid into Court in a separate proceeding with respect to a lien filed by DMI Services Ltd. (“DMI”). [ 7 ] Numerous additional builders’ liens were filed against the Lands between June and December 2008.

No applications were made to post security for these additional liens. [ 8 ] Following the receivership of Guild and 702348, both Extreme and Rock Solid filed Affidavits Proving Lien, as required by Order dated April 27, 2010 in the Receivership Action. A number of other builders’ lien claimants also filed Affidavits Proving Lien.

Lien claimants who did not file Affidavits Proving Lien as required were barred any future claim to funds paid into Court. [ 9 ] By Order dated January 31, 2011 in the Receivership Action, the Court directed that an application be heard to determine the following issues: With respect to the funds paid into Court in the following actions: 0703 14862, 0703 12630, 0703 10821, 0703 15369 and 0701 13408, whether:

i) Those funds are subject only to the claims of Extreme Trenching Ltd. and Rock Solid Drilling Ltd.; or ii) Whether those funds may be utilized to establish a lien fund for the benefit of all lien claimants; and iii) Whether [the Canada Revenue Agency] has priority to any portion of the lien claimed funds. [ 10 ] Extreme and Rock Solid both filed written briefs and appeared on the application seeking the same relief, declarations that: 1. Extreme and Rock Solid are the only lienholders entitled to claim the funds paid into Court in respect to the Extreme and Rock Solid liens; and

2. neither other builders’ lien claimants nor the Canada Revenue Agency (“CRA”) have any claim to the lien funds. DMI Services Ltd. did not file a brief or appear at the application; however the Court was advised that it is apparently in the same position as Extreme and Rock Solid with respect to funds paid into Court as security for its lien. [ 11 ] The January 31, 2011 Order provided that any builders’ lien claimants who filed Affidavits Proving Lien were entitled to respond to the application.

Counsel for Extreme and Rock Solid advised that all lien claimants were served with the application briefs, including the barred lien claimants. Counsel for two lien claimants who had filed Affidavits Proving Lien appeared on the application. Counsel for one of those lien claimants, Rexel Canada Electric (“Rexel”), filed a brief and made oral submissions. [ 12 ] The Minister of National Revenue also responded to the application, in writing and in an oral submission. [ 13 ] Counsel for the Receiver and the Canadian Western Bank did not appear and advised the Court that they took no position on the application.

Counsel for RIC New Brunswick Inc., the remaining secured creditor, also took no position on the application. Further, counsel for Guild and 702348 indicated that they would not oppose the application nor file a brief. [ 14 ] The January 31, 2011 Order provided that, on this application, the determination of CRA’s priority should proceed first. Oral submissions at the hearing did proceed in accordance with that direction.

However, for purposes of analysis, I find it more convenient to address first the nature of the payment into Court under the Builders ’ Lien Act (“ BLA ”) , RSA 2000, c B-7 , and the first two issues identified in the January 31, 2011 Order, whether the funds are subject only to the claims of Extreme and Rock Solid, or whether the funds paid into court represent a lien fund for the benefit of all lien claimants. Claims to the funds paid into Court by other lien claimants [ 15 ] The funds were paid into Court by Guild and the Extreme and Rock Solid liens discharged under s. 48 (1)(a)(

I) of the BLA : 48(1) The court may, on application, order that the registration of a lien be removed from title to the land concerned (

a) where security is given or payment is made into court for (

i) the amount of the claim, (ii) the maximum amount for which the lien may properly attach under section 18(3) or (4) or 23(3) or (4), or (iii) such lesser amount as the court may fix,and any costs that the court may fix, (

b) where the relevant lien fund has been paid out under this Act, or (

c) on any ground not referred to in clause (

a) or (

b) as the court considers proper.

(2) Money paid into court or any security given under subsection (1)

(

a) stands in place of the land, (

b) is subject to the claims of the person whose lien has been removed, and (

c) shall not affect the amount required to be retained under section 18(1) or (1.1) or 23(1) or (1.1). ... [ 16 ] Sections 18 and 23 deal with the “major lien fund” and the “minor lien fund”, which are amounts required to be held back by owners with respect to work done or materials furnished for an improvement to their lands. Owners, when making payment on a contract, must retain 10% of the value of the work done or materials furnished.

The major lien fund must be retained until a stipulated period after completion of the contract or issuance of a certificate of substantial performance; the minor lien fund applies with regard to work done and materials furnished after issuance of a certificate of substantial performance. In addition to the minimum hold back of 10%, “during any time while a lien is registered”, the owner must also retain any amount payable under the contract that has not been paid (ss. 18(2) and 23(2)). [ 17 ] The registration of a lien thus has the effect of freezing payments under the contract.

This can clearly lead to inconvenience where a lien is filed during the construction process. The s. 48(1)(a)(

I) payment into court mechanism provides relief for this inconvenience. Payment into court and discharge of the lien under this

section allows the parties to take the time needed to deal with any disputes on the validity or amount of a lien claim, while still allowing payments under the contract to continue in the normal way (subject to the 10% hold back). [ 18 ] The Alberta Court of Appeal addressed the relationship of the security posted under s. 48 and the lien fund in Maple Raiders Inc. v Eagle Sheet Metal Inc. 2007 ABCA 247 , 284 DLR (4 th ) 249 (“ Maple ”). Rexel relies on this decision in support of its position that the funds in Court form a portion of the lien fund and should be distributed among all lienholders.

Extreme and Rock Solid both argue that the case should be distinguished. As I have concluded that the result on this application is governed by Maple , I will commence with a description of the holding in that case. [ 19 ] In Maple , as in this case, liens were filed during the course of a construction contract. In contrast with this case the lien claimants were not sub-contractors who had direct contracts with the general contractor (“Maple”), rather they were sub-sub-contractors who had contracts with the mechanical sub-contractor (“Eagle”). Eagle failed to complete its sub-contract and went out of business.

Subsequently, eight of Eagle’s sub-sub-contractors filed liens totalling $198,376.00. Maple paid security into court under s. 48(1)(a)(

I) of the BLA and discharged the liens. In total Maple posted $228,132.40 for eight liens plus an allowance for costs. [ 20 ] Subsequently, Maple applied as agent of the owner to establish a lien fund under s. 27(3) of the BLA and pay the lien fund into court as a replacement for the s. 48(1) security previously posted. One of the eight lienholders, W. Dalton Energy Corp (“Dalton”), cross applied, seeking the full amount of its lien from the s. 48(1) security. [ 21 ] Dalton was unsuccessful on its application before the Master, and on appeal to the Court of Queen’s Bench and the Court of Appeal.

The lien fund was set in the amount of $55,039.71, and Dalton was entitled only to its pro rata share of the lien fund, $7417.40, rather than full payment of its $26,340 lien claim. [ 22 ] Dalton argued that once funds were paid into court and its lien discharged under s. 48, it had no access to the lien fund, but only to the posted security.

Further, subsequent lienholders could claim only against the lien fund and not against the security. [ 23 ] Master Waller disagreed, holding that posting of security under s. 48 was without prejudice and should not increase the liability of an owner: [2006] AWLD 1864, 2005 Carswell Alta 2067 (Alta Master) . Mahoney J ( 2006 ABQB 150 , 393 AR 375) upheld the Master’s decision, concluding at para. 68 that: ...[s]ecurity paid under s. 48(1)(a) (lien removal) can be later substituted for by the lien fund as this is the maximum liability of the owner under the Act .

Dalton is only entitled to its pro rata share of the lien fund. [ 24 ] Justice Mahoney commented on Dalton’s argument at paras. 57-58:

57 ... Dalton’s

interpretation does not accord with the general purpose of the Act: to ensure that the land that receives the benefit bearsthe burden so long as the owner is not prejudiced. The options under s. 48(1)(

a) are not designed to increase the liability of the owner, butto simply be an efficient method to allow construction to continue. Paying the full amount of a claim as security is often the simplestmethod. It is often difficult to pay the maximum amount that may properly attach under s. 18 (major lien fund) or 23 (minor lien fund) asthat amount is unknown. Paying the full amount of the claim under s. 48(1)(

a) as security does not make a contractor or owner liable forthe full amount of the claim as payment of security is without prejudice. Payment of security under s. 48(1)(

a) does not increase the totalliability under the Act. 58 Regardless of whether a lien is paid through s. 48(1) (lien removed) security or through s. 27 (payment from the lien fund) security,the maximum that is available to satisfy liens is the amount outlined in s. 25 (liability of the owner) - the total of the major and minor lienfund or the major lien fund if there is no minor lien fund. [Underlining added for emphasis.] [25] The Court of Appeal agreed with the reasons given by Master Waller and Mahoney J, holding at paras. 31-34: 31 .... the BLA does not contemplate two separate litigation tracks.

The purpose of posting section 48(1) security is, as discussed in thecourts below, to permit funds to continue to flow to a construction project notwithstanding that liens have been filed while construction isstill ongoing. Dalton’s

interpretation would undermine the general purpose of the BLA. ... 33 ... section 48(1) gives the court a number of choices in deciding how much security should be paid into court. It does this primarilybecause an application for section 48(1) security is not time-limited. A lien can be filed whenever it arises according to

section 10, whichmay be long before a certificate of substantial completion has been posted and at a time when the appropriate amount of the lien fundcannot yet be determined. If a lien is filed while the project is in mid-stream, section 48(1) provides a convenient method for securingthe lien holder’s claim without embroiling the owner and others in litigation when their energies should be focused on completing theproject ... 34 The court’s decision as to the amount of the section 48(1) security - and its posting - does not end the matter.

Although it ensuresthe lien holder that there is money available to pay its claim (whatever its amount may ultimately be), neither the validity of the claimnor its amount are determined at that point. Paragraphs 6 and 7 of Master Floyd’s December 20, 2002 order (which authorized thedischarge of the liens on posting the security) recognized this, by noting that the security was not an admission as to the validity of theclaims and that the parties were at liberty to make further applications to the Court. ...

To put the matter simply, notwithstanding asection 48(1) application, parties still have recourse to other provisions of the Act (including sections 18 and 27) to sort out remainingmatters. Section 48(1) does not stand in isolation from the rest of the BLA. Nor does it weaken it. [Underlining added for emphasis.] [26] This decision provides clear support for Rexel’s position that the funds in Court form a portion of the lien fund and should bedistributed among all lienholders. [27] Extreme argues that its claim to funds in Court should be governed by Town-N-Country Plumbing & Heating

(1985) Ltd. v Schmidt (1991), (SK CA), 86 DLR (4th) 716 93 SaskR 278 (Sask CA) (“Town-N-Country”) which determined that alien claimant in respect of whom funds had been retained in response to a notice of lien and later paid into court (a procedure analogousto s. 48) had a first charge on the retained funds. Extreme argues that, like the lienholder in Town-N-Country, it should be placed in adifferent “class” of lienholders and therefore not subject to the rule that lienholders of the same class share proportionally and withoutpreference between them: BLA ss. 18(6)(b), 23(6)(

b) and 61(5). [28] I am not prepared to rely on Town-N-Country because it was based on provisions in the Saskatchewan legislation whichdiffer in significant respects from the Alberta BLA. Even more importantly, the holding in Town-N-Country is contrary to the Mapledecision. The latter decision is, of course, binding on me. [29] The Saskatchewan Builders’ Lien Act, SS 1884-85-86, c B-7.1 provided in s. 56(8) that a person whose lien was dischargedwhen money was paid into court or security posted had a first charge on the money or security. BLA s. 48 contains no equivalentlanguage.

[ 30 ] Further, s. 73 of the Saskatchewan Act stated that “ [e]xcept as otherwise provided by this Act ... no person having a lien is entitled to any priority over another member of the same class.” [emphasis added].

In contrast, BLA s. 61(5) makes no provision for exceptions: Each class of lienholders , as between themselves, rank without preference for their several amounts and the portion of the money available for distribution to each class shall be distributed among the lienholders in that class proportionately according to the amounts of their respective claims as proved. [Emphasis added.] The result in Town-N-Country clearly flows from the Saskatchewan legislation.

The Saskatchewan Court of Appeal explicitly relied on the ss. 56(8) and 73 language when it concluded that a priority applied to the retained funds as an exception to the rule of pro rata sharing. Again, that provision has no equivalent in the BLA. [ 31 ] The Saskatchewan Court of Appeal in Town-N-Country noted that the language in the Saskatchewan Act supporting a first charge was enacted in response to legislative reform reports, including a March 1979 report (Report No. 30) of the Institute of Law Research and Reform of Alberta.

That report recommended that s. 35 of the Builders ’ Lien Act, RSA 1970, c 35 (the equivalent to the present s. 48) be amended to provide that money paid into court or security given under the

section be subject to the claims of “the person whose lien has been removed” as well as claims of subsequent lienholders, but that “such amount as is found to be owing to the person whose lien has been removed plus costs is a first charge on the money or security.” This recommendation was not adopted when the Alberta builder’s lien legislation was amended: Builder ’s Lien Amendment Act, 1985 , SA, 1985, c 14 .

Instead, the amendment employed the language now in s. 48, that the money paid in or security given “is subject to the claims of the person whose lien has been removed”. [ 32 ] The argument that the 1985 amendment should be interpreted as creating a priority was put to the Alberta Court of Appeal in Maple and rejected.

The Court held that the 1985 amendments did not support Dalton’s position that it should be treated differently from other lienholders. (para. 39). [ 33 ] Extreme argues that lienholders whose liens are discharged under s. 48 should be regarded as a distinct class of lienholders, and for this reason not subject to the rule of pro rata division in BLA s. 61. While this precise argument does not seem to have been advanced in Maple , it is in effect an argument that s. 48 lienholders should be treated differently from other lienholders. Maple precludes me from coming to this conclusion.

In any event, I do not find Extreme’s argument to be a persuasive reading of the reference to classes of lienholders in s. 61. The BLA provides that liens registered by sub-contractors and sub-sub-contractors attach only in relation to improvements and contract payments associated with the contracts or sub-contracts that they are working under (ss. 18(3) and 23(3)).

This is the sense in which there are classes of lienholders under the BLA (and under lien legislation from other provinces): see the discussion in Bristow, Glaholt, Reynolds & Wise, Construction Builders ’ and Mechanics ’ Liens in Canada, 7 th ed (looseleaf), s. 4.8.4. [ 34 ] Rock Solid argues that Maple should be distinguished on the ground that in that case Maple, as agent of the owner, applied for a court declaration that the quantum of the lien fund was less than the security paid in to court. Further, Maple was not liable in contract to the lienholders; they had contracted with a sub-contractor, Eagle.

In contrast, in this case, Guild was not acting as agent for 702348 when it paid funds into court and Guild is liable in contract to Rock Solid. Rock Solid argues that Guild’s payment in of funds does not affect 702348’s liability under the BLA , which continues to be restricted to the lien fund only.

Rock Solid also argues that “the Consent Order reflects an agreement between Guild and Rock Solid only and should be construed as such.” [ 35 ] The problem with Rock Solid’s argument is that Guild’s payment into Court was not based on agreement or in relation to its contractual liability to Rock Solid; the payment was made under s. 48 of the BLA in order to discharge Rock Solid’s lien.

This is made absolutely clear in the terms of the Order which provide that the funds paid into Court replace the Lands as security for the lien, that the security does not constitute an admission, and that there may be further applications to the Court to contest the validity of the registration of the lien or to increase or reduce the amount of security or to determine the lien fund. The Order specifically provides that the BLA continues to apply.

These features of the Order correspond with those referred to by the Court of Appeal in Maple to support its conclusion that payment under s. 48 does not stand apart from other provisions of the BLA . [ 36 ] The fact that Guild was not shown to act as agent for 702348 does not matter in the circumstances of this case. Guild was entitled to apply on its own behalf under s. 48. The fact that the lien fund has not yet been established is also not significant. Maple and

the s. 48 Orders in this case make it clear that the lien fund can be set and substituted for the amount paid in under s. 48. Neither Guildnor 702348 made such an application before the receivership, but that is a matter of procedure only, and should not affect the substantiverights of the lienholders. Presumably the Receiver can be directed to make such an application, if it is necessary.

Alternatively, anapplication could be directed to be brought by other lienholders, who are deemed to be parties to proceedings brought to enforce liens:BLA, s. 50. [37] The answer to the first two issues for determination in this application is that the funds in Court may be utilized to establish alien fund for the benefit of all lien claimants; including Extreme, Rock Solid and DMI, who are entitled only to their pro rata shares ofthe lien fund.

CRA Claim to the funds paid into Court [38] The CRA claim against Guild arises from employee income tax source deductions collected by Guild from its employee’swages but not remitted to the Receiver General as required. The deductions in question were collected between April 1. 2008 toNovember 18, 2008. CRA advanced a deemed trust property claim in the receivership which was accepted and led to distributions to theCRA.

The outstanding balance of the CRA claim after these distributions is $66,609.70. [39] Pursuant to ss. 227(4) and (4.1) of the Income Tax Act, RSC, c 1 (5th Supp) (“ITA”), CRA claims priority over other creditorsof Guild, including the lien claimants, for that $66,609.70 from the funds paid into Court by Guild: Trust for monies deducted 227(4) Every person who deducts or withholds an amount under this Act is deemed, notwithstanding any security interest (as defined insubsection 224(1.3)) in the amount so deducted or withheld, to hold the amount separate and apart from the property of the person andfrom property held by any secured creditor (as defined in subsection 224(1.3)) of that person that but for the security interest would beproperty of the person, in trust for Her Majesty and for payment to Her Majesty in the manner and at the time provided under this Act.

Extension of trust 227(4.1) Notwithstanding any other provision of the Act, the Bankruptcy and Insolvency Act (except sections 81.1 and 81.2 of the Act)any other enactment of Canada, any enactment of a province or any other law, where at any time an amount deemed by subsection227(4) to be held by a person in trust for Her Majesty is not paid to Her Majesty in the manner and at the time provided under this Act,property of the person and property held by any secured creditor (as defined in subsection 224(1.3)) of that person that but for a securityinterest (as defined in subsection 224(1.3)) would be property of the person, equal in value to the amount so deemed to be held in trust isdeemed (

a) to be held, from the time the amount was deducted or withheld by the person, separate and apart from the property of the person,in trust for Her Majesty whether or not the property is subject to such a security interest, and (

b) to form no part of the estate or property of the person from the time the amount was so deducted or withheld, whether or not theproperty has in fact been kept separate and apart from the estate or property of the person and whether or not the property is subject tosuch a security interest and is property beneficially owned by Her Majesty notwithstanding any security interest in such property and in the proceeds thereof,and the proceeds of such property shall be paid to the Receiver General in priority to all such security interests. [Emphasis added.] [40] The definition of “security interest” under ITA, ss. 224(1.3) is very broad and explicitly includes a lien.

Similarly, thedefinition of “secured creditor” is “a person who has security interest”, and therefore includes a lienholder. This definition clearly andunambiguously includes BLA liens and lienholders: Japan Canada Oil Sands Ltd. v. Stoney Mountain Steel Corp. (2001), 2001

59630 (AB KB), 290 AR 251 at para. 32, 93 Alta LR (3d) 54 (Alta QB) (“Japan Canada”). Extreme has argued that the federallegislation should be interpreted so as not to strip the protection of the BLA (relying on Kerr Interior System Ltd. v. Kenroc BuildingMaterials Co. Ltd., 2009 ABCA 240, 457 AR 274 (“Kerr”), which dealt with

interpretation of “secured creditor” under the Companies’Creditors Arrangement Act, R.S.C. 1985, c. C-36). I reject that

interpretation on the basis that of the clear and unambiguous language ofs. 224(1.3), and that the ITA deemed trust operates to trump other legislative schemes: ITA, s. 227(4.1), including those enacted by aprovince: Husky Oil Operations Ltd. v. M.N.R., (SCC), [1995] 3 S.C.R. 453 at para. 32, 128 D.L.R. (4th) 1. [41] The funds paid into court to discharge the Extreme and Rock Solid liens were paid some time before Guild stopped remittingsource deductions.

But the deemed trust applies not only to the source deductions themselves (s. 227(4)), but also to all property of Guild,including property held by a secured creditor or subject to a security interest (s. 227(4.1)). CRA’s position is that, during the period thatGuild failed to remit source deductions from April through November 2008, the funds paid into Court by Guild remained Guild’sproperty, subject to the secured claims of Extreme, Rock Solid and (as I have found) other lienholders.

Under s. 227(4.1), when Guildcollected and failed to remit source deductions, the funds in Court became: ... property beneficially owned by Her Majesty notwithstanding any security interest in such property and in the proceeds thereof, and theproceeds of such property shall be paid to the Receiver General in priority to all such security interests. [42] The effect of s. 227(4.1) was described by the Supreme Court of Canada in First Vancouver Finance v.

Canada (Minister ofNational Revenue - M.N.R.) 2002 SCC 49, [2002] 2 SCR 720 (First Vancouver), at para. 4: [T]he s. 227(4.1) deemed trust is similar in principle to a floating charge over all the tax debtor’s assets in favour of Her Majesty. Thetrust arises the moment the tax debtor fails to remit source deductions by the specified due date, but is deemed to have been in existencefrom the moment the deductions were made. As long as the tax debtor continues to be in default, the trust continues to float over the taxdebtor’s property.

Thus, at any given point in time, whatever property then belonging to the tax debtor is subject to the deemed trust.[Emphasis added.] [43] The questions before the Court in First Vancouver were whether the deemed trust applied to property acquired by the debtorafter the deemed trust arose, and whether the sale of trust property to third parties released the property from the trust. The Courtanswered yes to both questions: para. 5.

The Court did not deal expressly with property acquired by the debtor before the deemed trustarose, but it is clear that the deemed trust would apply to such property as well, as it applies to any property that belongs to the tax debtorat the time the trust arises and during the continuing existence of the deemed trust.

Further, at para. 28 the Supreme Court held that s.227(4.1) granted: ... priority to the deemed trust in respect of property that is also subject to a security interest regardless of when the security interest arosein relation to the time the source deductions were made or when the deemed trust takes effect. [Emphasis added.] So the fact that at least some of the liens secured by the funds in Court, including those of Extreme and Rock Solid, arose before Guildcollected and failed to remit source deductions, does not defeat the CRA priority. [44] Thus the only potential basis to challenge the CRA priority under ITA s. 227(4.1) is whether the funds paid into Court byGuild, which had not been paid out when the deemed trust arose or when the Receivership Order issued, remained the property of Guild,though subject to the security interest of Extreme, Rock Solid and other lienholders.

If so, then the CRA has a valid deemed trust interestin those liens funds. [45] CRA argues that the funds remained the property of Guild subject to a security interest because: 1. they were Guild’s funds to begin with, and 2. the Orders governing the payment into Court stipulated that the funds paid into Court would be held as security for the lienclaim, and

3. that the payment into Court did not constitute an admission as to the validity of the lien filed or money claim made by the lienholder. While the Orders do not expressly stipulate this, CRA submits that it is clear that any funds that remain after the lien claim are satisfied would be returned the party who was the source of those funds, Guild.

Guild thus continued to have a property interest in the funds, subject to the security interest of the lienholder. [ 46 ] While I have found that the payment into court served as security for all lienholders, not only the lienholder whose lien was discharged, Maple indicates that these aspects of the Order (that the funds stand as security, and that the payment in does not constitute an admission of liability) still apply.

Thus, CRA’s argument stands, that, subject to resolution of all of the lien claims, any remaining funds would be returned to Guild; in other words, that the funds remained the property of Guild subject to the security interest of all lienholders. [ 47 ] I have considered whether my finding as to the nature of the payment in under the BLA , as discussed in the previous

section of these reasons, might have nevertheless had the effect of transferring Guild’s property interest in the funds at the time of their payment into Court. It seems clear ownership of the lien funds was not transferred to the lienholders, rather their interest continued to be a security interest under the terms of the Orders.

However, it seems to me that there is a much stronger argument that the effect of the payment into court under the BLA also had the effect of transferring ownership of the lien funds from Guild to 702348. [ 48 ] Upon payment in, the funds stood in place of the Lands, property of 702348, as security for lien claims. As Maple makes clear, the funds secured obligations of 702348, not Guild. Guild may bring an application to set the lien fund, but would have to do so as agent of 702348. Guild is contractually liable to Extreme and Rock Solid, but the funds stand as security for the claims of all lienholders.

Lienholders may be sub-sub-contractors, to whom Guild owes no contractual obligation, and whose claims are based exclusively on their rights against 702348. Thus, 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. Guild no longer controlled the funds and those funds are no longer available for use by Guild. [ 49 ] It may well be, as CRA argues, that should all lien claims be satisfactorily resolved and funds remain in Court, the remaining funds would be paid out to Guild.

No Court Order or agreement to this effect is in evidence before me; but it may be contemplated that would be a possible eventual outcome. [ 50 ] I believe the question devolves to on what basis Guild provided the funds for 702348’s benefit. That can be expressed as whether there was a contractual arrangement between 702348 and Guild. 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. [ 51 ] 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. [ 52 ] In the latter case, the lien funds no longer belong to Guild and are not 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. This scenario was identified in First Vancouver at para. 5 : [A]s property comes into possession of the tax debtor, it is caught by the trust and becomes subject to Her Majesty’s interest. Similarly, property which the tax debtor disposes of is thereby released from the deemed trust .

Alternatively, this scenario could be explained as any potential resulting trust would be negated by an exchange for value, via contract. [ 53 ] A useful application of the general First Vancouver approach is found in Absolute Bailiffs Inc. v. Canada , [2002] TCJ No. 549 (QL), [2002] GSTC 116 (TCC) , affirmed 2003 FCA 397 , 313 N.R. 359, which considers the parallel super-priority of withheld GST funds under Excise Tax Act , RSC 1985, c E-15, s. 317. There a landlord seized and disposed of property under the British Columbia Rent Distress Act , RSBC 1996, c 403.

The court concluded that the CRA had no right to the proceeds of sale of the seized property; the landlord, as a kind of secured creditor, had the right to seize property from a delinquent tenant and sell that property. However, once that seizure and sale was concluded the landlord no longer had any relationship to the tax debtor that could attract the ‘floating charge’.

Nevertheless, the CRA had a right to recover any surplus from the property sale, as the Rent Distress Act instructed a surplus should be returned to the delinquent tenant. [ 54 ] CRA points out that in the Japan Canada case, a Crown claim against a general contractor for employee and employer premiums for the Canada Pension Plan and Employment Insurance and associated penalties and interest was held to have priority over lien claimants with regard to a lien fund paid into court by the owner.

But this did not depend on the lien fund being the “property” of the general contractor; priority was claimed under s. 224(1.2) of the ITA which gave the Crown priority in respect of a payment due (or to become due within one year) by a third party to a tax debtor, over the claims of secured creditors who would otherwise be entitled to the payment. Murray J. held that, “but for the security interest of the lienholder, the monies held by the owner would be payable to the tax debtor [contractor]” and that the lien fund was therefore caught by the provision.

He did not deal with the issue before me, namely whether the funds were the property of the tax debtor/contractor at the time of the tax default. No claim has been made by the CRA in this application that they are entitled to the funds in Court pursuant to s. 224(1.2) of the ITA . [ 55 ] I therefore conclude that any entitlement by the CRA to the lien funds will depend on the basis on which Guild provided those funds for 702348’s benefit.

I order the Receiver to by March 1, 2012 provide evidence to the parties and court 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. [ 56 ] Interested parties may provide responding affidavits and arguments by March 15, 2012, with any response by the CRA due March 29, 2012. The interested parties have until April 12 to file a reply. [ 57 ] If there are any difficulties with this procedure or the time lines, counsel may speak to me.

Heard on the 6 th day of October, 2011 Dated at the City of Edmonton, Alberta this 6 th day of February, 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.