Century Services Inc. Appellant v. Attorney General of Canada on behalf of, 2010 SCC 60

SUPREME COURT OF CANADA Citation : Century Services Inc. v. Canada (Attorney General), 2010 SCC 60 , [2010] 3 S.C.R. 379 Date: 20101216 Docket : 33239 Between: Century Services Inc. Appellant and Attorney General of Canada on behalf of Her Majesty The Queen in Right of Canada Respondent Coram : McLachlin C.J. and Binnie, LeBel, Deschamps, Fish, Abella, Charron, Rothstein and Cromwell JJ. Reasons for Judgment : (paras. 1 to 89) Concurring Reasons: (paras. 90 to 113) Dissenting Reasons: (paras. 114 to 136) Deschamps J. (McLachlin C.J. and Binnie, LeBel, Charron, Rothstein and Cromwell JJ. concurring) Fish J.

Abella J. Century Services Inc. v. Canada (Attorney General) , 2010 SCC 60, [2010] 3 S.C.R. 379 Century Services Inc. Appellant v. Attorney General of Canada

on behalf of Her Majesty The Queen in Right of Canada Respondent Indexed as: Century Services Inc. v. Canada (Attorney General) 2010 SCC 60 File No.: 33239. 2010: May 11; 2010: December 16.

Present: McLachlin C.J. and Binnie, LeBel, Deschamps, Fish, Abella, Charron, Rothstein and Cromwell JJ. on appeal from the court of appeal for british columbia Bankruptcy and Insolvency — Priorities — Crown applying on eve of bankruptcy of debtor company to have GST monies held in trust paid to Receiver General of Canada — Whether deemed trust in favour of Crown under Excise Tax Act prevails over provisions of Companies’ Creditors Arrangement Act purporting to nullify deemed trusts in favour of Crown — Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36, s. 18.3(1) — Excise Tax Act, R.S.C. 1985, c.

E-15, s. 222(3) . Bankruptcy and insolvency — Procedure — Whether chambers judge had authority to make order partially lifting stay of proceedings to allow debtor company to make assignment in bankruptcy and to stay Crown’s right to enforce GST deemed trust — Companies’ Creditors Arrangement Act , R.S.C. 1985, c. C-36 , s. 11 . Trusts — Express trusts — GST collected but unremitted to Crown — Judge ordering that GST be held by Monitor in trust account — Whether segregation of Crown’s GST claim in Monitor’s account created an express trust in favour of Crown.

The debtor company commenced proceedings under the Companies’ Creditors Arrangement Act (“ CCAA ”), obtaining a stay of proceedings to allow it time to reorganize its financial affairs. One of the debtor company’s outstanding debts at the commencement of the reorganization was an amount of unremitted Goods and Services Tax (“GST”) payable to the Crown. Section 222(3) of the Excise Tax Act (“ ETA ”) created a deemed trust over unremitted GST, which operated despite any other enactment of Canada except the Bankruptcy and Insolvency Act (“ BIA ”).

However, s. 18.3(1) of the CCAA provided that any statutory deemed trusts in favour of the Crown did not operate under the CCAA , subject to certain exceptions, none of which mentioned GST. Pursuant to an order of the CCAA chambers judge, a payment not exceeding $5 million was approved to the debtor company’s major secured creditor, Century Services. However, the chambers judge also ordered the debtor company to hold back and segregate in the Monitor’s trust account an amount equal to the unremitted GST pending the outcome of the reorganization.

On concluding that reorganization was not possible, the debtor company sought leave of the court to partially lift the stay of proceedings so it could make an assignment in bankruptcy under the BIA . The Crown moved for immediate payment of unremitted GST to the Receiver General. The chambers judge denied the Crown’s motion, and allowed the assignment in bankruptcy. The Court of Appeal allowed the appeal on two grounds.

First, it reasoned that once reorganization efforts had failed, the chambers judge was bound under the priority scheme provided by the ETA to allow payment of unremitted GST to the Crown and had no discretion under s. 11 of the CCAA to continue the stay against the Crown’s claim. Second, the Court of Appeal concluded that by ordering the GST funds segregated in the Monitor’s trust account, the chambers judge had created an express trust in favour of the Crown. Held (Abella J. dissenting): The appeal should be allowed.

Per McLachlin C.J. and Binnie, LeBel, Deschamps, Charron, Rothstein and Cromwell JJ.: The apparent conflict between s. 222(3) of the ETA and s. 18.3(1) of the CCAA can be resolved through an

interpretation that properly recognizes the history of the CCAA , its function amidst the body of insolvency legislation enacted by Parliament and the principles for interpreting the CCAA that have been recognized in the jurisprudence. The history of the CCAA distinguishes it from the BIA because although these statutes share the same remedial purpose of avoiding the social and economic costs of liquidating a debtor’s assets, the CCAA offers more flexibility and greater judicial discretion than the rules-based mechanism under the BIA , making the former more responsive to complex reorganizations.

Because the CCAA is silent on what happens if reorganization fails, the BIA scheme of liquidation and distribution

necessarily provides the backdrop against which creditors assess their priority in the event of bankruptcy. The contemporary thrust of legislative reform has been towards harmonizing aspects of insolvency law common to the CCAA and the BIA , and one of its important features has been a cutback in Crown priorities. Accordingly, the CCAA and the BIA both contain provisions nullifying statutory deemed trusts in favour of the Crown, and both contain explicit exceptions exempting source deductions deemed trusts from this general rule. Meanwhile, both Acts are harmonious in treating other Crown claims as unsecured.

No such clear and express language exists in those Acts carving out an exception for GST claims. When faced with the apparent conflict between s. 222(3) of the ETA and s. 18.3(1) of the CCAA , courts have been inclined to follow Ottawa Senators Hockey Club Corp. (Re) and resolve the conflict in favour of the ETA . Ottawa Senators should not be followed. Rather, the CCAA provides the rule. Section 222(3) of the ETA evinces no explicit intention of Parliament to repeal CCAA s. 18.3.

Where Parliament has sought to protect certain Crown claims through statutory deemed trusts and intended that these deemed trusts continue in insolvency, it has legislated so expressly and elaborately. Meanwhile, there is no express statutory basis for concluding that GST claims enjoy a preferred treatment under the CCAA or the BIA . The internal logic of the CCAA appears to subject a GST deemed trust to the waiver by Parliament of its priority.

A strange asymmetry would result if differing treatments of GST deemed trusts under the CCAA and the BIA were found to exist, as this would encourage statute shopping, undermine the CCAA ’s remedial purpose and invite the very social ills that the statute was enacted to avert. The later in time enactment of the more general s. 222(3) of the ETA does not require application of the doctrine of implied repeal to the earlier and more specific s. 18.3(1) of the CCAA in the circumstances of this case.

In any event, recent amendments to the CCAA in 2005 resulted in s. 18.3 of the Act being renumbered and reformulated, making it the later in time provision. This confirms that Parliament’s intent with respect to GST deemed trusts is to be found in the CCAA . The conflict between the ETA and the CCAA is more apparent than real. The exercise of judicial discretion has allowed the CCAA to adapt and evolve to meet contemporary business and social needs. As reorganizations become increasingly complex, CCAA courts have been called upon to innovate.

In determining their jurisdiction to sanction measures in a CCAA proceeding, courts should first interpret the provisions of the CCAA before turning to their inherent or equitable jurisdiction. Noteworthy in this regard is the expansive

interpretation the language of the CCAA is capable of supporting. The general language of the CCAA should not be read as being restricted by the availability of more specific orders. The requirements of appropriateness, good faith and due diligence are baseline considerations that a court should always bear in mind when exercising CCAA authority. The question is whether the order will usefully further efforts to avoid the social and economic losses resulting from liquidation of an insolvent company, which extends to both the purpose of the order and the means it employs.

Here, the chambers judge’s order staying the Crown’s GST claim was in furtherance of the CCAA ’s objectives because it blunted the impulse of creditors to interfere in an orderly liquidation and fostered a harmonious transition from the CCAA to the BIA , meeting the objective of a single proceeding that is common to both statutes.

The transition from the CCAA to the BIA may require the partial lifting of a stay of proceedings under the CCAA to allow commencement of BIA proceedings, but no gap exists between the two statutes because they operate in tandem and creditors in both cases look to the BIA scheme of distribution to foreshadow how they will fare if the reorganization is unsuccessful. The breadth of the court’s discretion under the CCAA is sufficient to construct a bridge to liquidation under the BIA . Hence, the chambers judge’s order was authorized.

No express trust was created by the chambers judge’s order in this case because there is no certainty of object inferrable from his order. Creation of an express trust requires certainty of intention, subject matter and object. At the time the chambers judge accepted the proposal to segregate the monies in the Monitor’s trust account there was no certainty that the Crown would be the beneficiary, or object, of the trust because exactly who might take the money in the final result was in doubt. In any event, no dispute over the money would even arise under the

interpretation of s. 18.3(1) of the CCAA established above, because the Crown’s deemed trust priority over GST claims would be lost under the CCAA and the Crown would rank as an unsecured creditor for this amount. Per Fish J.: The GST monies collected by the debtor are not subject to a deemed trust or priority in favour of the Crown. In recent years, Parliament has given detailed consideration to the Canadian insolvency scheme but has declined to amend the provisions at issue in this case, a deliberate exercise of legislative discretion.

On the other hand, in upholding deemed trusts created by the ETA notwithstanding insolvency proceedings, courts have been unduly protective of Crown interests which Parliament itself has chosen to subordinate to competing prioritized claims. In the context of the Canadian insolvency regime, deemed trusts exist only where there is a statutory provision creating the trust and a CCAA or BIA provision explicitly confirming its effective operation.

The Income Tax Act , the Canada Pension Plan and the Employment Insurance Act all contain deemed trust provisions that are strikingly similar to that in s. 222 of the ETA but they are all also confirmed in s. 37 of the CCAA and in s. 67(3) of the BIA in clear and unmistakeable terms. The same is not true of the deemed trust created under the ETA .

Although Parliament created a deemed trust in favour of the Crown to hold unremitted GST monies, and although it purports to maintain this trust notwithstanding any contrary federal or provincial legislation, it did not confirm the continued operation of the trust in either the BIA or the CCAA , reflecting Parliament’s intention to allow the deemed trust to lapse with the commencement of insolvency proceedings. Per Abella J. (dissenting) : Section 222(3) of the ETA gives priority during CCAA proceedings to the Crown’s deemed trust in unremitted GST.

This provision unequivocally defines its boundaries in the clearest possible terms and excludes only the BIA from its legislative grasp. The language used reflects a clear legislative intention that s. 222(3) would prevail if in conflict with any other law except the BIA. This is borne out by the fact that following the enactment of s. 222(3) , amendments to the CCAA were introduced, and despite requests from various constituencies, s. 18.3(1) was not amended to make the priorities in the CCAA consistent with those in the BIA .

This indicates a deliberate legislative choice to protect the deemed trust in s. 222(3) from the reach of s. 18.3(1) of the CCAA.

The application of other principles of

interpretation reinforces this conclusion. An earlier, specific provision may be overruled bya subsequent general statute if the legislature indicates, through its language, an intention that the general provision prevails. Section 222(3) achieves this through the use of language stating that it prevails despite any law of Canada, of a province, or “any otherlaw” other than the BIA.

Section 18.3(1) of the CCAA is thereby rendered inoperative for purposes of s. 222(3). By operation of s. 44(f)of the

Interpretation Act, the transformation of s. 18.3(1) into s. 37(1) after the enactment of s. 222(3) of the ETA has no effect on theinterpretive queue, and s. 222(3) of the ETA remains the “later in time” provision. This means that the deemed trust provision ins. 222(3) of the ETA takes precedence over s. 18.3(1) during CCAA proceedings. While s. 11 gives a court discretion to make ordersnotwithstanding the BIA and the Winding-up Act, that discretion is not liberated from the operation of any other federal statute.

Anyexercise of discretion is therefore circumscribed by whatever limits are imposed by statutes other than the BIA and the Winding-up Act. That includes the ETA. The chambers judge in this case was, therefore, required to respect the priority regime set out in s. 222(3) of theETA. Neither s. 18.3(1) nor s. 11 of the CCAA gave him the authority to ignore it. He could not, as a result, deny the Crown’s requestfor payment of the GST funds during the CCAA proceedings. Cases Cited By Deschamps J. Overruled: Ottawa Senators Hockey Club Corp. (Re) (2005), (ON CA), 73 O.R. (3d) 737; distinguished: Doré v.

Verdun (City), (SCC), [1997] 2 S.C.R. 862; referred to: Reference re Companies’ Creditors Arrangement Act, (SCC), [1934] S.C.R. 659; Quebec (Revenue) v. Caisse populaire Desjardins de Montmagny, 2009 SCC 49, [2009] 3S.C.R. 286; Deputy Minister of Revenue v. Rainville, (SCC), [1980] 1 S.C.R. 35; Gauntlet Energy Corp., Re, 2003 ABQB894, 30 Alta. L.R. (4th) 192; Komunik Corp. (Arrangement relatif à), 2009 QCCS 6332 , leave to appeal granted, 2010 QCCA183 ; Royal Bank of Canada v. Sparrow Electric Corp., (SCC), [1997] 1 S.C.R. 411; First Vancouver Financev.

M.N.R., 2002 SCC 49, [2002] 2 S.C.R. 720; Solid Resources Ltd., Re (2002), 40 C.B.R. (4th) 219; Metcalfe & Mansfield AlternativeInvestments II Corp. (Re), 2008 ONCA 587, 92 O.R. (3d) 513; Dylex Ltd., Re (1995), (ON SC), 31 C.B.R. (3d) 106;Elan Corp. v. Comiskey (1990), 41 O.A.C. 282; Chef Ready Foods Ltd. v. Hongkong Bank of Can. (1990), (BC CA),51 B.C.L.R. (2d) 84; Pacific National Lease Holding Corp., Re (1992), (BC CA), 19 B.C.A.C. 134; Canadian AirlinesCorp., Re, 2000 ABQB 442, 84 Alta.

L.R. (3d) 9; Air Canada, Re (2003), (ON SC), 42 C.B.R. (4th) 173; AirCanada, Re, ; Canadian Red Cross Society/Société Canadienne de la Croix Rouge, Re (2000), (ON SC), 19 C.B.R. (4th) 158; Skydome Corp., Re (1998), 16 C.B.R. (4th) 118; United Used Auto & Truck Parts Ltd., Re, 2000 BCCA146, 135 B.C.A.C. 96, aff’g (1999), (BC SC), 12 C.B.R. (4th) 144; Skeena Cellulose Inc., Re, 2003 BCCA 344, 13B.C.L.R. (4th) 236; Stelco Inc. (Re) (2005), (ON CA), 75 O.R. (3d) 5; Philip’s Manufacturing Ltd., Re (1992), (BC CA), 9 C.B.R. (3d) 25; Ivaco Inc. (Re) (2006), (ON CA), 83 O.R. (3d) 108. By Fish J.

Referred to: Ottawa Senators Hockey Club Corp. (Re) (2005), (ON CA), 73 O.R. (3d) 737. By Abella J. (dissenting) Ottawa Senators Hockey Club Corp. (Re) (2005), (ON CA), 73 O.R. (3d) 737; Tele-Mobile Co. v. Ontario, 2008SCC 12, [2008] 1 S.C.R. 305; Doré v. Verdun (City), (SCC), [1997] 2 S.C.R. 862; Attorney General of Canada v.Public Service Staff Relations Board, (FCA), [1977] 2 F.C. 663. Statutes and Regulations Cited

An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies’Creditors Arrangement Act and to make consequential amendments to other Acts, S.C. 2005, c. 47, ss. 69, 128, 131. Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, ss. 67, 81.1, 81.2, 86 [am. 1992, c. 27, s. 39; 1997, c. 12, s. 73; 2000, c. 30, s. 148;2005, c. 47, s. 69; 2009, c. 33, s. 25]. Canada Pension Plan, R.S.C. 1985, c. C-8, s. 23.

Companies’ Creditors Arrangement Act , R.S.C. 1985, c. C-36, ss. 11 [am. 2005, c. 47, s. 128 ], 11.02 [ad. idem ], 11.09 [ad. idem ], 11.4 [am. idem ], 18.3 [ad. 1997, c. 12, s. 125; rep. 2005, c. 47, s. 131], 18.4 [ idem ], 20 [am. 2005, c. 47, s. 131], 21 [ad. 1997, c. 12, s. 126; am. 2005, c. 47, s. 131], s. 37 [ad. 2005, c. 47, s. 131]. Companies’ Creditors Arrangement Act, 1933 , S.C. 1932-33, c. 36 [am. 1952-53, c. 3]. Employment Insurance Act , S.C. 1996, c. 23, ss. 86(2), (2.1) . Excise Tax Act , R.S.C. 1985, c. E-15, s. 222. Income Tax Act , R.S.C. 1985, c. 1 (5th Supp.), ss. 227(4) , (4.1) .

Interpretation Act , R.S.C. 1985, c. I-21, ss. 2 “enactment”, 44( f ). Winding-up Act , R.S.C. 1985, c. W-11 . Authors Cited Canada. Advisory Committee on Bankruptcy and Insolvency. Proposed Bankruptcy Act Amendments: Report of the Advisory Committee on Bankruptcy and Insolvency . Ottawa: Minister of Supply and Services Canada, 1986. Canada. House of Commons. Minutes of Proceedings and Evidence of the Standing Committee on Consumer and Corporate Affairs and Government Operations , Issue No. 15, 3rd Sess., 34th Parl., October 3, 1991, 15:15. Canada. Industry Canada. Marketplace Framework Policy Branch.

Report on the Operation and Administration of the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act . Ottawa: Corporate and Insolvency Law Policy Directorate, 2002. Canada. Senate. Debates of the Senate , vol. 142, 1st Sess., 38th Parl., November 23, 2005, p. 2147. Canada. Senate. Standing Committee on Banking, Trade and Commerce. Debtors and Creditors Sharing the Burden: A Review of the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act . Ottawa: Senate of Canada, 2003. Canada. Study Committee on Bankruptcy and Insolvency Legislation.

Bankruptcy and Insolvency: Report of the Study Committee on Bankruptcy and Insolvency Legislation . Ottawa: Information Canada, 1970. Côté, Pierre-André. The

Interpretation of Legislation in Canada , 3rd ed. Scarborough, Ont.: Carswell, 2000. Côté, Pierre-André, avec la collaboration de Stéphane Beaulac et Mathieu Devinat. Interprétation des lois , 4 e éd. Montréal: Thémis, 2009. Edwards, Stanley E. “Reorganizations Under the Companies’ Creditors Arrangement Act ” (1947), 25 Can. Bar Rev. 587.

Insolvency Institute of Canada and Canadian Association of Insolvency and Restructuring Professionals. Joint Task Force on Business Insolvency Law Reform. Report (2002) (online: http://www.cairp.ca/publications/submissions-to-government/law-reform/index.php). Insolvency Institute of Canada and Canadian Association of Insolvency and Restructuring Professionals. Legislative Review Task Force (Commercial). Report on the Commercial Provisions of Bill C-55 (2005). Jackson, Georgina R. and Janis Sarra. “Selecting the Judicial Tool to get the Job Done: An Examination of Statutory

Interpretation, Discretionary Power and Inherent Jurisdiction in Insolvency Matters”, in Janis P. Sarra, ed., Annual Review of Insolvency Law 2007 . Toronto: Thomson Carswell, 2008, 41. Jones, Richard B. “The Evolution of Canadian Restructuring: Challenges for the Rule of Law”, in Janis P. Sarra, ed., Annual Review of Insolvency Law 2005 . Toronto: Thomson Carswell, 2006, 481. Lamer, Francis L. Priority of Crown Claims in Insolvency . Toronto: Carswell, 1996 (loose-leaf updated 2010, release 1). Morgan, Barbara K. “Should the Sovereign be Paid First?

A Comparative International Analysis of the Priority for Tax Claims in Bankruptcy” (2000), 74 Am. Bankr. L.J. 461. Sarra, Janis. Creditor Rights and the Public Interest: Restructuring Insolvent Corporations . Toronto: University of Toronto Press, 2003. Sarra, Janis P. Rescue! The Companies’ Creditors Arrangement Act . Toronto: Thomson Carswell, 2007. Sullivan, Ruth. Sullivan on the Construction of Statutes , 5th ed. Markham, Ont.: LexisNexis, 2008. Waters, Donovan W. M., Mark R. Gillen and Lionel D. Smith, eds. Waters’ Law of Trusts in Canada , 3rd ed. Toronto: Thomson Carswell, 2005. Wood, Roderick J.

Bankruptcy and Insolvency Law . Toronto: Irwin Law, 2009. APPEAL from a judgment of the British Columbia Court of Appeal (Newbury, Tysoe and Smith JJ.A.), 2009 BCCA 205 , 98 B.C.L.R. (4th) 242, 270 B.C.A.C. 167, 454 W.A.C. 167, [2009] 12 W.W.R. 684, [2009] G.S.T.C. 79, [2009] B.C.J. No. 918 (QL), 2009 CarswellBC 1195, reversing a judgment of Brenner C.J.S.C., 2008 BCSC 1805 , [2008] G.S.T.C. 221, [2008] B.C.J. No. 2611 (QL), 2008 CarswellBC 2895, dismissing a Crown application for payment of GST monies. Appeal allowed, Abella J. dissenting. Mary I. A. Buttery , Owen J. James and Matthew J. G.

Curtis , for the appellant. Gordon Bourgard , David Jacyk and Michael J. Lema , for the respondent. The judgment of McLachlin C.J. and Binnie, LeBel, Deschamps, Charron, Rothstein and Cromwell JJ. was delivered by [ 1 ] Deschamps J. — For the first time this Court is called upon to directly interpret the provisions of the Companies’ Creditors Arrangement Act , R.S.C. 1985, c. C-36 (“ CCAA ”). In that respect, two questions are raised. The first requires reconciliation of provisions of the CCAA and the Excise Tax Act , R.S.C. 1985, c. E-15 (“ ETA ”), which lower courts have held to be in conflict with one another.

The second concerns the scope of a court’s discretion when supervising reorganization. The relevant statutory provisions are reproduced in the Appendix. On the first question, having considered the evolution of Crown priorities in the context of insolvency and

the wording of the various statutes creating Crown priorities, I conclude that it is the CCAA and not the ETA that provides the rule. Onthe second question, I conclude that the broad discretionary jurisdiction conferred on the supervising judge must be interpreted havingregard to the remedial nature of the CCAA and insolvency legislation generally. Consequently, the court had the discretion to partiallylift a stay of proceedings to allow the debtor to make an assignment under the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3(“BIA”). I would allow the appeal. 1.

Facts and Decisions of the Courts Below [2] Ted LeRoy Trucking Ltd. (“LeRoy Trucking”) commenced proceedings under the CCAA in the Supreme Court ofBritish Columbia on December 13, 2007, obtaining a stay of proceedings with a view to reorganizing its financial affairs. LeRoyTrucking sold certain redundant assets as authorized by the order. [3] Amongst the debts owed by LeRoy Trucking was an amount for Goods and Services Tax (“GST”) collected butunremitted to the Crown. The ETA creates a deemed trust in favour of the Crown for amounts collected in respect of GST.

The deemedtrust extends to any property or proceeds held by the person collecting GST and any property of that person held by a secured creditor,requiring that property to be paid to the Crown in priority to all security interests. The ETA provides that the deemed trust operatesdespite any other enactment of Canada except the BIA. However, the CCAA also provides that subject to certain exceptions, none ofwhich mentions GST, deemed trusts in favour of the Crown do not operate under the CCAA. Accordingly, under the CCAA the Crownranks as an unsecured creditor in respect of GST.

Nonetheless, at the time LeRoy Trucking commenced CCAA proceedings the leadingline of jurisprudence held that the ETA took precedence over the CCAA such that the Crown enjoyed priority for GST claims under theCCAA, even though it would have lost that same priority under the BIA. The CCAA underwent substantial amendments in 2005 in whichsome of the provisions at issue in this appeal were renumbered and reformulated (S.C. 2005, c. 47). However, these amendments onlycame into force on September 18, 2009.

I will refer to the amended provisions only where relevant. [4] On April 29, 2008, Brenner C.J.S.C., in the context of the CCAA proceedings, approved a payment not exceeding$5 million, the proceeds of redundant asset sales, to Century Services, the debtor’s major secured creditor. LeRoy Trucking proposed tohold back an amount equal to the GST monies collected but unremitted to the Crown and place it in the Monitor’s trust account until theoutcome of the reorganization was known.

In order to maintain the status quo while the success of the reorganization was uncertain,Brenner C.J.S.C. agreed to the proposal and ordered that an amount of $305,202.30 be held by the Monitor in its trust account. [5] On September 3, 2008, having concluded that reorganization was not possible, LeRoy Trucking sought leave tomake an assignment in bankruptcy under the BIA. The Crown sought an order that the GST monies held by the Monitor be paid to theReceiver General of Canada. Brenner C.J.S.C. dismissed the latter application.

Reasoning that the purpose of segregating the fundswith the Monitor was “to facilitate an ultimate payment of the GST monies which were owed pre-filing, but only if a viable planemerged”, the failure of such a reorganization, followed by an assignment in bankruptcy, meant the Crown would lose priority under theBIA (2008 BCSC 1805, [2008] G.S.T.C. 221). [6] The Crown’s appeal was allowed by the British Columbia Court of Appeal (2009 BCCA 205, 270 B.C.A.C. 167).

Tysoe J.A. for a unanimous court found two independent bases for allowing the Crown’s appeal. [7] First, the court’s authority under s. 11 of the CCAA was held not to extend to staying the Crown’s application forimmediate payment of the GST funds subject to the deemed trust after it was clear that reorganization efforts had failed and thatbankruptcy was inevitable. As restructuring was no longer a possibility, staying the Crown’s claim to the GST funds no longer served apurpose under the CCAA and the court was bound under the priority scheme provided by the ETA to allow payment to the Crown.

In soholding, Tysoe J.A. adopted the reasoning in Ottawa Senators Hockey Club Corp. (Re) (2005), (ON CA), 73 O.R. (3d)737 (C.A.), which found that the ETA deemed trust for GST established Crown priority over secured creditors under the CCAA. [8] Second, Tysoe J.A. concluded that by ordering the GST funds segregated in the Monitor’s trust account on April29, 2008, the judge had created an express trust in favour of the Crown from which the monies in question could not be diverted for anyother purposes.

The Court of Appeal therefore ordered that the money held by the Monitor in trust be paid to the Receiver General. 2. Issues [9] This appeal raises three broad issues which are addressed in turn:

(1) Did s. 222(3) of the ETA displace s. 18.3(1) of the CCAA and give priority to the Crown’s ETA deemed trust during CCAAproceedings as held in Ottawa Senators?

(2) Did the court exceed its CCAA authority by lifting the stay to allow the debtor to make an assignment in bankruptcy?

(3) Did the court’s order of April 29, 2008 requiring segregation of the Crown’s GST claim in the Monitor’s trust account createan express trust in favour of the Crown in respect of those funds? 3. Analysis [10] The first issue concerns Crown priorities in the context of insolvency.

As will be seen, the ETA provides for adeemed trust in favour of the Crown in respect of GST owed by a debtor “[d]espite . . . any other enactment of Canada (except theBankruptcy and Insolvency Act)” (s. 222(3)), while the CCAA stated at the relevant time that “notwithstanding any provision in federal orprovincial legislation that has the effect of deeming property to be held in trust for Her Majesty, property of a debtor company shall notbe [so] regarded” (s. 18.3(1)). It is difficult to imagine two statutory provisions more apparently in conflict.

However, as is often thecase, the apparent conflict can be resolved through

interpretation. [11] In order to properly interpret the provisions, it is necessary to examine the history of the CCAA, its function amidstthe body of insolvency legislation enacted by Parliament, and the principles that have been recognized in the jurisprudence. It will be

seen that Crown priorities in the insolvency context have been significantly pared down. The resolution of the second issue is also rootedin the context of the CCAA, but its purpose and the manner in which it has been interpreted in the case law are also key. After examiningthe first two issues in this case, I will address Tysoe J.A.’s conclusion that an express trust in favour of the Crown was created by thecourt’s order of April 29, 2008. 3.1 Purpose and Scope of Insolvency Law [12] Insolvency is the factual situation that arises when a debtor is unable to pay creditors (see generally, R. J.

Wood,Bankruptcy and Insolvency Law (2009), at p. 16). Certain legal proceedings become available upon insolvency, which typically allow adebtor to obtain a court order staying its creditors’ enforcement actions and attempt to obtain a binding compromise with creditors toadjust the payment conditions to something more realistic. Alternatively, the debtor’s assets may be liquidated and debts paid from theproceeds according to statutory priority rules.

The former is usually referred to as reorganization or restructuring while the latter istermed liquidation. [13] Canadian commercial insolvency law is not codified in one exhaustive statute. Instead, Parliament has enactedmultiple insolvency statutes, the main one being the BIA. The BIA offers a self-contained legal regime providing for both reorganizationand liquidation. Although bankruptcy legislation has a long history, the BIA itself is a fairly recent statute — it was enacted in 1992. It ischaracterized by a rules-based approach to proceedings.

The BIA is available to insolvent debtors owing $1000 or more, regardless ofwhether they are natural or legal persons. It contains mechanisms for debtors to make proposals to their creditors for the adjustment ofdebts. If a proposal fails, the BIA contains a bridge to bankruptcy whereby the debtor’s assets are liquidated and the proceeds paid tocreditors in accordance with the statutory scheme of distribution. [14] Access to the CCAA is more restrictive. A debtor must be a company with liabilities in excess of $5 million.

Unlikethe BIA, the CCAA contains no provisions for liquidation of a debtor’s assets if reorganization fails. There are three ways of exitingCCAA proceedings. The best outcome is achieved when the stay of proceedings provides the debtor with some breathing space duringwhich solvency is restored and the CCAA process terminates without reorganization being needed. The second most desirable outcomeoccurs when the debtor’s compromise or arrangement is accepted by its creditors and the reorganized company emerges from the CCAAproceedings as a going concern.

Lastly, if the compromise or arrangement fails, either the company or its creditors usually seek to havethe debtor’s assets liquidated under the applicable provisions of the BIA or to place the debtor into receivership.

As discussed in greaterdetail below, the key difference between the reorganization regimes under the BIA and the CCAA is that the latter offers a more flexiblemechanism with greater judicial discretion, making it more responsive to complex reorganizations. [15] As I will discuss at greater length below, the purpose of the CCAA — Canada’s first reorganization statute — is topermit the debtor to continue to carry on business and, where possible, avoid the social and economic costs of liquidating its assets.

Proposals to creditors under the BIA serve the same remedial purpose, though this is achieved through a rules-based mechanism thatoffers less flexibility. Where reorganization is impossible, the BIA may be employed to provide an orderly mechanism for thedistribution of a debtor’s assets to satisfy creditor claims according to predetermined priority rules. [16] Prior to the enactment of the CCAA in 1933 (S.C. 1932-33, c. 36), practice under existing commercial insolvencylegislation tended heavily towards the liquidation of a debtor company (J.

Sarra, Creditor Rights and the Public Interest: RestructuringInsolvent Corporations (2003), at p. 12). The battering visited upon Canadian businesses by the Great Depression and the absence of aneffective mechanism for reaching a compromise between debtors and creditors to avoid liquidation required a legislative response.

TheCCAA was innovative as it allowed the insolvent debtor to attempt reorganization under judicial supervision outside the existinginsolvency legislation which, once engaged, almost invariably resulted in liquidation (Reference re Companies’ Creditors ArrangementAct, (SCC), [1934] S.C.R. 659, at pp. 660-61; Sarra, Creditor Rights, at pp. 12-13). [17] Parliament understood when adopting the CCAA that liquidation of an insolvent company was harmful for most ofthose it affected — notably creditors and employees — and that a workout which allowed the company to survive was optimal (Sarra,Creditor Rights, at pp. 13-15). [18] Early commentary and jurisprudence also endorsed the CCAA’s remedial objectives.

It recognized that companiesretain more value as going concerns while underscoring that intangible losses, such as the evaporation of the companies’ goodwill, resultfrom liquidation (S. E. Edwards, “Reorganizations Under the Companies’ Creditors Arrangement Act” (1947), 25 Can. Bar Rev. 587, atp. 592). Reorganization serves the public interest by facilitating the survival of companies supplying goods or services crucial to thehealth of the economy or saving large numbers of jobs (ibid., at p. 593). Insolvency could be so widely felt as to impact stakeholdersother than creditors and employees.

Variants of these views resonate today, with reorganization justified in terms of rehabilitatingcompanies that are key elements in a complex web of interdependent economic relationships in order to avoid the negative consequencesof liquidation. [19] The CCAA fell into disuse during the next several decades, likely because amendments to the Act in 1953 restrictedits use to companies issuing bonds (S.C. 1952-53, c. 3).

During the economic downturn of the early 1980s, insolvency lawyers andcourts adapting to the resulting wave of insolvencies resurrected the statute and deployed it in response to new economic challenges. Participants in insolvency proceedings grew to recognize and appreciate the statute’s distinguishing feature: a grant of broad and flexibleauthority to the supervising court to make the orders necessary to facilitate the reorganization of the debtor and achieve the CCAA’sobjectives.

The manner in which courts have used CCAA jurisdiction in increasingly creative and flexible ways is explored in greaterdetail below. [20] Efforts to evolve insolvency law were not restricted to the courts during this period. In 1970, a government-commissioned panel produced an extensive study recommending sweeping reform but Parliament failed to act (see Bankruptcy andInsolvency: Report of the Study Committee on Bankruptcy and Insolvency Legislation (1970)).

Another panel of experts produced morelimited recommendations in 1986 which eventually resulted in enactment of the Bankruptcy and Insolvency Act of 1992 (S.C. 1992, c.27) (see Proposed Bankruptcy Act Amendments: Report of the Advisory Committee on Bankruptcy and Insolvency (1986)). Broaderprovisions for reorganizing insolvent debtors were then included in Canada’s bankruptcy statute. Although the 1970 and 1986 reports

made no specific recommendations with respect to the CCAA, the House of Commons committee studying the BIA’s predecessor bill, C-22, seemed to accept expert testimony that the BIA’s new reorganization scheme would shortly supplant the CCAA, which could then berepealed, with commercial insolvency and bankruptcy being governed by a single statute (Minutes of Proceedings and Evidence of theStanding Committee on Consumer and Corporate Affairs and Government Operations, Issue No. 15, 3rd Sess., 34th Parl., October 3,1991, at 15:15-15:16). [21] In retrospect, this conclusion by the House of Commons committee was out of step with reality.

It overlooked therenewed vitality the CCAA enjoyed in contemporary practice and the advantage that a flexible judicially supervised reorganizationprocess presented in the face of increasingly complex reorganizations, when compared to the stricter rules-based scheme contained in theBIA. The “flexibility of the CCAA [was seen as] a great benefit, allowing for creative and effective decisions” (Industry Canada,Marketplace Framework Policy Branch, Report on the Operation and Administration of the Bankruptcy and Insolvency Act and theCompanies’ Creditors Arrangement Act (2002), at p. 41).

Over the past three decades, resurrection of the CCAA has thus been themainspring of a process through which, one author concludes, “the legal setting for Canadian insolvency restructuring has evolved froma rather blunt instrument to one of the most sophisticated systems in the developed world” (R. B. Jones, “The Evolution of CanadianRestructuring: Challenges for the Rule of Law”, in J. P. Sarra, ed., Annual Review of Insolvency Law 2005 (2006), 481, at p. 481). [22] While insolvency proceedings may be governed by different statutory schemes, they share some commonalities.

The most prominent of these is the single proceeding model. The nature and purpose of the single proceeding model are described byProfessor Wood in Bankruptcy and Insolvency Law: They all provide a collective proceeding that supersedes the usual civil process available to creditors to enforce their claims. Thecreditors’ remedies are collectivized in order to prevent the free-for-all that would otherwise prevail if creditors were permitted toexercise their remedies.

In the absence of a collective process, each creditor is armed with the knowledge that if they do not strike hardand swift to seize the debtor’s assets, they will be beat out by other creditors. [pp. 2-3] The single proceeding model avoids the inefficiency and chaos that would attend insolvency if each creditor initiated proceedings torecover its debt.

Grouping all possible actions against the debtor into a single proceeding controlled in a single forum facilitatesnegotiation with creditors because it places them all on an equal footing, rather than exposing them to the risk that a more aggressivecreditor will realize its claims against the debtor’s limited assets while the other creditors attempt a compromise. With a view toachieving that purpose, both the CCAA and the BIA allow a court to order all actions against a debtor to be stayed while a compromise issought. [23] Another point of convergence of the CCAA and the BIA relates to priorities.

Because the CCAA is silent about whathappens if reorganization fails, the BIA scheme of liquidation and distribution necessarily supplies the backdrop for what will happen if aCCAA reorganization is ultimately unsuccessful. In addition, one of the important features of legislative reform of both statutes since theenactment of the BIA in 1992 has been a cutback in Crown priorities (S.C. 1992, c. 27, s. 39; S.C. 1997, c. 12, ss. 73 and 125; S.C. 2000,c. 30, s. 148; S.C. 2005, c. 47, ss. 69 and 131; S.C. 2009, c. 33, s. 25; see also Quebec (Revenue) v.

Caisse populaire Desjardins deMontmagny, 2009 SCC 49, [2009] 3 S.C.R. 286; Deputy Minister of Revenue v. Rainville, (SCC), [1980] 1 S.C.R. 35;Proposed Bankruptcy Act Amendments: Report of the Advisory Committee on Bankruptcy and Insolvency). [24] With parallel CCAA and BIA restructuring schemes now an accepted feature of the insolvency law landscape, thecontemporary thrust of legislative reform has been towards harmonizing aspects of insolvency law common to the two statutory schemesto the extent possible and encouraging reorganization over liquidation (see

An Act to establish the Wage Earner Protection Program Act,to amend the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act and to make consequential amendments toother Acts, S.C. 2005, c. 47; Gauntlet Energy Corp., Re, 2003 ABQB 894, 30 Alta.

L.R. (4th) 192, at para. 19). [25] Mindful of the historical background of the CCAA and BIA, I now turn to the first question at issue. 3.2 GST Deemed Trust Under the CCAA [26] The Court of Appeal proceeded on the basis that the ETA precluded the court from staying the Crown’s enforcementof the GST deemed trust when partially lifting the stay to allow the debtor to enter bankruptcy.

In so doing, it adopted the reasoning in aline of cases culminating in Ottawa Senators, which held that an ETA deemed trust remains enforceable during CCAA reorganizationdespite language in the CCAA that suggests otherwise. [27] The Crown relies heavily on the decision of the Ontario Court of Appeal in Ottawa Senators and argues that the laterin time provision of the ETA creating the GST deemed trust trumps the provision of the CCAA purporting to nullify most statutorydeemed trusts.

The Court of Appeal in this case accepted this reasoning but not all provincial courts follow it (see, e.g., Komunik Corp.(Arrangement relatif à), 2009 QCCS 6332 , leave to appeal granted, 2010 QCCA 183 ). Century Services relied, in itswritten submissions to this Court, on the argument that the court had authority under the CCAA to continue the stay against the Crown’sclaim for unremitted GST. In oral argument, the question of whether Ottawa Senators was correctly decided nonetheless arose. Afterthe hearing, the parties were asked to make further written submissions on this point.

As appears evident from the reasons of mycolleague Abella J., this issue has become prominent before this Court. In those circumstances, this Court needs to determine thecorrectness of the reasoning in Ottawa Senators. [28] The policy backdrop to this question involves the Crown’s priority as a creditor in insolvency situations which, as Imentioned above, has evolved considerably. Prior to the 1990s, Crown claims largely enjoyed priority in insolvency.

This was widelyseen as unsatisfactory as shown by both the 1970 and 1986 insolvency reform proposals, which recommended that Crown claims receiveno preferential treatment. A closely related matter was whether the CCAA was binding at all upon the Crown. Amendments to theCCAA in 1997 confirmed that it did indeed bind the Crown (see CCAA, s. 21, as added by S.C. 1997, c. 12, s. 126). [29] Claims of priority by the state in insolvency situations receive different treatment across jurisdictions worldwide.

For example, in Germany and Australia, the state is given no priority at all, while the state enjoys wide priority in the United States andFrance (see B. K. Morgan, “Should the Sovereign be Paid First? A Comparative International Analysis of the Priority for Tax Claims in

Bankruptcy” (2000), 74 Am. Bankr. L.J. 461, at p. 500). Canada adopted a middle course through legislative reform of Crown priorityinitiated in 1992. The Crown retained priority for source deductions of income tax, Employment Insurance (“EI”) and Canada PensionPlan (“CPP”) premiums, but ranks as an ordinary unsecured creditor for most other claims. [30] Parliament has frequently enacted statutory mechanisms to secure Crown claims and permit their enforcement. Thetwo most common are statutory deemed trusts and powers to garnish funds third parties owe the debtor (see F. L.

Lamer, Priority ofCrown Claims in Insolvency (loose-leaf), at §2). [31] With respect to GST collected, Parliament has enacted a deemed trust. The ETA states that every person whocollects an amount on account of GST is deemed to hold that amount in trust for the Crown (s. 222(1)). The deemed trust extends toother property of the person collecting the tax equal in value to the amount deemed to be in trust if that amount has not been remitted inaccordance with the ETA.

The deemed trust also extends to property held by a secured creditor that, but for the security interest, wouldbe property of the person collecting the tax (s. 222(3)). [32] Parliament has created similar deemed trusts using almost identical language in respect of source deductions ofincome tax, EI premiums and CPP premiums (see s. 227(4) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (“ITA”), ss. 86(2) and(2.1) of the Employment Insurance Act, S.C. 1996, c. 23, and ss. 23(3) and (4) of the Canada Pension Plan, R.S.C. 1985, c. C-8).

I willrefer to income tax, EI and CPP deductions as “source deductions”. [33] In Royal Bank of Canada v. Sparrow Electric Corp., (SCC), [1997] 1 S.C.R. 411, this Courtaddressed a priority dispute between a deemed trust for source deductions under the ITA and security interests taken under both the BankAct, S.C. 1991, c. 46, and the Alberta Personal Property Security Act, S.A. 1988, c. P-4.05 (“PPSA”). As then worded, an ITA deemedtrust over the debtor’s property equivalent to the amount owing in respect of income tax became effective at the time of liquidation,receivership, or assignment in bankruptcy.

Sparrow Electric held that the ITA deemed trust could not prevail over the security interestsbecause, being fixed charges, the latter attached as soon as the debtor acquired rights in the property such that the ITA deemed trust hadno property on which to attach when it subsequently arose. Later, in First Vancouver Finance v.

M.N.R., 2002 SCC 49, [2002] 2 S.C.R.720, this Court observed that Parliament had legislated to strengthen the statutory deemed trust in the ITA by deeming it to operate fromthe moment the deductions were not paid to the Crown as required by the ITA, and by granting the Crown priority over all securityinterests (paras. 27-29) (the “Sparrow Electric amendment”). [34] The amended text of s. 227(4.1) of the ITA and concordant source deductions deemed trusts in the Canada PensionPlan and the Employment Insurance Act state that the deemed trust operates notwithstanding any other enactment of Canada, except ss.81.1 and 81.2 of the BIA.

The ETA deemed trust at issue in this case is similarly worded, but it excepts the BIA in its entirety. Theprovision reads as follows: 222. . . . . . .

(3) Despite any other provision of this Act (except subsection (4)), any other enactment of Canada (except the Bankruptcy andInsolvency Act), any enactment of a province or any other law, if at any time an amount deemed by subsection (1) to be held by a personin trust for Her Majesty is not remitted to the Receiver General or withdrawn in the manner and at the time provided under this Part,property of the person and property held by any secured creditor of the person that, but for a security interest, would be property of theperson, equal in value to the amount so deemed to be held in trust, is deemed . . . . [35] The Crown submits that the Sparrow Electric amendment, added by Parliament to the ETA in 2000, was intended topreserve the Crown’s priority over collected GST under the CCAA while subordinating the Crown to the status of an unsecured creditorin respect of GST only under the BIA.

This is because the ETA provides that the GST deemed trust is effective “despite” any otherenactment except the BIA. [36] The language used in the ETA for the GST deemed trust creates an apparent conflict with the CCAA, which providesthat subject to certain exceptions, property deemed by statute to be held in trust for the Crown shall not be so regarded. [37] Through a 1997 amendment to the CCAA (S.C. 1997, c. 12, s. 125), Parliament appears to have, subject to specificexceptions, nullified deemed trusts in favour of the Crown once reorganization proceedings are commenced under the Act.

The relevantprovision reads: 18.3

(1) Subject to subsection (2), notwithstanding any provision in federal or provincial legislation that has the effect of deemingproperty to be held in trust for Her Majesty, property of a debtor company shall not be regarded as held in trust for Her Majesty unless itwould be so regarded in the absence of that statutory provision. This nullification of deemed trusts was continued in further amendments to the CCAA (S.C. 2005, c. 47), where s. 18.3(1) wasrenumbered and reformulated as s. 37(1): 37.

(1) Subject to subsection (2), despite any provision in federal or provincial legislation that has the effect of deeming property to beheld in trust for Her Majesty, property of a debtor company shall not be regarded as being held in trust for Her Majesty unless it wouldbe so regarded in the absence of that statutory provision. [38] An analogous provision exists in the BIA, which, subject to the same specific exceptions, nullifies statutory deemedtrusts and makes property of the bankrupt that would otherwise be subject to a deemed trust part of the debtor’s estate and available to

creditors (S.C. 1992, c. 27, s. 39; S.C. 1997, c. 12, s. 73; BIA, s. 67(2)). It is noteworthy that in both the CCAA and the BIA, theexceptions concern source deductions (CCAA, s. 18.3(2); BIA, s. 67(3)). The relevant provision of the CCAA reads: 18.3 . . . (2) Subsection (1) does not apply in respect of amounts deemed to be held in trust under subsection 227(4) or (4.1) of the Income TaxAct, subsection 23(3) or (4) of the Canada Pension Plan or subsection 86(2) or (2.1) of the Employment Insurance Act . . . .

Thus, the Crown’s deemed trust and corresponding priority in source deductions remain effective both in reorganization and inbankruptcy. [39] Meanwhile, in both s. 18.4(1) of the CCAA and s. 86(1) of the BIA, other Crown claims are treated as unsecured. These provisions, establishing the Crown’s status as an unsecured creditor, explicitly exempt statutory deemed trusts in sourcedeductions (CCAA, s. 18.4(3); BIA, s. 86(3)).

The CCAA provision reads as follows: 18.4 . . . . . . (3) Subsection (1) [Crown ranking as unsecured creditor] does not affect the operation of (a) subsections 224(1.2) and (1.3) of the Income Tax Act, (

b) any provision of the Canada Pension Plan or of the Employment Insurance Act that refers to subsection 224(1.2) of the Income TaxAct and provides for the collection of a contribution . . . .

Therefore, not only does the CCAA provide that Crown claims do not enjoy priority over the claims of other creditors (s. 18.3(1)), but theexceptions to this rule (i.e., that Crown priority is maintained for source deductions) are repeatedly stated in the statute. [40] The apparent conflict in this case is whether the rule in the CCAA first enacted as s. 18.3 in 1997, which providesthat subject to certain explicit exceptions, statutory deemed trusts are ineffective under the CCAA, is overridden by the one in the ETAenacted in 2000 stating that GST deemed trusts operate despite any enactment of Canada except the BIA.

With respect for my colleagueFish J., I do not think the apparent conflict can be resolved by denying it and creating a rule requiring both a statutory provision enactingthe deemed trust, and a second statutory provision confirming it. Such a rule is unknown to the law. Courts must recognize conflicts,apparent or real, and resolve them when possible. [41] A line of jurisprudence across Canada has resolved the apparent conflict in favour of the ETA, thereby maintainingGST deemed trusts under the CCAA.

Ottawa Senators, the leading case, decided the matter by invoking the doctrine of implied repeal tohold that the later in time provision of the ETA should take precedence over the CCAA (see also Solid Resources Ltd., Re (2002), 40C.B.R. (4th) 219 (Alta. Q.B.); Gauntlet). [42] The Ontario Court of Appeal in Ottawa Senators rested its conclusion on two considerations. First, it was persuadedthat by explicitly mentioning the BIA in ETA s. 222(3), but not the CCAA, Parliament made a deliberate choice. In the words ofMacPherson J.A.: The BIA and the CCAA are closely related federal statutes.

I cannot conceive that Parliament would specifically identify the BIA as anexception, but accidentally fail to consider the CCAA as a possible second exception. In my view, the omission of the CCAA from s.222(3) of the ETA was almost certainly a considered omission. [para. 43] [43] Second, the Ontario Court of Appeal compared the conflict between the ETA and the CCAA to that before this Courtin Doré v. Verdun (City), (SCC), [1997] 2 S.C.R. 862, and found them to be “identical” (para. 46). It thereforeconsidered Doré binding (para. 49).

In Doré, a limitations provision in the more general and recently enacted Civil Code of Québec, S.Q.1991, c. 64 (“C.C.Q.”), was held to have repealed a more specific provision of the earlier Quebec Cities and Towns Act, R.S.Q., c. C-19,with which it conflicted.

By analogy, the Ontario Court of Appeal held that the later in time and more general provision, s. 222(3) of theETA, impliedly repealed the more specific and earlier in time provision, s. 18.3(1) of the CCAA (paras. 47-49). [44] Viewing this issue in its entire context, several considerations lead me to conclude that neither the reasoning nor theresult in Ottawa Senators can stand.

While a conflict may exist at the level of the statutes’ wording, a purposive and contextual analysisto determine Parliament’s true intent yields the conclusion that Parliament could not have intended to restore the Crown’s deemed trustpriority in GST claims under the CCAA when it amended the ETA in 2000 with the Sparrow Electric amendment. [45] I begin by recalling that Parliament has shown its willingness to move away from asserting priority for Crownclaims in insolvency law.

Section 18.3(1) of the CCAA (subject to the s. 18.3(2) exceptions) provides that the Crown’s deemed trustshave no effect under the CCAA. Where Parliament has sought to protect certain Crown claims through statutory deemed trusts andintended that these deemed trusts continue in insolvency, it has legislated so explicitly and elaborately. For example, s. 18.3(2) of theCCAA and s. 67(3) of the BIA expressly provide that deemed trusts for source deductions remain effective in insolvency. Parliament has,therefore, clearly carved out exceptions from the general rule that deemed trusts are ineffective in insolvency.

The CCAA and BIA are inharmony, preserving deemed trusts and asserting Crown priority only in respect of source deductions. Meanwhile, there is no expressstatutory basis for concluding that GST claims enjoy a preferred treatment under the CCAA or the BIA. Unlike source deductions, whichare clearly and expressly dealt with under both these insolvency statutes, no such clear and express language exists in those Acts carving

out an exception for GST claims. [ 46 ] The internal logic of the CCAA also militates against upholding the ETA deemed trust for GST. T he CCAA imposes limits on a suspension by the court of the Crown’s rights in respect of source deductions but does not mention the ETA (s. 11.4) . Since source deduction s deemed trusts are granted explicit protection under the CCAA , it would be inconsistent to afford a better protection to the ETA deemed trust absent explicit language in the CCAA . Thus, the logic of the CCAA appears to subject the ETA deemed trust to the waiver by Parliament of its priority (s. 18.4) . [ 47 ] Moreover, a strange asymmetry would arise if the

interpretation giving the ETA priority over the CCAA urged by the Crown is adopted here: the Crown would retain priority over GST claims during CCAA proceedings but not in bankruptcy. As courts have reflected, this can only encourage statute shopping by secured creditors in cases such as this one where the debtor’s assets cannot satisfy both the secured creditors’ and the Crown’s claims ( Gauntlet , at para. 21). If creditors’ claims were better protected by liquidation under the BIA , creditors’ incentives would lie overwhelmingly with avoiding proceedings under the CCAA and not risking a failed reorganization.

Giving a key player in any insolvency such skewed incentives against reorganizing under the CCAA can only undermine that statute’s remedial objectives and risk inviting the very social ills that it was enacted to avert. [ 48 ] Arguably, the effect of Ottawa Senators is mitigated if restructuring is attempted under the BIA instead of the CCAA , but it is not cured. If Ottawa Senators were to be followed, Crown priority over GST would differ depending on whether restructuring took place under the CCAA or the BIA .

The anomaly of this result is made manifest by the fact that it would deprive companies of the option to restructure under the more flexible and responsive CCAA regime, which has been the statute of choice for complex reorganizations. [ 49 ] Evidence that Parliament intended different treatments for GST claims in reorganization and bankruptcy is scant, if it exists at all. Section 222(3) of the ETA was enacted as part of a wide-ranging budget implementation bill in 2000. The

summary accompanying that bill does not indicate that Parliament intended to elevate Crown priority over GST claims under the CCAA to the same or a higher level than source deductions claims . Indeed, the

summary for deemed trusts states only that amendments to existing provisions are aimed at “ensuring that employment insurance premiums and Canada Pension Plan contributions that are required to be remitted by an employer are fully recoverable by the Crown in the case of the bankruptcy of the employer” (Summary to S.C. 2000, c. 30, at p. 4a). The wording of GST deemed trusts resembles that of statutory deemed trusts for source deductions and incorporates the same overriding language and reference to the BIA .

However, as noted above, Parliament’s express intent is that only source deduction s deemed trusts remain operative. An exception for the BIA in the statutory language establishing the source deduction s deemed trusts accomplishes very little, because the explicit language of the BIA itself (and the CCAA ) carves out these source deduction s deemed trusts and maintains their effect.

It is however noteworthy that no equivalent language maintaining GST deemed trusts exists under either the BIA or the CCAA . [ 50 ] It seems more likely that by adopting the same language for creating GST deemed trusts in the ETA as it did for deemed trusts for source deductions, and by overlooking the inclusion of an exception for the CCAA alongside the BIA in s. 222(3) of the ETA , Parliament may have inadvertently succumbed to a drafting anomaly.

Because of a statutory lacuna in the ETA , the GST deemed trust could be seen as remaining effective in the CCAA , while ceasing to have any effect under the BIA , thus creating an apparent conflict with the wording of the CCAA . However, it should be seen for what it is: a facial conflict only, capable of resolution by looking at the broader approach taken to Crown priorities and by giving precedence to the statutory language of s. 18.3 of the CCAA in a manner that does not produce an anomalous outcome. [ 51 ] Section 222(3) of the ETA evinces no explicit intention of Parliament to repeal CCAA s. 18.3 .

It merely creates an apparent conflict that must be resolved by statutory

interpretation. Parliament’s intent when it enacted ETA s. 222(3) was therefore far from unambiguous. Had it sought to give the Crown a priority for GST claims, it could have done so explicitly as it did for source deductions. Instead, one is left to infer from the language of ETA s. 222(3) that the GST deemed trust was intended to be effective under the CCAA . [ 52 ] I am not persuaded that the reasoning in Doré requires the application of the doctrine of implied repeal in the circumstances of this case.

The main issue in Doré concerned the impact of the adoption of the C.C.Q. on the administrative law rules with respect to municipalities. While Gonthier J. concluded in that case that the limitation provision in art. 2930 C.C.Q. had repealed by implication a limitation provision in the Cities and Towns Act , he did so on the basis of more than a textual analysis. The conclusion in Doré was reached after thorough contextual analysis of both pieces of legislation, including an extensive review of the relevant legislative history (paras. 31-41).

Consequently, the circumstances before this Court in Doré are far from “identical” to those in the present case, in terms of text, context and legislative history. Accordingly, Doré cannot be said to require the automatic application of the rule of repeal by implication. [ 53 ] A noteworthy indicator of Parliament’s overall intent is the fact that in subsequent amendments it has not displaced the rule set out in the CCAA . Indeed, as indicated above, the recent amendments to the CCAA in 2005 resulted in the rule previously found in s. 18.3 being renumbered and reformulated as s. 37. Thus, to the extent the

interpretation allowing the GST deemed trust to remain effective under the CCAA depends on ETA s. 222(3) having impliedly repealed CCAA s. 18.3(1) because it is later in time, we have come full circle . Parliament has renumbered and reformulated the provision of the CCAA stating that, subject to exceptions for source deductions, deemed trusts do not survive the CCAA proceedings and thus the CCAA is now the later in time statute . This confirms that Parliament’s intent with respect to GST deemed trusts is to be found in the CCAA . [ 54 ] I do not agree with my colleague Abella J. that s. 44 (

f) of the

Interpretation Act , R.S.C. 1985, c. I-21, can be used to interpret the 2005 amendments as having no effect. The new statute can hardly be said to be a mere re-enactment of the former statute. Indeed, the CCAA underwent a substantial review in 2005. Notably, acting consistently with its goal of treating both the BIA and the CCAA as sharing the same approach to insolvency, Parliament made parallel amendments to both statutes with respect to corporate proposals. In addition, new provisions were introduced regarding the treatment of contracts, collective agreements, interim financing and governance agreements.

The appointment and role of the Monitor was also clarified. Noteworthy are the limits imposed by CCAA s. 11.09 on the court’s discretion to make an order staying the Crown’s source deductions deemed trusts, which were formerly found in s.

11.4. No mention whatsoever is made of GST deemed trusts (see

Summary to S.C. 2005, c. 47). The review went as far as looking at thevery expression used to describe the statutory override of deemed trusts. The comments cited by my colleague only emphasize the clearintent of Parliament to maintain its policy that only source deductions deemed trusts survive in CCAA proceedings. [55] In the case at bar, the legislative context informs the determination of Parliament’s legislative intent and supports theconclusion that ETA s. 222(3) was not intended to narrow the scope of the CCAA’s override provision.

Viewed in its entire context, theconflict between the ETA and the CCAA is more apparent than real. I would therefore not follow the reasoning in Ottawa Senators andaffirm that CCAA s. 18.3 remained effective. [56] My conclusion is reinforced by the purpose of the CCAA as part of Canadian remedial insolvency legislation. Asthis aspect is particularly relevant to the second issue, I will now discuss how courts have interpreted the scope of their discretionarypowers in supervising a CCAA reorganization and how Parliament has largely endorsed this

interpretation. Indeed, the

interpretationcourts have given to the CCAA helps in understanding how the CCAA grew to occupy such a prominent role in Canadian insolvencylaw. 3.3 Discretionary Power of a Court Supervising a CCAA Reorganization [57] Courts frequently observe that “[t]he CCAA is skeletal in nature” and does not “contain a comprehensive code thatlays out all that is permitted or barred” (Metcalfe & Mansfield Alternative Investments II Corp. (Re), 2008 ONCA 587, 92 O.R. (3d) 513,at para. 44, per Blair J.A.). Accordingly, “[t]he history of CCAA law has been an evolution of judicial

interpretation” (Dylex Ltd., Re(1995), (ON SC), 31 C.B.R. (3d) 106 (Ont. Ct. (Gen. Div.)), at para. 10, per Farley J.). [58] CCAA decisions are often based on discretionary grants of jurisdiction. The incremental exercise of judicialdiscretion in commercial courts under conditions one practitioner aptly describes as “the hothouse of real-time litigation” has been theprimary method by which the CCAA has been adapted and has evolved to meet contemporary business and social needs (see Jones, at p.484). [59] Judicial discretion must of course be exercised in furtherance of the CCAA’s purposes.

The remedial purpose Ireferred to in the historical overview of the Act is recognized over and over again in the jurisprudence. To cite one early example: The legislation is remedial in the purest sense in that it provides a means whereby the devastating social and economic effects ofbankruptcy or creditor initiated termination of ongoing business operations can be avoided while a court-supervised attempt to reorganizethe financial affairs of the debtor company is made. (Elan Corp. v.

Comiskey (1990), 41 O.A.C. 282, at para. 57, per Doherty J.A., dissenting) [60] Judicial decision making under the CCAA takes many forms. A court must first of all provide the conditions underwhich the debtor can attempt to reorganize. This can be achieved by staying enforcement actions by creditors to allow the debtor’sbusiness to continue, preserving the status quo while the debtor plans the compromise or arrangement to be presented to creditors, andsupervising the process and advancing it to the point where it can be determined whether it will succeed (see, e.g., Chef Ready FoodsLtd. v.

Hongkong Bank of Can. (1990), (BC CA), 51 B.C.L.R. (2d) 84 (C.A.), at pp. 88-89; Pacific National LeaseHolding Corp., Re (1992), (BC CA), 19 B.C.A.C. 134, at para. 27). In doing so, the court must often be cognizant ofthe various interests at stake in the reorganization, which can extend beyond those of the debtor and creditors to include employees,directors, shareholders, and even other parties doing business with the insolvent company (see, e.g., Canadian Airlines Corp., Re, 2000ABQB 442, 84 Alta.

L.R. (3d) 9, at para. 144, per Paperny J. (as she then was); Air Canada, Re (2003), (ON SC), 42C.B.R. (4th) 173 (Ont. S.C.J.), at para. 3; Air Canada, Re, (Ont. S.C.J.), at para. 13, per Farley J.; Sarra, CreditorRights, at pp. 181-92 and 217-26). In addition, courts must recognize that on occasion the broader public interest will be engaged byaspects of the reorganization and may be a factor against which the decision of whether to allow a particular action will be weighed (see,e.g., Canadian Red Cross Society/Société Canadienne de la Croix Rouge, Re (2000), (ON SC), 19 C.B.R. (4th) 158(Ont.

S.C.J.), at para. 2, per Blair J. (as he then was); Sarra, Creditor Rights, at pp. 195-214). [61] When large companies encounter difficulty, reorganizations become increasingly complex. CCAA courts have beencalled upon to innovate accordingly in exercising their jurisdiction beyond merely staying proceedings against the debtor to allowbreathing room for reorganization.

They have been asked to sanction measures for which there is no explicit authority in the CCAA.Without exhaustively cataloguing the various measures taken under the authority of the CCAA, it is useful to refer briefly to a fewexamples to illustrate the flexibility the statute affords supervising courts. [62] Perhaps the most creative use of CCAA authority has been the increasing willingness of courts to authorize post-filing security for debtor in possession financing or super-priority charges on the debtor’s assets when necessary for the continuation ofthe debtor’s business during the reorganization (see, e.g., Skydome Corp., Re (1998), 16 C.B.R. (4th) 118 (Ont.

Ct. (Gen. Div.)); UnitedUsed Auto & Truck Parts Ltd., Re, 2000 BCCA 146, 135 B.C.A.C. 96, aff’g (1999), (BC SC), 12 C.B.R. (4th) 144(S.C.); and generally, J. P. Sarra, Rescue! The Companies’ Creditors Arrangement Act (2007), at pp. 93-115). The CCAA has also beenused to release claims against third parties as part of approving a comprehensive plan of arrangement and compromise, even over theobjections of some dissenting creditors (see Metcalfe & Mansfield).

As well, the appointment of a Monitor to oversee the reorganizationwas originally a measure taken pursuant to the CCAA’s supervisory authority; Parliament responded, making the mechanism mandatoryby legislative amendment. [63] Judicial innovation during CCAA proceedings has not been without controversy. At least two questions it raises aredirectly relevant to the case at bar:

(1) What are the sources of a court’s authority during CCAA proceedings?

(2) What are the limits ofthis authority? [64] The first question concerns the boundary between a court’s statutory authority under the CCAA and a court’s residual

authority under its inherent and equitable jurisdiction when supervising a reorganization. In authorizing measures during CCAAproceedings, courts have on occasion purported to rely upon their equitable jurisdiction to advance the purposes of the Act or theirinherent jurisdiction to fill gaps in the statute.

Recent appellate decisions have counselled against purporting to rely on inherentjurisdiction, holding that the better view is that courts are in most cases simply construing the authority supplied by the CCAA itself (see,e.g., Skeena Cellulose Inc., Re, 2003 BCCA 344, 13 B.C.L.R. (4th) 236, at paras. 45-47, per Newbury J.A.; Stelco Inc. (Re) (2005), (ON CA), 75 O.R. (3d) 5 (C.A.), at paras. 31-33, per Blair J.A.). [65] I agree with Justice Georgina R. Jackson and Professor Janis Sarra that the most appropriate approach is ahierarchical one in which courts rely first on an

interpretation of the provisions of the CCAA text before turning to inherent or equitablejurisdiction to anchor measures taken in a CCAA proceeding (see G. R. Jackson and J. Sarra, “Selecting the Judicial Tool to get the JobDone: An Examination of Statutory

Interpretation, Discretionary Power and Inherent Jurisdiction in Insolvency Matters”, in J. P. Sarra,ed., Annual Review of Insolvency Law 2007 (2008), 41, at p. 42). The authors conclude that when given an appropriately purposive andliberal

interpretation, the CCAA will be sufficient in most instances to ground measures necessary to achieve its objectives (p. 94). [66] Having examined the pertinent parts of the CCAA and the recent history of the legislation, I accept that in mostinstances the issuance of an order during CCAA proceedings should be considered an exercise in statutory

interpretation. Particularlynoteworthy in this regard is the expansive

interpretation the language of the statute at issue is capable of supporting. [67] The initial grant of authority under the CCAA empowered a court “where an application is made under this Act inrespect of a company . . . on the application of any person interested in the matter, . . . subject to this Act, [to] make an order under thissection” (CCAA, s. 11(1)).

The plain language of the statute was very broad. [68] In this regard, though not strictly applicable to the case at bar, I note that Parliament has in recent amendmentschanged the wording contained in s. 11(1), making explicit the discretionary authority of the court under the CCAA. Thus, in s. 11 of theCCAA as currently enacted, a court may, “subject to the restrictions set out in this Act, . . . make any order that it considers appropriate inthe circumstances” (S.C. 2005, c. 47, s. 128).

Parliament appears to have endorsed the broad reading of CCAA authority developed bythe jurisprudence. [69] The CCAA also explicitly provides for certain orders. Both an order made on an initial application and an order onsubsequent applications may stay, restrain, or prohibit existing or new proceedings against the debtor.

The burden is on the applicant tosatisfy the court that the order is appropriate in the circumstances and that the applicant has been acting in good faith and with duediligence (CCAA, ss. 11(3), (4) and (6)). [70] The general language of the CCAA should not be read as being restricted by the availability of more specific orders. However, the requirements of appropriateness, good faith, and due diligence are baseline considerations that a court should always bearin mind when exercising CCAA authority.

Appropriateness under the CCAA is assessed by inquiring whether the order sought advancesthe policy objectives underlying the CCAA. The question is whether the order will usefully further efforts to achieve the remedialpurpose of the CCAA — avoiding the social and economic losses resulting from liquidation of an insolvent company. I would add thatappropriateness extends not only to the purpose of the order, but also to the means it employs.

Courts should be mindful that chances forsuccessful reorganizations are enhanced where participants achieve common ground and all stakeholders are treated as advantageouslyand fairly as the circumstances permit. [71] It is well established that efforts to reorganize under the CCAA can be terminated and the stay of proceedings againstthe debtor lifted if the reorganization is “doomed to failure” (see Chef Ready, at p. 88; Philip’s Manufacturing Ltd., Re (1992), (BC CA), 9 C.B.R. (3d) 25 (B.C.C.A.), at paras. 6-7).

However, when an order is sought that does realistically advancethe CCAA’s purposes, the ability to make it is within the discretion of a CCAA court. [72] The preceding discussion assists in determining whether the court had authority under the CCAA to continue the stayof proceedings against the Crown once it was apparent that reorganization would fail and bankruptcy was the inevitable next step. [73] In the Court of Appeal, Tysoe J.A. held that no authority existed under the CCAA to continue staying the Crown’senforcement of the GST deemed trust once efforts at reorganization had come to an end.

The appellant submits that in so holding, TysoeJ.A. failed to consider the underlying purpose of the CCAA and give the statute an appropriately purposive and liberal

interpretationunder which the order was permissible. The Crown submits that Tysoe J.A. correctly held that the mandatory language of the ETA gavethe court no option but to permit enforcement of the GST deemed trust when lifting the CCAA stay to permit the debtor to make anassignment under the BIA. Whether the ETA has a mandatory effect in the context of a CCAA proceeding has already been discussed.

Iwill now address the question of whether the order was authorized by the CCAA. [74] It is beyond dispute that the CCAA imposes no explicit temporal limitations upon proceedings commenced under theAct that would prohibit ordering a continuation of the stay of the Crown’s GST claims while lifting the general stay of proceedingstemporarily to allow the debtor to make an assignment in bankruptcy. [75] The question remains whether the order advanced the underlying purpose of the CCAA. The Court of Appeal heldthat it did not because the reorganization efforts had come to an end and the CCAA was accordingly spent.

I disagree. [76] There is no doubt that had reorganization been commenced under the BIA instead of the CCAA, the Crown’s deemedtrust priority for the GST funds would have been lost. Similarly, the Crown does not dispute that under the scheme of distribution inbankruptcy under the BIA the deemed trust for GST ceases to have effect. Thus, after reorganization under the CCAA failed, creditorswould have had a strong incentive to seek immediate bankruptcy and distribution of the debtor’s assets under the BIA.

In order toconclude that the discretion does not extend to partially lifting the stay in order to allow for an assignment in bankruptcy, one would haveto assume a gap between the CCAA and the BIA proceedings. Brenner C.J.S.C.’s order staying Crown enforcement of the GST claimensured that creditors would not be disadvantaged by the attempted reorganization under the CCAA. The effect of his order was to bluntany impulse of creditors to interfere in an orderly liquidation. His order was thus in furtherance of the CCAA’s objectives to the extentthat it allowed a bridge between the CCAA and BIA proceedings. This

interpretation of the tribunal’s discretionary power is buttressed by

s. 20 of the CCAA. That

section provides that the CCAA “may be applied together with the provisions of any Act of Parliament . . . thatauthorizes or makes provision for the sanction of compromises or arrangements between a company and its shareholders or any class ofthem”, such as the BIA.

Section 20 clearly indicates the intention of Parliament for the CCAA to operate in tandem with other insolvencylegislation, such as the BIA. [77] The CCAA creates conditions for preserving the status quo while attempts are made to find common groundamongst stakeholders for a reorganization that is fair to all. Because the alternative to reorganization is often bankruptcy, participantswill measure the impact of a reorganization against the position they would enjoy in liquidation.

In the case at bar, the order fostered aharmonious transition between reorganization and liquidation while meeting the objective of a single collective proceeding that iscommon to both statutes. [78] Tysoe J.A. therefore erred in my view by treating the CCAA and the BIA as distinct regimes subject to a temporalgap between the two, rather than as forming part of an integrated body of insolvency law. Parliament’s decision to maintain twostatutory schemes for reorganization, the BIA and the CCAA, reflects the reality that reorganizations of differing complexity requiredifferent legal mechanisms.

By contrast, only one statutory scheme has been found to be needed to liquidate a bankrupt debtor’s estate. The transition from the CCAA to the BIA may require the partial lifting of a stay of proceedings under the CCAA to allowcommencement of the BIA proceedings.

However, as Laskin J.A. for the Ontario Court of Appeal noted in a similar competition betweensecured creditors and the Ontario Superintendent of Financial Services seeking to enforce a deemed trust, “[t]he two statutes are related”and no “gap” exists between the two statutes which would allow the enforcement of property interests at the conclusion of CCAAproceedings that would be lost in bankruptcy (Ivaco Inc. (Re) (2006), (ON CA), 83 O.R. (3d) 108, at paras. 62-63). [79] The Crown’s priority in claims pursuant to source deductions deemed trusts does not undermine this conclusion.Source deductions deemed trusts survive under both the CCAA and the BIA.

Accordingly, creditors’ incentives to prefer one Act o

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