Canadian Airlines Corp., Re, 2001 ABQB 146

• Judge: Paperny, J.
• Court: Court of Queen's Bench of Alberta (Canada)
• Case Date: December 11, 2000
• Citations: 2001 ABQB 146;(2001), 294 A.R. 253 (QB)

Cdn. Airlines Corp., Re (2001), 294 A.R. 253 (QB)

MLB headnote and full text

Temp. Cite: [2001] A.R. TBEd. MR.043

In The Matter Of the Companies Creditors Arrangement Act, R.S.C. 1985, c. C-36, As Amended

And In The Matter Of the Business Corporations Act (Alberta), S.A. 1981, c. B-15, As Amended, Section 185

And In The Matter Of Canadian Airlines Corporation and Canadian Airlines International Ltd.

(Action No. 0001-05071; 2001 ABQB 146)

Indexed As: Canadian Airlines Corp., Re

Alberta Court of Queen's Bench

Judicial District of Calgary

Paperny, J.

February 21, 2001.

Summary:

An order was made providing for a stay of proceedings under the Companies' Creditors Arrangement Act (CCAA) with respect to Canadian Airlines Corporation and Canadian Airlines International Ltd. (collectively "Canadian"). The British Columbia Government filed a Voting/Distribution Dispute Notice claiming tax liabilities owed to it by Canadian under the Social Services Tax Act and the Motor Fuel Tax Act. The Dispute Notice also identified tax refunds owed to Canadian by the B.C. Government under the Motor Fuel Tax Act. The B.C. Government asserted a right to set off any refunds owed to Canadian against the tax liabilities owed by Canadian pursuant to s. 18.1 of the CCAA. A Claims Officer appointed in the proceedings determined that only a portion of Canadian's tax liabilities were capable of being set off against tax refunds owed to Canadian by the B.C. Government. The B.C. Government appealed from the decision.

The Alberta Court of Queen's Bench held that the B.C. Government was entitled to set off the refunds owed to Canadian against Social Services Tax Act liabilities owed by Canadian, as those amounts stood as at July 5, 2000, the effective date under a Plan of Arrangement approved by creditors and sanctioned by the court. Canadian had challenged its liability to pay a portion of the tax liabilities and had consented to have that issue resolved by the British Columbia court. If Canadian was successful to any degree in that regard, further accounting might have to take place.

Creditors and Debtors - Topic 8

Debt defined - An order was made providing for a stay of proceedings under the Companies' Creditors Arrangement Act with respect to Canadian Airlines Corporation and Canadian Airlines International Ltd. (collectively "Canadian") - The British Columbia Government filed a Dispute Notice claiming tax liabilities owed to it by Canadian - The B.C. Government asserted a right to set off tax refunds owed to Canadian against the tax liabilities owed by Canadian - The first requirement for legal set-off was that both obligations had to be debts - Canadian argued that as it objected to a small portion of one assessment, the tax liabilities were not liquidated until a court ruled on the amount which Canadian was liable to pay - The Alberta Court of Queen's Bench rejected the argument - Canadian's objection to a portion of one assessment did not change the nature of the B.C. Government's claim - It was still a debt that, according to the relevant legislation, had to be paid despite Canadian's objection - See paragraphs 20 to 24.

Creditors and Debtors - Topic 8

Debt defined - An order was made providing for a stay of proceedings under the Companies' Creditors Arrangement Act with respect to Canadian Airlines Corporation and Canadian Airlines International Ltd. (collectively "Canadian") - The British Columbia Government filed a Dispute Notice claiming tax liabilities owed to it by Canadian under the Social Services Tax Act and the Motor Fuel Tax Act - The B.C. Government asserted a right to set off refunds owed to Canadian under the Motor Fuel Tax Act against the tax liabilities owed by Canadian - The B.C. Government had not issued an assessment for the tax liability under the Motor Fuel Tax Act - The Alberta Court of Queen's Bench stated that without an assessment, a question was raised about the enforceability of the tax liabilities under the Motor Fuel Tax Act - The court was therefore not satisfied that the claim for tax liabilities under that Act met the first requirement of legal set-off that both obligations had to be debts - See paragraph 25.

Creditors and Debtors - Topic 8594

Debtors' relief legislation - Companies' creditors arrangement legislation - Ar-rangement - Set-off - An order was made providing for a stay of proceedings under the Companies' Creditors Arrangement Act with respect to Canadian Airlines Corporation and Canadian Airlines International Ltd. (collectively "Canadian") - After receiving an extension of time to do so, the British Columbia Government filed a Dispute Notice claiming tax liabilities owed to it by Canadian - The B.C. Government asserted a right to set off tax refunds owed to Canadian against the tax liabilities owed by Canadian - The B.C. Government argued that s. 38 of the Financial Administration Act created a statutory right of set-off - The Alberta Court of Queen's Bench stated that the invoking of s. 38 well after the effective date of the Plan of Arrangement and the compromise of claims was effected, was inappropriate - The directive could not be utilized retrospectively to effectively negate the terms of the sanctioning order insofar as the B.C. Government was concerned - See paragraphs 46 to 47.

Creditors and Debtors - Topic 8594

Debtors' relief legislation - Companies' creditors arrangement legislation - Arrangement - Set-off - On March 24, 2000, an order was made providing for a stay of proceedings under the Companies' Creditors Arrangement Act with respect to Canadian Airlines Corporation and Canadian Airlines International Ltd. (collectively "Canadian") - The British Columbia Government filed a Dispute Notice claiming tax liabilities owed to it by Canadian - The B.C. Government asserted a right to set off tax refunds owed to Canadian against the tax liabilities owed by Canadian - Canadian argued that if set-off applied, the B.C. Government should be restricted to setting off the tax liabilities against the refunds of tax that were in existence at the time the initial stay order was granted - It argued that the March 24, 2000, order restricted set-off to cross-obligations in existence as at that date - The Alberta Court of Queen's Bench held that the distinction between pre and post-petition refunds could not be maintained in this case because: (1) all of the refunds arose before the effective date under a Plan of Arrangement approved by creditors and the court; and (2) the connection between the obligations was such that the issuance of the March 24, 2000, order was insufficient to sever it - See paragraphs 63 to 71.

Creditors and Debtors - Topic 8594

Debtors' relief legislation - Companies' creditors arrangement legislation - Arrangement - Set-off - An order was made providing for a stay of proceedings under the Companies' Creditors Arrangement Act with respect to Canadian Airlines Corporation and Canadian Airlines International Ltd. (collectively "Canadian") - The British Columbia Government filed a Dispute Notice claiming tax liabilities owed to it by Canadian under the Social Services Tax Act and the Motor Fuel Tax Act - The B.C. Government asserted a right to set off refunds owed to Canadian under the Motor Fuel Tax Act against the tax liabilities owed by Canadian - The Alberta Court of Queen's Bench held that the first requirement for legal set-off (that both obligations be debts) was met with respect to the tax liabilities under the Social Services Tax Act and the refunds under the Motor Fuel Tax Act - However, the claims for tax liabilities under the Motor Fuel Tax Act did not meet the debt requirement where the B.C. Government had not issued an assessment for the tax liability under that Act - The second requirement for legal set-off (mutuality) was also met - The B.C. Government was therefore entitled to set off the refunds against the Social Services Tax Act liabilities - See paragraphs 19 to 33.

Creditors and Debtors - Topic 8599

Debtors' relief legislation - Companies' creditors arrangement legislation - Appeals - An appeal was brought from a decision of a Claims Officer appointed in proceedings under the Companies' Creditors Arrangement Act - With respect to the standard of review, the Alberta Court of Queen's Bench stated that "the ruling of the Claims Officer certainly deserves the court's respect. However, the court is free to substitute its own discretion" - See paragraphs 12 to 17.

Practice - Topic 1845

Pleadings - Counterclaim and set-off - Set-off - Requirement of mutuality - An order was made providing for a stay of proceedings under the Companies' Creditors Arrangement Act with respect to Canadian Airlines Corporation and Canadian Airlines International Ltd. (collectively "Canadian") - The British Columbia Government filed a Dispute Notice claiming tax liabilities owed to it by Canadian under the Social Services Tax Act and the Motor Fuel Tax Act - The B.C. Government asserted a right to set off refunds owed to Canadian under the Motor Fuel Tax Act against the tax liabilities owed by Canadian - Canadian argued that the distinct statutory regimes and factual bases under which the tax liabilities and refunds arose prevented the obligations from being "in the same right", a necessary element of mutuality - The Alberta Court of Queen's Bench stated that Canadian's interpretation of "in the same right" was incorrect and to accept it would be to import a connection requirement into legal set-off - The requirement of mutuality was met in this case - See paragraphs 28 to 33.

Practice - Topic 1848

Pleadings - Counterclaim and set-off - Set-off - Liquidated demand v. claim for unliquidated damages - [See both Creditors and Debtors - Topic 8 ].

Practice - Topic 1850

Pleadings - Counterclaim and set-off - Set-off - Equitable set-off - An order was made providing for a stay of proceedings under the Companies' Creditors Arrangement Act with respect to Canadian Airlines Corporation and Canadian Airlines International Ltd. (collectively "Canadian") - The British Columbia Government filed a Dispute Notice claiming tax liabilities owed to it by Canadian under the Social Services Tax Act and the Motor Fuel Tax Act - The B.C. Government asserted a right to set off refunds owed to Canadian under the Motor Fuel Tax Act against the tax liabilities owed by Canadian - The Alberta Court of Queen's Bench held that the B.C. Government was entitled to exercise equitable set-off - The court rejected Canadian's argument that the tax liabilities and refunds arose under different statutory regimes and therefore the cross-obligations were not sufficiently connected - The court also found that it would be manifestly unfair for a taxpayer not to pay taxes under one statute, while collecting a refund of tax under another statute, each involving the same tax collector - See paragraphs 34 to 45.

Sales and Service Taxes - Topic 673

Sales tax - Collection and enforcement - Set-off - When available - [See first Creditors and Debtors - Topic 8 , Practice - Topic 1845 and Practice - Topic 1850 ].

Sales and Service Taxes - Topic 673

Sales tax - Collection and enforcement - Set-off - When available - An order was made providing for a stay of proceedings under the Companies' Creditors Arrangement Act with respect to Canadian Airlines Corporation and Canadian Airlines International Ltd. (collectively "Canadian") - The British Columbia Government filed a Dispute Notice claiming tax liabilities owed to it by Canadian under the Social Services Tax Act and the Motor Fuel Tax Act - The B.C. Government asserted a right to set off refunds owed to Canadian under the Motor Fuel Tax Act against the tax liabilities owed by Canadian - Canadian argued that s. 11(3) of the Crown Proceedings Act, which prohibited taxpayers from raising set-off against taxes owing, destroyed any connection that otherwise might exist between taxes and refunds - The Alberta Court of Queen's Bench stated that just because the Crown Proceedings Act precluded set-off by the taxpayer did not similarly preclude the B.C. Government from setting off refunds owed to Canadian - See paragraph 42.

Sales and Service Taxes - Topic 673

Sales tax - Collection and enforcement - Set-off - When available - An order was made providing for a stay of proceedings under the Companies' Creditors Arrangement Act with respect to Canadian Airlines Corporation and Canadian Airlines International Ltd. (collectively "Canadian") - The British Columbia Government filed a Dispute Notice claiming tax liabilities owed to it by Canadian under the Social Services Tax Act and the Motor Fuel Tax Act - The B.C. Government asserted a right to set off refunds owed to Canadian under the Motor Fuel Tax Act against the tax liabilities owed by Canadian - Canadian argued that there was no provision in either the Social Services Tax Act or the Motor Fuel Tax Act authorizing the B.C. Government to set off refunds owing to taxpayers under other enactments as against liabilities arising thereunder and such a set-off was therefore not permitted - The Alberta Court of Queen's Bench held that statutory permission was not required - See paragraph 54.

Sales and Service Taxes - Topic 673

Sales tax - Collection and enforcement - Set-off - When available - An order was made providing for a stay of proceedings under the Companies' Creditors Arrangement Act with respect to Canadian Airlines Corporation and Canadian Airlines International Ltd. (collectively "Canadian") - The British Columbia Government filed a Dispute Notice claiming tax liabilities owed to it by Canadian under the Social Services Tax Act and the Motor Fuel Tax Act - The B.C. Government asserted a right to set off refunds owed to Canadian under the Motor Fuel Tax Act against the tax liabilities owed by Canadian - Canadian argued that since the provisions in the legislation were so specific and detailed in their delineation of when set-off could occur, the B.C. Government was limited to asserting set-off only in those delineated situations - The Alberta Court of Queen's Bench held that the failure to refer to a particular scenario in the legislation did not mean that there were absolutely no set-off rights with respect to that scenario - As the circumstances were not included in the statutes, the set-off rights had not been modified by the statutes - See paragraphs 49 to 53.

Sales and Service Taxes - Topic 2784

Gasoline and motive fuel tax - Enforcement - Set-off - When available - An order was made providing for a stay of proceedings under the Companies' Creditors Arrangement Act with respect to Canadian Airlines Corporation and Canadian Airlines International Ltd. (collectively "Canadian") - The British Columbia Government filed a Dispute Notice claiming tax liabilities owed to it by Canadian - The B.C. Government asserted a right to set off refunds owed to Canadian under the Motor Fuel Tax Act against the tax liabilities owed by Canadian - Canadian argued that the mandatory language of the refund provisions in the Motor Fuel Tax Act Regulation created a duty to pay refunds which replaced the ordinary rules of set-off available to the B.C. Government - The Alberta Court of Queen's Bench rejected the argument, stating that it was not prepared to elevate the obligation of the B.C. Government to provide a refund to the level of a duty which prohibited set-off - See paragraph 62.

Sales and Service Taxes - Topic 2784

Gasoline and motive fuel tax - Enforcement - Set-off - When available - An order was made providing for a stay of proceedings under the Companies' Creditors Arrangement Act with respect to Canadian Airlines Corporation and Canadian Airlines International Ltd. (collectively "Canadian") - The British Columbia Government filed a Dispute Notice claiming tax liabilities owed to it by Canadian - The B.C. Government asserted a right to set off refunds owed to Canadian under the Motor Fuel Tax Act against the tax liabilities owed by Canadian - The Alberta Court of Queen's Bench held that the mandatory language of the refund provisions in the Motor Fuel Tax Act Regulation did not rule out the possibility of set-off - The court further stated that "interpreting the Motor Fuel Tax Act Regulation in the way Canadian suggests would entirely remove the B.C. Government's common law right of legal set-off as well as its equitable right in this regard. I am unable to read the statutory language as disclosing an intention by Parliament to effect such a fundamental change in the B.C. Government's legal rights when the presumption, at least vis-à-vis the common law, is that legislation is not meant to interfere with common law rights, nor, generally, to change the common law" - See paragraphs 55 to 58.

Sales and Service Taxes - Topic 2784

Gasoline and motive fuel tax - Enforcement - Set-off - When available - [See both Creditors and Debtors - Topic 8 , Practice - Topic 1845 , Practice - Topic 1850 , and second, third and fourth Sales and Services Taxes - Topic 673 ].

Statutes - Topic 2262

Interpretation - Presumptions and rules in aid - Against abridgement of common law rights - [See second Sales and Service Taxes - Topic 2784 ].

Cases Noticed:

Blue Range Resource Corp., Re (2000), 261 A.R. 162; 225 W.A.C. 162 (C.A.), refd to. [para. 6].

Westminer Canada Holdings Ltd. et al. v. Coughlan et al. (1990), 41 O.A.C. 377; 73 D.L.R.(4th) 584 (Div. Ct.), refd to. [para. 12].

Olympia and York Developments Ltd., Re, [1994] O.J. No. 1335 (Gen. Div.), refd to. [para. 12].

Stoicevski v. Casement (1983), 43 O.R.(2d) 436 (C.A.), refd to. [para. 13].

Wright v. Disposal Services Ltd. and Marsh (1977), 8 A.R. 394; 4 Alta. L.R.(2d) 173 (Q.B.), refd to. [para. 14].

Telford v. Holt, [1987] 2 S.C.R. 193; 78 N.R. 321; 81 A.R. 385; 54 Alta. L.R.(2d) 193; 21 C.P.C.(2d) 1; 46 R.P.R. 234; 41 D.L.R.(4th) 385; 37 B.L.R. 241, refd to. [para. 19].

Canadian Imperial Bank of Commerce v. Tuckerr Industries Inc. (1983), 149 D.L.R.(3d) 172 (B.C.C.A.), refd to. [para. 19].

Royal Trust v. Holden (1915), 22 D.L.R. 660 (Ont. C.A.), refd to. [para. 21].

Diewold v. Diewold, [1941] 1 D.L.R. 561 (S.C.C.), refd to. [para. 21].

National Bank fur Deutschland v. Blucher, [1927] S.C.R. 420, refd to. [para. 21].

Love v. Bell Piano (Furniture) Co. (1909), 10 W.L.R. 657 (Alta. T.D.), refd to. [para. 21].

Citibank Canada v. Confederation Life Insurance Co. (Liquidation) et al. (1996), 15 O.T.C. 26; 42 C.B.R.(3d) 288 (Gen. Div.), affd. (1998), 106 O.A.C. 304; 37 O.R.(3d) 226 (C.A.), refd to. [para. 29].

Abacus Cities Ltd. v. Aboussafy (1981), 29 A.R. 607; 39 C.B.R.(N.S.) 1 (C.A.), refd to. [para. 31].

Coba Industries Ltd. v. Millie's Holdings (Canada) Ltd. (1985), 20 D.L.R.(4th) 689 (B.C.C.A.), refd to. [para. 35].

Glaxo Canada Inc. v. Canada (Minister of National Health and Welfare) and Apotex Inc. et al. (No. 2) (1987), 11 F.T.R. 121 (T.D.), refd to. [para. 38].

Perepelytz v. Ontario (Department of Highways) (1958), 12 D.L.R.(2d) 81 (S.C.C.), refd to. [para. 38].

National Bank of Canada v. Saskatchewan Property Management Corp. et al., [1993] 7 W.W.R. 636; 112 Sask.R. 97 (Q.B.), refd to. [para. 40].

Cam-Net Communications v. Vancouver Telephone Co. (1999), 132 B.C.A.C. 52; 215 W.A.C. 52 (C.A.), refd to. [para. 43].

White Motor Corp. of Canada Ltd., Re (1981), 126 D.L.R.(3d) 676 (Ont. S.C.), refd to. [para. 50].

Goodyear Tire & Rubber Co. of Canada v. Eaton (T.) Co., [1956] S.C.R. 610, refd to. [para. 58].

R. v. V.T., [1992] 1 S.C.R. 749; 134 N.R. 289; 7 B.C.A.C. 81; 15 W.A.C. 81; 71 C.C.C.(3d) 32, refd to. [para. 59].

R. v. Lamothe (1957), 119 C.C.C. 330 (Ont. H.C.), refd to. [para. 62].

Statutes Noticed:

Crown Proceedings Act, R.S.B.C. 1996, c. 89, sect. 11(3) [para. 42].

Financial Administration Act, R.S.B.C. 1996, c. 138, sect. 38 [para. 46].

Authors and Works Noticed:

Dunlop, C.R.B., Creditor-Debtor Law in Canada (2nd Ed. 1995), p. 16 [para. 21].

Maxwell, Peter Benson, Interpretation of Statutes (12th Ed. 1969), p. 116 [para. 59].

Palmer, K., The Law of Set-off in Canada (1993), pp. 21 [paras. 19, 30]; 46, 47 [para. 32]; 255 [para. 51].

Counsel:

Larry Robinson, for the B.C. Government;

Chris Simard, for Canadian Airlines Corporation and Canadian Airlines International Ltd.

This appeal was heard on December 11, 2000, before Paperny, J., of the Alberta Court of Queen's Bench, Judicial District of Calgary, who delivered the following reasons for judgment on February 21, 2001.