Husky Oil Operations Ltd. v. Minister of National Revenue et al., (1995) 188 N.R. 1 (SCC)

• Judge: Lamer, C.J.C., La Forest, L'Heureux-Dubé, Sopinka, Gonthier, Cory, McLachlin, Iacobucci ad Major, JJ.
• Court: Supreme Court (Canada)
• Case Date: October 19, 1995
• Jurisdiction: Canada (Federal)
• Citations: (1995), 188 N.R. 1 (SCC);35 CBR (3d) 1;24 CLR (2d) 131;1995 CanLII 69 (SCC);[1995] SCJ No 77 (QL);137 Sask R 81;26 OR (3d) 81;128 DLR (4th) 1;107 WAC 81;[1995] 10 WWR 161;188 NR 1;[1995] 3 SCR 453

Husky Oil Operations Ltd. v. MNR (1995), 188 N.R. 1 (SCC)

MLB headnote and full text

[French language version follows English language version]

[La version française vient à la suite de la version anglaise]

....................

Workers' Compensation Board (appellant/respondent) v. Husky Oil Operations Ltd. (respondent/applicant) and Her Majesty The Queen in Right of Canada, as represented by the Minister of National Revenue, Her Majesty The Queen in Right of the Province of Saskatchewan, as represented by the Minister of Human Resources, Labour and Employment, Her Majesty The Queen in Right of the Province of Saskatchewan, as represented by the Minister of Finance, Bank of Montreal, Eric Zimmerman, Garth Price, Trevor Brown, Arthur Gingras, Kelly Houston, Darcy Kuzio, Hans Bohle, Charles Pshebenicki, Terry Sapergia, SBW--Wright Construction Inc., Campbell West (1991) Ltd., Fuller Austin Insulation Inc., United Industrial Equipment Rentals Ltd., ATCO Enterprises Ltd. and Deloitte & Touche Inc., as Trustee in Bankruptcy of the Estate of Metal Fabricating & Construction Ltd. (respondents) and Attorney General for Saskatchewan (respondent/intervenor in the Court of Appeal) and Attorney General for Ontario, Attorney General for New Brunswick, Attorney General of British Columbia, Attorney General for Alberta, Workers' Compensation Board of Ontario, Workers' Compensation Board of British Columbia, Workers' Compensation Board of Alberta and Yukon Workers' Compensation Health and Safety Board (intervenors)

(23936)

Indexed As: Husky Oil Operations Ltd. v. Minister of National Revenue et al.

Supreme Court of Canada

Lamer, C.J.C., La Forest, L'Heureux-Dubé, Sopinka, Gonthier, Cory, McLachlin, Iacobucci ad Major, JJ.

October 19, 1995.

Summary:

Husky contracted with Metal Fab to con­struct an oil upgrader plant. Before the contract was completed, Metal Fab went bankrupt. Pursuant to a court order Husky paid into court monies owed to Metal Fab and monies respecting statutory holdbacks. Metal Fab had not paid it workers' compen­sation assessment. Section 133(1) of the Workers' Compensation Act obligated Husky, as principal, to pay the assessment. Section 133(3) permitted Husky to set off the amount paid against monies payable to Metal Fab (or be indemnified for that amount), which would otherwise have been payable to the Trustee in Bankruptcy. Other creditors of Metal Fab claimed ss. 133(1) and 133(3) were unconstitutional for violat­ing the priority scheme under s. 136 of the Bankruptcy Act.

The Saskatchewan Court of Queen's Bench, in a judgment reported 104 Sask.R. 225, held that the sections were unconstitu­tional for violating the scheme of distribu­tion under the Bankruptcy Act. The Workers' Compensation Board appealed.

The Saskatchewan Court of Appeal, in a judgment reported 116 Sask.R. 46; 59 W.A.C. 46, dismissed the appeal. Sections 133(1) and 133(3) were ultra vires the prov­ince insofar as they altered the scheme of priorities under s. 136 of the Bankruptcy Act. The Board appealed.

The Supreme Court of Canada, Iacobucci, Sopinka, Cory and Major, JJ., dissenting, dismissed the appeal.

Bankruptcy - Topic 4

Purpose of bankruptcy law - The Supreme Court of Canada stated that "our bank­ruptcy system serves two distinct goals. The first is to ensure the equitable dis­tribution of a bankrupt debtor's assets among the estate's creditors inter se. ... The second goal of the bankruptcy system is the financial rehabilitation of insolvent individuals." - See paragraph 7.

Bankruptcy - Topic 3642

Creditors - Priorities - Precedence of Bankruptcy and Insolvency Act over pro­vincial legislation - A contractor went bankrupt before completing a project - The owner (principal) paid into court monies owing to the contractor - The contractor had not paid its workers' com­pensation assessment - Section 133(1) of the Workers' Compensation Act obligated the owner to pay the assessment - Section 133(3) permitted the owner to set off the amount paid against what was owed to the contractor, which was otherwise payable to the Trustee in Bankruptcy - Under s. 136 of the Bankruptcy Act, workers' compen­sation claims ranked eighth in priority - The Supreme Court of Canada stated that ss. 133(1) and 133(3), in tandem, secured the Board's claim against the bankrupt's estate, diminishing the estate and giving the Board a higher priority than mandated by Parliament under s. 136 (operational conflict) - The province could not, by creating such a proprietary interest, ef­fectively defeat the scheme of distribution under the Bankruptcy Act - Section 133 was to be read down to the extent of the conflict, making it inapplicable in bank­ruptcy - See paragraphs 1 to 92.

Constitutional Law - Topic 2507

Determination of validity of statutes or Acts - Reading down - [See Bankruptcy - Topic 3642 ].

Constitutional Law - Topic 2701

Determination of validity of statutes or Acts - Colourability - General - The Supreme Court of Canada, in discussing the doctrine of "colourability" referred to a statement that "it is a very familiar prin­ciple that you cannot do that indirectly what you are prohibited from doing direct­ly" - The court stated that the "doctrine of colourability is a concept which is only applicable in assessing the threshold ques­tion of the validity of the impugned legis­lation ... its pith and substance." - See paragraphs 41, 42.

Constitutional Law - Topic 3501

Paramountcy of federal statutes - General principles - The Supreme Court of Canada referred to the proper analysis where fed­eral and provincial legislation potentially conflict - The court stated that "one must first determine whether the laws are re­spectively valid federal or provincial legis­lation. If so, the actual operation of the laws must be examined to determine whether they are in operational conflict, that is, inconsistent or incapable of being fully complied with in a given situation. If they are in operational conflict, the federal legislation prevails and the provincial legislation is without effect to the extent of this conflict. If the operational conflict is in a field of exclusive federal jurisdiction, the provincial legislation will be inap­plicable as being ultra vires to that extent. If the conflict is in an area of concurrent or overlapping jurisdictions, the provincial legislation will remain intra vires but be inoperative. ... If ... there is no operational conflict, then both laws continue to operate and both continue to have effect to the extent that operational conflict does not arise. Short of operational conflict, provin­cial law may validly have an effect on bankruptcy ..." - See paragraph 87.

Constitutional Law - Topic 6261

Federal jurisdiction (s. 91) - Bankruptcy and insolvency - General principles - The Supreme Court of Canada stated the fol­lowing six propositions: "(1) provinces cannot create priorities between creditors or change the scheme of distribution on bankruptcy under s. 136(1) of the Bank­ruptcy Act; (2) while provincial legislation may validly affect priorities in a nonbank­ruptcy situation, once bankruptcy has occurred s. 136(1) of the Bankruptcy Act determines the status and priority of the claims specifically dealt with in that sec­tion; (3) if the provinces could create their own priorities or affect priorities under the Bankruptcy Act this would invite a dif­ferent scheme of distribution on bank­ruptcy from province to province, an un­acceptable situation; (4) the definition of terms such as 'secured creditor', if defined under the Bankruptcy Act, must be inter­preted in bankruptcy cases as defined by the federal Parliament, not the provincial legislatures. Provinces cannot affect how such terms are defined for purposes of the Bankruptcy Act; (5) in determining the relationship between provincial legislation and the Bankruptcy Act, the form of the provincial interest created must not be allowed to triumph over its substance. The provinces are not entitled to do indirectly what they are prohibited from doing di­rectly; (6) there need not be any provincial intention to intrude into the exclusive federal sphere of bankruptcy and to con­flict with the order of priorities of the Bankruptcy Act in order to render the provincial law inapplicable. It is sufficient that the effect of provincial legislation is to do so." - See paragraphs 32, 39.

Constitutional Law - Topic 6265

Federal jurisdiction (s. 91) - Bankruptcy and insolvency - Provincial legislation - Statutory liens - [See Bankruptcy - Topic 3642 ].

Workers' Compensation - Topic 9028

Assessments - Priority of - Where princi­pal pays assessment and entitled to set-off - [See Bankruptcy - Topic 3642 ].

Cases Noticed:

Royal Bank of Canada v. Larue, [1928] A.C. 187 (P.C.), affing. [1926] S.C.R. 218, refd to. [para. 8].

Deputy Minister of Revenue v. Rainville - see Bourgault's Estate v. Quebec (Deputy Minister of Revenue).

Bourgault's Estate v. Quebec (Deputy Minister of Revenue), [1980] 1 S.C.R. 35; 30 N.R. 24; 105 D.L.R.(3d) 270; 33 C.B.R.(N.S.) 301, refd to. [para. 11].

Jacs Jackets and Crest Ltd., Re; Workers' Compensation Board (Alta.) v. Deloitte Haskins and Sells Ltd., [1985] 1 S.C.R. 785; 60 N.R. 81; 63 A.R. 321, refd to. [para. 13].

Black Forest Restaurant Ltd., Re (1981), 47 N.S.R.(2d) 446; 90 A.P.R. 446; 38 C.B.R.(N.S.) 253 (C.A.), refd to. [para. 14].

Federal Business Development Bank v. Commission de la santé et de la sécurité du travail et al., [1988] 1 S.C.R. 1061; 84 N.R. 308; 14 Q.A.C. 140, refd to. [para. 18].

British Columbia v. Henfrey Samson Belair Ltd., [1989] 2 S.C.R. 24; 97 N.R. 61; 59 D.L.R.(4th) 726, refd to. [para. 23].

R. v. Morgentaler, [1993] 3 S.C.R. 463; 157 N.R. 97; 125 N.S.R.(2d) 81; 349 A.P.R. 81, refd to. [para. 41].

Madden v. Nelson & Fort Sheppard Rail­way, [1899] A.C. 626, refd to. [para. 41].

Stetar v. Poirier and Parkland (County) No. 31, [1975] 2 S.C.R. 884; 3 N.R. 311, refd to. [para. 50].

Melton, Re; Milk v. Towers, [1918] 1 Ch. 37 (C.A.), refd to. [para. 51].

Coughlin & Co., Re (1923), 4 C.B.R. 294 (Man. C.A.), refd to. [para. 51].

Lister v. Hooson, [1908] 1 K.B. 174 (C.A.), refd to. [para. 56].

Fredericton Co-operative Ltd. v. Smith (1921), 2 C.B.R. 154 (N.B.K.B.), refd to. [para. 56].

Atlantic Acceptance Corp. v. Burns & Dutton Construction (1962) Ltd. (1970), 14 D.L.R.(3d) 175 (Alta. C.A.), refd to. [para. 56].

Stein v. Blake, [1995] 2 All E.R. 961 (H.L.), refd to. [para. 57].

Invitation Pret-à-Porter Inc., Re (1979), 31 C.B.R.(N.S.) 54 (Que. S.C.), refd to. [para. 66].

Stevens (Evelyn) Interiors Ltd. (Bankrupt) v. Workers' Compensation Board (Ont.) (1993), 61 O.A.C. 361; 100 D.L.R.(4th) 742 (C.A.), disagreed with [para. 69].

Tennant v. Union Bank of Canada, [1894] A.C. 31 (P.C.), refd to. [para. 81].

Crown Grain Co. v. Day, [1908] A.C. 504 (P.C.), refd to. [para. 81].

Stevens (Evelyn) Interiors Ltd., Re (1990), 80 C.B.R.(N.S.) 135 (Ont. H.C.), refd to. [para. 102].

Bank of Montreal v. Hall, [1990] 1 S.C.R. 121; 104 N.R. 110; 82 Sask.R. 120; [1990] 2 W.W.R. 193, refd to. [para. 84].

Ontario (Attorney General) v. Canada (Attorney General), [1894] A.C. 189 (P.C.), refd to. [para. 117].

Multiple Access Ltd. v. McCutcheon et al., [1982] 2 S.C.R. 161; 44 N.R. 181; 138 D.L.R.(3d) 1; 18 B.L.R. 138, refd to. [para. 118].

City National Leasing Ltd. v. General Motors of Canada Ltd., [1989] 1 S.C.R. 641; 93 N.R. 326; 32 O.A.C. 332; 58 D.L.R.(4th) 255, refd to. [para. 121].

Medwid v. Ontario (1988), 48 D.L.R.(4th) 272 (Ont. H.C.), refd to. [para. 125].

Reference Re Sections 32 and 34 of the Workers' Compensation Act (Nfld.) (1987), 67 Nfld. & P.E.I.R. 16; 206 A.P.R. 16; 44 D.L.R.(4th) 501 (Nfld. C.A.), affd. [1989] 1 S.C.R. 922; 96 N.R. 227; 76 Nfld. & P.E.I.R. 181; 235 A.P.R. 181; 56 D.L.R.(4th) 765; 40 C.R.R. 135, refd to. [para. 126].

Black Forest Restaurant Ltd., Re (1981), 47 N.S.R.(2d) 454; 90 A.P.R. 454; 37 C.B.R.(T.D.) 176, refd to. [para. 134].

TransGas Ltd. v. Mid-Plains Contractors Ltd., [1994] 3 S.C.R. 753, refd to. [para. 143].

Ecarnot (Bankrupt), Re (1991), 93 Sask.R. 179; 4 W.A.C. 179; 7 C.B.R.(3d) 207 (C.A.), refd to. [para. 143].

Troupe (John M.M.) Ltd. v. Ontario (At­torney General), [1962] S.C.R. 487, refd to. [para. 143].

Panamericana de Bienes y Servicios, S.A. v. Northern Badger Oil & Gas Ltd. (Bankrupt), [1991] 5 W.W.R. 577; 117 A.R. 44; 2 W.A.C. 44 (C.A.), refd to. [para. 146].

Kozan Furniture (Yorkton) Ltd. Estate v. Countrywide Factors Ltd., [1978] 1 S.C.R. 753; 14 N.R. 91, refd to. [para. 148].

French River Contracting Co., Re, [1937] O.W.N. 655 (C.A.), refd to. [para. 158].

Vapor Canada Ltd. et al. v. MacDonald, [1977] 2 S.C.R. 134; 7 N.R. 477, refd to. [para. 167].

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. 169].

Moule v. Garrett (1872), L.R. 7 Exch. 101 (Ex. Ct.), refd to. [para. 173].

Brook's Wharf and Bull Wharf v. Goodman Brothers, [1937] 1 K.B. 534 (C.A.), refd to. [para. 174].

Newfoundland v. Newfoundland Railway Co. (1888), 13 App. Cas. 199 (P.C.), refd to. [para. 177].

Hanak v. Green, [1958] 2 All E.R. 141 (C.A.), refd to. [para. 180].

Coba Industries Ltd. v. Millie's Holdings (Can.) Ltd., [1985] 6 W.W.R. 14 (B.C.C.A.), refd to. [para. 180].

Federal Commerce and Navigation Co. v. Molena Alpha Inc., [1978] All E.R. 1066 (C.A.), affd. [1979] A.C. 757 (H.L.), refd to. [para. 181].

New Brunswick v. Estabrooks Pontiac Buick Ltd., Re; New Brunswick v. Esta­brooks Pontiac Buick Ltd., Estabrooks and Wolfe (1982), 44 N.B.R.(2d) 201; 116 A.P.R. 201 (C.A.), refd to. [para. 191].

Manitoba Fisheries Ltd. v. Canada, [1979] 1 S.C.R. 101; 23 N.R. 159, refd to. [para. 192].

Vickery v. Prothonotary Supreme Court (N.S.), [1991] 1 S.C.R. 671; 124 N.R. 95; 104 N.S.R.(2d) 181; 283 A.P.R. 181, refd to. [para. 197].

Canada v. Amway Corp. et al., [1989] 1 S.C.R. 21; 91 N.R. 18, refd to. [para. 197].

Board of Industrial Relations v. Avco Financial Services Realty Ltd. and Homeplan Realty Ltd., [1979] 2 S.C.R. 699; 28 N.R. 140, refd to. [para. 200].

Statutes Noticed:

Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, sect. 72(1) [para. 147]; sect. 97(3), sect. 136(1)(h) [para. 98].

Constitution Act, 1867, sect. 91(21), sect. 92(13) [para. 98].

Workers' Compensation Act, S.S. 1979, c. W-17.1, sect. 133 [para. 4].

Workers' Compensation Act, S.S. 1993, c. 63, sect. 40 [para. 90].

Authors and Works Noticed:

Abel, Albert S., The Neglected Logic of 91 and 92 (1969), 19 U.T.L.J. 487, p. 494 [para. 45].

Crépeau, Paul-André, L'intensité de l'obligation juridique ou des obligations de diligence, de résultat et de garantie (1989), pp. 8 to 14 [para. 47].

Dadson, Aleck, Comment (1986), 64 Can. Bar Rev. 755, p. 755 [para. 7].

Driedger, Elmer A., Construction of Stat­utes (3rd Ed. 1994), p. 370 [para. 200].

Duncan, Lewis, and Honsberger, John D., Bankruptcy Law in Canada (3rd Ed. 1961), pp. 307, 308 [para. 66].

Edinger, Elizabeth, Comment (1985), 63 Can. Bar Rev. 203, pp. 206 to 211 [para. 45].

Fridman, G.H.L., The Law of Torts in Canada (1990), vol. 2, pp. 350, 351 [para. 50].

Hogg, Peter W., Constitutional Law of Canada (3rd Ed. 1992 Supp.), vol. 1, pp. 25-1 to 25-3 [para. 7].

Hogg, Peter W., Constitutional Law of Canada (3rd Ed. 1992), pp. 15 to 17 [para. 41]; 639 [para. 145].

Houlden, Lloyd W., and Morawetz, Carl H., Annotated Bankruptcy and Insol­vency Law of Canada (3rd Ed. 1993), vol. 1, pp. 4-90, 4-91 [para. 169].

Judge, John A.M., and Grottenthaler, Margaret E., Legal and Equitable Set-Offs (1991), 70 Can. Bar Rev. 91, pp. 92, 117 [para. 58].

Lacy, Philip T., Setoff and the Principle of Creditor Equality (1992), 43 S. Cal. L. Rev. 951, p. 92 [para. 58].

Laskin, Bora, Canadian Constitutional Law (5th Ed. 1985), vol. 1, p. 310 [para. 41].

McCoid, John C., Setoff: Why Bankruptcy Priority? (1989), 75 Va. L. Rev. 15, generally [para. 59].

Palmer, Kelly Ross, The Law of Set-Off in Canada (1993), pp. 157 to 223 [para. 55].

Roman, Andrew J., and Sweatman, M. Jasmine, The Conflict Between Canadian Provincial Personal Property Security Acts and the Federal Bankruptcy Act: The War is Over (1992), 71 Can. Bar Rev. 77, pp. 78, 79 [para. 32]; 81, 105, 106 [para. 34].

Williams, Glanville, Joint Torts and Con­tributory Negligence (1951), pp. 49 to 50 [para. 50].

Wood, Philip R., English and International Set-Off (1989), p. 282 [para. 171].

Ziegel, Jacob S., Personal Property Securi­ty and Bankruptcy: There is No War! -- A Reply to Roman and Sweatman (1993), 72 Can. Bar Rev. 44, p. 45 [para. 33].

Counsel:

Robert G. Richards and Evan L. Bennett, for the appellant;

James S. Ehmann and Paul J. Harasen, for the respondent, Husky Oil Operations Ltd.;

Edward R. Sojonky, Q.C., and Gordon Berscheid, for the respondent, Attorney General of Canada;

Thomson Irvine, for the respondent, At­torney General for Saskatchewan;

Brian J. Scherman, for the respondent, Bank of Montreal;

Hart Schwartz, for the intervenor, Attorney General of Ontario;

Cedric L. Haines, for the intervenor, At­torney General for New Brunswick;

R. Richard M. Butler, for the intervenor, Attorney General of British Columbia.

Solicitors of Record:

MacPherson, Leslie & Tyerman, Regina, Saskatchewan, for the appellant;

Hleck, Kanuka, Thuringer, Regina, Saskatchewan, for the respondent, Husky Oil Operations Ltd.;

Attorney General of Canada, Ottawa, Ontario, for the respondent, Minister of National Revenue;

Attorney General for Saskatchewan, Regina, Saskatchewan, for the respon­dents, Saskatchewan (Minister of Human Resources, Labour and Employment) and Saskatchewan (Minister of Finance);

Balfour, Moss, Saskatoon, Saskatchewan, for the respondent, Bank of Montreal;

Pederson, Norman, McLeod, Regina, Saskatchewan, for the respondents, Eric Zimmerman, Garth Price, Trevor Brown, Arthur Gingras, Kelly Houston, Darcy Kuzio, Hans Bohle, Charles Pshebenicki and Terry Sapergia;

Gauley & Co., Regina, Saskatchewan, for the respondent, SBW--Wright Con­struction Inc.;

McKercher, McKercher, Laing & Whit­more, Regina, Saskatchewan, for the respondent, Campbell West (1991) Ltd.;

Johnston, Bennett & Sholter, Lloydminster, Saskatchewan, for the respondent, Fuller Austin Insulation Inc.;

Kirzinger, Hall, Revering & Wells, Lloyd­minster, Saskatchewan, for the respon­dent, United Industrial Equipment Rentals Ltd.;

Nussbaum & Burrows, Saskatoon, Saskatchewan, for the respondent, ATCO Enterprises Ltd.;

McDermid, Lamarsh, Saskatoon, Saskatchewan, for the respondent, De­loitte & Touche Inc., Trustee in Bank­ruptcy of Metal Fabricating & Construc­tion Ltd.;

Deputy Attorney General of Canada, Ottawa, Ontario, for the respondent, Attorney General of Canada;

Attorney General of Saskatchewan, Regina, Saskatchewan, for the respon­dent, Attorney General for Saskatchewan;

Attorney General for Ontario, Toronto, Ontario, for the intervenor, Attorney General for Ontario;

Attorney General for New Brunswick, Fredericton, New Brunswick, for the intervenor, Attorney General for New Brunswick;

Attorney General of British Columbia, Victoria, British Columbia, for the intervenor, Attorney General of British Columbia;

Attorney General for Alberta, Edmonton, Alberta, for the intervenor, Attorney General of Alberta;

Workers' Compensation Board of Ontario, Toronto, Ontario, for the intervenor, Workers' Compensation Board of Ontario;

Workers' Compensation Board of British Columbia, Richmond, British Columbia, for the intervenor, Workers' Compensa­tion Board of British Columbia;

Workers' Compensation Board of Alberta, Edmonton, Alberta, for the intervenor, Workers' Compensation Board of Alberta;

Preston, Hillis & Co., Whitehorse, Yukon, for the intervenor, Workers' Compensa­tion Health and Safety Board of Yukon.

This appeal was heard on January 25, 1995, before Lamer, C.J.C., La Forest, L'Heureux-Dubé, Sopinka, Gonthier, Cory, McLachlin, Iacobucci and Major, JJ., of the Supreme Court of Canada.

On October 19, 1995, the judgment of the Supreme Court of Canada was delivered in both official languages and the following opinions were filed:

Gonthier, J. (Lamer, C.J.C., La Forest, L'Heureux-Dubé and McLachlin, JJ., concurring) - see paragraphs 1 to 92;

Iacobucci, J. (Sopinka, Cory and Major, JJ., concurring), dissenting - see para­graphs 93 to 213.