Kozan Furniture (Yorkton) Ltd. Estate v. Countrywide Factors Ltd., (1977) 14 N.R. 91 (SCC)

• Judge: Beetz and de Grandpré, JJ.
• Court: Supreme Court (Canada)
• Case Date: January 25, 1977
• Jurisdiction: Canada (Federal)
• Citations: (1977), 14 N.R. 91 (SCC);72 DLR (3d) 500;14 NR 91;1 ACWS 137;1977 CanLII 175 (SCC);[1978] 1 SCR 753;[1977] 2 SCR 554;23 CBR (ns) 97;1977 CanLII 220 (SCC);[1977] 2 WWR 111;[1977] SCJ No 76 (QL)

Kozan Furniture v. Countrywide Factors (1977), 14 N.R. 91 (SCC)

MLB headnote and full text

Kozan Furniture (Yorkton) Ltd. Estate v. Countrywide Factors Ltd.

Indexed As: Kozan Furniture (Yorkton) Ltd. Estate v. Countrywide Factors Ltd.

Supreme Court of Canada

Laskin, C.J.C., Martland, Judson,

Ritchie, Spence, Pigeon, Dickson,

Beetz and de Grandpré, JJ.

January 25, 1977.

Summary:

This case arose out of the claim by the trustee of a bankrupt estate that the payment of a sum by the bankrupt to one of its creditors was void as a preference under the Fraudulent Preferences Act, R.S.S. 1965, c. 397. Two years before its bankruptcy a company entered a transaction, which preferred one of its creditors. At the time of the transaction the liabilities of the company exceeded its assets. After the bankruptcy the trustee brought an action against the creditor to set aside the preferential transaction. The Saskatchewan Supreme Court allowed the action. The creditor appealed. The Saskatchewan Court of Appeal allowed the appeal and held that the trustee had failed to prove that the transaction was a preference within the meaning of s. 4 of the Fraudulent Preferences Act. The trustee appealed.

The Supreme Court of Canada allowed the appeal and restored the judgment of the trial court.

The Supreme Court of Canada held that the Fraudulent Preferences Act was valid provincial legislation under s. 92(13) of the British North America Act insofar as its provisions did not conflict with the Bankruptcy Act, R.S.C. 1970, c. B-3. The Supreme Court of Canada held that, since the transaction did not fall within the terms of the Bankruptcy Act, particularly s. 73, the Fraudulent Preferences Act could be applicable. See paragraphs 43 to 76.

The Supreme Court of Canada held that at the time of the preferential transaction the company was not only in insolvent circumstances, but also was unable to pay its debts in full, either of which was sufficient to set the preferential transaction aside. See paragraphs 77 to 96.

Laskin, C.J.C., dissenting, in the Supreme Court of Canada, was of the opinion that the Fraudulent Preferences Act was invalid insofar as it related to insolvency and that ss. 3 and 4 of the Fraudulent Preferences Act were ultra vires. See paragraphs 1 to 38.

Constitutional Law - Topic 1651

Extent of powers conferred - Overlapping doctrine - Bankruptcy and insolvency - Two years prior to its bankruptcy a company entered a transaction which preferred one of its creditors - The Bankruptcy Act, R.S.C. 1970, c. B-3, s. 73, provided that a transaction by a debtor preferring a creditor within three months prior to the debtor's bankruptcy was deemed fraudulent and void - The Fraudulent Preferences Act, R.S.S. 1965, c. 397, s. 4, was a provision of wider scope concerning the setting aside of such preferential transactions, under which the company's trustee in bankruptcy attacked the transaction between the company and the creditor - It was argued by the creditor that the Fraudulent Preferences Act was not available to the trustee, because it conflicted with the Bankruptcy Act and was invalid - The Supreme Court of Canada held that the Fraudulent Preferences Act and the Bankruptcy Act were legislation intra vires the Province and Parliament, respectively, and could overlap, except that the Fraudulent Preferences Act was inoperative where it was actually repugnant to the Bankruptcy Act - The Supreme Court of Canada held that s. 73 of the Bankruptcy Act took precedence over the Fraudulent Preferences Act only insofar as its terms applied - The Supreme Court of Canada held that, since the situation was not within the terms of s. 73 of the Bankruptcy Act, the Fraudulent Preferences Act could operate where applicable - See paragraphs 43 to 76.

Constitutional Law - Topic 7264

Enumeration under s. 92 of British North America Act - Property and civil rights - British North America Act, s. 92(13) - Insolvency - Fraudulent preferences - Validity of Fraudulent Preferences Act, R.S.S. 1965, c. 397 - The Supreme Court of Canada held that the Fraudulent Preferences Act was valid provincial legislation under s. 92(13) of the British North America Act insofar as its provisions did not actually conflict with the Bankruptcy Act, R.S.C. 1970, c. B-3 - See paragraphs 43 to 76.

Fraud and Misrepresentation - Topic 1454

Fraudulent conveyances - Preferences under modern statutes - Preference to defeat or prefer creditors - What constitutes a fraudulent preference - The Fraudulent Preferences Act, R.S.S. 1965, c. 397, s. 4, forbade a preference to a creditor by a person "when he is in insolvent circumstances or is unable to pay his debts in full or knows that he is on the eve of insolvency" - The Supreme Court of Canada held that the debtor at the time of a transaction preferring a creditor was not only in insolvent circumstances, but also was unable to pay his debts in full, either of which was sufficient to set the preferential transaction aside - See paragraphs 77 to 96.

Fraud and Misrepresentation - Topic 1456

Fraudulent conveyances - Preferences under modern statutes - Preference to defeat or prefer - Insolvency defined - The Supreme Court of Canada defined insolvency as the inability to pay debts in the ordinary course as they become due - See paragraphs 91 to 101 and 102.

Statutes - Topic 2414

Interpretation of words and phrases - Disjunctive words - "Or" - Fraudulent Preferences Act, R.S.S. 1965, c. 397, s. 4, forbade a preference to a creditor by a person "when he is in insolvent circumstances or is unable to pay his debts in full or knows that he is on the eve of insolvency" - The Supreme Court of Canada held that the three conditions were alternatives and not conjunctives and that proof of any one was sufficient to void a preferential transaction - See paragraph 88.

Words and Phrases

Insolvency - The Supreme Court of Canada discussed the meaning of "Insolvency" as found in s. 4 of the Fraudulent Preferences Act, R.S.S. 1965, c. 397 - See paragraphs 91 and 101-102.

Cases Noticed:

Attorney General of British Columbia v. Attorney General of Canada, [1937] A.C. 391, refd to. [para. 7].

Canadian Bankers Association v. Attorney General of Saskatchewan, [1956] S.C.R. 31, refd to. [para. 7].

Reference re Validity of the Orderly Payment of Debts Act, 1959 (Alta.), [1960] S.C.R. 571, refd to. [paras. 8, 109].

Reference re Alberta Debt Adjustment Act, [1942] S.C.R. 31, refd to. [para. 8].

Cushing v. Dupuy (1880), 5 App. Cas. 409, refd to. [para. 8].

Union Colliery Co. v. Bryden, [1899] A.C. 580, refd to. [para. 9].

Reference re Alberta Debt Adjustment Act, [1943] A.C. 356, refd to. [paras. 13, 109].

Canadian Bankers Association v. Attorney General of Saskatchewan, [1956] S.C.R. 31, refd to. [para. 13].

Royal Bank of Canada v. Larue, [1928] A.C. 187, refd to. [para. 14].

Madden v. Nelson and Fort Sheppard Railway Co., [1899], A.C. 626, refd to. [para. 15].

Re Davison (1923), 52 O.L.R. 244, refd to. [para. 19].

Allison & Burnham Concrete Ltd. v. Mountain View Construction Ltd. (1965), 53 W.W.R.(N.S.) 274, refd to. [para. 19].

Johnson v. Attorney General of Alberta, [1954] S.C.R. 127, refd to. [para. 23].

Re Pommier (1930), 65 O.L.R. 415, refd to. [para. 25]; apprvd. [para. 55].

Grand Trunk Railway Co. v. Attorney General of Canada, [1907] A.C. 65, refd to. [para. 25].

Attorney General of Alberta v. Nash and Guelph Engineering Co. (1964), 50 W.W.R.(N.S.) 155, affg. 48 W.W.R.(N.S.) 420, refd to. [paras. 28, 63].

Crown Coal Co. Ltd. v. Swanson Lumber Co. Ltd., [1935] 3 W.W.R. 245, refd to. [para. 28].

Gard v. Yates, [1936] 1 W.W.R. 212, refd to. [para. 28].

Totem Radio Supply Co. Ltd. v. Stone (1959), 29 W.W.R.(N.S.) 552, refd to. [para. 28].

Traders Finance Corp. Ltd. v. Levesque, [1961] S.C.R. 83, refd to. [para. 33].

Produits de Caoutchouc Marquis Inc. v. Trottier, [1962] S.C.R. 676, refd to. [para. 33].

Nadan v. The King, [1926] A.C. 482, refd to. [para. 34].

Attorney General of Ontario and Display Service Co. Ltd. v. Victoria Medical Building Ltd., [1960] S.C.R. 32, refd to. [para. 34].

Les Immeubles Fournier Inc. v. Construction St. Hilaire Ltée (1974), 10 N.R. 541, 52 D.L.R.(3d) 89, refd to. [para. 35].

Canada Labour Relations Board v. Canadian National Railway Co. (1974), 1 N.R. 547, 45 D.L.R.(3d) 1, refd to. [para. 35].

Attorney General of Ontario v. Attorney General for the Dominion of Canada, [1894] A.C. 189, consd. [para. 46].

Re Davison, 52 O.L.R. 244, appld. [para. 49].

Canadian Credit Men's Trust Association Ltd. v. Hoffar Limited, [1929] S.C.R. 180, apprvd. [para. 52].

Re Trenwith, [1934] O.R. 326, disapprvd. [para. 57].

Re Bozanich; A.H. Boulton Co. Ltd. v. Trusts & Guarantee Co. Ltd., [1942] S.C.R. 130, refd to. [para. 59].

Totem Radio Supply Company Limited v. Stone et al. (1959), 29 W.W.R.(N.S.) 552, consd. [para. 62].

Re Panfab Corp. Ltd., [1971] 2 O.R. 202, apprvd. [para. 66].

Walter v. Adolph Lumber Co. et al. (1915), 8 W.W.R. 351, refd to. [para. 93].

Attorney General of British Columbia v. Attorney General of Canada, [1937] A.C. 391, appld. [para. 101].

Gingras v. General Motors Products of Canada Ltd., [1976] 1 S.C.R. 426; 13 N.R. 361, appld. [para. 106].

Citizens Insurance Company of Canada v. Parsons (1881-82), 7 A.C. 96, refd to. [para. 108].

Canadian Bankers Association v. Attorney General of Saskatchewan, [1956] S.C.R. 31, refd to. [para. 109].

Provincial Secretary of Prince Edward Island v. Egan, [1941] S.C.R. 396, appld. [para. 110].

O'Grady v. Sparling, [1960] S.C.R. 804, appld. [para. 110].

Ross v. Registrar of Motor Vehicles and the Attorney General of Ontario and other, 1 N.R. 9, [1975] 1 S.C.R. 5, appld. [para. 110].

Statutes Noticed:

Bankruptcy Act, R.S.C. 1970, c. B-3, sect. 50(6) [paras. 64, 74, 110]; sect. 73 [para. 45] sect. 74 [para. 66].

British North America Act, 1867, sect. 91(21) [paras. 46, 75, 102]; sect. 92(13) [para. 47].

Bulk Sales Act, R.S.S. 1965, c. 389 [para. 84].

Fraudulent Preferences Act, R.S.S. 1965, c. 397, sect. 3, sect. 4 [paras. 5, 45, 76]; sect. 5, sect. 7 [para. 45].

Counsel:

D.G. McLeod, Q.C. and C.G. Morris, for the appellant;

W.N. Lawton, Q.C., for the intervenant Attorney General of Saskatchewan.

This case was heard on February 17 and 18, 1976, at Ottawa, Ontario, before LASKIN, C.J.C., MARTLAND, JUDSON, RITCHIE, SPENCE, PIGEON, DICKSON, BEETZ and de GRANDPRE, JJ., of the Supreme Court of Canada.

On January 25, 1977, the judgment of the Supreme Court of Canada was delivered and the following opinions were filed:

LASKIN, C.J.C., dissenting - see paragraphs 1 to 38,

SPENCE, J. - see paragraphs 39 to 98,

BEETZ, J. - see paragraphs 99 to 111.

JUDSON, RITCHIE and PIGEON, JJ., concurred with SPENCE, J.

MARTLAND, DICKSON and de GRANDPRE, JJ., concurred with LASKIN C.J.C.