MacLeod, J.:—This application is to settle competing claims to funds which have been paid into court by Saskatchewan Government Insurance (S.G.I.) and to declare certain rights as between the parties.
Regina Custom Classic Body Works Ltd. (Custom Classic) operated a body shop in Regina, Saskatchewan, to repair vehicles of persons, including persons who were insured for such repairs by S.G.I. In the course of its business S.G.I. received authorization to pay repair accounts for such insured directly to Custom Classic.
Custom Classic went of business while certain of such insurance moneys remained unpaid. S.G.I. received demands as follows:
(1) May 10, 1990, a requirement to pay from Revenue Canada, Taxation (represented herein by Her Majesty the Queen in Right of Canada) pursuant to subsection 224(1.2) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") for payroll source deductions.
(2) June 20, 1990, a demand from Labour Standards Branch pursuant to sections 54 and 55 of The Labour Standards Act, R.S.S. 1978, c. L-1 as amended S.S. 1976-77, c. 36, S.S. 1979-80, c. 92.
(3) June 29, 1990, a demand from Saskatchewan Workers' Compensation Board pursuant to section 133 of The Workers’ Compensation Act, 1979, S.S. 1979, c. W-17.1.
The first question to be answered is whether the conditions set forth in subsection 224(1.2) of the Income Tax Act which entitle the Minister to give the requirement to pay have been met.
S.G.I. is an insurer which makes payments, inter alia, under Part III and Part IV of The Automobile Accident Insurance Act, R.S.S. 1978, c. A-35. Simply stated, for purposes of the case before me, under Part III the insured is a person to whom money is payable with respect to damage to his own vehicle, and under Part IV the insured is a person on whose behalf money is payable for damage to the property of others.
Under Part III, therefore, S.G.I. will pay the proved claim (less the deductible) which the insured is entitled to receive under the insurance on his own vehicle. Under Part IV, if another person is responsible for the accident from which the damage arose, and if S.G.I. insures that party, S.G.I. will pay the deductible on behalf of that responsible person.
There were 26 files outstanding with respect to Custom Classic when it ceased business. Of these, 18 were Part III files and 8 were Part IV files. S.G.I. submitted copies of a set of documents which may be typical of all those documents.
An insured whose vehicle was damaged made a claim, including these words:
The Actual Loss and Damage to the above described vehicle at the time of the loss was: $1,336.84
The total amount claimed under the terms of this insurance is: $836.84
In consideration of the above payment, the Insured agrees as follows:
(a) to release the Insurer from all claims for damage to the insured vehicle occurring prior to the date of loss stated in the Proof of Loss;
(b) to the extent of such payment, to subrogate the Insurer to and assign to it all rights of recovery against all persons who have caused or contributed to the aforementioned damage to the said vehicle, and upon demand to execute all documents required, and to co-operate with the Insurer in prosecuting all actions to effect such recovery.
(c) That the said amount may, at the option of the Insurer, be paid as follows;
To "Custom Classic” $836.84 To $ To $ Total $836.84 and such payments shall be considered full settlement and satisfaction for all losses and damage from the loss specified in the Proof of Loss.
That insured also received the $500 deductible from the person at fault and signed a release which contained these words (substituting for the actual names): PROPERTY DAMAGE RELEASE
and “John Doe” each for himself, his heirs, executors, administrators, successors and assigns in consideration of the payment of $500 does hereby remise, release and forever discharge "JoAnna Rowe as owner and operator" their and each of their heirs, executors, administrators and assigns from and against all claims, demands, actions and causes of action for damages whensoever and howsoever arising On account of damage to property (including loss of use thereof) arising out of an accident which occurred on or about the "24" day of “Feb.” 1990 at or near "Regina", in the Province of "Sask.".
The above sum stated as a consideration of this Release is to be paid as follows:
To Custom Classic $500
Following the completion of the work the insured vehicle owner and Custom Classic each signed a certificate of repairs, in the following form:
CERTIFICATION OF REPAIRS
I, “John Doe", the registered owner (or agent) of the vehicle described above, state that said vehicle has to the best of my knowledge and belief been satisfactorily repaired. I hereby authorize SGI to pay on my behalf to the repairer indicated below the amount in the appraisal less any applicable deductible.
Date: “April 1990" Insured's Signature: "John Doe"
I, "M.L. Hayward , of "Regina" on behalf of Custom Classic Body Works Ltd. hereby certify that all parts have been supplied and all services rendered as set forth in this appraisal.
Signature: "M.L. Hayward” Repairer Number: “16279”
These documents are each for a different purpose but have these common features:
(a) The insured whose vehicle was damaged claimed $836.84 under his insurance and authorized payment. "at the option of the Insurer,” to Custom Classic; and
(b) That same insured person claimed the $500 deductible from the party responsible for the damage and directed that “the above sum stated as consideration of this release is to be paid as follows — To Custom Classic
$500"; and
(c) In the certificate of repairs the insured whose vehicle was damaged and who was responsible for payment to Custom Classic stated that the repairs had been made and authorized S.G.I. to pay Custom Classic the amount shown in the appraisal less any applicable deductible, (the last mentioned amount being covered, of course, by the Part IV payments).
The insured directed S.G.I. at its option, to pay the moneys to Custom Classic. S.G.I. argues, however, that this is a convenience which does not mean that S.G.I. is liable to pay Custom Classic. S.G.I. is liable to the insured, as his insurer, but the insured is liable to Custom Classic for repair of the vehicle. S.G.I. is likely to pay Custom Classic on behalf of the insured but that does not mean it is liable to pay Custom Classic. S.G.I. satisfies its liability to the insured by paying Custom Classic in accordance with the directions given to S.G.I. by each insured.
These directions do not amount to an assignment entitling Custom Classic to maintain an action against S.G.I. for non-payment. Failure to pay would entitle Custom Classic to maintain an action against the insured who had engaged Custom Classic to make the repairs.
The words in subsection 224(1.2) which founds the minister’s entitlement to deliver a requirement to pay, in simplified form, are: “Where a person is . . . liable to make payment. . . to the tax debtor ” In the relationship which exists between S.G.I. (the payor) and Custom Classic (the tax debtor)/' liable to make payment" means compellable to make payment. I adopt the words of Lord Denning in Littlewood v. Whimpey and Co. [1953] 2 All E.R. 915 at 921 also [1953] 2 Q.B. 501 at 515, as follows:
In my opinion, the ordinary meaning of the word “ liable” in a legal context is to denote the fact that a person is responsible at law.
[Emphasis added.]
Being likely to pay the insurance moneys to Custom Classic in accordance with its insurance arrangements with the insured is not enough, the entitlement to issue the demand under subsection 244(1.2) depends on the payor being liable to the tax debtor. It is true that S.G.I. was likely to pay Custom Classic but it was not liable to pay Custom Classic. Its liability is to its insured.
It is also true that S.G.I. might make itself liable to the repairer where S.G.I. engages the repairer or undertakes with the repairer to make good the cost of repairs, or in the proper circumstances, S.G.I. may be estopped from denying it is liable to make payment, but the material before me does not disclose this to be so in this case.
The Labour Standards Branch argues that Revenue Canada's claim arises from subsections 227(4) and (5) of the Income Tax Act, which are as follows:
227(4) Every person who deducts or withholds any amount under this Act shall be deemed to hold the amount so deducted or withheld in trust for Her Majesty.
227(5) Amount in trust not part of estate. Notwithstanding any provision of the Bankruptcy Act, in the event of any liquidation, assignment, receivership or bank* ruptcy of or by a person, an amount equal to any amount
(a) deemed by subsection (4) to be held in trust for Her Majesty, or
(b) deducted or withheld under an Act of a province with which the Minister of Finance has entered into an agreement for the collection of taxes payable to the province under that Act that is deemed under that Act to be held in trust for Her Majesty in right of the province
shall be deemed to be separate from and form no part of the estate in liquidation, assignment, receivership or bankruptcy, whether or not that amount has in fact been kept separate and apart from the person's own moneys or from the assets of the estate.
As to subsection 227(4), the trust obligation is on Custom Classic and its failure to deduct is of no consequence to S.G.I. or its insured.
In subsection 227(5), a reality is artificially established (accepting for the moment that Custom Classic is in liquidation, and therefore that the section may apply, although it is established only that it has ceased business). The section deems something to be so even though it is not so. Indeed, that is the essence of deeming: it declares (for purposes of the law) that something that does not exist does exist, or that something that is one thing is something else.
Cave, J. expressed it in The Queen v. Norfolk County Council (1891), 60 L.J.Q.B. 379 at page 380:
. . .generally speaking, when you talk of a thing being deemed to be something, you do not mean to say that it is that which it is to be deemed to be. It is rather an admission that it is not what it is to be deemed to be, and that, notwithstanding it is not that particular thing, nevertheless. . .it is to be deemed to be that thing.
Romer, J. did not much like this idea and said in Batcheller (Robert) & Sons, Ltd. v. Batcheller, [1945] Ch. 169 at page 176:
It is, of course, quite permissible to "deem" a thing to have happened when it is not known whether it happened or not. It is an unusual but not an impossible conception to "deem" that a thing happened when it is known positively that it did not happen. To deem, however, that a thing happened when not only is it known that it did not happen, but it is positively known that precisely the opposite of it happened, is a conception which to my mind . . . amounts to a complete absurdity.
For myself, I note with interest the power of creation or transformation which the word "deem" gives when this instrument (or weapon) is seized and used by a legislative body.
A useful discussion by Madam Justice McLaughlin is found in British Columbia v. Henfrey Samson Belair Ltd., [1989] 2 S.C.R. 24, 59 D.L.R. (4th) 726, at page 35 S.C.R. where the province sought to effect a similar artificial result by the way it defined "trust".
The sections must be strictly applied. Subsection 227(5) identifies the yardstick by which an amount is deemed to be separate and form no part of an estate, but that section does not apply to any asset until that asset forms part of the estate. Under subsection 227(5), where a person deducts amounts, those amounts are deemed to be held separate from the estate even where they are mingled with other assets of the person's estate. I do not see how a deemed separation applies under that section to any amount until it is part of the assets of the estate, and it is not part of the estate where by provincial law it is the property of someone else or is subject to other claims before payment of that amount is required to be made to the person's estate.
Accordingly I hold that:
(a) S.G.I. is not liable to Custom Classic, although it would have been likely to pay Custom Classic, and
(b) The result of this conclusion is not affected by subsections 227(4) and 227(5).
Subsection 56(1) of the Labour Standards Act is as follows:
56.(1) In this section:
(a) purchase-money security interest" means:
(i) a security interest that is taken or reserved by a seller of a personal property to secure payment of all or part of its sale price; or
(ii) a security interest that is taken by a person who gives value for the purpose of enabling the debtor to acquire rights in or to the personal property, to the extent that the value is applied to acquire such rights;
(b) "security interest" means an interest in property that secures payment or performance of an obligation.
(1.1) Notwithstanding any other Act, every employer shall hold all wages accruing due or due to an employee in trust for the employee for the payment of those wages in the manner and at the time provided under this Act and the regulations, and, in the event that such wages are not held in trust, the employer is deemed to hold an amount equal to the amount of wages in trust for the employee.
(1.2) Wages accruing due or due to an employee are deemed to be secured by a security interest upon the property and assets of the employer of his estate, whether or not such property or assets are subject to other security interests, and the security interest for wages is payable in priority to any other claim or right in the property or assets, including any claim or right of the Crown in right of Saskatchewan, and, without limiting the generality of the foregoing, that priority extends over every security interest, lien, charge, encumbrance, mortgage, assignment, including an assignment of book debts, debenture or other security, whether perfected within the meaning of The Personal Property Security Act or not, made or given, accepted or issued before or after the wages accrued due, without registration or other perfection of the deemed security interest for wages.
(1.3) Notwithstanding subsection (1.2), the charge mentioned in that subsection does not take priority over:
(a) a purchase-money security interest that is:
(i) taken prior to the wages' accruing due;
(ii) registered within the time periods mentioned in section 21 of The Personal Property Security Act;
(b) a mortgage of real property granted by an employer prior to the wages’ accruing due;
(c) the interest of a seller under an agreement for sale of real property or under a mortgage back arrangement or the interest of a person who gives value for the purpose of enabling an employer to acquire rights in real property, to the extent that the value is applied to acquire such rights.
This section imposes an obligation on Custom Classic to hold wages in trust for employees and, inferentially, not to use such moneys, or assets secured for payment of such wages, in retirement of other debts of the employer, Custom Classic, but Custom Classic's claim for an asset such as a debt due from a payor is subject to any claims which the payor may offset against that debt.
I do not see that this provision was intended to interfere with ordinary commerce. The insured sought repairs from Custom Classic and is expected to pay Custom Classic, without obliging him to consider whether those moneys are part of a trust of which he or Custom Classic is the trustee. Section 56(1.1) binds Custom Classic"to hold all wages. . .in trust. . . .” It has no effect on the insured or S.G.I.
Therefore, before determining whether or not moneys are available to Custom Classic for purposes of those sections, it is necessary to consider the provisions of the Workers’ Compensation Act.
Subsections (1) and (3) of section 133 of the Workers’ Compensation Act are as follows:
133.(1) Where a person, whether carrying on an industry included under this Act or not, in this section referred to as the principal, contracts with any other person, in this section referred to as the contractor, for the execution by or under the contractor of the whole or any part of any work for the principal, it is the duty of the principal to ensure that any sum that the contractor or any subcontractor is liable to contribute to the fund is paid and, where the principal fails to do so and the sum is not paid, he is personally liable to pay that sum to the board.
(3) Where the principal is liable to make payment to the board under subsection (1), he in entitled to be indemnified by a person who should have made the payment and is entitled to withhold, out of any indebtedness due to that person, a sufficient amount in respect of that indemnity.
S.G.I. does not qualify as a principal in this section because it did not contract with Custom Classic for the execution of any work. Each insured is a principal under this section and each insured who fails to comply therewith is personally liable to pay the appropriate sum to the Workers' Compensation Board. This is not a deemed debt. Although it is a debt statutorily created, it arises from the failure of the principal to carry out his obligations in relation to the contractor.
Each insured is entitled to save himself harmless from any claim under section 133. The engagement of the repairer by an insured carries with it the right to withhold under subsection 133(3) the amount necessary to comply with subsection 133(1).
S.G.I. undoubtedly would wish to draw to the attention of its insured (before obtaining directions to pay Custom Classic) that each is entitled to withhold the appropriate amount under subsection 133(3). Of course, the authorization to S.G.I. may imply that payment to the Workers' Compensation Board is to be made before any moneys are payable to the contractor or any person Claiming by or through the contractor.
For convenience, and assuming that each insured is entitled to save himself harmless under subsection 133(3) of the Workers’ Compensation Act, I would direct that the amount of the Workers' Compensation claim be paid to the Workers' Compensation Board.
The remainder is an asset of Custom Classic, being amounts owing to it from the various insured, and such amounts are subject to the provisions of subsection 56(1.2) of the Labour Standards Act, as amended by S.S. 1976-77, c. 36 and S.S. 1979-80, c. 92. These amounts have been paid into Court, and may be the object of a further application. S.G.I. alleges no interest in the moneys, and may complete its interpleader by delivering to each of the other parties to this proceeding a notice giving this information:
(a) the name and address of each insured;
(b) the amount of money paid by S.G.I. to satisfy its obligation to each insured.
It will then have satisfied its obligation as interpleader.
No payment shall be made until the expiration of 15 days following delivery of this judgment.
Order accordingly.