INTRODUCTION

[1]                                 The issue in this application is whether the Crown, as judgment creditor under the Social Services Tax Act, R.S.B.C. 1996, c. 431 (SSTA), has priority over the previously acquired interest of a creditor under a security agreement.  As well, the third party, Active Bailiff Services Ltd., who seized the property in question, seeks an order for full indemnity costs. 

BACKGROUND

[2]                                 On June 13, 1997 the creditor Resplendent Resources Inc. (Resplendent) lent the sum of $235,672.85 to the judgment debtor, PT Car and Yacht Rental Inc. (“PT Car”) so that the latter could purchase a vessel from Northwest Ventures Inc. 

[3]                                 On June 19, 1997 PT Car purchased a 1995 Wellcraft Excalibur Twin Screw motor vessel for the sum of $235,672.85.  The vessel was registered under the Canada Shipping Act, R.S.C. 1985, c. s-9.  There was an agreement between PT Car and Resplendent that PT Car would grant Resplendent a security interest in the motor vessel in exchange for the loan.  That loan agreement was executed on December 22, 1997. 

[4]                                 On February 6, 1998 Resplendent and PT Car executed an amended and restated security agreement granting to Resplendent a security interest in the vessel.  The security agreement was made effective June 13, 1997. 

[5]                                 PT Car has failed to pay the Crown monies owing for social services tax for the importation of the vessel into the province under the SSTA.  It is not in dispute that as of January 7, 2003 the outstanding amount is $25,157.13.  PT Car has also failed to make any payments to Resplendent in respect of the loan.  PT Car executed a security agreement granting Resplendent an interest in the vessel.  It is also not in dispute that Resplendent has a purchase money security interest (PMSI). 

[6]                                 The Crown registered charges against PT Car’s property pursuant to the SSTA and the Personal Property Security Act, R.S.B.C. 1996, c. 259 (PPSA) ON June 6, 2002 and June 17, 2002. 

[7]                                 Xpress Management Ltd. (Xpress) registered a charge against PT Car pursuant to the PPSA on July 17, 2002. 

[8]                                 The vessel was seized on behalf of the Crown on September 23, 2002.

ISSUE:  WHETHER THE CROWN HAS A PRIORITY FOR THE UNPAID SOCIAL SERVICES TAX OVER THE PMSI OF RESPLENDENT  

The Arguments 

[9]                                 I will set out the position of each party.  Resplendent has argued that its security interest ought to take priority over that of the Crown.  The argument is based on the premise that Resplendent is the holder of a purchase money interest (PMSI) in PT Car’s vessel.  Resplendent has also argued that s-s. 103(3)(b) of the SSTA does not give the Crown’s tax lien priority over Resplendent’s PMSI.  It is argued that the wording of that section is not limited to perfected PMSIs as in the case of a similar provision under the Rent Distress Act, R.S.B.C. 1996, c. 403.  Resplendent’s counsel has argued that it only applies to any PMSI that is outstanding on a particular item of collateral.  Resplendent has also argued that the Crown has failed to prove evidence that its lien for the outstanding taxes was registered under s. 103(2)(iii) of the SSTA.  It is said that in the circumstances, no such lien exists.  Finally, Resplendent has argued that since its security interest was registered prior to the seizure of the vessel in September 2002, it has priority over the claim of the Crown. 

[10]                            The Crown has argued that its tax lien ought to take priority, since Resplendent did not properly perfect its security interest.  The Crown submits that s. 103(5) of the SSTA creates a “super-priority” for Crown tax liens.  

[11]                            The Crown argues that s. 103(6) should be read as an exception to this super-priority only, not a blanket declaration that all PMSIs trump all tax liens arising from this section of the SSTA.  The Crown asserts that a purposive approach should be employed when interpreting this section and that the Court should attempt to harmonize the application of this section with the general rules of priority set out in the PPSA.  Mr. Argue, counsel for Resplendent, has submitted that in these circumstances the Crown has priority over all claims except where there is a PMSI.  

[12]                            The first argument raised by counsel for Resplendent is that its failure to perfect or register the security is not fatal to its claim since the Act is silent on registration.  As an analogy counsel has argued that the Rent Distress Act sets out priority on the basis of registration.  There is no corresponding requirement under the Social Services Act.  

[13]                            The second argument is that there is no evidence that the Commissioner entered this amount in an account receivable system as set out in s. 103(2) (iii) of the Act.  It is said that the failure of the Commissioner to do so means that the Crown has no lien.  

[14]                            The third argument is related to the question of registration.  Counsel for Resplendent has argued that in any event the interest was registered in July 2002 and the vessel was not seized until September 2002.  Ms. Kay, counsel for the Crown, has argued that there is no evidence that Resplendent registered in July 2002.  It is not in dispute that Xpress Management Ltd. registered an interest.  That entity is said to be an agent for Resplendent.  For the purposes of this application I have no difficulty in concluding that Xpress as agent for Resplendent registered its interest.  In any event, there is no evidence to the contrary.  

[15]                            In this application Resplendent claims a PMSI.  It is not in dispute that the monies were advanced.  Under s. 34 of the Act, the security must be perfected by being registered within fifteen days of the debtor obtaining possession.  

[16]                            However, the security may still be perfected even if there is no compliance with s. 34.  Failure to comply with s. 34 means that an applicant would have priority as opposed to super priority.  Ms. Kay, counsel for the Crown, has argued that in this case there is neither a priority nor a super-priority and therefore the claim of the Crown takes precedence over the claim of Resplendent.  

[17]                            The Crown has also argued that if Resplendent did not register its security, then under s. 20 the Crown has priority since that section gives priority to a person who causes collateral to be seized.  In this case, it was the Crown that caused the asset to be seized.  In other words, if there is no registration, then the Crown has priority.  See s. 20.  If there was registration, then s. 20 is not applicable, and the Crown does not have priority.  

[18]                            The Crown has argued that under  s. 103(5) (b) the Crown has priority.  That section must be read with  s. 103(6) which limits the priority under  s. 103(5) (b).  The Crown argues that it has a super priority since the PMSI was not perfected.  See Driedger on the Construction of Statutes, (3d) Ruth Sullivan, p. 286 and p. 406.

[19]                            The real argument raised by the Crown is that its lien ranks ahead of Resplendent's under s. 103(6)(b).  

[20]                            Counsel for Resplendent has argued that registration is not relevant and there is no good reason for the Crown to rank ahead of another creditor.  Perfection is not required under the Act.  

ANALYSIS

[21]                            At the outset, it should be noted that while there has been some reference to jurisprudence relating to the Canada Shipping Act, the parties have agreed that a mortgage under that Act has not been registered against the vessel. 

[22]                            It is first necessary to determine the nature of Resplendent’s interest in the vessel.  The monies that were advanced to PT Car were advanced for the express purpose of financing the purchase of the motor vessel.  That fact is not in dispute.  The 1997 security agreement contains a provision to that effect.  Subsection 103(1) of the SSTA states that a purchase money security interest “has the same meaning as in the Personal Property Security Act”.  That term has been defined in s. 1 of the Act as follows:

(a)  a security interest taken in collateral to the extent that it secures payment of all or part of its purchase price,

(b)  a security interest taken in collateral by a person who gives value for the purpose of enabling the debtor to acquire rights in the collateral, to the extent that the value is applied to acquire the rights,

(c)  the interest of a lessor of goods under a lease for a term of more than one year, and

(d)  the interest of a person who delivers goods to another person under a commercial consignment,

but does not include a transaction of sale by and lease back to the seller and, for the purposes of this definition, "purchase price" and "value" include credit charges or interest payable for the purchase or loan credit.

[23]                            In the circumstances it is clear that Resplendent is the holder of the PMSI as defined by the PPSA. 

[24]                            As well, it is not in dispute that Resplendent’s interest was not perfected within the required fifteen-day time period set out in s. 34(1)(i) of the PPSA.  In the circumstances it does not have “super-priority” as set out by that section. 

[25]                            The real area of conflict, however, is over the proper interpretation of s. 103 of the SSTA, which reads as follows: 

(2)  If a person is required to collect and remit taxes, or to pay taxes, under this Act or the regulations and does not collect, remit or pay the taxes, as the case may be, the commissioner may register a lien

…

(b)  against the personal property of

(i)    the person,

(ii)   an associated corporation of the person, or

(iii)  a related individual of the person

by designating the amount owing as a lien and entering the amount together with the date of the entry in an accounts receivable system maintained by the commissioner.

…

(5)  Subject to subsections (6) and (7), a lien, other than a lien referred to in subsection (4) (b), that is registered under subsection (2) (b) against personal property

(a)  is not limited to the equity that the person against whose personal property the lien is registered has in the personal property, and

(b)  despite the provisions of any other enactments, has priority over a security interest or other lien, whether or not the security interest or other lien existed before the lien was registered under subsection (2)(b).

(6)  A lien registered under subsection (2)(b) against personal property does not have priority over

…

(b)  a purchase money security interest in collateral other than collateral that at the time the purchase money security interest attaches is inventory or its proceeds.

[emphasis added]

[26]                            There is a dispute as to how the legislation ought to be interpreted.  Counsel for Resplendent has argued that the wording of s-s. 103(6)(b) is clear and exempts all PMSIs from the super-priority category set out in s. 103(5)(b) regardless of whether the interest was perfected under the Act.  The Crown’s position is that such an interpretation would defeat the purpose of the Act and, furthermore, is in conflict with the general priority framework set out by the PPSA.  In other words, the Crown’s position is that s. 103(6)(b) includes a perfected PMSI.  Thus, the Crown has argued that if a PMSI has not been perfected, the Court should apply the general rule of priority as set out in s. 20 of the PPSA, which would serve to grant priority to the party that actually made the seizure.  In this case the Crown made the seizure. 

[27]                            Resplendent has argued that in the absence of words to the contrary these statutes are presumed to operate together.  For if they did not operate together, there would be a legislative inconsistency.  It should be noted, however, that need for consistency does not preclude the creation of alternative or separate, but complementary schemes.  To that extent, it may be useful to refer to the legislative history of s. 103 of the SSTA.  Prior to the enactment of the PPSA a Crown tax lien under the SSTA had priority over any other claim to an item of collateral.  The analogous section of the SSTA read as follows:

The lien and charge created under subsection (2) has priority over all other claims.  (See Social Services Tax Act, R.S.B.C. 1979, c. 388, s. 18(3).

[28]                            In 1990 the PPSA was amended and the current s. 103 of the SSTA gives a Crown tax lien reasonable but limited priority over encumbrances granted by the taxpayer to a secured creditor.  For subsection (5)(b) affords a blanket priority to the Crown and subsection (6)(b) places a reasonable limitation on that so-called super-priority.  These subsections create a comprehensive code for the treatment of Crown tax liens under the SSTA.  Under the Act all claims are subordinate to the tax lien save and except for those held by persons who have PMSIs.  In the circumstances, there cannot be any situations in which the general priority provisions of the PPSA need to be invoked.  Moreover, I cannot conclude that the exception set out in s. 103(6)(b) requires perfection of the PMSI, for the Act is silent on the need for perfection.  It should also be noted that s. 95 of the Amendment Act modified the Rent Distress Act, R.S.B.C. 1979, c. 362, in part by adding the following:  

4. (1)  In this section

…

“perfected” has the same meaning as in the Personal Property Security Act; 

…

(3) a landlord’s distress shall have priority over a security interest in the goods of the tenant other than a purchase money security interest in goods or proceeds of those goods that is perfected at the date of distress. 

[emphasis added]

[29]                            It is apparent from that amendment that the legislature obviously considered the question of perfection as it relates to the priority of various statutory liens.  Accordingly, it must be the expressed legislature’s intent to admit that requirement from the exception to the Crown’s super-priority.  In Friesen v. Canada, [1995] 3 S.C.R. 103 Major J. made the following comments: 

It is a basic principle of statutory interpretation that the court should not accept an interpretation which requires the insertion of extra wording where there is another acceptable interpretation which does not require any additional wording.  Reading extra words into a statutory definition is even less acceptable when the phrases which must be read in appear in several other definitions in the same statute.  If Parliament had intended to require that property must be relevant to the computation of income in a particular year in order to be inventory in that year, it would have added the necessary phraseology to make that clear.  

[30]                            It is apparent that in absence of the work perfected in s. 103(6)(b) means that the statutory priority set out in the Crown’s Social Service Tax Act would be expressly limited. 

[31]                            There appears to be a very sound policy reason within the PPSA priority scheme that puts would be creditors on notice of other outstanding charges against the assets of a debtor.  However in this case, the Crown is not in the same position as voluntary creditor as there is no discretionary extension of funds to the debtor.  Rather the debt arises from a statutory obligation to pay tax.  Since notice of other creditors’ claims plays no role in the creation of the debt, no benefit is gained by requiring perfection in this circumstance.  Had the legislature so chosen it could have required perfection by expressing indicating the same within the SSTA.  The legislature chose not to do so.  Accordingly Resplendent’s PMSI takes priority over the Crown’s tax lien. 

[32]                            In the circumstances, it is not necessary to address Resplendent’s other arguments relating to the registration of the tax liens by the Crown and the security interest by Xpress.   

WHETHER THE THIRD PARTY, ACTIVE BAILIFF SERVICES LTD., IS ENTITLED TO AN ORDER FOR FULL INDEMNITY COSTS

[33]                            Counsel for the bailiff has argued that there should be an order for full indemnity costs on the grounds that the judgment creditor and the judgment debtor are responsible for the involvement of the bailiff.  A bailiff acting under the authority of a document that bears on its face the accepted characteristics of a valid warrant is under an obligation to seize the property at issue.  As such, the bailiff should enjoy the protection of full indemnity so long as the seizure is not undertaken negligently:  Shearing v. Dunn, [1986] B.C.J. No. 1756 at 9 (Co. Ct.) (QL). 

[34]                            In this case there is no evidence to suggest negligence on the part of the bailiff and there will be an order that Active Bailiff Services Ltd. is entitled to full indemnity costs. 

“W.T. Oppal, J.”
The Honourable Mr. Justice W.T. Oppal