There has been a longstanding restriction on the garnishment and assignment of Crown debts in Canada. These restrictions have existed at common law and have been legislated. This has become a much litigated point, as creditors have attempted to oust such restrictions. There has been some success in the family law context as judges appear to be more lenient in cases where outstanding support obligations are in question.
This was the case in Daniels v. Daniels,1 where proceedings were initiated for the purpose of enforcing child support arrears. In this case, the Manitoba Court of Queen's Bench, on a motion for judicial review, determined that, although a garnishment order was out of the jurisdiction of the court, it was prepared to permit the appointment of a receiver for the collection of pension benefits and settlement funds from the Government of Canada for the benefit of the outstanding child support.
The finding that a receiver could be called upon to collect such funds raises the question of whether such an order was within the jurisdiction of the court and, if so, whether this opens the doors for trade creditors, banks or other lenders to attempt to use the same remedy in Ontario.
Garnishment, or the attachment of debts, is the primary mechanism used by judgment creditors to seize debts owed by a third party to the judgment debtor. Alternatively, assignments are used to assign to a third party debts owed to the judgment debtor.
There has been longstanding Crown immunity from both garnishment and assignment of debts. The restriction against garnishment of Crown debts existed at common law but has been modified by legislation. The general prohibition against the assignment of federal Crown debts is specifically set out in section 67 of the federal Financial Administration Act (the "FAA") which clearly states that Crown debts are not assignable.2 Across Canada similar limitations have been implemented by some of the provinces. However, it should be noted that the Ontario Financial Administration Act3 does not specifically set out such a limitation.
There are certain indicators that both garnishments and assignment of certain Crown debts may be permissible. The Garnishment, Attachment and Pension Diversion Act4 sets out limited circumstances where Crown debts may be garnished. Generally, most employment wages and some pension benefits are now accessible through garnishment; however, there are many other types of Crown debts that remain out of reach. Notwithstanding the prohibition against the assignment of Crown debts, section 68 of the FAA provides that Crown debts may be assigned where permitted in the FAA or by any other Act of Parliament. Section 68 also sets out that Crown debts may be assigned where there is an amount due or becoming due under a contract and where there is any other Crown debt of a prescribed class.5 The Income Tax Act provides another exception to section 67 of the FAA and permits a corporation to assign any amount payable by the Crown under the Income Tax Act.6 Furthermore, the Tax Rebate Discounting Act provides an opportunity for the purchase of a person's right to income tax refunds.7
In addition, a remedy pursuant to section 101 of the Courts of Justice Act has been used on occasion to evade these restrictions.8 This section provides the authority for the Ontario Superior Court of Justice to appoint a receiver, where it appears to a judge to be just or convenient to do so.9 A receiver is typically appointed as an officer of the court for the purpose of stepping in, gathering assets and finally distributing those assets to the creditor.
The Supreme Court of Canada in Canadian National Railway Co. v. Croteau explained that in the case of the appointment of a receiver by way of equitable execution, there is no order made against the Crown, it is simply the substitution of the person to receive and administer the benefits owed by a third party to the judgment debtor.10
There have been mixed reviews in case law of the use of section 101 of the Courts of Justice Act to circumvent the restrictions against the garnishment of Crown debts. Generally, courts have been unwilling to take a liberal approach to the application of this solution and have only done so in clear cases where there is a need for an equitable remedy. This remedy has been widely argued in the family law context due to the fact that the governing legislation specifically allows for the appointment of a receiver as an enforcement method.i
Review of Daniels Decision
Daniels arose as a result of child support arrears and evolved into a claim for Daniels' benefits under settlement funds. David Daniels ("Daniels"), was a claimant who had become entitled to settlement funds from the Government of Canada as a result of a court ordered Indian Residential Schools Settlement ("IRSS"). The settlement funds consisted of Common Experience Payment and Independent Assessment Process Payment. These payments were designed to compensate claimants for physical and sexual assaults and other abuse experienced in residential schools. The Government of Canada had deposited the settlement funds in trust for the benefit of all the claimants under section 21 of the FAA.
In the initial proceedings, the master made a garnishment order against the Residential Schools Resolution Canada funds for the portion of Daniels' entitlement. Although the garnishment order was served on the IRSS Administrator ("Administrator"), the Administrator, nevertheless issued a cheque without trust conditions to Daniels' lawyer. Meanwhile, the Department of Justice moved to have the garnishment order set aside. It should be noted that the Designated Officer, responsible for the enforcement of child support arrears, chose not to participate in the proceedings. As a result, the court appointed an amicus curiae to address the issues raised by the Department of Justice.
Among the many issues that needed to be resolved, the Manitoba Court of Queen's Bench had to determine whether the issues raised in the motion had become moot when the funds were paid out from the settlement funds, and whether to replace the master's order and instead appoint a receiver.
In determining the first issue, the court applied the factors discussed in the Supreme Court of Canada decision Borowski v. the Attorney General of Canada.11 The Manitoba Court of Queen's Bench decided that the issues had become moot when the funds were paid to Daniels' lawyer. This meant that there was no live issue left between the Designated Officer and the Administrator, as the funds were now out of the Administrator's control. The court explained that there was no good reason to decline jurisdiction to determine the issues and stated that there was judicial economy in determining the issues, as the court would not be departing from its traditional role. Therefore, the court explained that this was an exceptional case and that, even though the issues had become moot, it was still prepared to move forward and determine all of the issues before it.
In resolving the second issue, the Manitoba Court of Queen's Bench extensively applied the relevant legislative authorities and case law which set out the powers of the court in such situations. The court acknowledged the legislative authority of section 55(1) of the Court of Queen's Bench Act, which outlines the authority of the court to order a receiver where it appears to the judge to be just or convenient to do so.12 As previously mentioned, the equivalent section in Ontario can be found under section 101 of the Courts of Justice Act.
The court then applied The Family Maintenance Act which sets out the enforcement mechanisms available to the Designated Officer in the event of a default.13 Among the many enforcement methods, The Family Maintenance Act empowers the Designated Officer to seek both a garnishment order and the appointment of a receiver. Sections 60(1) and 60(2) of The Family Maintenance Act enable a judge or a master upon an application to appoint a receiver. The comparable legislative authority in Ontario can be found in the Family Responsibility and Support Arrears Enforcement Act, 1996 (the "FRSAEA").14 The FRSAEA permits the Director of the Family Responsibility Office to collect support arrears by employing any method of enforcement expressly or not expressly provided for by the Act.15 The Family Law Rules also set out the methods of enforcement for payment orders or any kind of order to include: garnishment and the appointment of a receiver under section 101 of the Courts of Justice Act.16
The Manitoba Court of Queen's Bench reviewed a variety of decisions where either a receiver has been appointed or where the courts have refused to take such action. In particular, the court focused on Fontaine v. Canada (Attorney General)("Fontaine") and distinguished it from the case before the court.17 Fontaine was a recent decision made by the British Columbia Court of Appeal concerning the validity of an order to pay that directed payments of a Common Experience Payment to a lender. The Court of Appeal noted that in Marzetti v. Marzetti, the Supreme Court of Canada determined that an assignment was ineffective pursuant to section 67 of the FAA as there was no express authorization by any statute for such an assignment.18 The Court of Appeal ultimately found that the settlement funds were made under a court order which resulted in them being Crown debts. Therefore, in effect, there was a prohibition on the assignment to the lender. More importantly, it was noted that the court order specifically sets out a prohibition on assignment of the funds and, as a result, the court dismissed the appeal. In distinguishing Fontaine from the case before it, the court explained that in Fontaine there was a voluntary act, whereas Daniels resisted the payment of the settlement funds towards his child support obligations. The court then relied on Roshdy v. Sultan19 where the Ontario Court of Appeal ordered the appointment of a receiver to collect funds forwarded to Canada by the United Nations Compensation Commission and to pay out such funds in fulfillment of support obligations. It was explained that although the court agreed with the British Colombia Court of Appeal that the assignment of the IRSS payment was prohibited, such prohibition did not extend to the appointment of receiver.
The court then referred to instances where a receiver had been appointed by courts. Among the cases listed were the Ontario decisions of Martin v. Martin20 and Roshdy v. Sultan. In both cases, the courts explained that the appointment of a receiver was just or convenient for the cases at hand. The court also referred to Beattie v. Ladouceur where a support arrears claim was made against federal tax refunds and pension benefits.21 The Ontario Court (General Division) determined that the order for the appointment of a receiver to take steps to enforce the garnishment exceeded the jurisdiction of the court due to the specific restrictions set out by Parliament in various Acts. The Manitoba Court of Queen's Bench distinguished the case before it from Beattie v. Ladouceur by noting that there were no specific restrictions set out on the appointment of receivers in the IRSS court order.
In coming to its conclusion, the Manitoba Court of Queen's Bench looked to the intent of the legislature and the objective of the IRSS court order. The court explained that Daniels' children were in a unique situation, different than that of other creditors, and that the court order did not intend to restrict their right of access. In fact, the court found that Daniels' children were parties to the court ordered settlement. The court acknowledged that the settlement funds are Crown debts and ultimately found that the garnishment order was out of its jurisdiction but instead appointed a receiver. The receiver was ordered pursuant to sections 60(2) and (3) of the Family Maintenance Act and was instructed to take control of the portion of Daniels' entitlement to the settlement funds and all pension benefits and credits that were payable to Daniels for the benefit of the outstanding child support.
Significance of Decision
Traditionally, there have been limitations in place restricting both the garnishment and assignment of Crown debts. These limitations were developed to prevent interruption to public services due to the impracticality of their administration by the government. There has already been development in the law as most wages and some federal pensions are now permitted to be garnished. As previously mentioned, section 68 of the FAA, the Income Tax Act and the Tax Rebate Discounting Act all provide some relief from the stringent restriction on assignments set out in section 67 of the FAA.
Professors Hogg and Monahan explain in their text "Liability of the Crown"; "Debts other than wages that are owed by the Crown to judgment debtors are still generally immune from attachment – but for no good reason."22 Although there has already been an erosion of Crown immunity, these outdated rules should be modernized. The government has become a key player in the economy and, as such, its roles should be expanded to accommodate such developments. It can be argued that, if such a recourse is available in the family law context, then the courts should be able to justify and make available such remedies to other creditors.
Although there is some uncertainty regarding the courts' application of legislation prohibiting the garnishment and assignment of Crown debts, Daniels v. Daniels demonstrates the courts' willingness to provide an equitable remedy in light of specific restrictions. In Daniels v. Daniels, the Manitoba Court of Queen's Bench rightfully intervened and provided a just remedy. Daniels v. Daniels also raises an interesting point that perhaps an equitable remedy could have been used in Fontaine. As previously noted, in distinguishing the case before it from Fontaine, the court found that there was an explicit prohibition set out on the assignment of the IRSS payments, but no prohibition on the appointment of a receiver. Perhaps in future cases the courts can extend their approach to other creditors who find themselves in situations where security has been exhausted or where there is no security at all, and the only asset remaining is a Crown debt. By permitting the attachment and assignment of Crown debts, creditors would be able to rightfully access the assets of parties that would otherwise be out of reach through regular enforcement measures.
Other creditors, like trade creditors, lenders and banks, are still able to argue, pursuant to section 101 of the Courts of Justice Act, for the appointment of a receiver. However, it is too burdensome and unpredictable to rely on legal technicalities to circumvent this restriction. There is some hope for the abolishment of such restrictions given that there is good reason to do so and given the fact that advancements have already been made towards such a direction.
Generally there has been a prohibition on the assignment, attachment or giving of security on amounts to be paid by the Crown to a judgment debtor. Daniels v. Daniels demonstrates the courts' willingness to use equitable remedies where they find it to be just or convenient to do so. This is good news for other creditors, banks or lenders who may wish to use the same remedy to access funds that are otherwise out of their reach. Parliament should not be restricting the attachment or assignment of Crown debts where a deserving party makes a rightful claim for funds to which they should ordinarily have access. This prohibition only serves to protect the judgment debtor and facilitates the avoidance of obligations.
* Alyssa Keon is an Articling Student at Aird & Berlis LLP.
i. In Ontario the Family Responsibility and Support Arrears Enforcement Act, 1996 permits the Director of the Family Responsibility Office to collect support arrears by employing any method of enforcement expressly or not expressly provided for by the Act. The Family Law Rules also set out the methods of enforcement for payment orders or any kind of order to include: garnishment and the appointment of a receiver under section 101 of the Courts of Justice Act.
1.Daniels v Daniels, 2010 MBQB 46,  249 ManR (2d) 233.
2.Financial Administration Act, RSC 1985, c F-11, s.67.
3. Financial Administration Act, RSO 1990, c F 12.
4. Garnishment, Attachment and Pension Diversion Act, RSC 1985, c G-2.
5. Supra note 2, s.68(1).
6. Income Tax Act, RSC 1985, c-1 (5th Supp), s.220(6).
7. Tax Rebate Discounting Act, RSC 1985, c T-3, s.2(2).
8. Courts of Justice Act, RSO 1990, c C43.
9. Ibid., s.101.
10 Canadian National Railway Co. v Croteau,  SCR 384, at 388.
11 Borowski v the Attorney General of Canada,  1 SCR 342, 57 DLR (4th) 231.
12 Court of Queen's Bench Act, CCSM c C280, s. 55(1).
13 The Family Maintenance Act, RSM c F20, s.55(1).
14 Family Responsibility and Support Arrears Enforcement Act, 1996, SO 1996, c3.
15 Ibid, s. 6.
16 Family Law Rules, O Reg 114/99, Rule 26((2) & (3).
17 Fontaine v Canada (Attorney General), 2008 BCCA 329,  82 BCLR. (4th) 11.
18 Marzetti v Marzetti,  2 SCR 765, 116 DRL (4th) 577.
19 Roshdy v Sultan,  200 DLR (4th) 161, 144 OAC 258.
20 Martin v Martin,  33 OR (2d) 164, 123 DLR (3d) 718.
21 Beattie v Ladouceur,  23 OR (3d) 225, 54 ACWS (3d) 1130.
22 Peter Hogg & Patrick Monahan, Liability of the Crown 3rd ed (Toronto: Thomson Canada Limited, 2000) 57.
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