1068754 Alberta Ltd. v. Québec (Agence du revenu), 2019 SCC 37 (CanLII)
Executing judgement is always the hardest part. Canada has five big banks, most debtors worth pursuing deal with one or more banks. However the creditor’s attempt to execute debtor-judgment against any of the big five banks runs into the ‘branch equity rule’.
As such, given the supreme court of Canada’s readiness to twist principles out of shape for its immediate purposes, it is interesting to see how the court addresses the ‘branch equity rule’ when Quebec is trying to collect taxes against an Alberta entity.
The ‘branch equity rule’ was the simple 19th century principle that if you had $100 in an RBC account on Elgin Street in Ottawa, it was only from that Elgin Street branch of RBC that you (or any of your creditors) could legally demand your deposit (para 33).
There were excellent practical reasons for this in the 19th century when there was no communication between branches. If RBC Vancouver was obligated to meet a demand that derived from an Ottawa Elgin Street branch, then Vancouver could conceivably pay out the $100 on a Monday morning and the bad guy could walk into Elgin Street Ottawa on a Monday afternoon and withdraw the same $100, given the impossibility of communication between branches.
This was the ‘branch equity rule’ from Woodland v. Fear (1857) 119 ER 1339. (para 34).
The supreme court will do the exact opposite of what a rule requires when apparent convenience calls for it. The SCC ignored the ‘branch equity rule’ at its first opportunity. The JCPC reinforced the ‘branch equity rule’ by overturning the SCC in R. v. Lovitt [1912] AC 212.
Lovitt had a bank account in New Brunswick. He lived in Nova Scotia. He died in Nova Scotia.
Which province governs death taxes on the bank account?
Woodland would require New Brunswick succession taxes to apply to the Lovitt bank account, the account being property in a New Brunswick branch.
In Lovitt, the supreme court of Canada majority said Nova Scotia, not New Brunswick law applied:
Lovitt was a Nova Scotia resident. New Brunswick had no power to tax ‘personal’ property (being the bank account) owned by a non-resident of New Brunswick (this is to be distinguished from realty taxes on New Brunswick land whether owned by foreigners or not).
Davies and Anglin completely forgot the ‘branch equity rule’ and said the debt was a bank debt, meaning the global corporate entity headquartered in London, and as such, New Brunswick had no business attacking banks (banks being federal).
Idington said it was a New Brunswick contract and the executors had attorned to the New Brunswick jurisdiction by taking out probate in New Brunswick.
Duff also noticed the apparent tactical stupidity of the executors taking out probate in enemy territory (New Brunswick). Duff was the only judge to strictly follow the ‘branch equity rule’.
In a typically laconic judgment, the Haldane court on Downing Street (the JCPC was located on the second floor of the house at the corner of Downing Street and White Hall. a house formerly owned by Cromwell’s aunt), determined that a bank account is not physical money in a bank vault. Rather it is a contract debt. Once you give your monies to a bank branch, the monies, so to speak, disappear. You are left with a contract right against the debtor. Is the debtor the bank globally or the particular branch?
For all of the Woodland reasons, it is the branch in New Brunswick which owes the debt. That makes it property in New Brunswick and that ‘property’ falls within the definition of property in the New Brunswick succession act (‘all’ property). (Lovitt: JCPC para 16)
Lovitt considered the second legal issue: does property follow the person? (Lovitt: JCPC para 18).
The JCPC said this:
In death, at common law, the domicile of the person is the governing law of succession and foreign laws give way. (Lovitt: JCPC para 19)
But New Brunswick has specifically ousted the common law by imposing taxes upon its local property whether or not owned by a foreigner. (para. 22)
Furthermore, New Brunswick assimilated the ‘tax’ into its court probate fees, thereby making it almost a fee for service of probate. In effect, transforming the question into whether the court can charge for its services – which it can. (para. 25)
Suffice it to say that the branch equity rule is alive and well in Canada and should have stopped Quebec from reaching across the country to attack an Alberta trust. The ‘branch equity rule’ meant that a mere province (Quebec) had no power to make any demand upon an extra-provincial entity (the Calgary branch of National Bank of Canada.
You know what happens next:
At the SCC, rather than shut down Quebec’s extraterritorial grabbing at documents, Rowe J. decided that the document-grab was not captured by the ‘branch equity rule’. The ‘branch equity rule’ governed garnishments. Every creditor in Canada has been damned by the absurdity of this ‘branch equity rule.’ It is impossible to serve garnishment upon the head office of a Canadian bank even though we all know that the ‘branch equity’ rationale went out of existence with stage-coaches and bank robberies.
So isn’t it is bitterly ironic that the ‘branch equity rule’ continues to work against creditors everywhere, but the one time an Albertan tries to protect his trust against a Quebec-state attack – well now – sorry, the branch equity rule doesn’t apply to document-production. (para 44).
The real critique is that the SCC legitimized the Quebec extraterritorial demand for documents upon an Alberta trust. After 100 years of carefully keeping provinces within their geographical borders, the SCC has let the dogs out.
Rowe decides that the way to determine whether this is an extraterritorial attack is to ask whether Quebec can injure the National Bank if it does not comply. (para 86).
The hostage-taker theory of extraterritoriality now applies to Quebec’s document-grab in Alberta: If you don’t give me the documents – whether I have a right to them or not – I will kill the hostage – being the various branches of the National Bank in Quebec.
In essence Rowe says: because I can injure a few of your branches in Quebec if you don’t give me documents from Alberta, therefore my demand is not extraterritorial.( para 87)
It’s a logical theory really – dovetails nicely with tearing down MacDonald’s statute and removing his name from primary schools.
