



COURT OF APPEAL FOR ONTARIO

CITATION: The Guarantee Company of North America v. Royal Bank of Canada, 2019 ONCA 9

DATE: 20190114

DOCKET: C65041 & C65042

Hoy A.C.J.O., Doherty, Sharpe, Roberts and
    Fairburn JJ.A.

BETWEEN

The Guarantee Company of North America
    and The Attorney General of Ontario

Respondent /
    Intervener

(Appellants)

and

Royal Bank of Canada, A-1 Asphalt
    Maintenance Ltd. (Receiver of), IUOE Local 793 and LIUNA Local 837, and LIUNA Local
    183

Applicant /
    Respondents

(Respondents in
    Appeal)

Josh Hunter and Hayley Pitcher, for the appellant, The
    Attorney General of Ontario

Matthew B. Lerner and Scott M.J. Rollwagen, for the
    appellant, The Guarantee Company of North America

Sam Babe and Miranda Spence, for the respondent, Royal
    Bank of Canada

Raymond M. Slattery, for the respondent, A-1 Asphalt
    Maintenance Ltd. (Receiver of)

Paul Cavalluzzo and Alex St. John, for the intervener, LIUNA
    Local 183

Heard: October 16, 2018

On appeal from the order of Justice Barbara A. Conway of
    the Superior Court of Justice, dated January 31, 2018, with reasons reported at
    2018 ONSC 1123, 57 C.B.R. (6th) 103.

Sharpe J.A.:

[1]

This appeal arises from a priority dispute between certain creditors and
    employees of a bankrupt company, A-1 Asphalt Maintenance Ltd. (A-1). The
    issue is whether the funds owing to or received by a bankrupt contractor and
    impressed with a statutory trust created by s. 8(1) of the
Construction
    Lien Act
R.S.O. 1990, c. C. 30 (
CLA
) are excluded from distribution
    to the contractors creditors, pursuant to s. 67(1)(a) of the
Bankruptcy
    and Insolvency Act
, R.S.C. 1985, c. B-3 (
BIA
).

[2]

As I will explain, to decide this issue it is necessary to give careful
    consideration to several decisions of the Supreme Court of Canada, in
    particular,
British Columbia v. Henfrey Samson Belair Ltd.
,

[1989] 2 S.C.R. 24, and to the
    decision of this court in
GMAC Commercial Credit Corporation  Canada v.
    T.C.T. Logistics Inc.
(2005)
,
    74 O.R. (3d) 382.

[3]

For the following reasons, I conclude that
Henfrey
contemplates
    provincially created statutory trusts preserving assets from distribution to
    ordinary creditors under the
BIA
, s. 67(1)(a), provided the statutory
    trust satisfies the general principles of trust law. The general principles of
    trust law require certainty of intention to create a trust and certainty of
    subject matter in addition to certainty of object. I conclude that the
    statutory trust created by the
CLA
, s. 8(1) satisfies the requirement
    for certainty of intention to create a trust. I reject the contention that by
    creating the required element of certainty of intention, the
CLA
, s. 8(1)
    creates an operational conflict between the
CLA
, s. 8(1) and the
BIA
,
    s. 67(1)(a), triggering the doctrine of federal paramountcy. I conclude that
    debts for a project subject to the
CLA
are choses in action that supply
    the required certainty of subject matter. I further conclude that the commingling
    of
CLA
funds from various projects does not mean that the required
    certainty of subject matter was not present because the funds remained
    identifiable and traceable.

Facts

[4]

A-1 is an Ontario corporation, engaged in the paving business. A-1 filed
    a Notice of Intention to make a proposal under the
BIA
on November 21,
    2014. It subsequently failed to file a proposal and was deemed bankrupt on
    December 22, 2014.

[5]

At the time of A-1s bankruptcy, it had four major ongoing paving
    projects, three with the City of Hamilton (the City) and one with the Town of
    Halton Hills (the Town). All four contracts had outstanding accounts
    receivable for work performed by A-1. The bankruptcy judge directed the
    Receiver to establish a Paving Projects Account and a general
    post-receivership account. The order provided that all receipts from the four
    paving projects were to be deposited into the Paving Projects Account. It also
    provided that the
segregation of receipts by the Receiver
    between the two Post Receivership Accounts shall be without prejudice to the
    existing rights of any party and shall not create any new rights in favour of
    any party. A subsequent order directed that receipts from other paving
    projects were also to be deposited in the Paving Projects Account.

[6]

The City and the Town paid $675,372.27 (the Funds) to the Receiver,
    who deposited the Funds into the Paving Projects Account. That amount
    represented debts owing to A-1 by the City and the Town when A-1 filed its Notice
    of Intention to make a proposal. While the Receiver commingled the trust funds
    received from A-1s various paving projects in the Paving Projects Account, the
    allocation of the funds in the Paving Projects Account to each specific project
    is identifiable because of the Receivers careful accounting.

[7]

It is common ground that the Funds are trust funds within the meaning
    of s. 8 of the
CLA
, which provides:

8 (1) All amounts,

(a) owing to a contractor
    or subcontractor, whether or not due or payable; or

(b) received by a
    contractor or subcontractor,

on account of the contract or subcontract price of an
    improvement constitute a trust fund for the benefit of the subcontractors and
    other persons who have supplied services or materials to the improvement who
    are owed amounts by the contractor or subcontractor.

(2)
The
    contractor or subcontractor is the trustee of the trust fund created by
    subsection (1) and the contractor or subcontractor shall not appropriate or
    convert any part of the fund to the contractors or subcontractors own use or
    to any use inconsistent with the trust until all subcontractors and other
    persons who supply services or materials to the improvement are paid all
    amounts related to the improvement owed to them by the contractor or
    subcontractor.


[8]

There is a priority dispute between:

(1)

Royal Bank of Canada, (RBC),
    as a secured creditor of A-1 pursuant to a general security agreement;

(2)

Guarantee
    Company of North America (GCNA), a bond company and secured creditor of A-1 that
    had paid out twenty
CLA
lien claims (totalling $1,851,852.39) to certain
    suppliers and subcontractors of A-1 and is subrogated to those claims; and

(3)

certain
    employees that worked on the Four Projects, as represented by LIUNA Local 183
    and IUOE Local 793 (together, the Unions) (claiming a total of $511,949.14).

[9]

RBC takes the position that the Funds form part of A-1s estate
    available to creditors. GCNA and the Unions take the position that the Funds
    were s. 8(1)
CLA
trust funds that must be excluded from A-1s property
    on bankruptcy, pursuant to s. 67(1)(a) of the
BIA
. That section
    provides:

67 (1) The property of a bankrupt divisible among his
    creditors shall not comprise

(a) property held by the
    bankrupt in trust for any other person;



[10]

The
    Receiver brought a motion for advice and directions to resolve the priority
    dispute and served a Notice of Constitutional Question identifying the
    potential conflict between the
CLA
and
BIA
. The Attorney
    General of Ontario intervened in response.

[11]

On
    the motion, it was common ground that if the Funds were not trust funds,
    pursuant to s. 67(1)(a), RBC and GCNA would share the remaining funds pro rata
    as secured creditors. The Unions could make a claim to any remaining funds
    under s. 136(1)(d) of the
BIA
.

Decision of the motion judge: 2018 ONSC 1123, 57 C.B.R. (6th)
    103

[12]

The
    motion judge delivered a handwritten endorsement at the conclusion of argument
    holding that the Funds were not excluded from A-1s estate available for
    distribution to creditors.

[13]

She
    noted that the constitutional issue of the validity of provincial statutory
    trusts in bankruptcy had been resolved by the Supreme Court of Canada in
British
    Columbia v. Henfrey Samson Belair Ltd.
That
    case
held that trusts established by provincial law that meet the
    general principles of the law of trusts will be excluded from the bankrupts
    estate pursuant to s. 67(1)(a) of the
BIA
. It is common ground that
    those principles are certainty of intention, object and subject matter.

[14]

The
    motion judge stated that she was not suggesting that the statutory trust
    created by the
CLA
could never be recognized as a true trust for
    purposes of the
BIA
. However, the motion judge concluded that on the
    facts of this case GCNA had failed to establish sufficient certainty of subject
    matter and that the Funds were not therefore held in trust within the meaning
    of s. 67(1)(a). She reached that conclusion for two reasons. First, she stated,
    at para. 6, that the funds owed to A-1 by the City/Town are not necessarily
    identifiable, do not necessarily come from any particular fund or account and
    are simply payable by the City/Town from its own revenues or other sources.
    Second, she found, at para. 7, that once the Funds were paid, 
there
    was no established means for [A-1] to hold these monies separate from other
    funds and maintain their character as trust funds.
The orders of the
    bankruptcy judge were completely neutral and did not create any rights nor
    did they take away any rights, as explicitly stated in the orders.

[15]

The
    motion judge was of the view that
GMAC Commercial Credit Corporation 
    Canada v. T.C.T. Logistics Inc.
required a form of segregation of funds to
    maintain a trust. She relied on that case to reject the proposition that the
    Receivers careful accounting records that were capable of identifying the
    funds in the Paving Projects Account could establish certainty of subject
    matter. As the amounts owing for the various projects had been commingled, the
    absence of segregation was sufficient to destroy the certainty of subject
    matter required under the general principles of trust law.

[16]

The
    motion judge concluded that the s. 67(1)(a) exemption for property held in
    trust did not apply. She therefore found that GCNA was only entitled to a
pro
    rata
share of the Funds as a secured creditor and that the Unions were
    entitled to their share as unsecured creditors.

Issues

[17]

The
    following issues arise on this appeal:

1.

Can a statutory deeming provision give rise to certainty of intention?

2.

Were the debts of the City and the Town choses in action that supplied
    the required certainty of subject matter for a trust?

3.

Did commingling of the Funds mean that the required certainty of subject
    matter was not present?

4.

Does RBCs security interest have priority even if the trust created by
    s. 8(1) of the
CLA
survives in bankruptcy?

Analysis

Statutory Trusts

[18]

As
    a preliminary matter, it will be helpful to define the terminology involving
    statutory trusts. In
Henfrey
, McLachlin J. referred to a deemed
    statutory trust: p. 34. A deemed statutory trust is a trust that legislation
    brings into existence by constituting certain property as trust property and a
    certain person as the trustee of that property. The legislation purports to
    deem the trust into existence independently of the subjective intentions of or
    actions taken by the trustee. For example, the legislation at issue in
Henfrey
,
    s. 18 of the
Social Service Tax Act,
R.S.B.C. 1979, c. 388,
    established that a merchant who collected sales tax was deemed to hold it in
    trust for the provincial Crown. Deemed statutory trusts may be in favour of
    either the Crown or private parties:
GMAC
, para. 14. The subject matter
    of deemed statutory trusts also varies. Some statutes establish a trust over
    specific sums of property owing to or received by the trustee. In contrast,
    other statutes purport to establish a general floating charge over the assets
    of the trustee for the sum of the trust moneys.

[19]

Even
    if a statute does not deem a trust into existence, it may impose a statutory
    trust obligation, namely an obligation on a person to hold in trust certain
    property:
GMAC
, paras. 13, 17, 21-22. Statutes that create deemed
    statutory trusts often also impose statutory trust obligations, such as an
    obligation to segregate the trust property or hold it in a trust account:
GMAC
,
    at para. 17.

[20]

Section
    8 of the
CLA
both creates a deemed statutory trust and imposes statutory
    trust obligations on the contractor or subcontractor. The language of s. 8
    makes clear that it deems a trust into existence independently of the trustees
    actions or intentions. Section 8(1) provides that the amounts in ss. 8(1)(a)
    and (b) 
constitute
a trust fund and s. 8(2) establishes that the
    contractor or subcontractor 
is
the trustee of the trust fund
created
    by subsection (1).
 (emphasis added) Thus, s. 8(1) purports to deem a trust
    into existence independently of any actions by the contractor or subcontractor.
    Section 8(2) also imposes a statutory trust obligation on the contractor or
    subcontractor not to appropriate or convert any part of the trust fund until
    all subcontractors and suppliers have been fully paid for their work.

Positions of the Parties

[21]

It
    is common ground on this appeal that to qualify as a trust that is excluded
    from A-1s property for distribution to creditors pursuant to s. 67(1)(a) of
    the
BIA
, the deemed statutory trust created by s. 8(1) of the
CLA
must
    satisfy the general principles of trust law:
Henfrey
. The general
    principle of trust law we must consider is that to establish a trust, three
    elements must be present, certainty of intention, certainty of subject matter,
    and certainty of object: see Eileen E. Gillese,
The Law of Trusts
, 3rd
    ed. (Toronto: Irwin Law, 2014), at pp. 41-47.

[22]

GCNA,
    supported by the Attorney General of Ontario and LIUNA Local 183, submits that
    the three certainties are present in s. 8(1). Certainty of intention is clear
    from the language of the statute that the amounts specified constitute a trust
    fund. Certainty of object is spelled out as the statute specifies that the trust
    fund is for the benefit of the subcontractors and other persons who have
    supplied services or materials to the improvement who are owed amounts by the
    contractor or subcontractor. Certainty of subject matter is made out as the statute
    clearly specifies that the subject of the trust is all amounts owing to a
    contractor or subcontractor and all amounts received by a contractor or
    subcontractoron account of the contract or subcontract price of an improvement.

[23]

RBC
    disputes both certainty of intention and certainty of subject matter.

(1)

Can a statutory deeming provision give rise to certainty
    of intention?

[24]

The
    motion judge did not deal with the issue of certainty of intention in her
    reasons. She appears to have assumed that it was created by s. 8(1). However,
    on appeal, RBCs principal argument to uphold the motion judges decision is
    that s. 8(1) cannot supply that element. RBC argues that under the general
    principles of trust law, it is necessary to prove that the settlor had the actual
    subjective intention to create a trust.

[25]

RBCs
    argument in relation to certainty of intention appears to rest upon a broad
    proposition, namely, that the three elements of certainty of subject matter,
    object and, in particular, intention, must be established on facts independent
    of any statutory deeming provisions.

[26]

This
    argument requires some consideration of the relationship between the provincial
    power to legislate in relation to property and civil rights in the province (
Constitution
    Act, 1867
, s. 92(13)) and the federal head of power in relation to
    bankruptcy and insolvency (
Constitution Act, 1867
, s. 91(21)).

(a)

Constitutional Validity of s. 8(1) of the
CLA
.

[27]

While
    RBC did not explicitly challenge the constitutional validity of s. 8(1) and
    accepted that it applies outside of the bankruptcy context, it did assert that
    the purpose of s. 8(1) is to alter priorities upon bankruptcy.  The implication
    of RBCs argument about the purpose of s. 8(1) of the
CLA
is that the
    provision is unconstitutional because its pith and substance fits within the
    federal power of bankruptcy and insolvency in s. 91(21) of the
Constitution
    Act, 1867
.

[28]

There
    is no issue that the
CLA
as a whole is valid provincial legislation in
    relation to property and civil rights in the province. The
CLA
aims to
    ensure that parties who supply services and materials to construction projects
    are paid by creating an integrated scheme of holdbacks, liens and trusts. This
    scheme protects subcontractors who are vulnerable due to their lack of privity
    of contract with the owner who benefits from the improvements they perform.
    Holdbacks require the owner and other contractors to withhold payments in order
    to ensure that funds are available to pay subcontractors and suppliers. Liens
    give subcontractors and suppliers the right to assert a claim directly against
    the property they have improved. Trusts protect the interests of subcontractors
    and suppliers by protecting funds owing to or received by those to whom they
    have supplied their services or materials.

[29]

In
    support of its submission that the purpose of the s. 8(1) statutory trust is to
    alter priorities in bankruptcy,  RBC cites statements from two documents
    prepared by Ontarios Ministry of the Attorney General prior to the
    Legislatures enactment of the
CLA
in 1983:
Discussion Paper on the Draft Construction Lien Act
(Toronto: Ministry of the Attorney General, November
    1980) and the
Report of the Attorney Generals Advisory Committee on the
    Draft Construction Lien Act
(Toronto: Ministry of the Attorney General, April
    1982). In particular, RBC relies on the statement in the
Report of the
    Attorney Generals Advisory Committee
, at p. xxxiv, suggesting that the
    primary purpose of the s. 8(1) trust is to prevent contract monies from being
    misappropriated, and protect those monies from the claims of other creditors in
    the event of a bankruptcy.

[30]

While
    the s. 8(1) trust may have the effect of protecting construction contract
    monies in the event of bankruptcy, I cannot agree that s. 8(1) is in pith and
    substance legislation in relation to bankruptcy and insolvency. The statement in
    the
Report of the Attorney Generals Advisory Committee
is admissible
    but must not be given inappropriate weight: Ruth Sullivan,
Sullivan on the
    Construction of Statutes
(6
th
ed) (Toronto: LexisNexis, 2014) at
    para. 23.58. A broader and more general protective purpose has been recognized
    both in academic writing and in the decisions of this court.  Kevin McGuinness,
    Trust Obligations Under the
Construction Lien Act
 (1994) 15 C.L.R.
    208, at p. 227, states that the purpose of the s. 8(1) trust is to isolate the
    contract moneys as they flow down the construction pyramid and serve to
    preserve that pool of funds during the period while payments are trickling
    down the pyramid to the persons ultimately entitled to the money concerned. As
    this court explained in
Dietrich Steel Ltd. v. Shar-Dee Towers (1987) Ltd.
    et al.
(1999), 42 O.R. (3d) 749 (C.A.), at p. 755, these statutory trusts
    exist by statute at each level of the construction pyramid for the benefit of
    those adding value to the land involved. They are super-imposed on the
    contacts entered into by the owner, contactor and subcontractorsfor the
    benefit of all those on the next level in the pyramid below the trustee.
    Similarly, in
Sunview Doors Ltd. v. Pappas,
2010 ONCA
    198, 101 O.R. (3d) 285, at para. 99, this court explained:

The object of
the
Act
is to
prevent unjust enrichment of those higher up in the construction
    pyramid by ensuring that money paid for an improvement flows down to those at
    the bottom. In seeking to protect persons on the lower rungs from financial
    hardship and unfair treatment by those above, the
Act

is clearly remedial in nature. The purpose
of
s. 8

is to impress money owing to or
    received by contractors or subcontractors with a statutory trust, a form of
    security, to ensure payment of suppliers to the construction industry.

[31]

RBC
    argues that the trust provisions are separate and independent from other
    provisions of the
CLA.
This submission

fails to recognize that
    the trust provisions complement the other
CLA
remedies even outside of
    bankruptcy or insolvency. As this court stated in
Sunview Doors
, at
    para. 51, citing the Supreme Courts decision in
Minneapolis-Honeywell
    Regulator Co. v. Empire Brass Manufacturing Co.
, [1955] S.C.R. 694, at p.
    696, the legislature enacted the trust provisions because it recognized that
    the lien provisions only provided a partial form of security to suppliers. The
    lien provisions failed to protect suppliers at the bottom of the pyramid in
    situations where the owner of the land had already paid the contractor. The
    trust provisions complement the lien provisions by providing security to
    suppliers at the bottom of the pyramid in these situations.

[32]

I
    agree with the Attorney General of Ontario and LIUNA Local 183 that the s. 8(1)
    trust must be seen as an integral part of the scheme of holdbacks, liens and
    trusts, designed to protect the rights and interests of those engaged in the
    construction industry and to avoid the unjust enrichment of those higher up the
    construction pyramid. That purpose exists outside the bankruptcy context. As Slatter
    J.A. recognized in
Iona Contractors Ltd. v. Guarantee Company of North
    America
, 2015 ABCA 240, 387 D.L.R. (4th) 67, leave to appeal dismissed,
    [2015] S.C.C.A. No. 404, the trust provisions of construction lien legislation
    cannot be seen in isolation and are part of a comprehensive package to protect
    construction subcontractors: paras. 21-22. Any effects that s. 8(1) may have on
    protecting contract monies in the event of bankruptcy are purely incidental and
    do not detract from the provisions provincial pith and substance: see
Lacombe
,

at para. 36. Accordingly, the s. 8(1) trust is a matter that is the proper
    subject of legislation relating to property and civil rights in the province:
John
    M.M. Troup Ltd. et al. v. Royal Bank of Canada
, [1962] S.C.R. 487, at p.
    494.

(b)

Does the doctrine of paramountcy apply?

[33]

As valid provincial legislation, the
CLA
benefits from a
    presumption of constitutionality and should be interpreted to avoid conflict
    with federal legislation where possible. If there is conflict, the doctrine of
    paramountcy applies, the federal legislation prevails and the provincial
    legislation is inoperative. Paramountcy is triggered by a conflict between
    provincial and federal legislation, namely, where there is an operational
    conflict such that it is impossible to comply with both laws or where the
    operation of the provincial law frustrates the purpose of the federal
    enactment:
Alberta (Attorney General) v. Moloney
, 2015 SCC 51, [2015] 3 S.C.R. 327, at para. 18.

[34]

Determining
    whether there is operational conflict requires analyzing how s. 8(1) of the
CLA
intersects with the
BIA
. The
BIA
is valid federal legislation
    dealing with bankruptcy and insolvency. It has the dual purpose of ensuring the
    orderly and equitable distribution of the assets in the event of insolvency and
    enabling the rehabilitation of those who have suffered bankruptcy:
Husky
    Oil Operations Ltd. v. Minister of National Revenue
, [1995] 3 S.C.R. 453, at
    para. 7. A central element of the
BIA
s regime for the orderly and
    equitable distribution of assets is a scheme that stipulates what property is
    available for distribution to creditors and provides for an appropriate ranking
    of priorities among creditors.

[35]

The
BIA
establishes a national regime of insolvency and bankruptcy law. Parliament
    has the authority under s. 91(21) to define terms in the
BIA
without
    reference to provincial law:
Husky Oil
, at para. 32. As McLachlin J.
    held in
Henfrey
, the definition of trust which is operative for the
    purposes of the
BIA
is that of Parliament, not the provincial
    legislatures: p. 35. I agree with the motion judges conclusion that
Henfrey
squarely addressed the paramountcy issue.
Henfrey
held that
    Parliament only intended s. 67(1)(a) of the
BIA
to apply to trusts
    arising under general principles of law, namely trusts that meet the three
    certainties: p. 34.

[36]

It
    follows that if a province purports to legislate into existence a trust that
    lacks one or more of the three certainties, the trust will not survive in
    bankruptcy:
Henfrey
, at p. 35. A provincial deemed statutory trust that
    lacks one or more of the three certainties would be in operational conflict
    with the meaning of trust in s. 67(1)(a). Section 67(1)(a) would include the
    property subject to the deemed statutory trust in the property of the bankrupt
    divisible among its creditors but the provincial deemed statutory trust would
    remove the property from the bankrupts estate. This would make it impossible
    for the receiver to comply with both the
BIA
and the provincial
    legislation deeming the trust into existence. By virtue of paramountcy, the
    provincial legislation in question would be inoperative in bankruptcy.

[37]

The
    question is whether allowing the
CLA
to establish certainty of intention
    is contrary to
Henfrey
. If it is, then the deemed statutory trust under
    s. 8(1) lacks certainty of intention, the statutory deemed trust is in
    operational conflict with s. 67(1)(a) of the
BIA
as interpreted by
Henfrey
,
    the  paramountcy doctrine applies, and the s. 8(1)
CLA
trust is
    inoperative in bankruptcy.

[38]

In
    my view,
Henfrey
contemplates and requires courts to look to the deeming
    language of a statute to determine whether there is certainty of intention.
    Accordingly, no conflict between the s. 8(1)
CLA
trust and the
BIA
arises,
    and the paramountcy doctrine is not triggered, on the basis that the deemed
    statutory trust lacks certainty of intention.  I reach this conclusion for five
    reasons, which I outline below.

(i)

It is appropriate to look to provincial statutory law to determine the
    content of
BIA
categories

[39]

First,
    it is appropriate to look to provincial statutory law to determine whether a
    trust satisfies the three certainties required under
Henfrey
.

[40]

RBC
    submits that allowing a statute to supply certainty of intention would run
    contrary to the policy concern expressed in
Henfrey
about avoiding a
    differential scheme of distribution from province to province:
Henfrey
,
    at p. 33.

[41]

I
    would reject this submission. The Supreme Court has recognized that the
    application of the national regime of insolvency and bankruptcy will vary to
    some extent from province to province due to differences in provincial law in
    relation to property and civil rights:
Husky Oil
, at para. 38. Because
    property and civil rights are determined by provincial law, the
BIA
cannot and does not operate as a water-tight compartment. Its application to a
    significant degree depends upon provincial law definitions of various forms of
    property. As stated in
Husky Oil
at para. 30, the
BIA
is
    contingent on the provincial law of property for its operation and is
    superimposed on those provincial schemes when a debtor declares bankruptcy. This
    means that provincial law necessarily affects the bottom line in
    bankruptcy, and this, said the court, is contemplated by the [
BIA
]
    itself.

[42]

Accordingly,
    it is appropriate to look to provincial law to determine whether a trust
    satisfies the three certainties required for it to operate in bankruptcy. The
BIA
refers to but does not define what is meant by a trust, yet the category of
    trust is recognized by the
BIA
s scheme of priorities.
As the Supreme Court of Canada stated in
Husky
, it is
    the substance of the interest created by the provincial law that is relevant
    for the purpose of applying the
Bankruptcy Act
: at para. 40.
Section 72 of the
BIA
contemplates the
    integration of the
BIA
with provincial legislation by providing that the
BIA
shall not be deemed to abrogate or supersede the substantive
    provisions of any other law or statute relating to property or civil rights
    that are not in conflict with [the
BIA
]. The Supreme Court has held
    that this provision demonstrates that Parliament intends provincial law to
    continue to operate in the bankruptcy and insolvency context unless it is
    inconsistent with the
BIA
:
Saskatchewan (Attorney General) v. Lemare
    Lake Logging Ltd.
, 2015 SCC 53, [2015] 3 S.C.R. 419, at para. 49.

[43]

In my view, the rules, principles and concepts of provincial law must
    include provincial statutory law. There is nothing in the
BIA
that would exclude provincial statutory law from consideration. This
    means that a court dealing with bankruptcy will necessarily apply provincial
    statutory law relating to property and civil rights.

(ii)

Henfrey
contemplates that the statute can supply certainty
    of intention

[44]

Second,
Henfrey
itself
    contemplates that the statute deeming the trust into existence can provide the required
    certainty of intention. At issue in
Henfrey
was whether the deemed
    statutory trust created by s. 18 of the
Social Service Tax Act
gave
    the province priority over the claims of secured and other creditors in
    bankruptcy. The Act required a merchant to collect the sales tax,
deemed
the tax collected to be held in trust and
deemed
the taxes collected to be
    held separate from and form no part of the person's money, assets or estate,
    whether or not these tax monies were held in a segregated account. The
    merchant in
Henfrey
went into bankruptcy and the province claimed
    priority over other creditors by virtue of the deemed statutory trust. The
    issue was whether the deemed statutory trust was a trust that removed the
    property from the estate of the bankrupt available for general distribution to
    creditors pursuant to s. 47(a) of the
Bankruptcy Act
, R.S.C. 1970, c. B-3
(what is now s.
    67(1)(a) of the
BIA
).

[45]

Writing
    for the 6-1 majority, McLachlin J. recognized, at p. 32, the principle that
    provinces cannot create priorities under the
Bankruptcy Act
by their
    own legislation. McLachlin J. added, at p. 33:

To interpret s. 47(
a
) as applying not only to trusts
    as defined by the general law, but to statutory trusts created by the provinces
    lacking the common law attributes of trusts, would be to permit the provinces
    to create their own priorities under the
Bankruptcy Act
and to invite
    a differential scheme of distribution on bankruptcy from province to province.

[46]

McLachlin
    J. concluded, at p. 34, that s. 47(
a
) should be confined to trusts
    arising under general principles of law Applying that proposition to the case
    before her, she found, at p. 34:

At the moment of collection of the tax, there is a deemed statutory
    trust. At that moment the trust property is identifiable and the trust meets
    the requirements for a trust under the principles of trust law
.
The difficulty in this, as in most cases, is that
    the trust property soon ceases to be identifiable. The tax money is
    mingled with other money in the hands of the merchant and converted to other
    property so that it cannot be traced. At this point it is no longer a
    trust under general principles of law. In an attempt to meet this problem,
    s. 18(1)(
b
) states that tax collected shall be deemed to be held
    separate from and form no part of the collector's money, assets or
    estate. But, as the presence of the deeming provision tacitly
    acknowledges, the reality is that after conversion the statutory trust bears
    little resemblance to a true trust. There is no property which can be
    regarded as being impressed with a trust. Because of this, s. 18(2) goes
    on to provide that the unpaid tax forms a lien and charge on the entire assets
    of the collector, an interest in the nature of a secured debt. [emphasis added]

[47]

This passage

supports the
    proposition that provinces can create trusts by statute that will survive
    bankruptcy by legislating the requirements for a trust under the general
    principles of trust law. When the tax in
Henfrey
was collected, the
    requirements for a trust under the principles of trust law were met. Had the
    province been able to assert its claim at that moment, before conversion of the
    trust property, it would have succeeded.

[48]

RBC
    does not accept that
Henfrey
supports the proposition that a statute
    can establish any of the three certainties. RBC points out that in
Henfrey
,
    it was conceded that the statute establishes certainty of intention and of
    object (at p. 44, per Cory J. dissenting). The reasons in
Henfrey
do
    not explain the basis for this concession. However, RBC contends that the
    merchants subjective intent to create a trust must have been inferred from the
    fact that, as required by statute, the merchant had registered with the
    province and that registration amounted to an intentional act from which an
    intention to create a trust may be inferred.

[49]

I
    find this argument unpersuasive for two reasons. First, it played no role in
    the majoritys reasons, a fact that RBC conceded in oral argument. As GCNA
    submitted in oral argument, if the majority wanted to adopt the position RBC is
    arguing for, it would have said so directly. Second, even if the merchants
    intention was relevant, the merchant had no choice. If he wanted to carry on
    business as a merchant in British Columbia, he had to register and he had to
    collect the tax. By doing so, he was simply complying with the law. It seems to
    me entirely artificial to suggest that his actions were any more voluntary than
    the actions of a contractor under Ontarios
CLA
regime who is deemed
    by statute to be a trustee of certain funds and required by statute not to
    convert or appropriate them.

[50]

As
    Gillese explains, at p. 42: To satisfy the certainty of intention requirement,
    the court must find an intention that the trustee is placed under an imperative
    obligation to hold property on trust for the benefit of another. The essential
    point is that the trustee is placed under an imperative obligation. I can see
    no reason in principle why that imperative obligation cannot be created by
    statute for the purposes of s. 67(1)(a) of the
BIA
.

[51]

GCNAs
    position finds support in the decision of Slatter J.A. in
Iona Contractors
.
    At issue in that case were holdback funds, impressed with a statutory trust
    under Albertas
Builders Lien Act
, R.S.A. 2000, c. B-7, s. 22. After
    carefully considering
Husky Oil
,
Henfrey
and several other
    cases dealing with the interaction of the
BIA
and provincial law,
    Slatter J.A. at para. 35, rejected the contention that as statutory trusts are
    in one sense involuntary, they cannot qualify as trusts arising under
    general principles of law. He found that proposition to be incompatible with
Henfrey
where McLachlin J. stated, at p. 34, that at the moment the tax was
    collected, the trust meets the requirements for a trust under the principles
    of trust law. Slatter J.A. added, at para. 36:

In most statutory trust situations, only the
    third certainty will be in play. Certainty of intention and certainty of
    objects will usually be satisfied by the terms of the statute. If the statute
    uses the word trust, the intention is clearUsually the intended beneficiary
    of the trust will also be obvious. The only potential for uncertainty is over
    the assets that are covered by the trust. [citation omitted]

(iii)

The
CLA
trust neither creates an operational conflict nor engages
    the
Henfrey
policy concerns

[52]

Third,
    the s. 8(1)
CLA
trust neither creates an operational conflict with the
BIA
nor engages the
Henfrey
policy concerns. I draw this conclusion
    because the s. 8(1) trust neither attempts to create a general floating charge
    over all of the bankrupts assets nor attempts to obtain a higher priority for
    the provincial Crown.

[53]

RBCs
    argument centres on the policy concern about provinces reordering priorities in
    the
BIA
. RBC submits that the
Henfrey
court was concerned to
    prevent a province from elevating the priority of a Crown claim by deeming it
    to be a trust claim:
Henfrey
, at p. 33. RBC maintains that the court
    resolved this concern by holding that the provincial Crown could only obtain a
    higher priority by benefiting from rights that could be obtained by anyone
    under general rules of law:
Henfrey
, at pp. 31-32, quoting
Québec
    (Deputy Minister of Revenue) c. Rainville
, [1980] 1 S.C.R.
    35, at p. 45
. RBC argues that this excludes consideration of statutory
    intention because private parties cannot legislate certainty of intention into
    existence like the provincial Legislature can.

[54]

There
    is a well-established line of cases holding that an operational conflict arises
    where the application of provincial legislation would reorder the priorities
    prescribed by Parliament in the
BIA
. The leading case is
Husky Oil
,
where a provincial statute deemed a
    debtor of a bankrupt to be a guarantor of money owed by the bankrupt to the
    Workers Compensation Board. If the debtor was called upon to pay, it could
    set-off the amount it paid against the debt it owed to the bankrupt. As this
    had the effect of diverting funds from the bankrupts estate to pay the Board
    it created an operational conflict with the
Bankruptcy Act
, R.S.C. 1985, c. B-3,
and was held to be
    inoperative. Similarly, Québec statutes that deemed debts for unpaid provincial
    taxes or workers compensation claims to be privileged conflicted with the
    priority given the debt in the
Bankruptcy Act
, R.S.C. 1970, c. B-3,
and were therefore
    inoperative:
Rainville
;
Federal Business
    Development Bank v. Qu
é
bec (Commission de la sant
é
et de la s
é
curit
é
du travail)
, [1988] 1 S.C.R. 1061. In another case,
    a provincial statute that created a charge on all an employers property for
    unpaid Workers Compensation claims conflicted with the priority the
Bankruptcy
    Act
, R.S.C. 1970, c. B-3
gave to such a claim and was therefore inoperative:
Deloitte
    Haskins and Sells Limited v. Workers' Compensation Board
, [1985] 1 S.C.R.
    785.

[55]

In
    my opinion, these cases do not support RBCs contention that provincial
    legislation cannot supply the three certainties of a trust, including certainty
    of intention. None of those cases involved a statutory trust conferring a trust
    interest in specific property related to a valid scheme under provincial
    legislation. Nor did those cases involve a deemed statutory trust in favour of
    private parties. In each case, the effect of the provincial statute was to give
    the province or a provincial agency a general charge and priority over all of
    the property of the bankrupt. That created an operational conflict with the
BIA
scheme of priorities and, under the doctrine of paramountcy, the provincial law
    was inoperative.

[56]

The
    amendments Parliament has made to s. 67 of the
BIA
confirm the
    distinction that I have drawn between provincial legislation that creates a
    priority in favour of the province and the type of statutory trust at issue in
    this case. In 1992, Parliament amended s. 67 to add s. 67(2), a provision that deals
    with deemed trusts:
An Act to amend the Bankruptcy Act and to amend the
    Income Tax Act in consequence thereof
, S.C. 1992, c. 27, s. 33. Section
    67(2) provides that subject to certain exceptions set out in s. 67(3), 
any provision in federal or provincial legislation that has the effect
    of deeming property to be held in trust for Her Majesty shall not exclude the
    property under s. 67(1)(a) unless it would be excluded in the absence of that
    statutory provision.

The Supreme Court has held that
    this amendment reflects Parliaments intention to rank the Crown with ordinary
    creditors in most bankruptcy scenarios:
Qu
ébec (Revenue) v. Caisse
    populaire Desjardins de Montmagny
, 2009 SCC 49, [2009] 3 S.C.R. 286, at
    paras. 12-15.

It is significant that Parliament singled
    out deemed trusts in favour of the Crown for exclusion from the protection s.
    67(1)(a) offers and left untouched deemed trusts in favour of other parties.

[57]

Nor
    is the policy concern about the reordering of priorities in favour of the
    province that the
Henfrey
court identified relevant to the trust that s.
    8(1) of the
CLA
creates.

[58]

Husky
    Oil
holds that an intention to intrude into the federal sphere of
    bankruptcy is not required for provincial legislation to be inapplicable.
    Provinces are not entitled to indirectly improve the priority of a claim and
    the provincial legislation will be inapplicable if its effect is to conflict
    with the order of priorities in the
BIA
.  Accordingly, the fact that the
    purpose of s. 8(1) is not to intrude into the federal sphere of bankruptcy or
    to alter priorities is not determinative.

[59]

The
    concern in
Husky Oil
is with provincial attempts to create a general
    priority: para. 34. The majority explained
Deloitte Haskins
and
Henfrey
as cases in which the province had sought to create a general
    prioritywhich had the
effect
of altering bankruptcy
    priorities. (emphasis in original)

[60]

As
    the majority in
Husky Oil
noted, the problem in
Henfrey
was
    that the effect of the statute was to attach the label trust to all of the
    debtors assets. The statute did not give the province a trust claim in
    relation to a specific fund or in relation to specific property but rather a
    priority based upon what amounted to a general charge to the extent of its
    claim over all the merchants assets:
Husky Oil
, at paras. 27, 35-36, 40.
    The provinces claim was not based upon a trust that complied with the general
    principles of trust law but rather on a provincially created priority that was
    incompatible with Parliaments scheme under the
BIA
.

[61]

The
    deemed statutory trust that s. 8(1) of the
CLA
creates benefits private
    parties in the Ontario construction industry, not the provincial Crown. Ontario
    is thus not creating any personal preference for itself:
Henfrey
, at
    p. 32, quoting
Rainville
, at p. 45. To the contrary, any subcontractor
    or supplier in the construction industry can obtain trust protection under s.
    8(1) in accordance with the general rules of law that the
CLA
establishes. Significantly, the passage from
Rainville
that
Henfrey
quotes refers to a builders privilege as a security interest that may be
    obtained by anyone under general rules of law:
Henfrey
, at p. 32,
    quoting
Rainville
, at p. 45. The builders privilege was a security
    interest that Québec legislation, Article 2013 of the
Civil Code of Lower
    Canada
, created over immoveable property in favour of construction industry
    participants who performed work on that property. It arose independently of the
    subjective intentions of the parties in the construction transaction, and was
    thus similar to the deemed statutory trust that s. 8(1) of the
CLA
creates.

[62]

Moreover,
    s. 8(1) of the
CLA
impresses specific property with the trust and does
    not create a general priority. The court in
Henfrey
referred to cases
    where no specific property impressed with a trust can be identified as raising
    policy considerations that weighed against protecting such deemed statutory
    trusts under the predecessor provision to s. 67(1)(a) of the
BIA
: p. 33.
    However, the trust that s. 8(1) of the
CLA
creates does not attempt to
    create a general floating charge over the bankrupts assets that would
    constitute a prohibited general priority. Instead, it impresses specific
    property  the funds owing to or received by the contractor or subcontractor 
    with the trust.

[63]

Accordingly,
I conclude that there is no operational conflict
    between s. 8(1) of the
CLA
and the
BIA
. I agree with and adopt as
    applicable to the case at bar Slatter J.A.s conclusion in
Iona Contractors
,
    at para. 37:

[T]he provisions
of
s. 22

meet the requirements of a common law
    trust. There is no deliberate attempt to reorder priorities in bankruptcy, and
    the province is not attempting to achieve indirectly what it cannot do
    directly. These considerations, coupled with the fact that the trust provisions
    of
s.
    22

are merely a collateral part
    of a complex regime designed to create security for unpaid subcontractors,
    leads to the conclusion that there is no operational conflict.

The decision of the British Columbia Supreme Court in
0409725
    B.C. Ltd. (Bankruptcy of)
,
2015 BCSC 561, 3 P.P.S.A.C. (4th) 278, at para. 22, is to a similar effect:

Applying the analysis of McLachlin J in

Henfrey
, certainty of intention is
    sufficiently provided by the statute in the circumstances of this case. That
    conclusion in no way intrudes into federal jurisdiction, and indeed, all
    parties conducted themselves on that basis.

(iv)

The
CLA
trust does not frustrate the purpose of the
BIA

[64]

There
    is no frustration of the purpose of the
BIA
that would render s. 8(1) of
    the
CLA
inoperative. I agree with LIUNA Local 183 that excluding s. 8(1)
CLA
trust funds from distribution to A-1s creditors is consistent with
    the objective of the
BIA
to provide for the equitable distribution of
    the bankrupts remaining assets. As I have already mentioned, the purpose of
    the
CLA
trust is to create a closed system to protect those suppliers
    and contractors down the construction pyramid and to ensure that the funds are
    not diverted prior to reaching their beneficial owner. The
CLA
scheme is
    directed at equity and at preventing the unjust enrichment of those higher up
    in the construction pyramid:
Sunview Doors Ltd.
, at para. 99.

To
    allow s. 8(1)
CLA
trust funds to be distributed to creditors of a bankrupt
    contractor would provide an unexpected and unfair windfall to those
    creditors:
see Norame Inc., Re,
2008 ONCA 319, 90 O.R. (3d) 303, at
    para. 18.

(v)

The cases RBC relies on are distinguishable

[65]

Fifth,
    the cases that RBC relies upon are distinguishable.

[66]

RBC
    submits that this court held in
GMAC
that deemed statutory trusts can
    never survive in bankruptcy.

[67]

At
    issue in
GMAC
was a regulation,
Load Brokers
, O. Reg. 556/92,
    under the
Truck Transportation Act
, R.S.O. 1990, c. T.22. Section 15 of
    the
Load Brokers
regulation stated that load brokers shall hold in
    trust money received by the load broker on account of carriage charges and
    shall maintain separate trust accounts for such funds. TCT, the bankrupt, had
    failed to maintain separate accounts, and a priority dispute arose between the
    carriers who claimed a trust and TCTs secured creditor.

[68]

RBC
    relies on para. 17 of the
GMAC
decision. There, the court stated that a
    consistent line of cases from the Supreme Court of Canada, including
Henfrey
,
    excludes statutory deemed trusts from the ambit of s. 67(1)(a). The court
    also stated that Parliament had only elected to carve out exceptions from this
    exclusion for certain deemed trusts in favour of the Crown by enacting s.
    67(3). Accordingly, it concluded that even if s. 15 of the Regulation created a
    deemed trust in addition to a mere statutory trust obligation, this trust would
    not be a trust under s. 67(1)(a) of the
BIA
.

[69]

In
    my view, the passage that RBC relies on from
GMAC
is distinguishable for
    the following three reasons.

[70]

First,
    the passage from
GMAC
that RBC relies on was not a necessary basis for
    the courts decision. The court in fact declined to decide whether s. 15 of the
    Regulation even created a deemed statutory trust: para. 17. It instead decided
    the case on the basis that commingling destroyed the required element of
    certainty of subject matter, an issue discussed later in these reasons:
GMAC
,
    paras. 18-20.

[71]

Second,
    the statements in para. 17 of
GMAC
must be read in light of the courts
    previous discussion of the holding in
Henfrey
. At para. 15, the
GMAC
court
    described
Henfrey
as holding that deemed statutory trusts do not operate
    in bankruptcy only if they do not conform to general trust principles. Thus,
    the court did not intend to state that deemed statutory trusts are never
    operative in bankruptcy. Indeed, as I will explain later in these reasons, the
Load
    Brokers
regulation did not create a deemed statutory trust but merely a
    statutory trust obligation that TCT did not comply with.

[72]

Third,
    the courts reliance on ss. 67(2) and (3) of the
BIA
must be read in
    light of the Supreme Courts subsequent interpretation of those provisions in
Desjardins
.
    The
GMAC
court took the view that Parliament intended to allow only
    certain deemed statutory trusts in favour of the Crown to survive in bankruptcy
    by enacting s. 67(3). The court thus seems to have assumed that Parliament intended
    to only protect deemed statutory trusts in favour of the Crown and not those in
    favour of private parties. Such an assumption runs contrary to
Desjardins
,
    where the Supreme Court held that Parliament enacted ss. 67(2) and (3) to limit
    the Crowns priority and rank the Crown with ordinary creditors in most
    bankruptcy scenarios: at paras. 12-15. Properly interpreted, s. 67(2) thus
    excludes deemed statutory trusts in favour of the Crown that would otherwise
    qualify as trusts under
Henfrey
principles from protection under s.
    67(1)(a). Section 67(3) sets out an exception to this exclusion. The s. 67(2)
    exclusion does not apply to deemed statutory trusts in favour of private
    parties, which may thus qualify as trusts under s. 67(1)(a) if they satisfy the
    requirements of
Henfrey
.

[73]

RBC also relies on
British Columbia v. National Bank of
    Canada
(1994), 119 D.L.R. (4th) 669 (B.C.C.A.), leave to
    appeal refused, [1995] S.C.C.A. No. 18, where the court stated, at p. 685, that
    provincial legislation cannot create the facts necessary to establish a trust
    under general principles of trust law. The court accordingly rejected the
    provinces argument that the provincial legislation supplied certainty of
    intention.

[74]

However, this blanket statement from
National Bank
cannot be
    reconciled with
Henfrey
itself. The effect of taking this statement at
    face value would be that provincial deemed statutory trusts could never exist
    in bankruptcy. However, as
Iona Contractors
recognized,
Henfrey
affirmed
    that provincial statutory trusts can survive in bankruptcy and that the statute
    at issue in
Henfrey
did create a valid trust at the moment of
    collection:
Iona Contractors
, at para. 35, citing
Henfrey
, at p.
    34.

[75]

Moreover,
National Bank
is distinguishable on the facts. The statute
    at issue in that case, the
Tobacco Tax Act
, R.S.B.C. 1979, c. 404, s.
    15, purported to create a lien and charge in favour of the provincial crown in
    respect of amounts collected for a tobacco tax on the entire assets of the
    person and having priority over all other claims of any person. That plainly
    could not survive under the general principles of trust law because it lacked
    certainty of subject matter and is precisely the type of charge that has been
    held to interfere with the
BIA
scheme: see
Husky
    Oil
, at paras. 35-36, 41. As McLachlin J. stated in
Henfrey
, such a
    general floating charge in fact tacitly acknowledges that there is no
    certainty of subject matter: p. 34.

[76]

In addition, RBC relies on two Saskatchewan Court of Queens Bench
    decisions which purported to apply
Henfrey
to find that deemed statutory
    trusts for the construction industry, established by Saskatchewans
The
    Builders Lien Act
, S.S. 1984-85-86, c. B-7.1,

did not operate in
    bankruptcy: see
Duraco Window Industries (Sask.) Ltd. v. Factory Window
    & Door Ltd. (Trustee of)
(1995), 34 C.B.R. (3d) 196 (Sask. Q.B.);
Roscoe
    Enterprises Ltd. v. Wasscon Construction Inc.
(1998), 161 D.L.R. (4th) 725
    (Sask. Q.B.). However, the court in
Duraco
only reached this conclusion
    because it interpreted
Henfrey
as requiring courts to analyze whether
    the three certainties were met without regard to the terms of the statute: at
    para. 9. The court then held that the deemed trust did not survive in
    bankruptcy because the parties did not subjectively intend to create a trust:
    paras. 11-13. The
Roscoe
court simply followed the
Duraco
courts
    analysis: at paras. 25-31. For the reasons stated above, this is a misreading
    of
Henfrey
. The court in
Henfrey
did look to the terms of the
    statute when it analyzed whether the deemed statutory trust satisfied the
    general principles of trust law: p. 34.

[77]

RBC also cites
Ivaco Inc. (Re)
(2006), 83
    O.R. (3d) 108 (C.A.), leave to appeal granted, [2006] S.C.C.A. No. 490, appeal
    discontinued on October 31, 2007, at para. 46, where this court described a deemed
    statutory trust as a legal fiction. There again, however, the statutory
    trust was a fiction as it amounted to nothing more than a general floating
    charge on all assets and could not satisfy the general principles of trust law.

(vi)

Conclusion

[78]

I conclude, accordingly, that
Henfrey
contemplates that a
    provincial statute can supply the required element of certainty of intention
    for a statutory trust and that the trust created by the
CLA
, s. 8(1)
    does not give rise to an operational conflict with the
BIA
, s. 67(1)(a).
    Accordingly, the doctrine of paramountcy does not apply.

(2)

Were the debts of the City and the Town choses in action
    that supplied the required certainty of subject matter for a trust?

[79]

As
    I have mentioned, the problem frequently encountered with deemed statutory
    trusts is that while they use the label trust, they do not actually create a
    trust but rather purport to confer a priority over all of the bankrupts
    assets. For the following reasons, I conclude that the motion judge erred by
    finding that the requirement of certainty of subject matter was not met in this
    case.

[80]

Gillese
    explains the requirement for certainty of subject matter as follows, at p. 43:

It must be possible to determine precisely what property the
    trust is meant to encompass. The subject matter is ascertained when it is a
    fixed amount or a specified piece of property; it is ascertainable when a
    method by which the subject matter can be identified is available from the terms
    of the trust or otherwise.

To a similar effect
    is this courts decision in
Angus v. Port Hope (Municipality)
, 2017 ONCA 566, 28 E.T.R. (4th) 169, at para. 112,
    leave to appeal refused, [2017] S.C.C.A. No. 382.

[81]

The
    motion judge ruled that because the funds the City and the Town owed to A-1 do
    not come from any particular fund or account and were simply payable by the
    City/Town from its own revenues or other sources, the requisite certainty of
    subject matter to establish a trust at common law was absent.

[82]

The
    amounts owed by the City and the Town on account of the paving projects were
    debts. It is well-established that a debt is a chose in action which can
    properly be the subject matter of a trust. In
Citadel General Assurance Co.
    v. Lloyds Bank Canada
, [1997] 3 S.C.R. 805, at para. 29, the court stated:
    A debt obligation is a chose in action and, therefore, property over which one
    can impose a trust. This proposition is supported by the decision of the House
    of Lords in
Lipkin Gorman v. Karpnale Ltd
., [1991] 3 W.L.R. 10. See
    also Donovan W.M. Waters, Mark R. Gillen & Lionel D. Smith,
Waters Law
    of Trusts in Canada
, 4th ed. (Toronto: Carswell, 2012), at p. 161.

[83]

It
    follows that it does not matter that neither the City nor the Town had created
    segregated accounts or specifically earmarked the source of the funds they
    would use to pay the debts they owed for the paving projects. The statutory
    trust attaches to the property of the contractor or subcontractor, namely the
    debt, not to the funds the debtor will use to pay that debt.

[84]

Section
    8(1) embraces all amounts, owing to a contractor or subcontractor, whether or
    not due or payable. That language designated precisely what property the trust
    is meant to encompass. A-1 owned those debts. They constituted choses in action
    which are a form of property over which a trust may be imposed. It follows that
    at the moment of A-1s bankruptcy, the trust created by s. 8(1) was imposed on
    the debts owed by the City and the Town to A-1.

(3)

Did commingling of the Funds mean that the required
    certainty of subject matter was not present?

[85]

In
    my respectful view, the motion judge erred by ruling that because the money
    paid to satisfy the individual debts owing to A-1 on account of the paving
    projects had been commingled with the money paid to satisfy other paving
    project debts in the Paving Projects Account, the requisite certainty of
    subject matter was not made out.

[86]

The
    evidence clearly establishes that the funds paid for each paving project were
    readily ascertainable and identifiable. They were commingled only to the extent
    they had all been paid into the same account but they had not been converted to
    other uses and they did not cease to be traceable to the specific project for
    which they had been paid.

[87]

Commingling
    of this kind does not deprive trust property of the required element of
    certainty of subject matter. Commingling of trust money with other money can
    destroy the element of certainty of subject matter, but only where commingling
    makes it impossible to identify or trace the trust property.

[88]

McLachlin
    J. explained this in
Henfrey
when she stated in relation to the deemed
    statutory trust imposed on money collected by a merchant under British
    Columbias
Social Service Tax Act
that the trust attached the moment
    the tax is collected. Accordingly, [i]f the money collected for tax is
    identifiable or traceable, then the true state of affairs conforms with the
    ordinary meaning of trust and the money is exempt from distribution to
    creditors in the merchants bankruptcy: pp. 34-35. McLachlin J. went on to
    explain that the problem with deemed statutory trusts is that very often, the
    trust property ceases to be identifiable: p. 34. She then stated, at pp.
    34-35, that the property ceases to be identifiable in the following circumstances:

The tax money is mingled with other money in the hands of the
    merchant
and
    converted to other property so that it cannot be traced
.
At this point it is no longer a trust under general
    principles of law  [If] the money has been converted to other property and
    cannot be traced, there is no propertyheld in trust under [the predecessor
    provision to s. 67(1)(a) of the
BIA
]. [emphasis added]

[89]

Subsequent
    jurisprudence confirms this statement of the law. In
Husky Oil
, the
    majority confirmed that
Henfrey
identified the key question as whether
    the trust property could be identified and traced: para. 25. This court also followed
    McLachlin J.s statement of the law in
Graphicshoppe (Re)
(2005), 78 O.R.
    (3d) 401 (C.A.), where Moldaver J.A. (as he then was) stated, at para. 123:

For present purposes, I am prepared to accept that
Henfrey
    Samson
falls short of holding that co-mingling of trust and other funds
    is, by itself, fatal to the application of s. 67(1)(a) of the
BIA
. Once
    however, the trust funds have been converted into property that cannot be
    traced, that is fatal. And that is what occurred here.

[90]

The
    motion judge considered herself bound by the decision of this court in
GMAC
to find that any commingling of trust property was fatal to certainty of
    subject matter. In fairness to the motion judge, I agree that there are
dicta
in
GMAC
that could be taken to support that proposition, and it
    appears that it has been read in the same way in other cases:
Bank of
    Montreal v. Kappeler
, 2017 ONSC 6760, at para. 3, and
Royal Bank of
    Canada v. Atlas Block Co.
, 2014 ONSC 3062, 15 C.B.R. (6th) 272, at paras.
    35-36. However, for the following reasons, it is my view that GMAC should not
    be read as standing for the proposition that any commingling will be fatal to
    the existence of a trust.

[91]

As
    described previously, the issue in
GMAC
concerned s. 15 of the
Load
    Brokers
regulation, which required load brokers to hold in trust for
    carriers money received by the load broker on account of carriage charges and
    to maintain separate accounts for such funds. TCT, the bankrupt, had failed to
    maintain separate accounts, and a priority dispute arose between the carriers
    who claimed a trust and TCTs secured creditor. The court held that, as TCT had
    not maintained a separate account but had commingled the money it received for
    carriage charges, there was no trust for the purposes of s. 67(1)(a) of the
BIA
.
    The court stated, at para. 19: Once the purported trust funds are co-mingled
    with other funds, they can no longer be said to be effectively segregated for
    the purpose of constituting a trust at common law. Significantly, the
    authority cited for that proposition is
Henfrey
, and the court goes on
    to cite the same passage from
Henfrey
that I have referred to above,
    at para. 44, stating that when the tax money is mingled with other money in
    the hands of the merchant and converted to other property so that it cannot be
    traced, it ceases to be subject to any trust. The
GMAC
court went on to
    state, at para. 20, that the facts before the court were not distinguishable
    from those of
Henfrey
and that the legal result must also be the same.

[92]

In
    my view,
GMAC
is distinguishable from the case at bar.

[93]

First,
    the
Load Brokers
regulation at issue in
GMAC
did not create a
    deemed statutory trust. Admittedly, the
GMAC
court did not find it
    necessary to decide this point: para. 17. However, this conclusion clearly follows
    from examining the text of s. 15 of the regulation and comparing it to other
    provisions that create deemed statutory trusts. The regulation did not use
    deeming language such as found in s. 18 of the
Social Service Tax Act
at
    issue in
Henfrey
. Instead, it used the obligatory language of shall,
    stating that the load broker shall hold in trust money received and shall
    maintain a trust account. This language indicates the regulation obligates the
    load broker to take steps that will bring a trust into existence but the
    regulation itself does not bring the trust into existence.

[94]

This
    distinction between deemed statutory trusts and statutory trust obligations
    explains the result in
GMAC
. The regulation only obligated the load
    broker to hold the funds received in a separate account. If TCT complied with
    this obligation, that would give rise to a trust. However, TCT did not comply
    with this obligation and instead deposited all funds received into a single
    account. Accordingly, TCT did not perform the actions required to create a
    trust. The fact that the monies TCT received may have been capable of being
    traced due to the computerized accounting records it maintained does not alter
    the conclusion that no trust arose. As GCNA submitted in oral argument, while tracing
    is available once a trust exists, tracing is incapable of creating a trust.

[95]

The
    distinction between deemed statutory trusts and mere statutory trust
    obligations also explains why a trust did attach to moneys received by the
    receiver on behalf of TCT following the receivers appointment. The receiver
    had deposited payments received into a separate account pursuant to court
    orders:
GMAC
, para. 33. The court found that the receiver was required
    to comply with s. 15 of the regulation and hold the funds on trust:
GMAC
,
    para. 36. Accordingly, the court found that that the payments the receiver
    collected were held on trust because the receiver was required to comply with
    the regulation and did in fact comply with it by holding the funds in a
    separate account:
GMAC
, para. 38. The receivers action of complying
    with the statutory trust obligation by depositing the funds into a separate
    account thus brought the trust into existence.

[96]

In
    contrast, s. 8(1) of the
CLA
operates quite differently than s. 15 of
    the
Load Brokers
regulation. It does impose a deemed statutory trust
    rather than merely create a statutory trust obligation on the contractor to
    hold money on trust in a separate account. Section 8(1) declares that the
    amounts owing to the contractor constitute a trust fund independently of the
    contractors subjective intention or actions. The s. 8(1) trust is imposed from
    the time the moneys are owed to the contractor, not just after they are
    received. Accordingly, the fact that ss. 8(1) and (2) did not require the
    segregation of amounts received is not determinative because the statute
    itself, not the act of complying with a statutory obligation to segregate
    funds, created the trust.

[97]

Second,
    the statement that once the purported trust funds are commingled with other
    funds they cease to be trust funds must be read in the light of the fact that
    when making it, the court was explicitly following
Henfrey.
In
Henfrey
,
    as I have explained, McLachlin J. made it clear that it was only when commingling
    is accompanied by conversion and tracing becomes impossible that the required
    element of certainty of subject matter is lost.

[98]

In
    my view,
GMAC
should not be read as standing for the proposition that
    all deemed statutory trusts cease to exist if there is any commingling of the
    trust funds.

[99]

I
    am fortified in that conclusion by a considerable body of authority in addition
    to
Henfrey
that stands for the proposition that commingling alone will
    not destroy the element of certainty of subject matter under the general
    principles of trust law. I have already mentioned
Graphicshoppe
where
    this court clearly rejected that proposition. A.H. Oosterhoff, Robert Chambers
    & Mitchell McInnes,
Oosterhoff on Trusts: Text, Commentary and Materials
,
    8th ed. (Toronto: Carswell, 2014), at pp. 207-208, states that when trust
    property is deposited into a mixed account, the trust is not necessarily
    defeated. The rules of tracing allow the beneficiary to assert a proprietary
    interest in the account. In
B.M.P. Global Distribution Inc. v. Bank of
    Nova Scotia
, 2009 SCC 15, [2009] 1 S.C.R. 504, the Supreme Court held that
    mixing of the funds does not necessarily bar recovery and that it is possible
    to trace money into bank accounts as long as it is possible to identify the
    funds: at para. 85. The funds are identifiable if it can be established that
    the money deposited in the account was the product of, or substitute for, the
    original thing: at para. 86. As the Alberta Court of Queens Bench recently
    held, in
Imor Capital Corp. v. Horizon Commercial Development Corp.
,
    2018 ABQB 39, 56 C.B.R. (6th) 323, at para. 58:

[the bankrupts] co-mingling of trust funds with its own is
    not fatal to the trust. It must be determined whether, despite the co-mingling,
    the trust funds can be identified or traced.

The following cases are to the same effect:
In re Halletts
    Estate
(1880), 13 Ch.D. 696 (C.A.);
In re Kayford Ltd.
, [1975] 1
    W.L.R. 279 (Ch.);
Kel-Greg Homes Inc. (Re),
2015 NSSC 274, 365 N.S.R.
    (2d) 274, at paras. 51-59;
0409725 B.C. Ltd.
, at paras. 24-34;
Kerr
    Interior Systems Ltd. v. Kenroc Building Materials Co. Ltd.,
2009 ABCA 240,
    54 C.B.R. (5th) 173, at para. 18.

(4)

Does RBCs security interest have priority even if the
    trust created by s. 8(1) of the
CLA
survives in bankruptcy?

[100]

On appeal, RBC
    submits that its security interest takes priority over the deemed statutory
    trust in s. 8(1) of the
CLA
even if this court finds that the
CLA
trust is valid under s. 67(1)(a) of the
BIA
. RBC relies on the Supreme
    Courts decision in
Royal Bank of Canada v. Sparrow Electric Corp.
,
    [1997] 1 S.C.R. 411 in support of this argument. In that case, the majority
    found that a banks security interest under the
Bank Act
, S.C. 1991, c.
    46 and the

Personal Property Security
    Act
, S.A. 1988, c. P-4.05 took priority over a deemed statutory trust in
    favour of the federal Crown established by ss. 227(4) and (5)  of the
Income
    Tax Act
, R.S.C. 1985, c. 1 (5th Supp.).

[101]

RBC did not
    advance this argument before the motion judge. Nor did RBC introduce its general
    security agreement with A-1 into the record.

[102]

Accordingly, I
    would decline to consider this argument. A respondent on appeal cannot seek to
    sustain an order on a basis that is both an entirely new argument and in
    relation to which it might have been necessary to adduce evidence before the
    lower court: see
R. v. Perka
, [1984] 2 S.C.R. 232, at p. 240;
Fanshawe
    College of Applied Arts and Technology v. AU Optronics Corp.
, 2016 ONCA
    131, 129 O.R. (3d) 391 (in Chambers), at para. 9. RBCs proposed argument is both
    new and requires evidence that RBC has not adduced. In both
Sparrow Electric
and
GMAC
, the court considered the specific provisions of the
    security agreement in determining whether the security attached to the trust
    funds: see
Sparrow Electric
, at paras. 71-72, 90;
GMAC
, at para.
    26. This court is unable to consider the specific provisions of RBCs security
    agreement with A-1 because it is not part of the record.

Disposition

[103]

For these
    reasons, I would allow the appeal, set aside the order below and make an order:

1.

That
    by operation of s. 67(1)(a) of the
BIA
, the Funds satisfy the
    requirements for a trust at law and so are not property of A-1 available for
    distribution to A-1s creditors; and

2.

That
    the balance of the motion concerning GCNAs priority dispute with the Unions be
    remitted to the Superior Court for disposition.

[104]

GCNA is entitled to costs awarded against RBC fixed at $30,000 for the
    motion and at $45,000 for this appeal, both amounts inclusive of disbursements
    and taxes.

Released:

AH                                                            Robert
    Sharpe J.A.

JAN 14 2019                                              I
    agree Alexandra Hoy A.C.J.O.

I
    agree Doherty J.A.

I
    agree Roberts J.A.

I
    agree Fairburn J.A.


