A-352-90
Attorney General of Canada (Applicant)
v.
Patrick LeBlanc (Respondent)
INDEXED AS: CANADA (ATTORNEY GENERAL) V. LEBLANC
(CA.)
Court of Appeal, Mahoney, Stone and Desjardins
JJ.A.—Toronto, December 14, 1990; Ottawa,
January 7, 1991.
Unemployment insurance — Application to set aside
Umpire's decision vacation pay accumulated during employ
ment and paid out during layoff held in trust and not "earn-
ings" within Unemployment Insurance Regulations, s. 57(2)(a)
— Nova Scotia Labour Standards Code deeming employer
holding vacation pay in trust — Vacation pay held in employ
er's general bank account — Employee not "beneficially enti
tled" to moneys while held by employer — Application
allowed.
Trusts — Vacation pay accumulated during employment
and paid out during layoff "earnings" within Unemployment
Insurance Regulations, s. 57(2)(a) — Vacation pay commin
gled with employer's funds in general bank account — Umpire
erred in holding vacation pay held in trust by employer —
Nova Scotia Labour Standards Code, deeming employer hold
ing moneys in trust, not allowing treatment of vacation pay as
savings as not held in separate account — Neither doctrine of
constructive nor resulting trust applicable as funds no longer
residing with employer.
This was an application to set aside the Umpire's decision
that vacation pay, accumulated during employment and paid
out during layoff, had been held in trust for LeBlanc and was
not "earnings" within Unemployment Insurance Regulations,
paragraph 57(2)(a). The collective agreement provided that
vacation pay accumulating during each pay period would be
retained by the employer and not paid out until the employee's
actual vacation or layoff. Under the Labour Standards Code of
Nova Scotia, an employer was deemed to hold vacation pay in
trust. The vacation pay was not, however, held in a separate
trust, but was mixed with the employer's own funds in its
general bank account. The Umpire held that the case was
governed by Canada (Attorney General) v. Whelan, wherein
vacation pay had been put into an account for the employee
and was subject to "deemed trust" provisions in the Ontario
statute. The issue was whether the Umpire erred in holding
that the vacation pay had been held in trust. The applicant
submitted that for vacation pay to be treated as savings, it
would have had to vest in a trustee under the terms of an
express trust for the benefit of the employee, or at least have
been set aside by the employer in a separate account and been
subject to a provincial statute deeming it to be held in trust.
LeBlanc argued that the vacation pay was savings because he
had been "beneficially entitled" to that money from the time it
was earned, or that it had been held in trust according to the
provincial statute, or under a constructive or resulting trust.
Held, the application should be allowed.
The vacation pay was "earnings" within Unemployment
Insurance Regulations, paragraph 57(2)(a).
Whelan has not been extended to situations, such as that at
Bar, where vacation pay was retained by the employer in its
own account. In two recent cases, the Federal Court of Appeal
has held that the funds must be clearly set aside and kept
separate and beyond the control of the employer.
LeBlanc was not beneficially entitled to the moneys while
they were held by the employer. At common law, a person is
beneficially entitled to property where he has a right to sue for
and to recover it. The vacation pay was outside LeBlanc's
control while it was held by the employer; he was entitled to
payment only as the collective agreement provided. He was not
entitled to sue for and recover the money.
The deemed trust provisions of the Nova Scotia statute did
not allow the vacation pay to be treated as savings because it
had been mixed with the employer's funds. Identifiability and
traceability pose difficult problems in trust law in light of the
requirement of certainty of subject-matter. Reduction of the
bank account to a debit position during the period would have
meant that the vacation pay money per se had disappeared.
The moneys actually paid as vacation pay had not been held as
such in the employer's bank account throughout the period.
Nor was there a constructive trust. Central to the operation
of the constructive trust doctrine is the avoidance of unjust
enrichment. The employer did not profit from its own default in
the handling of vacation pay. It paid the money as required by
the collective agreement. It did not retain money it was obliged
to refund.
The doctrine of resulting trust requires that the property
revert to the person making the conveyance. It was therefore
inapplicable because the funds no longer resided with the
employer.
STATUTES AND REGULATIONS JUDICIALLY
CONSIDERED
Employment Standards Act, R.S.O., 1980, c. 137, s. 15.
Labour Standards Code, S.N.S. 1972, c. 10, s. 34(1) (as
am. by S.N.S. 1975, c. 50, s. 2).
Unemployment Insurance Regulations, C.R.C., c. 1576,
s. 57(2)(a) (as am. by SOR/88-277, s. 7).
CASES JUDICIALLY CONSIDERED
APPLIED:
MacKeen Estate v. Nova Scotia (1978), 28 N.S.R.
(2d) 3; 89 D.L.R. (3d) 426; 43 A.P.R. 3; [1978] CTC
557; 2 E.T.R. 264 (C.A.); In re Miller's Agreement,
[1947] Ch. 615; Montreal Trust Company et al. v. The
Minister of National Revenue, [1958] S.C.R. 146;
(1958), 12 D.L.R. (2d) 226; [1958] C.T.C. 60; 58 DTC
1051; Pettkus v. Becker, [1980] 2 S.C.R. 834; Rathwell
v. Rathwell, [1978] 2 S.C.R. 436; (1978), 83 D.L.R. (3d)
289; [1978] 2 W.W.R. 101; 1 E.T.R. 307; 1 R.F.L. (2d)
1; Canada (Attorney General) v. Nield, A-46-90, F.C.A.,
Marceau J.A., judgment dated 21/9/90, not yet reported;
Canada (Attorney General) v. Haycock, A-47-90, F.C.A.,
Marceau J.A., judgment dated 21/9/90, not yet reported.
DISTINGUISHED:
Canada (Attorney General) v. Whelan, A-756-88, F.C.A.,
Marceau J.A., judgment dated 9/6/89, not reported; Brit-
ish Columbia v. Henfrey Samson Belair Ltd., [1989] 2
S.C.R. 24; (1989), 59 D.L.R. (4th) 726; [1989] 5
W.W.R. 577; 38 B.C.L.R. (2d) 145; 75 C.B.R. (N.S.) 1;
97 N.R. 61; 2 T.C.T. 4263; [1989] 1 T.S.T. 2164.
CONSIDERED:
Bryden v. Canada Employment and Immigration Com
mission, [1982] 1 S.C.R. 443; (1982), 133 D.L.R. (3d) I;
82 CLLC 14,175; 41 N.R. 180; Vennari v. Canada
(Canada Employment and Immigration Commission),
[1987] 3 F.C. 129; (1987), 76 N.S.R. (2d) 147; 36
D.L.R. (4th) 614; 87 CLLC 14,018 (C.A.); Giroux v.
Canada (Canada Employment and Immigration Com
mission), [1989] 1 F.C. 279; (1988), 88 CLLC 14,032;
86 N.R. 147 (C.A.); Ryder v. Commission, CUB 15322,
dated 16/5/88, Strayer J.
AUTHORS CITED
Underhill, Arthur Law Relating to Trusts and Trustees,
4th ed. by David J. Hayton, London: Butterworths &
Co. (Publishers) Ltd. 1987.
Waters, D. W. M. Law of Trusts in Canada, 2nd ed.,
Toronto: Carswell Co. Ltd., 1984.
COUNSEL:
Neelam Jolly for applicant.
Paula Turtle for respondent.
SOLICITORS:
Deputy Attorney General of Canada for
applicant.
United Steel Workers of America, Toronto,
for respondent.
The following are the reasons for judgment
rendered in English by
STONE J.A.: This is another in a catena of cases
in which umpires have been called upon to decide
whether vacation pay, which was accumulated for
the benefit of an employee during a period of
employment and paid out to him after termination
Or during a period of layoff, is "earnings" within
the meaning of paragraph 57(2)(a) of the Unem
ployment Insurance Regulations [C.R.C., c. 1576
(as am. by SOR/88-277, s. 7)]. That paragraph
provides as follows:
57... .
(2) Subject to this section, the earnings to be taken into
account for the purpose of determining whether an interruption
of earnings has occurred and the amount to be deducted from
benefits payable under subsection 26(1) or (2), 29(4), 30(5),
32(3), 32.1(4) or 32.2(4) of the Act and for the purposes of
sections 51 and 52 of the Act are
(a) the entire income of a claimant arising out of any
employment;
FACTS
Mr. LeBlanc was employed by Pictou Industries
Limited of Pictou, Nova Scotia, until December 4,
1987, when he was laid off. He claimed and
received unemployment insurance benefits, and
subsequently received vacation pay which was
treated by the Canada Employment and Immigra
tion Commission as "earnings" for the weeks com
mencing January 24 ($530), January 31 ($530)
and February 7, 1988 ($343). This had the effect
of causing a benefits overpayment of $626.' A
board of referees determined the vacation pay to
be "earnings", but that decision was reversed on
appeal to an Umpire on April 11, 1990. It is from
this latter decision that this judicial review
application is brought.
The claim before us was selected as a "test
case". Many fellow employees, who were laid off
at the same time as Mr. LeBlanc, claimed and
received unemployment insurance benefits and
were paid vacation pay which was treated by the
Commission as "earnings".
Case, Vol. 1, p. 13. The weeks were subsequently changed
to those commencing January 17, 24 and 31, 1988.
Both the terms of a collective agreement be
tween Mr. LeBlanc's Union and his employer and
the statute laws of Nova Scotia contained relevant
provisions. Article 21 of that agreement dealt with
the subject of "Vacation with Pay", and contained
the following provisions governing vacation pay:
21.01 All employees of the Company shall be paid four percent
(4) of their total earnings for the preceding calendar year as
shown in the records of the Company and on the T4 Slip.
21.14 If employees elect to claim their vacation period during
the month of January due to being on layoff during that month,
the Company shall make reasonable efforts to have vacation
pay available at the time of commencement of vacation, pro
vided however an employee shall not be entitled to vacation pay
until the Company has had at least ten (10) days' notice of the
employee's election.
21.18 At the end of each pay period, vacation pay accruing
during that pay period shall be allocated to each employee's
pay and shown on the employee's pay stub. However, vacation
pay (other than required deductions) will be retained by the
Company and not paid out to the employee until the employee's
actual vacation the following calendar year.'
The statute laws of Nova Scotia in force at the
time contained provisions whereby an employer is
deemed to hold vacation pay in trust. These provi
sions appeared in subsection 34(1) of the Labour
Standards Code, S.N.S. 1972, c. 10, as amended
by S.N.S. 1975, c. 50, section 2 3 as follows:
34. (I) Every employer is deemed to hold vacation pay accruing
due to an employee in trust for the employee and for payment
of the vacation pay over in the manner and at the time provided
under this Act and the regulations, and the amount is a charge
upon the assets of the employer or his estate in his hands or the
hands of a trustee and has priority over all other claims.
The Board of Referees found as a fact that the
vacation pay was neither held in a separate trust
nor, indeed, kept separate and apart from the
employer's own funds. The Board's decision reads
in part:
In the collective agreement between Pictou Industries Limited
and Local 4702, United Steelworkers of America, there is no
mention of a trust fund. In fact, in Exhibit #6-17, the contract
2 Collective Agreement between Pictou Industries Limited
and United Steelworkers of America, Local Union No. 4702,
with a duration of July 7, 1986, to March 31, 1988. (Case,
Vol. 1, p. 15 et seq).
3 Now subsection 36(1) of R.S.N.S. 1989, c. 246.
states in part (21.18): "However, vacation pay (other than
required deductions) will be retained by the company and not
paid out to the employee until the employee's actual vacation
the following calendar year." In Exhibit #10, the Unemploy
ment Insurance officer quotes Mr. Smith of the company as
stating "The money is paid weekly and deductions made
weekly. The money is deposited in the company's regular
account and is administered by the company".... The Board
feels for Patrick LeBlanc but the company was collecting the
vacation pay and depositing it in the general account, not a
trust fund. 4
It appears that the "required deductions" were
made on account of income tax and unemployment
insurance premiums.
UMPIRE'S DECISION
The Umpire took the view that the case was
governed by this Court's decision in Canada
(Attorney General) v. Whelan (Court File A-756-
88, judgment rendered June 9, 1989, not report
ed). The vacation pay in issue in that case was not
vested in a trustee under the terms of an express
trust, but had been "put in an account"' for the
employee. It was subject to the "deemed trust"
provisions in section 15 of the Employment Stand
ards Act, R.S.O. 1980, c. 137, 6 which are similar
in some respects to those of the Labour Standards
Code of Nova Scotia recited above. In the decision
under review, the learned Umpire wrote (at pages
8-9):
In addition to this deeming provision, the money accruing to an
employee during a pay period as vacation pay was allocated by
the employer to the employee at the end of each pay period,
after deduction of income tax and unemployment insurance
premiums, and was retained in the hands of the employer (That
was not the situation in CUB 15322, referred to by counsel and
noted by the Federal Court of Appeal in Whelan.). In my view
the basic requirements as outlined in Whelan are met. While
pursuant to the terms of the Collective Agreement the payout
^ Case, Vol. 2, at pp. 129-130.
'At p. 2 of the Umpire's decision in that case (CUB 15360)
the evidence of an officer of the employer to this effect was
recited.
6 S. 15 reads:
15. Every employer shall be deemed to hold vacation pay
accruing due to an employee in trust for the employee whether
or not the amount therefor has in fact been kept separate and
apart by the employer and the vacation pay becomes a lien and
charge upon the assets of the employer that in the ordinary
course of business would be entered in books of account wheth
er so entered or not.
of money from the fund was at the time of the employee's
actual vacation, that fact in itself is not determinative of
whether or not the money was held on the employee's behalf.
(Giroux, supra, at page 292.)
One other matter deserves comment. Counsel for the Commis
sion made reference to the fact that the nature of the account
into which the vacation pay was paid by the employer was not
specified. The suggestion being that the money was not sepa
rately held in an account set up for that purpose and therefore
it could not then be considered as being held in trust when
mixed with the employer's general or regular account. Counsel
for the claimant submitted that in the circumstances of this
case, the nature of the account was irrelevant in determining
whether or not a trust existed. With this I agree.
In my view, whether or not the funds were held in a separate
account created specifically for that purpose is not necessarily
determinative of whether or not a trust exists. While such an
arrangement may be preferable and would provide evidence
that a trust has been created, it seems to me that what is
important is that the beneficial interest of the employee be
identifiable and distinct. That perhaps is best done by means of
a separate account. However, there is here clear evidence of the
claimant's beneficial interest arising from the statutory trust,
the quantum of which is identified by his pay cheque stubs or
the payroll records of the employer.
ISSUE
The issue before us is whether the learned
Umpire erred in deciding that the vacation pay
was held in trust for Mr. LeBlanc from the time it
was set aside until it was paid to him on January 5,
1988.
APPLICANT'S POSITION
The applicant submits that the Umpire erred in
refusing to treat Mr. LeBlanc's vacation pay as
"earnings", and says that in order for it to be so
treated it would have had to vest in a trustee under
the terms of an express trust for the benefit of the
employee: Bryden v. Canada Employment and
Immigration Commission, [1982] 1 S.C.R. 443;
Vennari v. Canada (Canada Employment and
Immigration Commission), [1987] 3 F.C. 129
(C.A.), Giroux v. Canada (Canada Employment
and Immigration Commission), [1989] 1 F.C. 279
(C.A.); 7 or, at the very least, to have been set aside
by the employer in a separate account, after
' The fact that interest earned on vacation pay during the
period it is held is, in terms, to be paid to the employee
indicates that the principal is being held for the benefit of the
employee: see Giroux, per Pratte J.A., at p. 292. The record in
the present case contains neither any reference to the accumu
lation of interest nor, indeed, to whether any was earned.
deduction of income tax and unemployment insur
ance premiums, and been subject to the provisions
of a provincial statute deeming it to be held in
trust: Whelan, supra. 8
Attempts to extend the scope of Whelan to
situations where the vacation pay was retained by
the employer in his own account have failed.
Canada (Attorney General) v. Nield (Court File
No. A-46-90) and Canada (Attorney General) v.
Haycock (Court File No. A-47-90) were heard on
the same day, and were disposed of from the bench
on September 21, 1990. The facts and issue in
both were identical. The employer had continued
to hold the vacation pay, though not in a separate
account, and the provisions of section 15 of the
Employment Standards Act of Ontario were relied
upon. The question for the Court in each case was
whether the Umpire had correctly determined the
vacation pay to be savings rather than "earnings".
In concluding that the Umpire had erred, Mr.
Justice Marceau, on behalf of the Court, stated at
page 3 of Nield (and also of Haycock):
We are all of the view that the umpire was wrong. The
Whelan judgment did not support the conclusion that the mere
existence of the Ontario statute was sufficient, as a close
reading of the central passage of that judgment that he himself
cited clearly shows:
It appears to us that the conclusion finds ample support in the
deeming provisions of section 15 of the Ontario Employment
Standards Act, R.S.O. 1980, c. 137, combined with the fact
that the money was actually set aside by the employer at each
period of pay, after deduction of income tax and unemployment
insurance premiums. In our view, this combination of factors
was sufficient to satisfy requirements — as established by the
Supreme Court in the leading Bryden case and reiterated in
this Court in the well known Vennari and Giroux decisions —
for a vacation pay to be seen, at the moment of its remittance
to the employee, as having lost its character of earnings to
acquire that of savings not falling under the provisions of
paragraph 57(2)(a) of the Unemployment Insurance Regula
tions. (My underlining.)
The deeming provisions of the Ontario Employment Stand
ards Act are not sufficient in themselves to satisfy the require
ments established by the case law which flowed from Bryden.
In order for the vacation pay to lose its normal character of
" This, indeed, was the view taken by Rouleau J. sitting as an
Umpire in Precepa which was decided on June 22, 1990.
earnings and acquire that of savings, the moneys have to be
clearly set aside at each period of pay, after deduction of
income tax and unemployment insurance premiums, since they
are part of the employee's remuneration; and thereafter they
must be kept separate and beyond the needs and control of the
employer's operations. Anything less would make it impossible
to claim, at the time they are remitted to the employee, that the
moneys have already been paid and were merely being kept and
"saved" on behalf of the employee.
In my respectful view, the judgment of this
Court in Whelan does not govern the present case.
It was clear in that case that the vacation pay had
been put in an account by the employer, was so
held for the benefit of the employee and was
subject to the "deemed trust" provisions of the
Ontario statute. Here, the vacation pay was com
mingled with the employer's own money in its
general bank account. In this respect, this situation
is akin to that which obtained in Nield and Hay
cock, decided subsequently to the decision under
review. I infer from both that, as here, the vacation
pay was not held separately from the funds of the
employer.
RESPONDENT'S POSITION
Mr. LeBlanc asks that we look at this question
afresh in the light of recent developments and, in
any event, that we should decide the case on a
different legal footing. Counsel advances four
arguments for treating the vacation pay in ques
tion as savings rather than as "earnings". These
are:
1. It is not necessary for a formal trust to be
established for vacation pay to be characterized as
savings rather than "earnings". It is sufficient to
show that a claimant was beneficially entitled to
such pay during the time it was held by the
employer.
2. Alternatively, the vacation pay was savings
rather than "earnings" because
(a) in fact and in law it was held by the employ
er in trust; or
(b) it was held by the employer under a con
structive trust; or
(c) it was held by the employer under a resulting
trust.
Beneficial entitlement
The first argument is that the vacation pay must
not be treated as earnings because, as it was put by
counsel, Mr. LeBlanc was "beneficially entitled"
to that money from the time it was earned and,
therefore, the vacation pay represented savings.
The existence of a trust of any kind is not required.
Counsel drew attention to this Court's decision in
Giroux, supra, as supporting the argument, but I
do not so read that case. The vacation pay there in
issue was treated by the Court as falling under the
principle of Bryden, supra. Under the Construc
tion Decree [R.R.Q. 1981, c. R-20] of Quebec
employers in a particular industry were compul
sorily required to remit annual vacation pay to
"l'Office de la construction du Québec" which, in
turn, was required to pay it out to the individual
employees on specified dates in each year. The
vacation pay was held by l'Office for that purpose
and for that purpose alone. I agree with Strayer J.
in Ryder (CUB 15322), at page 4, that Giroux
"held that a statutory scheme may create a suffi
cient trust relationship analogous to those found in
Bryden and Vennari to turn vacation pay into
savings".
I can find no authority to support the general
assertion that Mr. LeBlanc was beneficially en
titled to these moneys while they were held by
Pictou Industries Limited. If anything, the con
trary is true. At common law, the notion of benefi
cial entitlement seems to have acquired a fairly
well understood meaning. In MacKeen Estate v.
Nova Scotia (1978), 28 N.S.R. (2d) 3 (C.A.), at
page 11, MacKeigan C.J.N.S. wrote of the modern
sense of the phrase "beneficially entitled" in the
following terms:
In the modern sense of the phrase, a person is "beneficially
entitled" to property if he is the real or beneficial owner of it,
even though it is in someone else's name as nominal owner. The
nominal owner of the property, whether real property, choses in
action or other personal property, has legal title to it. The real
owner, the person "beneficially entitled" to it, can require the
nominal owner to let him use or have possession of the prop
erty, or to give him the income from it, or otherwise to let him
have the benefit and enjoyment of it. He usually can require
the nominal owner to convert the property into another form or
to transfer the legal title to some other nominal owner. Above
all, he is able, unless restricted by the terms of a specific trust,
to call on the nominal owner to convey the property to him and
to transfer its legal title to him, the real owner. If he does so, he
will then fully acquire the property by achieving full ownership
and will cease to be merely beneficially entitled to it.
In In re Miller's Agreement, [1947] Ch. 615,
Wynn-Parry J. expressed the view, at page 625,
that a person may be considered as beneficially
"entitled" to property where "he has a right to sue
for and recover such property." This view was
endorsed with some modification by Rand J. in
Montreal Trust Company et al. v. The Minister of
National Revenue, [1958] S.C.R. 146, where,
speaking for himself, at page 149 he said:
Mr. Marler for the appellants urged as the test to determine
whether a successor had become "beneficially entitled to any
property" that formulated by Wynn-Parry J. in In Re Miller's
Agreement; Uniacke v. Attorney General ([1947] 1 Ch. 615,
[1947] 2 All E.R. 78). The test was, that it must be "postulated
of him [the successor] that he has a right to sue for and recover
such property". If the word "recover" extends to the applica
tion of money to one's benefit, and "sue for" to an ultimate and
alternative resort as the effective cause of payment, I am
disposed to accept it.
It is clear, in my view, that during the time it
was held by the employer the vacation pay was
quite outside Mr. LeBlanc's control; he was en
titled to receive payment of it only as the collective
agreement provided. The money had to be retained
by the employer and be paid out as vacation pay at
the time specified in that agreement and not
before. In short, Mr. LeBlanc was not entitled to
sue for and recover the money. That being so, it
cannot be said that he was "beneficially entitled"
to the vacation pay money in the strict sense, even
though his interest in it ripened into one of full
ownership when he received it. We must now turn
to the question of whether the money was held
under a trust sufficient to convert it into savings.
Statutory trust
The second argument is that the vacation pay
was, in fact and in law, held in trust. Although I
have not found this argument persuasive, I should
elaborate my reasons for this view. This Court's
decisions in Nield and Haycock, as I have already
observed, have dealt with this issue in a way that is
adverse to the argument. The vacation pay there,
as here, was required by the terms of a collective
agreement to be held by the employer until it
became payable to the employees and was subject
to the "deemed trust" provisions in section 15 of
the Employment Standards Act of Ontario. Those
provisions differed from those of the Labour
Standards Code of Nova Scotia in that the
"deemed trust" is expressed to exist whether or not
the amount of the vacation pay "has in fact been
kept separate and apart by the employer". Despite
this language, the Court concluded that the vaca
tion pay had retained its character as "earnings"
under paragraph 57(2)(a) of the Unemployment
Insurance Regulations.
Counsel for Mr. LeBlanc submits that the ques
tion of identifiability of trust funds commingled
with other funds was not in issue in these two
cases. She asserts that identification of the vaca
tion pay money was at all times possible notwith
standing that it was mixed with funds belonging to
the employer in his general business account.
Counsel for the applicant, on the other hand,
contends that Nield and Haycock accord with the
judgment of the Supreme Court of Canada in
British Columbia v. Henfrey Samson Belair Ltd.,
[1989] 2 S.C.R. 24. One of the issues was whether
a tax imposed pursuant to the Social Service Tax
Act [R.S.B.C. 1979, c. 388] of British Columbia
and collected by a trader who became a bankrupt
was "property held by the bankrupt in trust for
any other person" within the meaning of para
graph 47(a) of the Bankruptcy Act [R.S.C. 1970,
c. B-3]. The taxing statute contained an elaborate
set of provisions for collecting, accounting for and
remitting the tax to the provincial Crown. Among
those provisions were paragraph 18(1)(a) deeming
the collector of the tax to "hold it in trust for Her
Majesty in right of the Province" and paragraph
18(1)(b) providing that "the tax collected shall be
deemed to be held separate from and form no part
of the person's money, assets or estate, whether or
not the amount of the tax has in fact been kept
separate and apart". The tax money collected pur
suant to these provisions was mixed with the bank-
rupt's own money. The bank-appointed receiver
sold the assets and applied the full proceeds in
reduction of the bankrupt's bank loan after which
the provincial Crown sought to show that this
money was held pursuant to a statutory trust and
was thus protected as "trust" property by para
graph 47(a) of the Bankruptcy Act.
The Court divided on the issue. Cory J., in a
dissent, expressed the view at page 46:
There is no reason why a statutorily constituted trust cannot
provide an advantage over a privately constituted trust by
recognizing the existence of the trust in property held by the
trustee without requiring the beneficiary to undertake the often
inordinately expensive action of tracing commingled funds.
The Court concluded, however, that the tax money
was not held in trust despite the language of
paragraphs 18(1)(a) and (b). McLachlin J., speak
ing for the majority, stated at pages 34-35:
I turn next to s. 18 of the Social Service Tax Act and the
nature of the legal interests created by it. 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.
Applying these observations on s. 18 of the Social Service
Tax Act to the construction of ss. 47(a) and 107(1)(j) of the
Bankruptcy Act which I have earlier adopted, the answer to the
question of whether the province's interest under s. 18 is a
"trust" under s. 47(a) or a "claim of the Crown" under s.
107(1)(j) depends on the facts of the particular case. If 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
by reason of s. 47(a). If, on the other hand, the money has been
converted to other property and cannot be traced, there is no
"property held ... in trust" under s. 47(a). The province has a
claim secured only by a charge or lien, and s. 107(1)(j) applies.
In the case at bar, no specific property impressed with a trust
can be identified. It follows that s. 47(a) of the Bankruptcy Act
should not be construed as extending to the province's claim in
this case.
Counsel for Mr. LeBlanc contends that the
present case is different in that there is no proof
the vacation pay was converted to other property
and also because Article 21 of the collective agree
ment provided a formula for identifying the
subject-matter of the trust with sufficient exact
ness.
We are not here faced with a parallel situation
to that which arose in Henfrey Samson Belair. In
the end, the vacation pay was fully paid out to Mr.
LeBlanc by Pictou Industries Limited in confor
mance with the collective agreement, and no ques
tion arises as to whether it was held by that
company in "trust" within the meaning of a feder
al statute. We have only to decide whether the
"deemed trust" provisions of the Nova Scotia stat
ute allows the vacation pay to be treated as savings
rather than "earnings" in the circumstances of this
case. The complication is of considerable signifi
cance, for instead of the vacation pay being put in
a separate account as in Whelan, it was mixed
with those of the employer in its general bank
account. The difficult problems of identifiability
and traceability for satisfying the requirement of
certainty of subject-matter in trust law are pointed
out by D. W. M. Waters in Law of Trusts in
Canada, 2nd ed. 1984, at pages 1040-1041. See
also Underhill and Hayton Law Relating to Trusts
and Trustees, 4th ed. 1987, at page 756. Reduc
tion of the bank account to a debit position during
the period would mean that the vacation pay
money, per se, disappeared. The evidence before us
is of no assistance on the point. I am thus unable
to say that the payment from the employer's gen
eral bank account on January 5, 1988, was vaca
tion pay held throughout the period. On the record
as it stands, I conclude that Mr. LeBlanc received
"earnings" within the meaning of paragraph
57(2)(a) of the Unemployment Insurance Regula
tions.
Constructive trust
The third argument advanced by counsel is that
the employer was a constructive trustee of the
vacation pay. I fail to see how this argument can
prevail. We are not here dealing with a defaulting
employer who somehow has managed to profit
from his own default in his handling of the vaca
tion pay. Pictou Industries Limited was entirely
faithful to its obligation by paying the money to
Mr. LeBlanc at the time it was required to be paid
by the collective agreement.
Central to the operation of the constructive trust
doctrine in Canada is the avoidance of unjust
enrichment. The point was canvassed by the
Supreme Court of Canada in Pettkus v. Becker,
[1980] 2 S.C.R. 834 where Dickson J. (as he then
was), speaking for the majority, stated at page
847:
The principle of unjust enrichment lies at the heart of the
constructive trust. "Unjust enrichment" has played a role in
Anglo-American legal writing for centuries. Lord Mansfield, in
the case of Moses v. Macferlan ((1760), 2 Burr. 1005) put the
matter in these words: " ... the gist of this kind of action is,
that the defendant, upon the circumstances of the case, is
obliged by the ties of natural justice and equity to refund the
money."
The employer is not here charged with holding
money he is obliged to refund. I must reject this
argument.
Resulting trust
I come now to the final argument. It is submit
ted, but only faintly, that the vacation pay was
held by the employer by way of a resulting trust.
Again, as with the third argument, the case for
Mr. LeBlanc is not strengthened. I refer to the
discussion of the resulting trust doctrine found in
the judgment of Dickson J. (as he then was) in
Rathwell v. Rathwell, [1978] 2 S.C.R. 436, at
page 451:
Resulting trusts are as firmly grounded in the settlor's intent
as are express trusts, but with this difference — that the intent
is inferred, or is presumed as a matter of law from the
circumstances of the case. That is very old doctrine, stated by
Lord Hardwicke in Hill v. Bishop of London ((1738), 1 Atk.
618). The law presumes that the holder of the legal title was
not intended to take beneficially.
Thus, the doctrine requires the property to revert
to the person making the conveyance. 9
In the present case, the funds in question left the
control of the employer with the payment of Janu-
ary 5, 1988. This is not a case where the employer
took the property as vacation pay for the benefit of
the employee and later claimed it for himself
beneficially. The doctrine of resulting trust is inap
plicable for the same reason that the doctrine of
constructive trust is inapplicable. The property in
question no longer resides with the employer. It
has been paid to and received by the employee in
conformity with the requirements of the collective
agreement.
DISPOSITION
In the result, I would allow this application, set
aside the decision of the Umpire dated April 11,
1990, and refer the matter back to an umpire on
the basis that the vacation pay paid to the respond
ent by the cheque of his employer dated January 5,
1988 in the sum of $1403 was "earnings" within
the meaning of paragraph 57(2)(a) of the Unem
ployment Insurance Regulations.
MAHONEY J.A.: I agree.
DESJARDINS J.A.: I concur.
9 See e.g. the discussion of Professor Waters in Law of Trusts
in Canada, supra, at pp. 374-375.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.