Supreme Court – distinctions for service and notice to banks offers guidance for arbitral practice – #210

In 1068754 Alberta Ltd. v. Québec (Agence du revenu), 2019 SCC 37, on appeal from Québec, the Supreme Court of Canada distinguished between two (2) provisions of the Bank Act, SC 1991, c 46 which stipulate how to effectively serve banks with legal proceedings and provide notice.

The issue which brought the parties to court was whether Québec’s Agence du revenue du Québec (“ARQ”) acted extraterritorially when, in compliance with the federal Bank Act, it issued a demand for information and documents under Québec’s Tax Administration Act, RSQ c A-6.002 (the “Demand”) to a Calgary branch of the National Bank of Canada (“BNC”).  The Demand issued as part of the ARQ’s audit of the DGGMC Bitton Trust (the “Trust”).  

The ARQ sought to determine the residence of the Trust and whether it owed taxes in Québec. Because the Trust was a BNC customer and conducted its banking at a BNC branch located in Calgary, the ARQ sent its Demand to a BNC branch located in Calgary as required by the Bank Act. 

The BNC has its head office in Québec and all parties agreed that the ARQ had jurisdiction over it.  The Trust’s trustee, 1068754 Alberta Ltd. (“Trustee.”), argued that, because the Bank Act treats each branch as a separate entity, sending the Demand outside Québec meant the ARQ acted beyond its authority.

The Supreme Court’s analysis assists commercial arbitration practitioners required to serve legal proceedings or give notice to a bank as part of their arbitration process, including execution of awards. 

Sections 462(1) and 462(2) provide different rules for those distinct purposes.

Legal proceedings – “462(1) Subject to subsections (3) and (4), the following documents are binding on property belonging to a person and in the possession of a bank, or on money owing to a person by reason of a deposit account in a bank, only if the document or a notice of it is served at the branch of the bank that has possession of the property or that is the branch of account in respect of the deposit account, as the case may be:

(a) a writ or process originating a legal proceeding or issued in or pursuant to a legal proceeding;

(b) an order or injunction made by a court;

(c) an instrument purporting to assign, perfect or otherwise dispose of an interest in the property or the deposit account; or

(d) an enforcement notice in respect of a support order or support provision.

Notice and impose positive obligation – “462(2) Any notification sent to a bank with respect to a customer of the bank, other than a document referred to in subsection (1) or (3), constitutes notice to the bank and fixes the bank with knowledge of its contents only if sent to and received at the branch of the bank that is the branch of account of an account held in the name of that customer.

The Supreme Court examined the Bank Act provisions and distinguished between types or purposes of documents:

(i) those sent under section 462(1) prescribe a method to bind customer property held by a bank. 

(ii) those sent under section 462(2) include a broader set, including those designed to bring notice to a bank and impose a positive obligation on the bank.  See para. 69 in particular.

Section 462(1) – The Trustee argued that the mention of “legal proceeding” in section 462(1) is broad and that the Demand therefore qualified as a “writ of process” issued in the context of a “legal proceeding”.  In its argument, the Trustee also referred to the Canada Evidence Act, RSC 1985, c C-5 which defines “legal proceeding” broadly at sections 29(9) and 30(12).  Those provisions include identical definitions for their respective sections which state that “legal proceeding” means “any civil or criminal proceeding or inquiry in which evidence is or may be given, and includes an arbitration.

29 (1) Subject to this section, a copy of any entry in any book or record kept in any financial institution shall in all legal proceedings be admitted in evidence as proof, in the absence of evidence to the contrary, of the entry and of the matters, transactions and accounts therein recorded.

30 (1) Where oral evidence in respect of a matter would be admissible in a legal proceeding, a record made in the usual and ordinary course of business that contains information in respect of that matter is admissible in evidence under this section in the legal proceeding on production of the record.

The Supreme Court saw no reason to consider the Demand, an administrative action, as a “writ” or “process”.  At paras 46-50, the Supreme Court set out the broad but limited scope of “writ” and “process” which can be of interest to those interested in the broader range of alternative dispute resolution measures including expert determination and adjudication.   This portion of the reasons can be read with procedure involving the arbitral process.

[50] Notwithstanding the foregoing jurisprudence, Alberta Ltd. asks this Court to interpret “writ or process” more expansively, owing to the Demand’s coercive nature. It submits that the Demand is more similar to coercive “writs or processes” or court “orders” than it is to “mere notifications”, which Alberta Ltd. says, are dealt with under s. 462(2). Alberta Ltd. submits that formal demands are intrusive, coercive and prosecutable and therefore “akin to ‘writs or processes’ or court ‘orders’ under subsection 462(1)” … Alberta Ltd. reasons that because the Demand is not a mere notification, it must be a writ or process. I am not persuaded by this argument. Alberta Ltd. relies on a mischaracterization of s. 462(2) as pertaining only to documents that serve as mere notification — an argument which I discuss and reject below.

The Supreme Court did not agree that the list of documents in section 462(1) were illustrations.  The list was a “closed list” and the Demand did not qualify as subject to section 462(1).

At paras 53-61, the Supreme Court further considered whether the ARQ’s Demand binds the assets of the Trust and determined that it did not.  Again, the analysis offers guidance to commercial arbitration practitioners considering whether the documents they have to communicate qualify or not as ones listed in section 462(1). 

Section 462(2) – The Supreme Court also provided fresh insights into the nature of documents caught by section 462(2).  The latter provides for communicating documents which contain not only information but, as the Supreme Court underlined, can also impose a positive obligation on a bank. 

[69] In any event, I do not accept the argument that s. 462(2) only applies to non-coercive documents that provide notice to the recipient bank. Rather, the purpose of s. 462(2) is to provide the requirements for notifying a bank when sending documents other than those enumerated in s. 462(1) and (3), in order for the bank to be considered to have notice of the documents. However, the use of the word “notification” in s. 462(2) contemplates not only documents that serve a notification function, but also documents that may impose positive obligations on a bank. The provision pertains to “[a]ny notification sent to a bank with respect to a customer of the bank, other than a document referred to in subsection (1) or (3) . . .”. Implicit in the wording of this provision is the premise that documents that fall under subs. (1) or (3) may also be “notifications”. Thus, the term “notification” as used in s. 462(2) may capture documents that require further action on the part of the recipient bank, for example, garnishment orders — although it may be s. 462(1) which ultimately applies to them.

[70]   see no basis for limiting the scope of s. 462(2) to documents that serve only to notify, and have no other function. Just because s. 462(2) specifies when a bank will be said to have notice of a certain document does not mean that the effect of those documents is only to provide information — the documents may require further action. The provision describes when a bank will have notice of a document; it does not describe the purpose of the document.

In its penultimate section, at paras 77-81, the Supreme Court reiterates a distinction, sometimes lost or misapprehended, about the nature of branches and the bank itself. The Supreme Court stated that a bank is a single entity and its branches are treated as distinct for only limited and specific purposes.  Giving notice to the proper branch effectively gives notice to the entire bank.

[79] As the ARQ highlights and the Quebec Court of Appeal found, the purpose of s. 462(2) is to provide a practical means by which the bank as a whole will be fixed with notice. It is to the bank that the Demand is made. One is not required to conceptualize the bank and its branches as separate entities to achieve this purpose. Instead, s. 462(2) is premised on the idea that a branch is part of the bank. This is exemplified by the fact that nothing further is required from a branch upon receiving a document under s. 462(2) for the bank to be fixed with notice; the entities are one and the same. I would liken it to prescribing a mode of entry into a home: when one walks through the side door rather than the front, one enters the same house.

urbitral note – Commercial arbitration practitioners can use the reasoning in the decision to better anticipate which types of documents – issued before, during and after an arbitration and final award – qualify for particular service or communication under the Bank Act. While the decision did not involve arbitration, the distinctions drawn can apply to various steps in the arbitral process, including execution of a recognized and enforced award against the assets of a party held by a bank as one of its customers.

The reasons also underline that section 462(2) seeks more than just to address “notice” to banks but also that it addresses how to impose positive obligations on a bank, including the production of documents and communication of information.