COURT OF APPEAL FOR ONTARIO
AUSTIN, ROSENBERG AND LASKIN JJ.A.
In The Matter Of The Companies’ Creditors Arrangement Act, R.S.C. 1985 c.C.-43, As Amended
AND IN THE MATTER OF A PLAN OF COMPROMISE OR ARRANGEMENT OF GENERAL PUBLISHING CO. LIMITED, GENERAL DISTRIBUTION SERVICES LIMITED, STODDART PUBLISHING CO. LIMITED, THE BOSTON MILLS PRESS LTD. and HOUSE OF ANANSI PRESS LIMITED
Justin R. Fogarty and D. Fraser Hughes, for the appellant The Publishers - C38307
Laurel C. Broten, for the appellant Philip Wood Inc., o/a Ten Speed Press - C38304
Christopher W. Besant, for the appellant Hushion House Publishing Limited - C38306
Joseph Pasquariello, for the Monitor Deloitte & Touche
John L. Finnigan, Robert I. Thorton and Kyla E. M. Mahar, for the respondent General Distribution Services Limited et al
John D. Marshall, for the respondent Bank of Nova Scotia
Heard: June 5, 2002
On appeal from the decision of Justice John D. Ground dated May 22, 2002.
THE COURT:
1These brief reasons dispose of the appeals of Hushion House (C38306), Ten Speed (C38304) and “the publishers” (C38307) from the decision of Ground J. dated May 22, 2002 in these matters. The issue is whether the publishers have priority over the Bank of Nova Scotia (the “Bank”) with respect to accounts receivable billed and to be collected by the distributor General Distribution Services Inc. (“GDS”) The publishers claim that because they retained title to the books, and in one case express ownership of the accounts receivable, they have priority over the Bank. We disagree.
2The basic principle that governs the resolution of the case is found in Halsbury’s Laws of England (4th ed., Vol. 1(2), Agency, para. 98):
Where money is entrusted to an agent by his principal or received by him on his principal’s behalf, it depends upon the terms of the agency whether the agent is bound to keep the money separate or is entitled to mix it with his own. In the former case the agent will be a trustee, in the latter a debtor.
3Halsbury cities as authority Henry v. Hammond, [1913] 2 K.B. 515, in which Channel J. said at p. 521:
It is clear that if the terms on which the person receives the money are that he is bound to keep it separate, either in a bank or elsewhere, and to hand that money so kept as a separate fund to the person entitled to it, then he is a trustee of that money and must hand it over to the person who is his cestui que trust. If on the other hand, he is not bound to keep the money separate, but is entitled to mix it with his own money and deal with it as he pleases, and when called upon hand over an equivalent sum of money, then, in my opinion he is not trustee of the money, but a merely a debtor. All the authorities seem to be consistent with that statement of the law.
This statement is approved by the Supreme Court of Canada in Hanna v. Provincial Bank of Canada, 1934 217 (SCC), [1935] S.C.R. 144.
4In our view, in these circumstances accounts receivable stand on no different footing than money. In the instant case there is neither in the agreement nor in the conduct of the parties any suggestion that when GDS received the proceeds of the sales of the books of the publishers, it was to segregate those funds. It was free to deposit the funds and to mingle them with its own money. It follows that the relationship between GDS and a publisher was not that of trustee and beneficiary but of debtor and creditor.
5Ground J. found that there were two simultaneous sales, one from the publisher to the GDS and another from GDS to the purchaser. We need not decide whether that is a correct characterization of the transaction as it makes no difference to the outcome of the appeal. What governs is the arrangement between the publisher and GDS with respect to the holding of the funds paid by the purchaser to GDS. Henry v. Hammond applies.
6Whether or not GDS “owned the receivables” as found by Ground J., or the publishers “owned the receivables”, as they allege, the fact is that the arrangement required and permitted GDS to collect the money and to put it into its own account. From that account GDS was bound to pay a publisher within 93 days for any books sold to purchasers, whether or not the purchaser had paid for the books. This requirement, it seems to us, negates any suggestion of a trust relationship and leaves the relationship between publisher and distributor as one of creditor and debtor.
7Ground J. relied on the express provision in the agreement to the effect that the relationship between publisher and distributor was not one of agency. Again, we need not decide whether the characterization of the relationship is correct as it makes no difference to the outcome of the appeal. There was no term, either express or implied, that required the funds owing to the publisher to be segregated. In these circumstances, the relationship, insofar as the funds were concerned, was one of creditor and debtor.
8We agree with Ground J.’s disposition of Hushion House’s claim to a security interest. In addition Hushion House subordinated its interest to that of the Bank. Accordingly, we would not vary the conclusion reached below. The appeals are therefore dismissed.
RELEASED: June 12, 2002
“Austin J.A.”
“John Laskin J.A.”
“M. Rosenberg J.A.”