T-4497-75
The Queen (Plaintiff)
v.
Barbara Jean Prytula (formerly Barbara Jean
Erickson) (Defendant)
Trial Division, Cattanach J.—Ottawa, May 10,
1977.
Jurisdiction — Debt owed under Canada Student Loans Act
— Whether Federal Court has jurisdiction to grant default
judgment — Canada Student Loans Act, R.S.C. 1970, c. S-17.
The defendant defaulted in the terms of agreement signed
pursuant to the Canada Student Loans Act. The plaintiff
applies to the Court for judgment against the defendant in
default of defence.
Held, the application for default judgment against the
defendant is dismissed. It is not enough that liability arises in
consequence of the statute and the regulations thereunder.
While the statute authorizes a bank to make a loan to a student
and prescribes the conditions of that loan and that the bank is
guaranteed against any loss by the Minister who, if he makes
good any loss by the bank, is then subrogated to the rights of
the bank, the statute does not, in itself, impose a liability and
there is no liability except that of the borrower which flows not
from the statute but from the borrower's contractual promise to
repay the loan. The liability is based on the agreement and the
action is founded upon a breach of agreement, not upon a
liability imposed by the statute as is the case under the Income
Tax Act. If the bank had obtained a promissory note from the
borrower for which the Minister was guarantor or endorser,
and if suit were brought upon the promissory note, then the
Bills of Exchange Act would apply and under section 23 of the
Federal Court Act this Court has concurrent jurisdiction when
the Crown is a party to the proceedings.
McNamara Construction (Western) Ltd. v. The Queen
[1977] 2 S.C.R. 654, applied.
ACTION.
COUNSEL:
Craig J. Henderson for plaintiff.
SOLICITORS:
Deputy Attorney General of Canada for
plaintiff.
The following are the reasons for judgment
rendered in English by
CATTANACH J.: This is an application by the
plaintiff, pursuant to Rule 324, for judgment
against the defendant in default of defence pursu
ant to Rule 432 for a liquidated amount. Paren-
thetically I would point out that in the draft of the
default judgment sought the interest owing should
be calculated to the date of judgment and
expressed therein as a sum certain.
The matter arose as a consequence of an agree
ment between a bank and the defendant under the
provisions of the Canada Student Loans Act,
R.S.C. 1970, c. S-17. The object and purpose of
the statute is simple and straight forward. It is a
federally administered method of providing finan
cial assistance to students for the furtherance of
their studies at a recognized educational institu
tion. A loan is made to a student by a bank, as
defined in the Bank Act, R.S.C. 1970, c. B-1, or
other credit society designated by the Minister of
Finance as a bank for the purposes of the Canada
Student Loans Act. Under the statute and regula
tions pursuant thereto the Minister dictates to the
bank the terms of an agreement between the bank
and the students. Under section 4 of the Act the
principal amounts advanced by a bank to a student
are interest free until a specified time after the
student ceases to be a full time student when the
loan bears interest at a prescribed rate.
By virtue of section 6 of the Act the Minister
pays interest to the bank for the period during
which no interest is payable by the student.
Under section 7 of the Act the Minister is liable
to pay to a bank the amount of any loss sustained
by the bank as a result of a loan to a student. In
short the loan to the student is guaranteed by the
Minister.
Under the authority conferred in section 13(j)
of the Act the Governor in Council may make
regulations respecting the subrogation of Her
Majesty to the rights of a bank as a result of a
guaranteed student loan. Such a regulation has
been passed.
The statements of claim in these matters follow
consistently uniform patterns and I reproduce the
allegations in the statement of claim in the present
matter:
To the Honourable Federal Court of Canada;
Her Majesty's Deputy Attorney General of Canada, on behalf
of Her Majesty, sheweth as follows:
1. The Defendant, BARBARA JEAN PRYTULA, resides in the
City of Thompson, in the Province of Manitoba.
2. Pursuant to a written agreement dated November 19th,
1969 made between the Royal Bank of Canada, Flin Flon,
Manitoba branch (hereinafter referred to as the "Bank") and
the Defendant, who at the time of the signing of the agreement
signed as "Barbara Jean Erickson" under the provisions of The
Canada Student Loans Act, R.S.C. 1970, Cap. S-17, and
Certificate of Eligibility No. MA 619 304 504, the Bank loaned
to the Defendant the total sum of $540.00.
3. Under the provisions of Section 4 of The Canada Student
Loans Act, the principal amounts advanced by the Bank to the
Defendant were interest-free until the first day of the seventh
month after the student ceased to be a full-time student, and
thereafter would bear interest. The Defendant ceased to be a
full-time student during the month of December, 1969 and the
loan began to bear interest on August 1st, 1970.
4. Pursuant to Section 12 of The Canada Student Loans
Regulations as amended, interest was computed at the rate of
8 3 / 4 % per annum.
5. In breach of sub-section 7(1) of the said Regulations, the
Defendant failed to enter into a consolidated guaranteed loan
agreement with the aforesaid Bank to determine the amount
and duration of the regular monthly payments to be made by
her, and has not made any payments with respect to the said
loans. By reason of this default, the Bank made a claim for loss
pursuant to Section 7 of The Canada Student Loans Act and
Section 18 of the said Regulations and on or about the 2nd day
of October, 1972, the Minister of Finance repaid to the Bank
the outstanding principal of $540.00 together with interest in
the amount of $86.86 from the 1st day of January, 1970 to the
2nd day of October, 1972.
6. By virtue of the facts alleged in paragraph 5 and by virtue of
Section 21 of The Canada Student Loans Regulations as
amended, being P.C. 1969-1328, made pursuant to Section 13
of The Canada Student Loans Act, S.C. Cap.S-17, Her Majes
ty is subrogated in and to all the rights of the Bank in respect of
the guaranteed loans referred to in paragraph 2 hereof.
7. Her Majesty has demanded payment of the outstanding
principal sum and interest from the Defendant, but the Defend
ant has refused or neglected and continues to refuse and neglect
to pay the same.
8. The Deputy Attorney-General of Canada on behalf of Her
Majesty the Queen claims as follows:
(a) the outstanding principal of $540.00;
(b) interest at the rate of 8 3 / 8 % per annum on $540.00 from
August 1st, 1970 to date of judgment;
(c) the costs of this action; and,
(d) such further and other relief as to this Honourable Court
may seem meet.
Attached to the statement of claim is a copy of
the application to and agreement between the bank
and the student.
The agreement signed by the student reads:
I HEREBY APPLY FOR THE LOAN SHOWN AS "AMOUNT, IF
ANY, NOW BEING DISBURSED" AND CERTIFY THAT THE
AMOUNT SHOWN AS "TOTAL PRINCIPAL CARRIED FORWARD"
TRULY REPRESENTS MY TOTAL PRINCIPAL OUTSTANDING TO
THIS OR ANY OTHER LENDER UNDER THE CANADA STUDENT
LOANS ACT ON THE EFFECTIVE DATE SHOWN AND THAT I
UNDERSTAND MY OBLIGATIONS UNDER THIS ACT AND THE
REGULATIONS AND THAT I SHALL REPAY MY TOTAL INDEBT
EDNESS AS REQUIRED BY THE ACT AND REGULATIONS.
When the application for default judgment
herein first came before my brother Walsh he
directed that the "plaintiffs solicitor should be
communicated with to indicate whether this Court
has jurisdiction and in particular by virtue of
which federal law, if any, the jurisdiction can be
said to be founded, in consequence of the
McNamara case Supreme Court judgment of
January 25, 1977."
In response to that invitation the solicitor for the
plaintiff by letter dated April 13, 1977 submitted
as follows:
In response to your letter of April 1, 1977 please be advised
that it is my position that the Federal Court has jurisdiction to
entertain the motion for judgment in the above-captioned case.
We note His Lordship's concern with regard to the McNamara
case in the Supreme Court and would indicate that it is our
position that the Federal Law upon which the jurisdiction is
founded would of course be the Canada Student Loans Act,
RSC Cap.17 and the regulations passed thereunder.
The Canada Student Loans Regulations are passed pursuant to
Section 13-J of the Canada Student Loans Act and Section 21
of the Regulations (Order in Council PC 1968-1491 of July
31st as amended by Section 13 of PC 1969-1328 of July 23,
1969) states as follows:
21. (1) Where under the Act of these Regulations, the
Minister has paid to a bank the amount of loss sustained by
the bank as a result of a guaranteed student loan, Her
Majesty is thereupon subrogated in and to all the rights of
the bank in respect of the guaranteed student loan and,
without limiting the generality of the foregoing, all rights
and powers of the bank in respect of
(a) guaranteed student loan
(b) any judgment obtained by the bank in respect of the
loan
(c) any security held by the bank for the repayment of the
loan pursuant to sub-section 3 of section 8
are thereupon vested in Her Majesty and Her Majesty is
entitled to exercise all the rights powers and privileges that
the bank had or might exercise in respect of the loan,
judgment or security, including the right to commence or
continue any action or proceeding, to execute any release,
transfer, sale or assignment, or in any way collect, realize or
enforce the loan, judgment or security.
(2) Any proceedings in respect of a guaranteed student
loan originated by Her Majesty may be initiated in the name
of Her Majesty.
It has appeared from these sections that Her Majesty the
Queen's rights under the Canada Student Loans Act to pursue
actions against unpaid loans arise by statute, and this being a
federal statute, thereby vests the Federal Court of Canada with
jurisdiction to determine cases involving Canada Student Loans
where Her Majesty the Queen is the Plaintiff.
It is respectfully submitted that the Canada Student Loans Act
and Regulations sets down a federally administered scheme of
providing assistance to students and that Her Majesty the
Queen is bound to pay the bank in default of the payment by
the student and this obligation arises through the operation of
the statute and Her Majesty the Queen's right to pursue claims
against defaulting students arises through the operation of the
federal statutes, and therefore in conclusion, one can say that
the McNamara decision in so far as it relates to the jurisdiction
of the Federal Court to hear claims by Her Majesty the Queen
has no application in this case due to the qualification of the
Court in that decision to cases which fall under Federal Law.
The Canada Student Loans Act clearly falls within this excep
tion and therefore it is my respectful submission that the ex
parte judgment applied for should be granted.
In the McNamara case ([1977] 2 S.C.R. 654)
the Chief Justice, speaking for the entire Court,
has said [at page 6581:
The basis for the conferring of any such jurisdiction must be
found in s. 101 of the British North America Act which, inter
allia, confers upon Parliament legislative power to establish
courts "for the better administration of the laws of Canada". In
Quebec North Shore Paper Company v. Canadian Pacific
Limited ([1977] 2 S.C.R. 1054), (a decision which came after
the judgments of the Federal Court of Appeal in the present
appeals), this court held that the quoted provisions of s. 101,
make it a prerequisite to the exercise of jurisdiction by the
Federal Court that there be existing and applicable federal law
which can be invoked to support any proceedings before it. It is
not enough that the Parliament of Canada have legislative
jurisdiction in respect of some matter which is the subject of
litigation in the Federal Court. As this Court indicated in the
Quebec North Shore Paper Company case, judicial jurisdiction
contemplated by s. 101 is not co-extensive with federal legisla
tive jurisdiction.
Later he said [at pages 659 - 660]:
What must be decided in the present appeals, therefore, is
not whether the Crown's action is in respect of matters that are
within federal legislative jurisdiction but whether it is founded
on existing federal law. I do not think that s. 17(4), read
literally, is valid federal legislation under s. 101 of the British
North America Act in purporting to give jurisdiction to the
Federal Court to entertain any type of civil action simply
because the Crown in right of Canada asserts a claim as
plaintiff.
Still later he said [at page 662]:
What remains for consideration here on the question of
jurisdiction is whether there is applicable federal law involved
in the cases in appeal to support the competence of the Federal
Court to entertain the Crown's action, both with respect to the
claim for damages and the claim on the surety bond.
My appreciation of the decision in the
McNamara case is that for the Federal Court to
have jurisdiction there must be an existing and
applicable federal law which can be invoked to
support the proceedings and that the proceedings
must be "founded" upon that law. It is not enough
that the Crown is a party to a contract on which it
sues as plaintiff.
The solicitor for the plaintiff in his letter dated
April 13, 1977 submits that the plaintiff's action is
founded upon the Canada Student Loans Act and
Regulation 21(1) thereunder. While I accept with
out question that this is federal legislation, I do not
accept the contention that the action is "founded"
upon this legislation in the sense that the word
"founded" is used by the Chief Justice in the
McNamara case.
It is true that the Minister is subrogated to the
rights of the bank on an unrepaid loan for which
loss the Minister holds the bank harmless but that
does not bestow upon the Minister any rights
different from those of the bank in whose stead he
stands.
It is clear from the statement of claim that what
the plaintiff is suing upon is a breach of the
agreement between the bank and the student to
which agreement the plaintiff is subrogated.
It is not enough that the liability arises in
consequence of the statute and regulations
thereunder.
While the statute authorizes a bank to make a
loan to a student and prescribes the conditions of
that loan and that the bank is guaranteed against
any loss by the Minister who, if he makes good any
loss by the bank, is then subrogated to the rights of
the bank, the statute does not, in itself, impose a
liability and there is no liability except that of the
borrower which flows not from the statute but
from the borrower's contractual promise to repay
the loan. The liability is based on the agreement
and the action is founded upon a breach of the
agreement, not upon a liability imposed by the
statute as is the case under the Income Tax Act,
customs and excise legislation and like federal
legislation.
The same elements as are present in this matter
were also present in the McNamara case and the
Supreme Court unanimously held that there was
no statutory basis for the Crown's suit for breach
of contract.
Incidentally, the Minister also has all the powers
and rights of the bank with respect of any security
held by the bank for the repayment of the loan. It
is remotely possible that the bank, as is the almost
invariable custom of banks, may have obtained a
promissory note from the borrower for which the
Minister was guarantor or endorser. In that event,
and if suit were brought upon the promissory note
then the Bills of Exchange Act, R.S.C. 1970, c.
B-5, would apply and under section 23 of the
Federal Court Act, R.S.C. 1970 (2nd Supp.), c.
10, this Court has concurrent jurisdiction when the
Crown is a party to the proceedings.
However, I need not and do not express any
opinion in this respect because the action as
alleged in the statement of claim is based upon the
agreement of the student to repay the bank and
not upon a negotiable instrument.
For the foregoing reasons I conclude that there
is no statutory basis for the Crown's suit and
accordingly the application for judgment against
the defendant in default of defence is refused
because there is no jurisdiction in this Court to
entertain the statement of claim.
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.