Citation: 2008TCC487
Date: 20080905
Docket: 2007-2815(IT)I
BETWEEN:
SIMONE SHERMAN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Hershfield J.
[1] In reporting her
income for the 2004 taxation year the Appellant took exception to a T4 information
slip issued by her employer, the Canada Revenue Agency (“the CRA”). It showed
employment income of $169,891.16. The Appellant reported a lesser amount but noted
on her return for the year her reason for doing so. Not accepting her reason,
the CRA assessed the full amount shown on the T4.
[2] The amount of the
salary inclusion to which the Appellant takes exception is $18,787.30. That is
an amount she maintains was never received by her and accordingly should not
have been included as employment income.
[3] The amount at issue
($18,787.30) derives from amounts the Appellant received from the Ontario
Workplace Safety and Insurance Board (“WSIB”) during the period from March 4,
1996 to October 2, 1996. Having suffered a workplace injury, she had been off
work prior to that period but had returned to work by March 4, 1996. From that
time until October 2, 1996, she admits to having also received compensation
from her employer for services rendered as an employee. Subject to an
offsetting claim for medical expenses, she
admits she is accountable to WSIB for the overpayment over that period. I
accept that the amount of the overpayment was $18,787.30 and that that was the
amount withheld from her by the CRA and included in her income (“the WSIB overpayment”).
[4] While a full recitation
of the factual background leading to the salary payment in issue would read
like a personal nightmare lived by the Appellant, suffice to say that in 2004
the CRA withheld the full amount of the WSIB overpayment from amounts payable
to her as salary purportedly on the basis of discharging a debt she owed to Her
Majesty in right of Canada
(variously referred to as well as the federal government or federal Crown.) The
Respondent takes the position that such application of the Appellant’s wages constituted
a receipt for the purposes of the Income Tax Act (“Act”).
[5] The Appellant
asserts she had no such debt to Her Majesty in right of Canada, that the CRA had no
right to withhold and apply her salary entitlement against an amount (which was
subject to offsetting claims) owed to a third party (WSIB) and that such action,
lawful or not, cannot in any event be regarded as a “receipt” of a salary for the
purposes of the Act. The Appellant also asserts that the WSIB overpayment
was statute barred when the CRA purported to collect it. Accordingly, there was
no right to collect the WSIB overpayment by offsetting a salary amount to which
she was entitled.
Background
[6] The Appellant, a
chartered accountant, started work with the CRA in 1985 as a basic file auditor
and soon after was recruited into electronic commerce auditing. She first left
the workplace (situated in Ontario where her services were performed) due to a workplace
injury (bilateral carpal tunnel tendonitis that progressed to affect her
shoulder, back and upper body) in July, 1994. She claimed and was granted
workers’ compensation benefits from WSIB.
[7] The Appellant returned
to work in late 1995 on less than a full time basis and was put in a position
the Appellant described as clerical with a supervisor that had a lower grade
than her. Consequentially, she sought reinstatement to her former position. In January
1996, a Reinstatement Officer of WSIB determined that the Appellant was fit for
her pre-injury job with accommodation but also determined that vocational
rehabilitation be re-activated with a gradual return to work program. She did
return to her former position but continued to work, as suggested by the Reinstatement
Officer’s decision, for 4 hours per day. In March 1996 the CRA directed that
she go back on workers’ compensation benefits (i.e. she was taken “off
strength”). She protested and the CRA agreed to put her back “on strength” in
December 1996 with full pay retroactive to March 1996. As a result, she was
paid by WSIB and by the CRA for the overlapping compensation period (March –
October 1996).
[8] This brief summary
of events leading the WSIB overpayment just sets the stage for what I have
already referred to as a personal nightmare lived by the Appellant. It is
merely the beginning of a long
history of egregious conduct by the CRA; a history that includes no reasonable
attempts being made at accommodation or rehabilitation and no recognition of
her full pay entitlements. Further, the CRA, as her employer, was dilatory at
best in implementing workplace solutions as directed by WSIB. The CRA, in fact,
orchestrated a campaign to drive her from her job and make her attempts to
return futile. Her employment was eventually wrongfully terminated. This whole
scenario led to a protracted series of gruelling hearings and appeals starting
with the decision of an Independent Third Party Reviewer in late 2003 that was
not initially complied with but was nonetheless a decision requiring the CRA to
reinstate the Appellant and to make retroactive salary payments. It was from such
retroactive pay that the CRA withheld the WSIB overpayment in 2004. Such action
was just one of a continuing series of actions and events including: the
Appellant seeking and obtaining an order for mandamus requiring the CRA
to comply with the decision of the Independent Third Party Reviewer; the
dismissal of a judicial review sought by the CRA of the Independent Third Party
Reviewer’s decision; and, a human rights complaint being filed with the
Canadian Human Rights Tribunal. The closing chapter to this regrettable series
of events, only a small part of which is mentioned here, was a settlement agreement
reached in 2006 disposing of all issues.
[9] During all of this,
WSIB essentially washed its hands of the matter. While initially it requested a
return of the overpayment, it subsequently left the matter for the employer to
deal with. It appears that WSIB understood that the parties had agreed to the
CRA recovering the overpayments or that, in any event, the federal government was
entitled to seek redress in respect of the overpayment as was being clearly
asserted by it.
Arguments
[10] The Respondent’s
position is described in the assumptions set out in paragraph 12 of the Reply. There is an assumption that
the WSIB payments to federal government employees is compensation “funded” by
the federal government and not by agencies such as WSIB which merely administer
the compensation payments. This is to assert that the payer of WSIB
compensation is the federal government and the WSIB indebtedness is really a
debt to the federal government. This assertion, of course, cannot just be assumed.
It is a legal conclusion derived from facts and statutory constructions in
respect of which the Appellant has no burden to disprove. Indeed, it appears to
me to be incumbent on the Respondent to satisfy me as to the correctness of the
“assumption” which, on its face, appears to be wrong.
[11] The Respondent relies on certain provisions of the Government
Employees Compensation Act, the Workplace Safety and Insurance Act,
the Accountable Advances Regulations and the Financial Administration
Act. Respondent’s references to these enactments are found in paragraphs 12
through 16 of Respondent’s counsel’s written submission. The submission is as
follows:
12. Federal
government employees who suffer a workplace injury caused by an accident,
arising out of and in the course of employment, are entitled to claim such
compensation for injured or deceased workmen
as is authorized by the law of the province where the employee was usually
employed.
13.
In Ontario, the WSIB compensates injured federal government
employees and then charges back the federal government or agency that employs
the injured worker, the amount of compensation awarded plus a small
administration charge.
14.
Compensation or costs
awarded under the Government Employees Compensation Act and,
“(c) in any province where the
general expenses of maintaining the board, officers, authority or court are
paid by the province or by contributions from employers, or by both, such
portion of the contributions as, in the opinion of the Treasury Board, is fair
and reasonable;
(d) in any province where the
board, officers or authority may make expenditures to aid in getting injured
workmen back to work or removing any handicap resulting from their injuries,
such portion of those expenditures as, in the opinion of the Treasury Board, is
fair and reasonable; and
(e) to the board, officers,
authority or court, such amount as an accountable advance in
respect of any expenses or expenditures that may be paid under paragraph (c)
or (d) as, in the opinion of the Treasury Board, is expedient”
may be paid out of the Consolidated
Revenue Fund (“the CRF”).
The WSIB “shall return to the employer
any amounts remaining after the Board ceases to make payments with respect to
the worker or survivor”
Any accountable advance or any portion
thereof that is not repaid, accounted for or recovered in accordance with the
regulations
may be recovered out of any moneys payable by Her Majesty to the person to whom
the advance was made or, where the person is deceased, out of any moneys
payable by Her Majesty to the estate of that person.
15.
Where a person is
indebted to Her Majesty “the appropriate Minister responsible for the recovery
or collection of the amount of the indebtedness may authorize the retention of
the amount of the indebtedness by way of deduction from or set-off against any
sum of money that may be due or payable by Her Majesty to the person or the
estate of that person”.
16.
The Receiver General
may recover any over-payment made out of the CRF on account of salary, wages,
pay or pay and allowances (by way of an appropriation) out of any sum of money
that may be due or payable by Her Majesty to the person to whom the
over-payment was made.
[12] The assertion then
is that the legislative regime contemplates that the recipient of benefit
payments, made by WSIB, is the recipient of payments or advances from the federal
Crown and is thereby accountable to and indebted to the federal Crown for the
purposes of paragraph 155(1)(a) of the Financial Administration Act (“FAA”).
The provision relied on is as follows:
155. (1) Where any person is indebted to
(a) Her Majesty in right of Canada, or
…
the appropriate Minister responsible
for the recovery or collection of the amount of the indebtedness may authorize
the retention of the amount of the indebtedness by way of deduction from or
set-off against any sum of money that may be due or payable by Her Majesty in
right of Canada to the person or the estate of that
person.
[13] To
support the assertion that the Appellant is indebted to Her Majesty in right of
Canada, the Respondent relies on section 38 of the FAA dealing with the
recovery of accountable advances and on section 90 of the Workplace Safety
and Insurance Act (“WSIA”) dealing with Schedule 2 employers.
[14] Section
38 of the FAA reads as follows:
38. (1) The Treasury Board may make
regulations
(a) authorizing the making of
accountable advances chargeable to the appropriation for the service in respect
of which the advance is made; and
(b) providing for
the repayment of, accounting for and recovery of accountable advances.
Recovery
(2) Any accountable advance or any
portion thereof that is not repaid, accounted for or recovered in accordance
with the regulations may be recovered out of any moneys payable by Her Majesty
to the person to whom the advance was made or, where the person is deceased,
out of any moneys payable by Her Majesty to the estate of that person.
[15] If
the monies received by the Appellant from WSIB are an accountable advance from
Her Majesty in right of Canada, section 155 of the FAA is
brought into play. In such case, the debt was properly collected by the
CRA as asserted by the Respondent.
[16] As
to section 90 of the WSIA, it reads as follows:
Payment of benefits
90. (1) Every Schedule 2 employer is
individually liable to pay the benefits under the insurance plan respecting
workers employed by the employer on the date of the accident.
Reimbursement
(2) The
employer shall reimburse the Board for any payments made by the Board on behalf
of the employer under the insurance plan. The amount to be
reimbursed is an amount owing to the Board.
Payment of commuted value
(3) The
Board may require a Schedule 2 employer to pay to the Board an amount equal to
the commuted value of the payments to be made under Part VI (payments for loss
of earnings and other losses) with respect to a worker or survivor.
Same
(4) If the amount is insufficient to meet the whole of
the payments, the employer is nevertheless liable to pay to the Board such
other sum as may be required to meet the payments.
Same
(5) The
Board shall return to the employer any amount remaining after the Board ceases
to make payments with respect to the worker or survivor.
[17] It
seems both parties were under the impression that the federal government is a
Schedule 2 employer and that this section 90 applied. It imposes a liability on
Schedule 2 employers to pay benefits in respect of its workers. Schedule 2
employers unlike regular employers do not pay premiums into a common pool to
fund benefits. Schedule 2 employers just pay actual costs relating to their own
employees. The Respondent asserts that subsections 90(1) and (2) support the view that WSIB is
a conduit and mere agent of the Schedule 2 employers who are the providers
of the benefits not just the party financing the benefits. As such, the
Appellant is indebted to Her Majesty in right of Canada bringing into play section 155 of the FAA. In
such case, the debt was properly collected by the CRA as asserted by the
Respondent.
[18] Interwoven
with this question of whether the Appellant is indebted to the federal Crown are
the provisions of the Government Employees Compensation Act (“GECA”).
It sets out a federal government workers’ compensation scheme but provides none
of its own mechanisms for administering it. Instead, it statutorily delegates
everything from compensation rates, conditions, determinations and awards to
the provincial workers’ compensation authority.
In doing so, on its face, the federal government appears to be a mere funding
body for provincial authorities to provide benefits to employees of the federal
government. However, that it is more than a mere funding body can be seen in
subsection 4(5) and paragraph 4(6)(a) of the GECA. Subsection
4(5) provides that compensation awarded “under the authority of this Act shall
be paid to the employee ... as the board … may direct.” That a provincial board
directs the payment does not make it liable to make the payment. As well, paragraph
4(6)(a) of the GECA prescribes that the benefits funded by the
federal government out of the Consolidated Revenue Fund are those “awarded
under this Act” even though pursuant to paragraph 4(6)(b), the funding
passes through WSIB’s hands en route to workers.
4. (6)
There may be paid out of the Consolidated Revenue Fund,
(a) any compensation or costs awarded
under this Act;
(b) to the board, officers, authority or
court authorized by the law of any province or under this Act to determine
compensation cases, such amount as an accountable advance in respect of
compensation or costs that may be awarded under this Act as, in the opinion of
the Treasury Board, is expedient;
That
is, the awards the Appellant received were, statutorily, not awards payable
under or pursuant to the WSIA of Ontario. The federal government both awards and funds
compensation benefits pursuant to the GECA. On the other hand,
subsection 4(6) clearly contemplates that the provincial boards do more than
direct the payments. Under that provision, it is the boards that are the
recipients of the monies from the Consolidated Revenue Fund as accountable
advances so, in actual fact, it is the provincial boards that make and
account for the payments to the employees.
Analysis
[19] I will deal firstly with whether the Appellant can
be seen as the recipient of an accountable advance from Her Majesty in right of
Canada. Section 38 of the FAA
and regulations made pursuant to it, provide that accountable advances not
accounted for may be recovered as a debt to Her Majesty in right of Canada.
[20] While the Respondent
has taken a creative approach to exacting redress for the overpayment received
by the Appellant by asserting she has received an accountable advance, it is my
view that such approach is without merit. There is no construction of the provisions
of the FAA and regulations that suggests that the Appellant has received
an accountable advance from, and thereby became a debtor of, Her Majesty in right
of Canada. The only connection
the advances referred to in those enactments have to the payments made to the
Appellant is found in paragraph 4(6)(b) of the GECA which
provides for accountable advances being made from the Consolidated Revenue Fund
to the provincial authority administering the workers’ compensation benefits
awarded under the GECA. That the WSIB receives accountable advances from
the federal Crown does not make the payments WSIB made to the Appellant
accountable advances from the Crown to the Appellant. Funding compensation benefits
awarded by federal government employers to its employees through WSIB does not
necessarily suggest that WSIB does not have an independent role in relation to
the receipt of funds which it pays out as benefits. That benefits may
have been paid in error does not make them advances as contemplated in the regime
cited by the Respondent. Even if WSIB is a mere agent of the federal government
in respect of the subject payments, that agency relationship could not transform
the nature of the payments made by the WSIB to the Appellant from benefits to an
accountable advance made to her by the federal government. That the GECA
makes its agent accountable for the funds it administers, does not suggest that
the recipient of benefits has received an accountable advance. Any obligation
to account to the federal government for advances rests solely with the WSIB
which is an agency of the Ontario Ministry of Labour and quite distinct and
autonomous from any agency or department of the federal government.
[21] Concluding that channelling
funds through the WSIB to the Appellant does not alter the character of the
payments received by the Appellant as benefits is not to say that they are not benefits
awarded by the federal government to the Appellant. Indeed, it appears
to me that they are. However, that does not yet answer the question as to
whether the Appellant had an obligation to account to the federal government for
monies she received in error from WSIB.
[22] That takes me to
consider section 90 of the WSIA. As noted above, the parties seem to
have taken the approach that the federal government is a Schedule 2 employer.
On this basis it seems that the Respondent’s position, relying on the wording
in subsection 90(2), is that WSIB benefits are paid “on behalf” of the federal
government. The WSIB is a mere intermediary engaged (statutorily) by the
federal government to handle benefit claims for its employees. It is asserted
that such intermediary role does not alter the obligations that exist between
the provider of the benefits (the federal government) and the recipient of them
(the Appellant). A similar argument can be made in respect of the GECA, namely
pursuant to the GECA, WSIB is the mere intermediary engaged
(statutorily) by the federal government to handle benefit claims for its
employees.
[23] It strikes me that
the Respondent relies on the principles of the law of agency in making such an
argument. Under the law of agency, where a principal, the federal government, authorizes
an agent (WSIB) to deal with another party, the result, subject to certain
limitations, is that the principal is regarded as having a direct relationship
with the other party. Obligations would, in the normal course, be pursued as between
the principal and the other party. That is, in the context of the case at bar,
obligations between the employer and the employee would be pursued as between
them even though identifying the extent of the obligation (such as an erroneous
benefit payment) had been assigned to WSIB as agent for the employer. Where the
agent’s role has been statutorily imposed, no issue should arise as to the
limitations on the law of agency such as whether the employee knew of or should
have understood the agency role of the statutorily imposed intermediary. In
effect, no issues should arise that limit the right of the principal to collect
any overpayments made by the intermediary agent.
[24] The appropriateness
of applying principles of the law of agency in a statutory context depends of
course on the context of the particular statute. In the context of section 90
of the WSIA, I am not convinced that that section goes that far. I draw no necessary inferences from
the language of section 90 that employees of Schedule 2 employers would be accountable to their employer
for overpayments or that employees could force their employers to fund their
benefits. While subsection 90(2) speaks of payments made on behalf of the
employer, there is no necessary inference that the employer is the provider
of the benefits it is liable to fund which is to say that I see no necessary
inference of an agency-type relationship. Regardless, I have not accepted that
the CRA is a Schedule 2 employer and find arguments relating to the situation
concerning them to be of no assistance.
[25] That is, notwithstanding similarities between
Schedule 2 employers and the federal government as employer governed by the GECA,
I have concluded that there is no basis for the assertion that the federal
government is a Schedule 2 employer. Schedule 2 employers are listed in the
regulations to the WSIA. I find no reference there to Her Majesty in right
of Canada.
Indeed, case law authorities to which I will refer later in these Reasons,
confirm that the source of the WSIB’s role in respect of the federal government
is the GECA, not the WSIA.
[26] Before reaching any
conclusions on the resolution of this matter under the GECA, I note that
it is inherent in the approach taken by the Respondent that there has been a constructive
receipt of the Appellant’s withheld salary which must thereby be included in
income as “received” pursuant to section 5 of the Act. As well, as
raised by me at the hearing, there is the question as to whether there was a
benefit conferred on the Appellant in retiring a debt owed by her, the value of
which would be included in income pursuant to paragraph 6(1)(a) of the
Act.
[27] The theory of
constructive receipt is that the payee need not receive the amount in question
but need only receive a corresponding benefit if, for example, the payment is
paid to the government under a federal or provincial statute. If there is no corresponding benefit such
as where the benefit is less than the amount asserted as received, it seems
logical that the full amount not be regarded as received. In that sense it
appears to me that a benefit received approach under section 6 might be the
preferred approach. However, it was not an approach raised in the assessment or
in the pleadings or by the parties and it has valuation issues which are
obviated, or better dealt with, under other approaches. In the circumstances
then, I am satisfied that a paragraph 6(1)(a) approach should be
abandoned.
[28] Still, some comment
on the doctrine of constructive receipt needs to be made to put it in
perspective since ultimately the Respondent relies on it. While the doctrine
has a long history of being applied in a number of tax cases, in fact, little
of that history is of direct assistance to the facts of this case. The most
frequent application of the doctrine flows from a particular statutory
enactment, namely subsection 56(2) which has been dealt with in cases such as Neuman
v. M.N.R. Such
applications of the doctrine rely on principles, such as the requirement that
the payment be made at the direction of the entitled recipient who must have
ready access to (control over) the monies in question, which are specific to
the requirements of that section. In other contexts applying the common law
understanding of the doctrine, the courts have found that monies can be regarded
as constructively received if they are available to an entitled recipient who
has turned his back on receiving them.
Yet another application of the doctrine, as I have already noted, is seen in Morin
in respect of holdbacks and payments required or authorized under a federal or
provincial statute. On the facts of the case at bar, the Respondent can only
rely on the latter application of the doctrine since the other applications of
it clearly do not apply on the facts of this case.
[29] All that said, I
return to the basic question raised by paragraph 4(6)(a) of the GECA.
That provision confirms that benefits to federal government employees are
awarded under the GECA and are thereby awards made by the federal
government. The GECA is more than a workers’ compensation funding
scheme. It is a statutory compensation scheme whereby Her Majesty in right of Canada provides
benefits to federal workers. That is, the legislative scheme for workers’
compensation under the GECA does suggest that the federal government is
the disclosed principal and each province is its administrative agent in this
three party regime. In applying any agency type principles to this statutory
regime, in my view, requires importing some fairly obvious implied terms as are
necessary to make the system work. While it is expressly stated that the
provincial boards will receive the funding for compensation benefits from the
federal government (which is the provider of such benefits), it is implicit
that boards are making benefit payments on behalf of the federal government and
that they have authority to collect overpayments on behalf of the federal
government. That however does not diminish the federal government’s authority
to take such action on its own behalf. Nor does the delegation of authority to
identify the extent of the obligation (such as an erroneous benefit payment) to
the boards diminish the federal government’s authority to collect overpayments.
Where the board’s role, statutorily imposed, is strictly to act as an
administrative intermediary of the compensation scheme, there should be no
issue as to the authority of the principal provider of the scheme to enforce
the outcomes directed by the boards. As such, there is a debt in the case at
bar to the federal Crown and section 155 of the FAA should apply.
[30] This view of the
nature of the compensation scheme for federal government employees is supported
by the Supreme Court of Canada as far back as 1943 in the case of Ching v.
Canadian Pacific Railway Co.
In that case a federal employee was injured due to negligence of a railway
worker and was paid workers’ compensation under the Alberta statutory regime. The worker sued
the railway for damages and the railway defended the claim on the grounds that
the Alberta legislation barred such
claims. The Supreme Court of Canada found that the statutory scheme governing
the worker was that provided by enactment of the Dominion of Canada not the
province that administered the federal scheme. Accordingly, the worker was not
barred from his claim. The
Court found in the penultimate paragraph of the judgment that in dealing with
the appellant in that case “the Board was acting not under the Provincial Act
but as the administrator of the Dominion law”. Similarly, in the case at bar,
when WSIB overpaid the Appellant, it was acting under the GECA making
the overpayment as administrator of a federal compensation scheme. The debt
arising from the overpayment is a debt to the federal government, not to the
administrator.
[31] A similar conclusion
is warranted by
reference to the decision of Justice Abella (now of the S.C.C.) in Canada
Post Corp. v. Smith, [1998] O.J. no 1850. In
that case, it was asserted that the delegation under GECA to provincial
boards created a patchwork of rights inconsistent with a homogeneous federal
approach to compensation. Abella J. found that making different administrative
arrangements with different provinces simply ensured uniformity in compensation
between injured employees in any province whether federally or provincially
employed. This rationale for the federal scheme supports rather than distracts
from the view that the provider of benefits under the GECA is the
federal government notwithstanding the administrative role played by Provincial
Boards. It follows that overpayments are accountable to the federal government.
[32] Accordingly, I conclude that the Appellant was indebted
to Her Majesty in right of Canada in the
amount of the WSIB overpayment and that, subject to the Appellant’s alternative
argument, it was properly withheld by the CRA pursuant to section 155 of the FAA
and constructively received by the Appellant as per the reasons in Morin.
While an argument can be made that the constructive receipt inclusion should,
pursuant to the reasons in Morin, equal the value of the benefit to the
Appellant that might be nil if the debt was unenforceable, no such argument can
be made in respect of reducing the inclusion by offsetting claims. If the
Appellant had claims for medical expenses, they could have been pursued
independently. As
to reducing the inclusion to reflect the dubious benefit of paying what is
argued to be an unenforceable debt, the parties approached the limitation
period issue in a different way, or so it appears. Instead of reducing the
inclusion to reflect the value of any benefit, the approach focused on the validity
of the withholding and the impact on the inclusion if the withholding was not
lawful. I see no reason not to take that approach as well.
The Statute Barred Issue
[33] Having concluded
that the Appellant was indebted to Her Majesty in right of Canada for the WSIB
overpayment, the remaining issue is to determine the impact of governing
legislation dealing with limitations of actions. In respect of that issue, I
have concluded that the Appellant succeeds in her appeal. Enforcement of the
debt to the federal Crown for the WSIB overpayment was statute barred after six
years. Withholding
wages after that period in satisfaction of that debt was not lawful and the
amount so withheld cannot be regarded as received for the purposes of section 5
of the Act.
[34] The debt arose in
October 1996 and formal demand for payment was made in August 1997 (Exhibit R-3
letter from the Department of Justice). Even running from the latter time,
action on the debt would have to have been commenced by August 2003. The
subject withholding took place well after that. I have no evidence of an
acknowledgment of the debt to the federal Crown or any action by the federal Crown
that would revive or renew the debt in terms of extending a limitation period. Indeed,
collection under the FAA should have been out of first available funds
at least administratively as testified to by the Respondent’s witness. Failure
to take any collection action for over six years is quite extraordinary.
[35] The Respondent
argued that the cause of action did not arise “otherwise than in a province”
which is to say the limitation period on debts to the Crown did not apply.
Reliance is placed on a construction of section
32 of the Crown Liability and Proceedings Act. Section 32 reads as
follows:
Except as otherwise provided in this
Act or in any other Act of Parliament, the laws relating to prescription and
the limitation of actions in force in a province between subject and subject
apply to any proceedings by or against the Crown in respect of any cause of
action arising in that province, and proceedings by or against the Crown in
respect of a cause of action arising otherwise than in a province shall be
taken within six years after the cause of action arose.
[36] The Respondent in
effect wants me to find that the cause of action is neither subject to
limitation under the laws of a province (presumably because the debt is
asserted to be owed to the federal government) nor under the federal
legislation because the cause of action arose in a province. This is an unacceptable
construction.
[37] If the debt is to
Her Majesty in right of Canada, Her Majesty cannot be without limitation to bring a cause
of action. If the debt is to Her Majesty in right of Canada, one cannot assert that the cause
of action arose in a province unless there is a nexus to the province that
affords the debtor the benefit of a limitation period in that province. A cause
of action arising in a province must mean a cause of action to which a
provincial limitation period applies. No other construction of the subject
provision makes any sense at all. The action cannot be without limitations.
This is made clear in my view in the decision of the Supreme Court of Canada in
Markevich. In that case the Supreme Court of Canada noted that whether
the proceeding in that case arose in or out of a province was of no consequence
because in either case the limitation period ran for six years from when the
cause of action arose.
The implicit suggestion is that one or the other has to apply. I am satisfied
that Ontario affords a creditor no longer than six years to commence an action
against a debtor where the debt arises in circumstances akin to those in this
appeal. Indeed, absent a special limitation period, the limitation period in Ontario is two years.
[38] Finding that the
debt is statute barred makes the collection of it by seizure, or by a set-off
amounting to a seizure, ineffective for the purpose of applying the doctrine of
constructive receipt. That is, I can envisage no circumstance that any such
collection, under section 155 of the FAA or otherwise, could be found to
constitute a receipt by the Appellant under section 5 of the Act. To
find otherwise would effectively hold enforcement and collection of Crown debts
above the provisions of limitation of actions legislation for the purposes of
the Act. This result would clearly be contrary to the principles laid
out in Markevich. On this basis the appeal must be allowed.
The Settlement
[39] In light of the
litigious actions and reactions of the parties to this regrettable series of
events, it is not surprising, albeit surprisingly late, that the CRA and the
Appellant finally came to an agreement whereby all issues would be dealt with. This
agreement was entered into in late 2006, well after the CRA withheld the
overpayment amount from the Appellant’s wages. The settlement agreement makes
no mention of the overpayment or any indebtedness to WSIB or the federal Crown.
While the Appellant covenanted not to pursue any claims, there is no suggestion
in the agreement that the Appellant recovered the overpayment asserted as
wrongfully withheld. I draw no
inferences from these later events although it might be possible that the
Appellant’s pursuit of this appeal is contrary to the terms of the agreement.
That, however, has no bearing on its outcome.
Conclusion
[40] For all these reasons, the appeal is
allowed with costs.
Signed at Ottawa, Canada, this 5th day of September, 2008.
"J.E. Hershfield"
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