Citation:
2016 TCC 171
Date: 20160713
Docket: 2015-2662(IT)G
BETWEEN:
Pasquale Paletta,
Appellant,
and
HER
MAJESTY THE QUEEN,
Respondent.
REASONS
FOR ORDER
Owen J.
I. Introduction
[1]
These reasons address a motion by the Appellant
for an order that a question (the “Question”) be
determined before the hearing, pursuant to section 58 of the Tax Court
of Canada Rules (General Procedure) (the “Rules”).[1]
In the Appellant’s written submissions, the Question is stated as follows:
Whether the reporting
of Mr. Paletta’s income/loss from the Trading Transactions for the Taxation
Years is attributable to neglect, carelessness, or wilful default within the
meaning of subparagraph 152(4)(a)(i) of the Income Tax Act.
[2]
The Taxation Years are 2000 to 2007 inclusive
and the Trading Transactions are described as foreign currency trading
activities. At the time of this motion no examinations for discovery had been
held. The Respondent contests the motion.
[3]
The Notice of Appeal, the Amended Reply and the
Answer filed by the parties (collectively, the “pleadings”) suggest a complex appeal
in which a number of significant issues will have to be addressed by the trial
judge, including:
1. Whether
under subparagraph 152(4)(a)(i) of the Income Tax Act (the “ITA”) the
Minister of National Revenue (the “Minister”) was entitled to issue the
reassessments of the Taxation Years (the “Reassessments”) outside the “normal reassessment period” as defined in paragraph 152(3.1)(b) of the ITA. I will
refer to this issue as the “statute-barred
issue”.
2. If
the Minister was entitled to issue the Reassessments outside the normal
reassessment period, whether the Reassessments should be sustained, vacated or
sent back to the Minister for reconsideration and reassessment on some
specified basis. I will refer to this as the “reassessment issue”. In light of the
pleadings, as a minimum, this question will require the Court to address:
(a) Whether
the Trading Transactions were a sham and, if so, the effect of the sham in the
circumstances.
(b) If the Trading
Transactions were not a sham:
(i) Whether
the Trading Transactions were legally effective.
(ii) Whether
the losses reported by the Appellant in each of his 2000 through 2006 taxation
years (the “Loss Years”) as being from the Trading Transactions (collectively, the “Losses”) were
incurred by the Appellant.
(iii) Whether
the Trading Transactions were commercial transactions.
(iv) Whether
the Trading Transactions constituted a source of income for the Appellant.
(v) Whether
the Losses were realized by the Appellant.
(c) If
the Trading Transactions were not a sham, whether they gave rise to the income
reported by the Appellant for his 2007 taxation year.
(d) Whether
penalties assessed against the Appellant under subsection 163(2) of the ITA
should be sustained, varied or vacated.
[4]
The taxpayer bears the onus described in House
v. The Queen, 2011 FCA 234, with respect to whether the Reassessments
assess the correct amount of income tax for each of the Taxation Years. The
Minister bears the onus with respect to the statute-barred issue[2] and with respect to
the assessment of penalties under subsection 163(2) of the ITA.[3]
II. The
Positions of the Parties
[5]
The Appellant submits that the statute-barred
issue is a suitable candidate for a discrete question under Rule 58 because, if
the Question is answered in the negative, that will dispense with the balance
of the issues and, even if the Question is answered in the affirmative, the
evidence associated with the statute-barred issue will no longer be required.
[6]
The Appellant submits that Rule 58 has evolved
over the years and that, in interpreting the current version, the principles
identified by the Supreme Court of Canada in Hryniak v. Mauldin, 2014
SCC 7, [2014] 1 S.C.R. 87 (“Hryniak”) should be applied to assess whether the Question is an
appropriate candidate for a Rule 58 determination.[4] If one keeps those principles in mind, it is clear that the
Question satisfies the conditions for the determination of a question under
Rule 58. Moreover, the Appellant is 85 years old and an expedited process
would be expedient in the circumstances.
[7]
The Appellant further submits that, as stated in
Rio Tinto Alcan Inc. c. La Reine, 2016 CCI 31,[5] the parties’ dispute over material facts does not disqualify the
Question from a Rule 58 determination and that I have the authority under
paragraph 58(3)(b) of the Rules to address any evidentiary matters
related to the determination of the Question. The Appellant cited Inwest
Investments Ltd. v. Canada, 2015 BCSC 1375, as an example of a court
applying summary trial rules to determine the application of subparagraph
152(4)(a)(i) of the ITA.
[8]
The Respondent submits that the facts relevant
to the appeal are complex and that the Question cannot be determined without a
full appreciation of all the evidence that would be forthcoming at a full
hearing of the appeal. In complex factual circumstances in which the credibility
of the witnesses may be an issue, only at a full hearing will the Court have at
its disposal the rules and procedures required to properly obtain and assess
evidence. Rule 58 is not intended to be a means to circumvent the safeguards
built into a full-blown trial. The suggestion by the Appellant that the
evidence be tendered through affidavits and cross-examination on the affidavits
is unfair to the Respondent. If instead the Court orders viva voce
evidence, then the Rule 58 hearing is being used as a substitute for a trial,
which is not the purpose of Rule 58. In any event, such an approach raises the
question as to whether the requirement of subsection 58(2) of the Rules would
be satisfied.
III. Analysis
[9]
Rule 58 states:
58(1) On
application by a party, the Court may grant an order that a question of law,
fact or mixed law and fact raised in a pleading or a question as to the
admissibility of any evidence be determined before the hearing.
(2) On the
application, the Court may grant an order if it appears that the determination
of the question before the hearing may dispose of all or part of the proceeding
or result in a substantially shorter hearing or a substantial saving of costs.
(3) An order that
is granted under subsection (1) shall
(a) state the question to be determined before the hearing;
(b) give directions relating to the determination of the
question, including directions as to the evidence to be given — orally or
otherwise — and as to the service and filing of documents;
(c) fix time limits for the service and filing of a factum
consisting of a concise statement of facts and law;
(d) fix the time and place for the hearing of the question;
and
(e) give any other direction that the Court considers
appropriate.
[10]
Rule 58 has been considered in a number of cases.
However, only a few cases have considered the most recent iteration of the
rule, which came into effect on February 7, 2014 (SOR/2014-26, s. 6).
The Regulatory Impact Analysis Statement describes the 2014 amendments to Rule
58 as follows:
To amend sections
53 and 58 to regroup all matters where the Court may strike out a pleading
under section 53, and all matters relating to the determination of questions of
law, fact or mixed law and fact under section 58. As a consequence of these
changes, sections 59, 60, 61 and 62 are repealed.
[11]
Accordingly, current Rule 58 represents a
consolidation of sections 58, 59, 60, 61 and 62 of the Rules under a single
rule, which is in some respects similar to, but in other respects quite
different from, the version of Rule 58 that it replaced. The previous version
stated:
58(1) A party may
apply to the Court,
(a) for the determination, before hearing, of a question of
law, a question of fact or a question of mixed law and fact raised by a
pleading in a proceeding where the determination of the question may dispose of
all or part of the proceeding, substantially shorten the hearing or result in a
substantial saving of costs, or
(b) to strike out a pleading because it discloses no
reasonable grounds for appeal or for opposing the appeal,
and the Court may
grant judgment accordingly.
(2) No evidence
is admissible on an application,
(a) under paragraph (1)(a), except with leave of the
Court or on consent of the parties, or
(b) under paragraph (1)(b).
(3) The
respondent may apply to the Court to have an appeal dismissed on the ground
that,
(a) the Court has no jurisdiction over the subject matter of
an appeal,
(b) a condition precedent to instituting a valid appeal has
not been met, or
(c) the appellant is without legal capacity to commence or
continue the proceeding,
and the Court may
grant judgment accordingly. [6]
[12]
In my view, the changes to the text and
structure of Rule 58, when compared to the previous version, are sufficient to
warrant a fresh consideration of the rule as it now exists.
[13]
Rule 58 continues to describe a two-stage
process. Subsection 58(1) states that the Court may, in response to an
application by a party, grant an order that
1.
a question of law, fact or mixed law and fact
raised in a pleading, or
2.
a question as to the admissibility of any
evidence,
be determined
before the hearing.
[14]
Under subsection 58(2), the Court may
grant such an order if it appears that the determination of the question
before the hearing may
1.
dispose of all or part of the proceeding,
2.
result in a substantially shorter hearing, or
3.
result in substantial savings in costs.
[15]
In the first stage, the Court determines whether
an order should be granted, having due regard to the requirements of
subsections 58(1) and (2), which are determined by applying the usual rules of
statutory interpretation, keeping in mind, however, subsection 4(1) of the
Rules, which requires that “[t]hese rules shall be
liberally construed to secure the just, most expeditious and least expensive
determination of every proceeding on its merits.”
[16]
With respect to the requirements in subsections
58(1) and (2), subsection 58(1) requires that there be either (i) a question of
law, fact or mixed law and fact raised in a pleading, or (ii) a question as to
the admissibility of evidence.
[17]
In Canada (Director
of Investigation and Research) v. Southam Inc.,
[1997] 1 S.C.R. 748, the Supreme Court of Canada described
what constitutes a question of law, fact or mixed law and fact as follows (at
paragraph 35):
. . . Briefly
stated, questions of law are questions about what the correct legal test is;
questions of fact are questions about what actually took place between the
parties; and questions of mixed law and fact are questions about whether the facts
satisfy the legal tests. A simple example will illustrate these concepts. In
the law of tort, the question what “negligence” means is a question of law. The
question whether the defendant did this or that is a question of fact. And,
once it has been decided that the applicable standard is one of negligence, the
question whether the defendant satisfied the appropriate standard of care is a
question of mixed law and fact. . . .
[18]
The question of law, fact or mixed law and fact
must have been raised in the pleadings. Rule 58 does not provide a means to address
such questions that are not raised in the pleadings.[7]
[19]
The second, alternative, requirement in
subsection 58(1) was introduced with the 2014 amendments to Rule 58. It expands
the scope of Rule 58 to allow for questions regarding the admissibility of evidence.
The inclusion of this requirement confirms the broad scope of current Rule 58,
as it may now be used to address virtually any issue that could arise in a full
hearing of the appeal.
[20]
Subsection 58(2) requires only that “it appear”
that the Rule 58 hearing “may” lead to one or more of the specified outcomes. The word “may” is used
in two senses in subsection 58(2). The first sense is permissive and this is
also the sense in which it is so used in subsection 58(1). The repetition of
the permissive sense makes clear the fact that the decision to grant an order
is wholly in the discretion of the Court. In particular, the fact that a
question may meet the requirements in subsections 58(1) and (2) by no means
compels the Court to grant an order under Rule 58.
[21]
This discretionary aspect of the rule is
entirely consistent with the fact that the Tax Court of Canada has the implied authority
to control the process of the Court. In R. v. Cunningham, 2010
SCC 10, [2010] 1 S.C.R. 331, the Supreme Court of Canada stated:
Likewise in the
case of statutory courts, the authority to control the court’s process and
oversee the conduct of counsel is necessarily implied in the grant of power to
function as a court of law. This Court has affirmed that courts can apply a
“doctrine of jurisdiction by necessary implication” when determining the powers
of a statutory tribunal:
. . . the powers conferred by an enabling statute are construed to
include not only those expressly granted but also, by implication, all powers
which are practically necessary for the accomplishment of the object intended
to be secured by the statutory regime . . . .
(ATCO Gas and Pipelines Ltd. v. Alberta (Energy and Utilities
Board), 2006 SCC 4, [2006] 1 S.C.R. 140, at para. 51)
Although
Bastarache J. was referring to an administrative tribunal, the same rule of
jurisdiction, by necessary implication, would apply to statutory courts.
[22]
Apart from being reflective of the Court’s implied
authority to control its own process, the repetition of the permissive aspect
of Rule 58 reinforces the point that there may well be other considerations at
play that factor into the Court’s decision whether or not to grant an order.
The repeated use of permissive language in subsections 58(1) and (2) confirms
that the Court is not limited to considering only the requirements set out in
those subsections.[9]
[23]
The second sense of “may” used in
subsection 58(2) expresses possibility. Specifically, if “it appears”
to the judge hearing the Rule 58 application that the determination of the
question “may” (i.e., could possibly) give rise to one or more of the three
outcomes described in subsection 58(2), then the judge may (not must) grant the
order.
[24]
The cases on the former version of Rule 58 are
well summarized by the Chief Justice in Suncor, supra. As the Chief
Justice observes, some cases under former Rule 58 have held that a question
fails to meet the requirement now in subsection 58(2) if only one of two
possible answers would lead to the desired results.
[25]
I do not read these cases as setting a hard and
fast rule that must be applied to the current version of Rule 58. Moreover, the
broad discretionary language used in current subsection 58(2) supports the
position that a question should not automatically fail to meet the requirement
in that subsection because one possible answer to the question would not lead
to one or more of the desired results. Rather, the possibility of that answer
should be factored into the Court’s consideration of whether or not to exercise
its discretion to grant an order under Rule 58. In my view, such an approach
respects the broad discretionary language of subsection 58(2) and is consistent
with the mandate under subsection 4(1) of the Rules and the general principles
enunciated by the Supreme Court of Canada in Hryniak.
[26]
With these considerations in mind, I will now
address the application made by the Appellant. It is clear that the Question is
a question of mixed law and fact that is raised in the Notice of Appeal filed
by the Appellant. Accordingly, the Question meets one of the alternative
requirements in subsection 58(1) of the Rules.
[27]
With respect to the requirement in subsection
58(2) of the Rules, the Question will require the Court to consider the
application of subparagraph 152(4)(a)(i) of the ITA to the Appellant’s
circumstances. Subparagraph 152(4)(a)(i) provides that an assessment,
reassessment or additional assessment may be made after the Appellant’s normal
reassessment period in respect of a taxation year only if the Appellant or the person
filing the return has made a misrepresentation attributable to neglect,
carelessness or wilful default, or committed fraud in filing the return or in
supplying information under the ITA.
[28]
In Boucher v. The Queen, 2004 FCA 46 at
paragraph 5, the Federal Court of Appeal stated that subparagraph 152(4)(a)(i)
of the ITA imposes two requirements. First, a misrepresentation must have been
made. Second, that misrepresentation must be attributable to neglect,
carelessness or wilful default.
[29]
In Nesbitt v. The Queen, 96 DTC 6588, the
Federal Court of Appeal stated:
. . . A
misrepresentation has occurred if there is an incorrect statement on the return
form, at least one that is material to the purposes of the return and to any
future reassessment. It remains a misrepresentation even if the Minister could
or does, by a careful analysis of the supporting material, perceive the error
on the return form. . . . [10]
[30]
In light of this statement, it is apparent that,
for the Court to find a misrepresentation, the Respondent must establish that
there were one or more incorrect statements in the Appellant’s returns for the
Taxation Years. As the correctness of the returns is the crux of the
reassessment issue (save for the subsection 163(2) penalties), it seems to me
that it would be difficult to address this question without a full hearing that
addresses all of the issues raised in the pleadings.
[31]
The Appellant states, however, that he is
prepared to have the determination of the Question proceed on the basis that
there has been a misrepresentation in the reporting of his income/loss for the
Taxation Years (paragraph 26 of the Appellant’s submissions).[11] This, the Appellant suggests, would leave only the issue of whether
the misrepresentation is attributable to neglect, carelessness or wilful
default. The Appellant submits that this is a discrete issue that does not
require a 15-day trial to resolve.
[32]
I disagree. In my view, the issue of whether the
conceded misrepresentation is attributable to neglect, carelessness or wilful
default cannot be resolved without an appreciation of all of the circumstances
surrounding the filing positions taken by the Appellant in his returns for the
Taxation Years. Those circumstances have not been agreed upon by the parties
and, in fact, are at the heart of the highly contested reassessment issue.
[33]
The Appellant cites Inwest Investments, supra
and Rio Tinto, supra in support of his position that the existence
of contentious factual issues is not fatal to his application. I agree that an
absence of evidence at the time of the application under Rule 58 is not fatal
to that application because paragraph 58(3)(b) of the Rules empowers the
Court to address evidentiary issues. In Rio Tinto, Justice D’Auray
stated:
There are no
longer any obstacles with respect to evidence in paragraph 58(3)(b) of the 2014
version. The judge may give directions as to the evidence to be given,
documentary or oral.[12]
[34]
This does not mean, however, that a Rule 58
hearing should be used as a substitute for a full hearing simply because
evidentiary issues can be addressed in the order. It is important to keep in
mind the general principles identified by the Supreme Court of Canada in Hryniak
(at paragraph 49 and 50):[13]
There will be no
genuine issue requiring a trial when the judge is able to reach a fair and just
determination on the merits on a motion for summary judgment. This will be the
case when the process (1) allows the judge to make the necessary findings of
fact, (2) allows the judge to apply the law to the facts, and (3) is a
proportionate, more expeditious and less expensive means to achieve a just
result.
These principles are
interconnected and all speak to whether summary judgment will provide a fair
and just adjudication. When a summary judgment motion allows the judge to
find the necessary facts and resolve the dispute, proceeding to trial would
generally not be proportionate, timely or cost effective. . . .
[Emphasis added.]
[35]
In Suncor, Chief Justice Rossiter noted (at
paragraph 26) that a Rule 58 determination is not a substitute for a hearing
and observed that “[a]lthough Rule 58 contemplates
questions of fact and of mixed law and fact, the determination of such
questions is very much like a trial, except that an actual trial has the
benefits of a fair hearing with evidentiary protections.”
[36]
It is also worth noting that, if the evidence
that is required in order to determine the question is akin to the evidence
that would be tendered at a full hearing, then the requirement in subsection
58(2) would not be satisfied. This further confirms that a Rule 58
determination is not intended to be substituted for a hearing.
[37]
In Rio Tinto, the appellant posed two
questions, neither of which raised the matter of the application of
subparagraph 152(4)(a)(i) of the ITA. In addressing the first question,
relating to the validity of reassessments, Justice D’Auray concluded (at
paragraph 62) that “[t]he facts
surrounding the reassessments have nothing in common with the substantive
issue, that is, whether AAI’s activities constituted SR&ED.” The second question raised a narrow legal issue regarding the
permitted content of the reassessments. Accordingly, the circumstances of the
application in Rio Tinto were quite different from the circumstances of
this application.
[38]
In Inwest Investments, the appellant filed
an application with the British Columbia Supreme Court for a summary trial
under the Supreme Court Civil Rules, B.C. Reg. 168/2009. The Court
described the central question in the appeal as “whether Wesbild had a permanent
establishment . . . in British Columbia”,[14] which is a relatively discrete issue. The summary trial was to
address whether the Minister was entitled to assess Wesbild Capital Corporation
(“Wesbild”) under the authority of subparagraph 152(4)(a)(i) of the ITA
and, for that purpose, the appellant conceded that Wesbild had taken an
incorrect filing position in its 2002 income tax return.
[39]
The Court stated that “it is apparent that little, if any, facts
are in dispute”[15] and, after indicating that there was “extensive evidence”,[16] concluded:
. . . I find
that it is appropriate to proceed with the summary trial on the limitation
issue. There is sufficient evidence upon which the Court may find the necessary
facts to decide that issue. . . . [17]
[40]
In this case, the pleadings disclose complex
facts and numerous contentious issues material to the appeal, including whether
the trading transactions were a sham, whether the trading transactions were
legally effective and whether the trading transactions were commercial
transactions. I do not agree with the submission of the Appellant that these
issues can be readily separated from the statute-barred issue.
[41]
To assess whether the Appellant acted as a wise
and prudent person[18] in the complex circumstances of this case, it is in my view
necessary for the Court to understand all of the circumstances in which the
relevant actions of the Appellant took place. This requires a full-blown trial
in which the Court has the opportunity to see and assess all of the witnesses
presented by the parties and all of the evidence tendered through those
witnesses.[19] Such a hearing will also provide the parties with a full
opportunity to tender their evidence through examination in chief,
cross-examination, discovery read-ins, etc. in a forum that provides the
safeguards of the rules of evidence and the rules and procedures of the Court.
This opportunity is clearly in the interests of justice in a case where the
facts are complex and highly contentious and each of the parties bears an onus
with respect to those facts.
[42]
In his written submissions, the Appellant states
that the evidence needed to address the statute-barred issue could be tendered
through affidavits, cross-examination on the affidavits and, if necessary, oral
evidence. The Appellant identifies the witnesses he would produce and outlines
the evidence he hopes to establish through these witnesses. The Appellant
suggests that, under this approach, the hearing of the Question will require
only one or two days compared to a 15-day hearing for the full appeal.
[43]
At the same time, the Appellant emphasizes that
the onus with respect to the statute-barred issue falls on the Respondent. It
is therefore apparent that there is a fundamental contradiction in the
Appellant’s position. On the one hand, the Appellant argues that the evidence
necessary to determine the Question should be introduced in a circumscribed
fashion. On the other hand, the Appellant emphasizes that the onus to establish
the facts supporting the application of subparagraph 152(4)(a)(i) of the
ITA falls on the Respondent. In effect, the Appellant is seeking to control the
manner in which the Respondent may introduce evidence to satisfy her onus. The
Appellant’s suggested approach to the evidence would not provide a fair and
just adjudication of the statute-barred issue.[20]
[44]
For the foregoing reasons, the motion is
dismissed with costs to the Respondent in any event of the cause.
Signed at Toronto, Ontario, this 13th day
of July 2016.
“J.R. Owen”
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