Date: 20110408
Docket: A-39-10
Citation:
2011 FCA 128
CORAM: NOËL J.A.
PELLETIER J.A.
TRUDEL J.A.
BETWEEN:
HER MAJESTY THE QUEEN
Appellant
and
JEAN-ROBERT
LACROIX
representing
CANADEVIM LTÉE,
under
subsection 38(1) of the
Bankruptcy and Insolvency Act
Respondent
REASONS FOR JUDGMENT
NOËL J.A.
[1]
This is an appeal filed
by the Crown from a judgment of Justice Lamarre of the Tax Court of Canada (the
TCC judge). Justice Lamarre allowed the appeal of Canadevim ltée (Canadevim)
and vacated the assessment made by the Minister of Revenue of Québec on behalf
of the Minister of National Revenue (the Minister) under the Excise Tax Act,
R.S.C., 1985, c. E-15 (ETA).
[2]
Canadevim was declared bankrupt
in a judgment of the Quebec Superior Court dated January 24, 2003. A further
judgment by the same Court authorized Jean-Robert Lacroix to institute the
present proceeding on Canadevim’s behalf.
[3]
In issuing the impugned
assessment, the Minister assumed that, under paragraph 152(1)(b) of the
ETA, Canadevim had to issue an invoice at some point during the period covered
by the assessment, that is, from May 1, 1998, to October 31, 2001, for the work
it carried out as part of a service supply agreement. The TCC judge found that
since the work carried out by Canadevim had not been “substantially completed” within
the meaning of paragraph 168(3)(c) of the ETA, no such invoice had to be
issued.
[4]
For the reasons that
follow, it is my view that the TCC judge erred in law in making the decision
and that the appeal should be allowed.
RELEVANT FACTS
[5]
The only person to
testify for Canadevim at the hearing was Yoland Lacasse (Reasons, para. 4). The
following summary is based on his testimony and the documentary evidence filed
in the proceedings.
[6]
The shareholders and
directors of company Canadevim, during the period in question, were Yoland Lacasse
and Jean-Robert Lacroix (Appeal Book, Vol. II, pp. 150, 151). In 1989, Yoland Lacasse,
acting on his own behalf and for three companies (Yoland Lacasse in Trust)
including Canadevim, purchased a parcel of land of about 200 acres (Appeal
Book, Vol. II, pp. 152, 153 and 239). A certain Harry Adams owned an
adjacent parcel of about 100 acres. In October 1996, the City of Aylmer
approved a residential and commercial development project that included the
building of a golf course on the two parcels of land.
[7]
In spring 1997, Yoland Lacasse
and Yoland Lacasse in Trust gave Canadevim, the general contractor, the
mandate to start building the golf course (Appeal Book, Vol. II, pp. 165 and
240 to 242). As to whether Harry Adams had also given this mandate, Yoland Lacasse
replied [translation] “it was
mostly me” before adding that Harry Adams was on site from the start of and
during most of the construction (Appeal Book, Vol. II, at p. 243).
[8]
Although the agreement
was not in writing, according to Yoland Lacasse, it provided that Canadevim
would be paid an hourly rate and that a markup of 10 percent would be added to the
cost of the subcontractors (Appeal Book, Vol. II, at p. 250). The work began in
spring 1997 and continued until fall 1997, when Harry Adams learned that he had
an incurable cancer. The work which had been completed up to 55% was
interrupted. The grass was cut in summer 1998, but this work was not done by
Canadevim (Appeal Book, Vol. II, at p. 178.
[9]
On April 17, 1998, Harry
Adams donated his parcel of land to a trust created for the benefit of his
spouse, Shirley Goodwin. A few months later, on July 10, 1998, Jean-Robert Lacroix,
acting on behalf of Canadevim, registered a notice of legal hypothec on the two
parcels of land on which the work had been carried out. According to Yoland Lacasse,
Canadevim feared that the Adams estate would sell his parcel to a third party
(Appeal Book, Vol. II, at p. 251.)
[10]
The notice of legal
hypothec named Canadevim as the creditor and indicated that Canadevim [translation] “had provided work and
supplied material to Harry Adams, … the Shirley Goodwin Trust, Yoland Lacasse
and Yoland Lacasse in Trust” in the amount of $1.2 million (Appeal Book,
Vol. I, at p. 53). This amount was calculated on the basis of the amount of
work that had been carried out when the work was interrupted and the costs
incurred according to the invoices paid (Appeal Book, Vol. II, at
p. 184.)
[11]
In fall 1998, Yoland Lacasse
and Jean-Robert Lacroix and two other individuals formed the company Le Club de
Golf Les Vieux Moulins Inc. (Société Les Vieux Moulins). This company gave
Canadevim the mandate to complete the work required to open the golf course
(Appeal Book, Vol. II, at pp. 255 to 257). The golf course was opened to the
public in spring 1999 without the work having been entirely completed. According
to Yoland Lacasse, the work had still not been completed at the time of the
hearing in 2010 (Appeal Book, Vol. II, at p. 210).
[12]
On February 1, 1999,
Canadevim, still not having been paid, filed in the Superior Court a motion for
forced surrender and for taking in payment the parcels of land on which the
work had been carried out (Appeal Book, Vol. I, at p. 63). Harry Adams died in
July 2000. Six months later, Canadevim settled out of court with the Adams
estate. According to that settlement, reached in January 2001, the Adams estate
agreed to sell the land on which the work had been carried out to Société Les
Vieux Moulins for $245,000 subject to Canadevim giving up any monetary claims
against Harry Adams or his estate (Appeal Book, Vol. I, at p. 57, para. 3(b)).
[13]
On August 23, 2002, the
Minister assessed the period from May 1, 1998, to October 31, 2001, on the
basis of paragraph 152(1)(b) of the ETA (Appeal Book, Vol. I, at p. 15,
para. 31), relying on, among other things, the assumption that Canadevim had
substantially completed building the golf course when it registered the legal
hypothec (idem, para. 26(h) and (i)). The $1.2 million indicated in the
notice of legal hypothec was the basis for the calculation of the Goods and
Services Tax (the tax or GST) payable by Canadevim as agent (idem, para.
26(i) and 29). The amount owed by Canadevim following the assessment amounted
to $135,570.69, including penalties and interest.
LEGISLATIVE FRAMEWORK
[14]
Under subsection 168(1)
of the ETA, GST in respect of a taxable supply is payable on the earlier of the
day the consideration for the supply is paid (inapplicable here) or the day the
consideration for the supply “becomes due”. In that respect, subsection 152(1)
of the ETA specifies that the consideration “shall be deemed to become due” on
the earliest of three dates described:
|
152(1) For the purposes of this Part, the consideration, or a part
thereof, for a taxable supply shall be deemed to become due on the earliest
of
(a) the earlier of the day the supplier first
issues an invoice in respect of the supply for that consideration or part and
the date of that invoice,
(b) the day the supplier would have, but for an
undue delay, issued an invoice in respect of the supply for that
consideration or part, and
(c) the day the recipient is required to pay that
consideration or part to the supplier pursuant to an agreement in writing.
|
152(1) Pour l’application de la présente partie, tout ou partie de la
contrepartie d’une fourniture taxable est réputée devenir due le premier en
date des jours suivants :
a) le premier en date du jour
où le fournisseur délivre, pour la première fois, une facture pour tout ou
partie de la contrepartie et du jour apparaissant sur la facture;
b) le jour où le fournisseur
aurait délivré une facture pour tout ou partie de la contrepartie, n’eût été
un retard injustifié;
c) le jour où l’acquéreur est
tenu de payer tout ou partie de la contrepartie au fournisseur conformément à
une convention écrite.
|
[15]
The TCC judge relied on
paragraph 168(3)(c) of the ETA to determine what constituted an “undue
delay” for the purposes of paragraph 152(1)(b):
|
168(3) Notwithstanding
subsections (1) and (2), where all or any part of the consideration for a
taxable supply has not been paid or become due on or before the last day of
the calendar month immediately following the first calendar month in which
…
(c) where the supply is under an agreement in
writing for the construction, renovation or alteration of, or repair to,
(i) any real
property, or
(ii) any ship
or other marine vessel, and it may reasonably be expected that the
construction, renovation, alteration or repair will require more than three
months to complete,
the construction,
renovation, alteration or repair is substantially completed,
tax under this Division in respect of the
supply, calculated on the value of that consideration or part, as the case
may be, is payable on that day.
|
168(3) Par
dérogation aux paragraphes (1) et (2), la taxe prévue à la présente section,
calculée sur la valeur de tout ou partie de la contrepartie d’une fourniture
taxable, est payable le dernier jour du mois qui suit le premier mois où l’un
des faits suivants se réalise, dans le cas où tout ou partie de la
contrepartie n’est pas payée ou devenue due au plus tard ce jour-là :
[…]
c) s’il s’agit d’une
fourniture prévue par une convention écrite qui porte sur la réalisation
de travaux de construction, rénovation, transformation ou réparation d’un
immeuble ou d’un bateau ou autre bâtiment de mer – étant raisonnable de s’attendre
dans ce dernier cas à ce que les travaux durent plus de trois mois – , les
travaux sont presque achevés.
|
[Emphasis
added]
TCC DECISION
[16]
After summarizing the
facts, the TCC judge addressed the issue of when the consideration for the work
carried out by Canadevim had become due under section 152 of the ETA. Noting
that no invoice had been issued and that there was no written agreement, the
TCC judge questioned whether Canadevim should have “issued” an invoice but for
an undue delay, as provided for at paragraph 152(1)(b) (Reasons, paras. 26
to 32).
[17]
To determine what is
meant by an undue delay, the TCC judge took guidance from paragraph 168(3)(c)
of the ETA, which provides that, where the supply is made under an agreement in
writing, the consideration becomes due when the work is “substantially
completed”. In this case, the TCC judge noted that when the golf course opened
in June 1999, the construction work had still not been completed. In that
respect, she pointed out that contrary to what was alleged in his pleadings,
counsel for the Minister admitted at the hearing that the work had not been
completed when the notice of legal hypothec was registered (Reasons, para. 34).
The issue to be decided was therefore whether despite the work not having been
completed, an invoice had to be “issued” under paragraph 152(1)(b).
[18]
According to the TCC judge,
even though there was no written agreement in this case, the completion test in
paragraph 168(3)(c) of the ETA is a reasonable one for determining
whether the consideration was due (Reasons, para. 35). She went on to state
that since the work had not been completed at the time that the notice of legal
hypothec was registered, there was no undue delay in “issuing” an invoice under
paragraph 152(1)(b) of the ETA (Reasons, paras. 35 to 38).
[19]
The TCC judge noted
that the registration of a notice of legal hypothec does not necessarily mean
that the work was substantially completed within the meaning of article 2727 of
the Civil Code of Québec (C.C.Q.) (Reasons, para. 39). A legal hypothec
is merely a measure to preserve a right. According to her, “the notice [of
legal hypothec] serves merely to secure the claim that gave rise to added
value, not to prove the exact amount of that added value” (Reasons, para. 43). In
this regard, she referred to the Quebec Court of Appeal’s decision in Beylerian
v. Constructions et rénovations Willico inc., REJB 1997-00639 [Beylerian].
[20]
The TCC judge concluded
that the consideration for the work carried out by Canadevim was not due when
the notice of legal hypothec was registered and that Canadevim did not have to “issue”
an invoice under paragraph 152(1)(b) of the ETA. She therefore allowed
the appeal and ordered that the assessment be vacated.
POSITION OF THE MINISTER
[21]
The Minister submits
that the TCC judge erred in law in relying on the “substantially completed” test
in paragraph 168(3)(c) of the ETA to determine when the consideration
for the work carried out by Canadevim became due for the purposes of paragraph 152(1)(b).
Paragraph 168(3)(c) applies only when there is a written agreement. This
is not the case here.
[22]
The Minister submits
that the undue delay in “issuing” an invoice under paragraph 152(1)(b)
of the ETA must be determined on the basis of the facts and circumstances of
each case.
[23]
The Minister submits
that the contractual relationship that resulted in the first stage of work
ended at some point between November 1997, when the work was interrupted, and
July 1998, when the notice of legal hypothec was registered. The Minister
submits that an invoice should have been issued after this contractual
relationship ended. He points out that Canadevim undertook the second stage of
work under a second contractual agreement with another party, namely Société
Les Vieux Moulins.
[24]
The Minister stated
that he was relying on the notice of legal hypothec not to determine the date
when Canadevim had to “issue” an invoice under paragraph 152(1)(b) of
the ETA, but to establish objectively the amount that should have been invoiced
by Canadevim for the work carried out.
POSITION OF CANADEVIM
[25]
Canadevim defends the
decision of the TCC judge and refers to her reasons. According to Canadevim, it
is logical and reasonable for tax in respect of a taxable supply not to become payable
before work has been “substantially completed” within the meaning of paragraph 168(3)(c)
of the ETA.
[26]
Canadevim argues that
the assessment is based on two assumptions, both of which were found to lack
merit. The first is that the date on which the legal hypothec was registered
makes it possible to determine when the work was “substantially completed” and,
consequently, when the tax became both payable and collectible. The second is
that the amount in the notice of legal hypothec can be used to establish the
consideration payable for the golf course construction services provided by
Canadevim (Canadevim’s memorandum, para. 21).
[27]
Canadevim argues that
the registration of the notice of legal hypothec does not confirm a debt but is
intended to protect a contingent debt payable upon completion of the work. Canadevim
specifies that article 2728 of the CCQ provides that a construction legal
hypothec secures the increase in value added to the immovable by the work, but
not the debt. In addition, Canadevim refers to the Quebec Court of Appeal’s
decision in Beylerian, according to which a contractor does not have to
prove the amount of the increase in value added to the immovable, but only the
existence of the increase in value. It follows that the amount on the notice of
legal hypothec and the consideration payable for the work carried out are not
the same.
[28]
Canadevim also questions
the legal validity of the hypothec it itself registered. It explains that the
hypothec covers two immovables, the land owned by Yoland Lacasse in Trust
and the land owned by Harry Adams. According to Canadevim, a notice of legal
hypothec should have been registered for each of the immovables in question.
[29]
Canadevim is also
attempting to demonstrate that the consideration payable for the work carried
out was not $1.2 million. It points out, among other things, that the Adams
estate had not paid at all for the work carried out on its land following the
out-of-court settlement reached in January 2001 (Canadevim’s memorandum,
para. 78). It adds, relying on Rockport Developments Inc. v. The Queen,
2009 TCC 180 [Rockport Developments], that [translation] “the value of the consideration for the
services rendered was not ascertainable during the assessment period”
(Canadevim’s memorandum, para. 86).
ANALYSIS AND DECISION
[30]
The essential issue is
whether the TCC judge could rely on the test provided at paragraph 168(3)(c)
of the ETA to determine the amount in which the invoice should have been issued
despite the fact that the prerequisite for this provision to apply, namely, a
written agreement, was not present.
[31]
The TCC judge
essentially reasoned as follows on this issue:
[35] … Even though there was no written agreement, it
seems to me that the completion test in paragraph 168(3)(c) of the ETA
is a reasonable one for determining whether consideration was due, and can
apply just as well whether there is a written agreement or not.
[36] Indeed, since Parliament has seen fit to specify
that, where there is a written agreement, the consideration becomes due only
when the work is substantially completed, it seems to me that this is a good
reference point for determining when the consideration becomes due in instances
where the supplier has issued no invoice for the consideration.
[37] Paragraph 152(1)(b) of the ETA provides that the
consideration is deemed to become due on the day the supplier would have issued
an invoice, but for an undue delay.
[38] Since the work was far from completed at the time
that the notice of legal hypothec was registered (and this is no longer
disputed by the Respondent), I do not believe that there had been at that time
any undue delay in issuing an invoice.
[32]
The difficulty this
reasoning raises is that according to the very terms of paragraph 152(1)(b),
the issuing of an invoice may be unduly delayed even if the work has only
partially been completed, since the provision speaks of an invoice “in respect
of the supply for that consideration or part”.
[33]
It follows that the TCC
judge could not settle her analysis on the mere fact that the work had not been
substantially completed and thus conclude that an invoice did not have to be
issued. She had to question whether, according to the evidence, an invoice had
to be issued for the purpose of paragraph 152(1)(b) for the part of the
work that had been carried out. In my humble opinion, if the TCC judge had
asked herself that question, she could only have concluded that this was the
case.
[34]
In fact, the evidence
demonstrates that the work carried out by Canadevim was stopped from the moment
Harry Adams discovered he was sick even though it was only 55% complete. It was
when Harry Adams donated his land to his spouse’s trust a few months later that
Canadevim noticed that the project and the money it had invested were in
jeopardy (Reasons, para. 9; Appeal Book, Vol. II, pp. 180, 181). The legal
hypothec was registered on July 10, 1998, and the motion for forced surrender
and for taking in payment of the land was filed seven months later.
[35]
Canadevim did not see
fit to adduce this motion into evidence, but it is clear that to file it,
Canadevim had to allege the existence of the claim (art. 2765 C.C.Q.), the fact
that the claim was exigible (art. 2748 C.C.Q.) and the debtor’s default (arts. 2765
and 1748 C.C.Q.). In fact, the judgment of the Superior Court dated May 31,
2001, mentions that Canadevim alleged in this motion that it had not been paid
(Appeal Book, Vol. I, p. 63, entire third paragraph), and no one can question
the fact that the purpose of the motion was to take the land in payment for the
outstanding amount.
[36]
This confirms the
Minister’s position that the initial mandate given to Canadevim ended after the
first stage of work and that it was under a separate agreement with another
party that the work required to open the golf course was completed. Logically,
an invoice for the outstanding amount had to be issued before the motion for
forced surrender and for taking in payment was filed. In fact, this motion
could not be filed before a request for payment was made in some form or other.
In this context, the failure to issue an invoice cannot be justified. I would
add that the decision of the Quebec Court of Appeal in Beleyrian has no
effect on this reasoning. What arises out of that decision is that the increase
in value resulting from the work carried out does not have to be quantified
when registering a notice of legal hypothec. No such question arises in the
context of this appeal.
[37]
As to the amount that
should have been invoiced, the legal hypothec registered by Canadevim was
calculated on the basis of the actual costs incurred to carry out the work, and
Yoland Lacasse, who testified about this on Canadevim’s behalf as well as on
his own and that of Yoland Lacasse in Trust, confirmed that the verbal
agreement entitled Canadevim to an amount based on the costs incurred (Appeal
Book, Vol. II, p. 250). Except for claiming that the hypothec it registered was
unlawful – because it was registered for two plots of land rather
than just one – Canadevim has failed to demonstrate that another
amount from the one indicated should have been registered or that the amount it
claimed in its motion was different from the one it registered.
[38]
From this I conclude
that had it not been for the undue delay, Canadevim would have issued an
invoice for $1.2 million at some point between when the work stopped in fall 1997
and February 1, 1999, when the motion for forced surrender and taking in
payment was filed. It follows that under subsection 152(1) of the ETA, the
consideration for the taxable supply made by Canadevim “became due” no later
than February 1, 1999.
[39]
Further, Canadevim
claimed that the events following the filing of this motion demonstrate that
its debt was not $1.2 million. It argues that the out-of-court settlement
reached in January 2001 demonstrates that for the portion of the work carried
out on the land belonging to Harry Adams at the time, the consideration was
reduced to nil since it gave up any monetary claims against the Adams estate.
[40]
The fact that the Adams
estate did not pay anything does not establish that Canadevim reduced the
consideration owed to it. In fact, there is nothing to explain why Canadevim would
have made a present of its debt or decided to give it up. Rather, this suggests
that the obligation to pay Canadevim was assumed by those in whose interest it
was to move forward with the project. I am thinking here particularly of
Société Les Vieux Moulins, which acquired from the estate the land on which the
improvements were made.
[41]
Lastly, the rule that
arises from the decision of the Tax Court of Canada in Rockport Developments
cannot apply in this case. In that case, the Court had to rule on the liability
for GST for extra fees for work on which the parties had not agreed. No such
question is raised here, since there was an agreement on the work to be carried
out and the consideration to be paid.
[42]
For these reasons, I
would allow the appeal with costs, set aside the judgment of the TCC judge,
and, rendering the judgment that the TCC judge should have rendered, I would dismiss
Canadevim’s appeal with costs.
“Marc Noël”
“I agree.
J.D.
Denis Pelletier J.A.”
“I agree.
Johanne
Trudel J.A.”
Certified true
translation
Johanna Kratz
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