Citation: 2014 TCC 94
Date: 20140409
Docket: 2009-2703(IT)G
BETWEEN:
BOLTON STEEL TUBE CO. LTD.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
AMENDED REASONS FOR ORDER
Campbell J.
[1]
This is a motion
brought by the Appellant requesting an Order that would require the Minister of
National Revenue (the “Minister”) to vacate a reassessment dated August 31,
2012 in respect to the Appellant’s 1996 taxation year (the “2012
Reassessment”) and to vary instead the prior reassessment dated May 22, 2007
(the “2007 Reassessment”) which the Appellant contends would be in accordance
with a settlement agreement dated June 21, 2012. The Appellant argued that its
reported income of $1,260,074 for the 1996 taxation year should be increased by
the settlement offer of $403,219 for a total income of $1,663,293.
[2]
The Respondent’s
position is that the 2012 Reassessment is a valid reassessment, which
was issued in accordance with the settlement agreement. As such, the Minister added
the settlement offer of $403,219 to $1,863,072, being the total amount of
income for which the Minister had reassessed the Appellant’s 1996 taxation year
pursuant to the 2007 Reassessment.
[3]
This motion arises
because of different interpretations which each party has applied in respect of
the settlement agreement and, consequently, the two very disparate amounts
which each contends is the Appellant’s “income” for the 1996 taxation year, to
which the amount of $403,219 is to be added.
Background
The 2007 Reassessment
[4]
In 2007, the Minister
reassessed the Appellant for its 1994, 1995, 1996 and 1997 taxation years for
which the Appellant reported net business income in the amounts of $224,534, $413,085,
$1,260,074 and $1,599,580 respectively. The Minister determined that the
Appellant had failed to report income in each of these taxation years and, for
the 1996 taxation year, the Appellant’s income was increased by an amount of
$602,998, that is, from the reported income for that year of $1,260,074 to
$1,863,072. This adjustment to the Appellant’s income was based on the
Minister’s assumption that the Appellant had not reported income from sales to United States customers, which in the 1996 taxation year, totalled $602,998 (Canadian
dollars). The Minister based this determination on photocopies of cancelled
cheques allegedly deposited to U.S. bank accounts. The cheques were provided to
the Minister by Randall Sullivan, a former sales manager of the Appellant. Mr.
Sullivan had allegedly obtained these cheques from another former employee of
the Appellant, who is now deceased.
[5]
The Appellant filed an
appeal on August 21, 2009 in respect to this 2007 Reassessment.
[6]
In February, 2011,
during examinations for discovery, Donald Lee-Poy, the Minister’s
representative, admitted that cheques totalling $199,779 (Canadian dollars)
should not have been included as unreported income for the 1996 taxation year
because notations on the back of those cheques indicated that they had been
deposited to Canadian, not U.S., bank accounts. The maximum amount, therefore,
that the Minister could have added as unreported income for the Appellant’s
1996 taxation year was $403,219 (Canadian dollars) and not $602,998.
[7]
On May 28, 2013, the
Respondent filed a Reply to the Notice of Appeal and, at paragraph A(2)(d),
admitted that the amount of $403,219, referred to at paragraph 14 of the Notice
of Appeal, was the maximum amount in dispute for the 1996 taxation year in
accordance with the 2007 Reassessment.
The Settlement Offer/Acceptance
[8]
On June 15, 2012, the
Appellant delivered to the Respondent an offer to settle the appeal in respect
to the 2007 Reassessment. In this offer, the Appellant proposed, among other
things, to settle on the basis that:
1. a. vary the reassessment of Bolton’s 1996 taxation year in
order to add $403,219 to Bolton’s income under subsection 9(1) of the Income
Tax Act (the “Act”). This amount would be subject to the penalty under
subsection 163(2) of the Act;
b. vacate the reassessments (including all
taxes and penalties) of Bolton’s 1994, 1995 and 1997 taxation years;
[ …
]
(Appellant’s Motion Record, Tab A)
[9]
On June 19, 2012, the
Respondent accepted the Appellant’s offer, without any intervening negotiations
or other communications between the parties.
[10]
On June 21, 2012, the parties
executed Minutes of Settlement, which are attached to the within reasons as
Schedule “A”. Essentially, the Minister agreed to vacate the Appellant’s 2007 Reassessment
with respect to the 1994, 1995 and 1997 taxation years (which the parties agree
is in accordance with the terms of the settlement) and to add the amount of
$403,219 to the Appellant’s “income” for the 1996 taxation year (the parties
disagree on whether this calculation reflects the terms of the settlement).
[11]
On August 31, 2012, the
Minister issued the 2012 Reassessment, which calculated the Appellant’s taxable
income for the 1996 taxation year to be $2,266,291. The Minister calculated
this amount by adding $403,219 to the Minister’s 2007 Reassessment amount of
$1,863,072, which effectively added $1,006,217 to the Appellant’s reported
income in 1996 of $1,260,074.
The Position of the Parties
[12]
The Appellant brought
this motion and submitted that the 2012 Reassessment is void for three reasons:
(a) it is not supportable
based on the facts and the law;
(b) it violates the
principle that the Minister cannot appeal its own assessment; and
(c) it is made without
the Appellant’s consent as required pursuant to subsection 169(3) of the Income
Tax Act (the “Act”).
If the 2012 Reassessment is void, the Appellant
further submitted that the 2007 Reassessment should be varied in accordance
with the Minutes of Settlement to add $403,219 to the Appellant’s reported
income of $1,260,074 for 1996.
[13]
The Respondent argued
that the 2012 Reassessment has been validly issued in accordance with the facts
and the law. Since the Minister calculated the Appellant’s 1996 income to be
$1,863,072 and not its reported income of $1,260,074, the Minister’s
interpretation of the settlement offer correctly allows the amount of $403,219
to be added to the total income amount assessed for that year.
[14]
In addition, the
Respondent contends that the 2012 Reassessment is not an appeal of the
Minister’s own assessment because it is not a consent to judgment pursuant to
subsection 152(5) of the Act and was instead settled in accordance with
subsection 169(3) which entitled the Minister to issue a reassessment for an
amount higher than a prior reassessment. The settlement agreement specifically
referenced subsection 169(3) and the Appellant did provide its consent in
accordance with this provision.
[15]
Finally, the
Respondent, as an alternative argument, raised the validity of the settlement
agreement as an issue and argued that, if the 2012 Reassessment is found to be void,
then there was no “meeting of minds” of the parties respecting the settlement agreement
and it would not be valid. Therefore, the 2007 Reassessment is still valid and
remains before the Court in its entirety.
The Issues
[16]
The issues in this
motion are as follows:
(1) Should the 2012
Reassessment be vacated?
(2) If the 2012
Reassessment is vacated, is the settlement agreement enforceable?
(3) If the 2012
Reassessment is vacated and the settlement agreement is enforceable, should the
2007 Reassessment be varied by way of this motion?
Issue #1: Is the 2012 Reassessment void?
[17]
My short answer to this
first issue is that the 2012 Reassessment should be vacated based on all three arguments
advanced by the Appellant.
[18]
First, the principle
against compromise settlements has been well established in the jurisprudence.
Therefore, although an appeal may be settled on consent of the parties,
nevertheless there must be a legal basis for the resulting reassessment. In Galway
v M.N.R., 74 DTC 6355 (FCA), the leading case for this proposition, the Federal
Court of Appeal held that the Minister may not settle an appeal based upon a
compromise settlement that is unsupported by the facts and the law. At
paragraph 7 of Galway, Jackett C.J. stated:
… the Minister has a statutory duty to assess the amount of
tax payable on the facts as he finds them in accordance with the law as he
understands it. It follows that he cannot assess for some amount designed to
implement a compromise settlement and that, when the Trial Division, or this Court
on appeal, refers an assessment back to the Minister for re-assessment, it must
be for re-assessment on the facts in accordance with the law and not to
implement a compromise settlement.
[19]
The decision in Galway
against compromise settlements has been reaffirmed in subsequent decisions of
the Federal Court of Appeal (Huppe v The Queen, 2010 TCC 644, 2011 DTC
1042, Softsim Technologies Inc and Barada Consulting Inc v The Queen,
2012 TCC 181, 2012 DTC 1187 and 1390758 Ontario Corporation v The Queen,
2010 TCC 572, 2010 DTC 1385). Most recently, in CIBC World Markets Inc v The
Queen, 2012 FCA 3, [2012] FCJ No. 30, Stratas J.A. stated the following, at
paragraphs 20 to 21:
20. … Can the Minister accept an offer of settlement
that requires him to issue a reassessment that cannot be supported on the facts
and the law? Put another way, does the Minister have the power to issue
reassessments on the basis of compromise, regardless of the facts and the law
before him?
21. I
answer these questions in the negative.
Consequently, a reassessment will be void if it is
divorced from the facts and the law that are relevant to that particular tax
dispute.
[20]
The Appellant argued
that there is no factual or legal basis upon which the Minister could reassess
the 1996 taxation year for total income in the amount of $2,266,291, where its
reported income for that year was $1,260,074 and where the Minister, in the
2007 Reassessment, added $602,998 in unreported income to the reported income
amount for a total of $1,863,072. The Appellant further submitted that the
maximum amount in dispute in that year is $403,219, not $602,998 as originally
assessed for unreported income by the Minister, because four of the relevant
cheques in the total amount of $199,779 were actually accounted for and
deposited to Canadian, not U.S., bank accounts. Consequently, according to the
Appellant, the offer to settle, which added $403,219 to its reported income in
1996, was a principled amount in accordance with the facts and the law.
[21]
The Respondent acknowledged
that a tax issue may not be settled unless it can be justified under and in
conformity with the Act. However, the Respondent contended that its
interpretation of the term “income” in the settlement offer to mean the income
of $1,863,072, as determined by the Minister in the 2007 Reassessment, entitled
it to add the amount of $403,219 to $1,863,072 as further unreported income for
that year. According to the Respondent, such a settlement is supported by the
relevant facts and law.
[22]
At paragraphs 43 and 44
of the Respondent’s Written Representations, the Respondent offered the
following comments to support its position that the 2012 Reassessment reflects
a principled settlement:
43. By
accepting the Settlement Offer in which Bolton proposed that its income for its
1996 taxation year be increased and the additional income added by the Minister
for the other three years under appeal be deleted, the Minister was
acknowledging that Bolton was in a position to provide information about the
years when the sales to which the cheques related were made. The respondent
accepted, for purposes of settlement, that Bolton’s income for its 1996
taxation year had been underestimated by the Minister and its income for its
1994, 1995 and 1997 taxation years had been overestimated.
44. The
Minister is permitted to accept representations made by a taxpayer as to facts
and is entitled to reassess in accordance with those facts provided the Act
is properly applied.
[23]
In oral argument, the
Respondent contended that it was reasonable to interpret the settlement offer
in such a way that meant that the Appellant’s 1996 income was actually higher
than the amount the Minister assessed in the 2007 Reassessment and that the
Appellant offered this additional amount of $403,219 in exchange for the remaining
three taxation years being vacated. At page 52 of the transcript, the
Respondent stated:
…
Those are representations that the Minister was permitted to accept.
The
Minister wasn’t required to look behind what it believed to be clear
representations in this offer to decide that it shouldn’t accept it. …
[24]
Of course, this
statement would be correct provided that the Appellant’s representations are clear
and that the Respondent’s interpretation of the settlement offer is actually
supported in fact and law. However, that is not the reality in this motion.
This so‑called “exchange” or “deal”, which the Respondent sees mirrored
in the settlement offer, is simply divorced from the relevant factual and legal
considerations. It is an example of that very thing that well-established
jurisprudence does not permit: a compromise settlement. There is no factual or
legal basis to support the Respondent’s contention that the Appellant’s income
for the 1996 taxation year could be $2,266,291. The Respondent’s argument that:
“the Appellant offered more, so we accepted it” is without merit and it is
precisely that which the Minister is precluded from doing in settling tax
disputes.
[25]
In contrast, the
Appellant’s explanation for the basis of its offer to add $403,219 to its
reported income in 1996 is supported by the facts and, consequently, it is a
principled amount. It represented the value of the total cheques in dispute
($602,998) minus the value of those cheques that had been reported and
deposited to Canadian bank accounts ($199,779). Therefore, the maximum amount
in dispute for this taxation year was $403,219. This was admitted by the
Respondent in the pleadings. Paragraph 14 of the Appellant’s Notice of Appeal,
dated March 18, 2013, states:
14. The
maximum amount in issue for 1996 is $403,219. The amount of assumed unreported
sales in the Appellant’s 1996 taxation year of $602,998 minus the amount of
$199,779 excluded as Canadian bank deposits is equal to $403,219.
The Respondent admits this allegation in its Reply to
the Notice of Appeal, at paragraph A.2.(d):
(d) with respect to paragraph 14 of the Notice of Appeal,
admits the allegations of fact contained therein but clarifies that the amount
of $403,219 referred to was the maximum amount in dispute for the 1996 taxation
year in accordance with the reassessment issued on May 22, 2007, which was
superseded by the reassessment issued on August 31, 2012, in accordance with
the Settlement;
[26]
Therefore, the $403,219
amount is not some random figure; both parties were in agreement with this
figure. The Respondent’s interpretation of the settlement offer would mean that
this amount was being offered as additional unreported income for the 1996
taxation year over and above the amount of $1,863,072 that the Minister had initially
assessed in the 2007 Reassessment. There is nothing to support this
interpretation and nothing to support the Respondent’s further contention that
the Appellant offered this amount in exchange for other years to be vacated.
The Respondent is unable to offer any interpretation based on a principled
settlement that could support the 2012 Reassessment of income in the amount of
$2,266,291. It is an arbitrary amount that simply adds $403,219 to a 2007 Reassessment
of $1,863,072 where the Minister had determined that the Appellant had not included
in income U.S. cheques totalling $602,998. Of course, the Respondent subsequently
admitted that the amount of $602,998 incorrectly included an amount of
$199,779, being cheques accounted for in Canadian accounts.
[27]
I am left with the
unanswered question of how a settlement offer of $403,219, which both parties
agreed in the pleadings is the maximum amount in dispute pursuant to the 2007
Reassessment, could in any way be interpreted to be an invitation by the
Appellant to add this additional unreported income amount to the original
assessed amount of $602,998 that the Minister had added to the reported income
in 1996. This would amount to an offer by the Appellant which would equate to a
double-counting of the amount of $403,219. From the Appellant’s perspective,
there is no justification for making such an offer. The Respondent’s
proposition is unsupported by both the facts and the law and, even if both
parties consented to settling in this manner, it could not be permitted.
[28]
The Respondent
contended that the offer provided no explanation as to the origin of the amount
offered or the basis for vacating the other taxation years. I do not believe
the offer required an addendum with an explanation. It appears clear where the
$403,219 amount originated on its face and, even if this was not as apparent as
I have concluded, the Respondent could have requested such information prior to
accepting the offer or it could have made a counter-offer. That is part of the
art of negotiation. It did neither and should not be heard now to claim that
the Appellant had some type of onus to explain the offer to the Respondent.
[29]
For these reasons, the
2012 Reassessment is void and should be vacated because it amounts to an arbitrary
reassessment that is not supported by the factual matrix or the law. On this
basis alone, the Minister would not be permitted to issue the 2012
Reassessment.
[30]
Since both parties
presented submissions on the additional two arguments respecting the validity
of the 2012 Reassessment, I want to address each of them briefly. The
Appellant’s second argument was that the 2012 Reassessment was tantamount to
the Minister appealing its own reassessment. Neither the Appellant nor the
Respondent disputed the well-settled principle that the Minister cannot appeal
its own assessment. Pursuant to the 2007 Reassessment, the Minister added
$602,998 to the Appellant’s 1996 reported income. The 2012 Reassessment added
$1,006,217 to the Appellant’s reported income ($602,998 + $403,219). Appellant
Counsel correctly argued that the Minister had no authority to add more than
$602,998 to the 1996 reported income because otherwise the quantum, originally
reassessed by the Minister in 2007, has been increased. This amounts to an
appeal of the Minister’s own reassessment making the 2012 Reassessment void.
[31]
In Skinner Estate et
al v The Queen, 2009 TCC 269, 2009 DTC 1358, at paragraph 30, Sheridan J.
made the following observation:
[30] …the governing factor in
determining the Court's jurisdiction is not who is seeking the order or the
nature of the remedy sought, but rather, whether the ultimate result would be
an increase in the quantum assessed in the assessment under appeal. If that
question is answered in the affirmative, the "effect" is, by
definition, to permit the Minister to appeal his own assessment and the Court
is without authority to make such an order. As shown by both Pedwell and Petro-Canada, the
Court stands in no better position than the Minister where the order granted
results in an increase in the taxpayer's assessment. The effect of an order
vacating that assessment is still to increase the tax assessed in that year, an
outcome beyond the Court's power to impose. …
[32]
In oral submissions,
Respondent Counsel agreed that “…had this matter gone to court this is not a
result that could have been reached in an appeal.” (Transcript, p. 54). The
Respondent also agreed that this appeal could not have settled in the manner
proposed in the 2012 Reassessment if it had been issued in accordance with a consent
to judgment (Transcript, p. 55). The Respondent further submitted that Justice
Sheridan’s remarks in Skinner can be distinguished because that case
dealt with the Court’s authority to enforce consents to judgment where the
effect would be an increase in the quantum of a taxpayer’s income in a given
year. According to the Respondent’s argument, the present appeal does not
involve a consent to judgment and, instead, has been settled pursuant to
subsection 169(3) of the Act. This provision specifically excludes the
operation of section 152:
169(3)
Disposition of appeal on consent. Notwithstanding
section 152, for the purpose of disposing of an appeal made under a
provision of this Act, the Minister may at any time, with the consent in
writing of the taxpayer, reassess tax, interest, penalties or other amounts
payable under this act by the taxpayer.
(Emphasis added)
The Respondent argued that subsection 169(3) permits
the parties to enter into settlements that would increase the tax which the
Minister could not otherwise validly do pursuant to either a consent to
judgment or one which this Court could issue. Since subsection 152(5) is the
operative provision that prevents the Minister from increasing an assessment of
tax, then according to the Respondent, parties settling an appeal pursuant to subsection
169(3), as in the present appeal, are not bound by 152(5). Therefore, the 2012
Reassessment would not be void simply because it increased the tax owing from
the 2007 Reassessment.
[33]
Although I am not aware
of any jurisprudence that considers the validity of subsequent reassessments
issued pursuant to subsection 169(3), where the quantum of tax owing is
increased, it appears that the principle, that the Minister may not increase
tax from a previous reassessment, is a general limitation placed on the
Minister’s ability, as well as the Court’s, to increase an assessment of tax.
For example, in Abed Estate v The Queen, 82 DTC 6099, the Federal Court
of Appeal, at page 6103, held the following:
…
Moreover, the Court could not, in my view, render a judgment which could, for
certain of the years under consideration, result in a higher assessment than
the assessment under attack. …
[34]
I do not accept the
distinction that Respondent Counsel proposed between subsections 152(5) and
169(3) respecting the Minister’s ability to increase its own tax assessment.
According to the remarks of the Federal Court of Appeal in Abed, as well
as a host of other jurisprudence acknowledging the general principle, this
Court is unable to enforce a reassessment which would result in an increased
assessment of tax beyond the amount in the assessment which is in issue. This
would be the case regardless of the provision relied upon.
[35]
For these reasons, the
2012 Reassessment offends the general well‑established principle that the
Minister cannot appeal its own assessment. The Court has no authority to
enforce such an assessment. As a result, the 2012 Reassessment is void based on
this argument.
[36]
The Appellant’s final
argument, in support of its position that the 2012 Reassessment is void, was
that it was not made in accordance with subsection 169(3) because this
provision requires the written consent of the taxpayer to issue a reassessment.
The Appellant stated that, because it did not consent to the increase of
$1,006,217 in unreported income pursuant to the 2012 Reassessment, the
Reassessment is void.
[37]
Subsection 169(3)
provides that the Minister may, for the purpose of disposing of an appeal,
reassess tax, interest and penalties for an otherwise statute‑barred
year, with “the consent in writing of the taxpayer.” Without this consent, the
Minister is precluded from reassessing under this provision. There was no
evidence to support the addition of $1,006,217 to the Appellant’s reported 1996
income, in either the Minister’s T20 Audit Report, which proposed an adjustment
of $602,998, or in the Appellant’s settlement offer or the Minutes of
Settlement. There were no settlement negotiations or discussions but, at the
time that the Appellant made the offer and it was accepted by the Respondent,
the amount of $403,219 was the maximum amount of unreported income. The facts
do not support a conclusion that the Appellant would have consented to any
additional amount beyond the $403,219 amount, even if I had concluded that the
Minister could have increased its own assessment of tax.
[38]
The Appellant contended
that the application, of the principles of contractual interpretation to the
facts, supports a conclusion that the Appellant did not consent to the issuance
of the 2012 Reassessment. The Appellant relied on the rules of contractual
interpretation cited and relied upon by the Ontario Court of Appeal in 3869130
Canada Inc. v I.C.B. Distribution Inc., 2008 ONCA 396 (“I.C.B.”). At
paragraph 31, quoting Ventas, Inc v Sunrise Senior Living Real Estate
Investment Trust (2007), 85 OR (3d) 254, the Court summarized those rules
as follows:
Broadly
stated … a commercial contract is to be interpreted,
(a) as a whole, in a manner that gives meaning to all of its
terms and avoids an interpretation that would render one or more of its terms
ineffective;
(b) by determining the intention of the parties in accordance
with the language they have used in the written document and based upon the “cardinal
presumption” that they have intended what they have said;
(c) with regard to objective evidence of the factual matrix
underlying the negotiation of the contract, but without reference to the
subjective intention of the parties; and (to the extent there is any ambiguity
in the contract),
(d) in a fashion that accords with sound commercial principles
and good business sense, and that avoids a commercial absurdity.
[39]
The Court in I.C.B.
went on to state, at paragraph 22 of its reasons:
… where
the language of a written contract is unambiguous, extrinsic evidence is not
admissible to alter, vary, interpret or contradict the words used in the
contract … Regardless of any ambiguity, however, as noted above, the courts
may always have regard to the context and to the objective evidence of the
surrounding circumstances underlying the negotiations. (Emphasis added).
[40]
In Costco Wholesale
Canada Ltd. v The Queen, 2009 TCC 134, Justice C. Miller, at paragraph
28, noted that, in interpreting a commercial contract, a court must address the
queries: Why was this done? What were the circumstances? Quoting Lord
Wilberforce in Reardon Smith Line v Hansen-Tangen, [1976] 3 All E.R.
570 (U.K. H.L.) at p. 574, Justice Miller noted:
... No contracts are made in a vacuum: there is always a
setting in which they have to be placed. …
[41]
In addition,
jurisprudence has established that a party’s subjective belief as to the
meaning of a contract will be irrelevant and inadmissible (General Motors of
Canada Ltd. v The Queen, 2008 FCA 142, and Eli Lilly & Co. v
Novopharm Ltd., [1998] 2 S.C.R. 129).
[42]
The ambiguity in this
motion arose from the use of the word “income” used in clause 3 of the
settlement without any descriptive facts as to its precise meaning. In such
circumstances, jurisprudence and the principles of contractual interpretation
direct that I consider the circumstances in which the settlement offer was
made, including the facts that were known to both parties at the time the
Minutes of Settlement were executed, as well as those facts that were
reasonably capable of being known by the parties at such time. The subjective
intent must be ignored.
[43]
The term “income” to
which the amount of $403,219 is to be added can have only two possible meanings
in the circumstances of this motion. It means either the Appellant’s reported
income in 1996 ($1,260,074) or the income as determined by the Minister in the
2007 Reassessment ($1,863,072). The factual matrix surrounding the settlement
offer and acceptance is absent any negotiations between the parties prior to or
during the process. Where there is ambiguity, this Court is entitled to
consider extrinsic evidence pertaining to the surrounding circumstances
prevalent at the time. The Respondent suggests that the language of the
settlement is clear and unambiguous and that the Minister’s belief that the
offer, to add $403,219 to the 2007 Reassessment amount of $1,863,072, was a
factual representation upon which the Minister was entitled to rely. However,
none of the surrounding circumstances supports this belief and I conclude this was
a subjective belief on the part of the Minister which is therefore
inadmissible.
[44]
I agree with the
Appellant’s submission that the factual matrix, surrounding the settlement
offer and acceptance, supports that the term “income” used in the settlement
was meant to mean the Appellant’s reported 1996 income. The offer of an amount
of $403,219 was no coincidence. It was a principled amount that reflected the
Appellant’s theory of the dispute and which could be supported by the factual
matrix. The original amount that was in dispute in 1996 was $602,998. During
the discovery process, based on admissions by the Minister’s representative,
the Appellant believed it was entitled to reduce the $602,998 amount by
$199,779. Consequently, it offered to settle for the addition of $403,219 to
the amount it had reported as its income for that year. This was a principled
amount supported by extrinsic objective circumstances. There is no realistic
argument that would support the Respondent’s contention that the Appellant
would offer to add $403,219 to income as determined by the Minister in the 2007
Reassessment. After all, the Appellant had appealed this reassessment. Why
would the Appellant agree to not only accept the Minister’s 2007 Reassessment,
which already included the $403,219 amount supported by the cheques and the
$199,779 amount that could not be supported, and then also agree to add an
additional amount of $403,219? This simply does not accord with common sense or
good business practice. Even if I could find some support for this conclusion,
which I have not, I would in effect be sanctioning the very thing which this
Court is unable to do: a compromise settlement.
[45]
The Respondent also
argued that the Appellant offered something different from that which it
actually intended to offer. According to the Respondent, the Appellant intended
to offer a reduction of $199,779 from the 2007 Reassessment amount but what was
offered instead was to “add to its income”, income that had been determined by
the Minister. The Respondent argued that it was entitled to interpret that as a
representation that there was further undeclared income in 1996 and that they
had over-estimated the amounts in other years. However, as Appellant Counsel correctly
submitted, the subjective intent and belief of a party to a contract, or what
the other party surmises it to be, are both irrelevant and inadmissible. In
addition, I have no extrinsic evidence that would support such a theory.
[46]
For these reasons, I conclude
that, based on the Appellant’s third argument, the 2012 Reassessment is void
because the Appellant never consented, either expressly or implicitly, as
required by subsection 169(3), to the Minister adding $1,006,217 to the 1996
reported income.
Issue #2: Is the settlement agreement enforceable?
[47]
The Respondent’s
alternative argument was that, if the settlement agreement is ambiguous, there
is no “meeting of minds” between the parties as required for a valid contract.
Therefore, the settlement is void, with the result that the 2007 Reassessment
remains validly before this Court and all of the four taxation years remain in
dispute. I must reject the Respondent’s alternative argument as well and,
consequently, I conclude that the settlement agreement is an enforceable one.
In this regard, I believe that my conclusion finds support in comments made in The
Law of Contracts, S.M. Waddams, 6th ed. (Canada Law Book, 2010) at page 65:
It
sometimes happens that words intended in one sense are reasonably understood in
another. Generally if the promissee’s understanding was reasonable, it will be
held that the promisor ought to have known of it, and the promissee’s
understanding will prevail. There are cases, however, where even a reasonable
expectation may be defeated. An obvious example is the case where the
promisor’s message is altered in transmission by one for whose conduct the
promisor is not responsible. Another case is that of ambiguity. If one promisor
knew or ought to have known of an ambiguity he may be held to the promisee’s
understanding. Conversely, if the promisee has reason to know of the ambiguity
he cannot simply “accept” the more favourable version knowing that the promisor
may well intend the less favourable. The difficulty arises where neither party
has reason to know the other’s meaning, …
A contract will be found to validly exist where the
party accepting the offer could reasonably be expected to know the other
party’s meaning even where it is not specifically communicated. As stated at
page 66 of The Law of Contracts:
… If
either party had reason to know of the other’s meaning, that meaning should
prevail. Only if neither had reason to know the other’s meaning will there
be no contract. … (Emphasis
added)
In the present circumstances, I have concluded that
the extrinsic factual matrix supports the Appellant’s interpretation of the
settlement agreement while in no way supporting the Respondent’s interpretation.
Consequently, the Appellant’s understanding and interpretation, which is
reasonably supported by the factual matrix and law, ought to have been known to
and considered by the Respondent when accepting the Appellant’s settlement
offer. Where this is evident, then that party’s understanding, the Appellant’s
in this motion, will prevail.
Issue #3: Should the 2007 Reassessment be varied in
the context of a motion?
[48]
Given my conclusion
that the 2012 Reassessment is void and that the settlement agreement is validly
enforceable, I also conclude that this Court does have the jurisdiction to vary
the 2007 Reassessment pursuant to the motion before me. The Federal Court of
Appeal decision in Lornport Investments Ltd. v The Queen, [1992] FCJ No.
201, is authority in support of the proposition that, where I have concluded
that the 2012 Reassessment is void and must be set aside, then the 2007
Reassessment remains a valid appeal before this Court. At paragraph 8 of that
decision, Justice Stone concluded that an invalidly issued subsequent
reassessment did not supersede or nullify the preceding reassessment. Where no
discontinuance has been filed respecting the appeal of the 2007 Reassessment
and where I have concluded the 2012 Reassessment is void, the validity of the
2007 Reassessment remains before this Court for consideration on this motion.
[49]
Jurisprudence supports
that this Court has the authority to dispose of a reassessment issued pursuant
to a settlement under subsection 169(3) and pursuant to a motion. In Softsim,
at paragraph 9, Justice D’Auray, in addressing the Court’s authority to enforce
subsection 169(3) settlement agreements on a motion, made the following
comments:
[9] The
parties submitted that this Court has the jurisdiction to hear
the present motion. I agree. What the respondent is seeking is an order
allowing the appeals and referring the reassessments to the Minister for
reconsideration and reassessment in accordance with the settlement agreements
under subsection 169(3) and pursuant to paragraph 171(1)(b) of the Act.
This remedy falls within the exclusive jurisdiction of this Court.
Justice D’Auray relied on the conclusions reached in
both Huppe and 1390758 Ontario. In each case, the Court concluded
that it had jurisdiction to enforce a settlement reached pursuant to subsection
169(3) by allowing the appeal or varying the assessment and referring it back
to the Minister for reconsideration and reassessment. Following the case of Huppe,
this can be done in the context of a motion.
[50]
The Respondent argued
that the relevance of the admissions of the Minister’s representative on
discovery should be determined by a trial Judge and not by a motions Judge.
However, the Minister, at paragraph A.2.(d) of the Reply to the Notice of
Appeal admitted that $403,219 was the maximum amount in dispute for the 1996
taxation year. That amount is the most that can be added to the Appellant’s
1996 income. Since I have concluded that the settlement agreement is
enforceable and must be interpreted to have meant that $403,219 is to be added
to the Appellant’s 1996 reported income, it is within this Court’s jurisdiction
pursuant to the motion to enforce the settlement between the parties in this
manner by varying the 2007 Reassessment, as I have done.
[51]
In conclusion, since I
have determined that the 2012 Reassessment is void and should be set aside and
that the settlement agreement is validly enforceable, the 2007 Reassessment
survives and, according to the Minister’s own admission, the amount of $403,219
will be added to the Appellant’s reported income of $1,260,074 for the 1996
taxation year in accordance with the Minutes of Settlement dated June 21, 2012.
[52]
The Appellant’s motion
is therefore allowed, with costs, in accordance with my reasons.
Signed at Ottawa, Canada, this 9th day of April 2014.
“Diane Campbell”
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