Can-Am Realty Ltd. v. R., 97 DTC 5070, [1997] 2 CTC 152 (FCTD)

Hargrave P.:

Reasons for Order

This motion for an extension of time within which to appeal a 30 September 1993 order was heard and granted 9 December 1996. At that time, I indicated reasons would follow. In passing, I note these reasons apply to seven other actions, T-3406-90, T-3408-90, T-3409-90, T-3410-90, T- 3411-90, T-3412-90 and T-3413-90.

Background

This action and seven companion actions, all commenced in December of 1990, appeals of an assessment under former section 172(2) of the Income Tax Act were initially held in abeyance but, following an acquittal on tax evasion charges, were heard by the Federal Court in September and October of 1993. By the time of trial the Crown had dropped all but one of the penalties claimed under section 163(2) of the Tax Act against the Plaintiffs. Rather, at issue, was the reopening of four statute barred taxation years under section 152(4) of the Income Tax Act. To reopen the statute barred years the Minister had the onus of showing misrepresentation attributable to neglect, carelessness or willful default in the filing of the tax returns.

Present counsel, who acted for Mr. Podavin in the four actions in which he is plaintiff, and for his company, Can-Am Realty Ltd., plaintiff in the other four actions, reasoned that since the common law onus to show misrepresentation was on the Minister [1] , the Minister ought to proceed first at trial. So the Plaintiffs’ position would catch neither the Crown nor the Court by surprise, which might well result in an adjournment and a waste of everyone’s time, counsel filed and served a motion which makes his point quite clearly:

This motion is for an Order under Rule 494(2) that by reason of the taxation years that are the subject matter of this litigation being statute barred for the purposes of notices of reassessment under the Income Tax under subsection 152(4) of that Act the onus of proof is on the Defendant to show misrepresentation and therefore the Defendant should proceed first to tender evidence necessary to meet this onus. (Motion filed 23 September 1995)

A transcript of the trial indicates the motion was dealt with not as a preliminary matter, but rather during the course of the trial. The trial judge denied the motion and subsequently produced reasons.

Counsel for the Plaintiffs submits that the trial judge’s reasons deal not with the onus on the Crown in order to reopen taxation years after time had run, under section 152(4) of the Income Tax Act, but rather with the assessment of penalties under section 163(3) of the Act, with the correctness of the Minister’s assessment with the onus on the Plaintiff to establish that the assessment was wrong. The Plaintiffs say the reasons were not only not responsive, but also wrong at law in requiring that the Plaintiff must go first.

Counsel, knowing that a trial is not to be adjourned so an evidentiary point might be taken to appeal, and being aware of the Federal Court of Appeal decision in Saint John Shipbuilding & Dry Dock Co. v. Kingsland Maritime Corp., [1979] 1 F.C. 523, 93 D.L.R. (3d) 91 at 527 (D.L.R. 93-4) that:

... (The Trial Judge’s) ... rulings ... (during the course of a trial) ... whether reduced to writing and signed by him or not, cannot form the subject matter for appeals until he has pronounced his judgment on the matters put in issue by the pleadings. [Emphasis added.]

did not immediately appeal the ruling. Moreover, counsel would have reasoned that if his clients were successful on the main issues, an evidentiary procedural point would be moot. Therefore, he waited until a judgment in the case was handed down, 4 February 1994, and within the 30-day time limit appealed the judgment.

In due course, counsel for the Appellants, in working on his argument and in going through the Appeal Books, found the material relating to the procedural point and the resulting reasons of the trial judge were missing. The Registry apparently advised this was because it was not an evidentiary procedural point dealt with during trial, but rather an interlocutory motion which had not been appealed. In effect, counsel for the Plaintiff, who had tried to save everyone surprise, time and expense by setting out his concern in a motion to be dealt with in the course of trial felt, and perhaps properly so, that he was being penalized in a way which would not have happened had he ambushed the Crown with the procedural point. But, undaunted, he brought on a motion in writing to the Federal Court of Appeal to add a sixth volume to the Appeal Book to contain the missing material.

Mr. Justice Stone, in brief reasons in Can-Am Realty Ltd. v. R. (1996), 96 D.T.C. 6593 (F.C.A.), held that because the motion had appealed without an extension of time and that with no appeal pending of the 30 September 1993 order, the requested material could not be added to the Appeal Book.

This synopsis, which is not exhaustive, but which summarizes the pertinent events, brings us to the present motion for an extension of time within which to appeal the 30 September 1993 order.

Consideration

The principles to be applied in order to obtain an extension of time within which to appeal are not at issue. They have been set out many times, in generally similar terms. It is convenient to refer to the phrasing used by Madame Justice Reed in Noel & Lewis Holdings Ltd. v. Canada (1986), 5 F.T.R. 166 (F.C.T.D.), at pages 168-69, omitting the cases referred to for each proposition:

(1) each case depends on its own facts

(2) an important factor is whether or not there would be undue prejudice to the opposing party

(3) special circumstances will argue in favour of granting an extension of time

(4) the intention of the plaintiff during the whole period of delay is a relevant factor...;

(5) it must at least be arguable that the judgment appealed from is wrong ...;

(6) the court has discretion to extend leave when the interests of justice so require. ...

In the present instance, the factual background and circumstances are relevant and interesting. Particularly pertinent is the forthright manner in which counsel for the Plaintiff raised the procedural issue: neither he nor his client ought to be prejudiced. It may be that, in future, counsel wishing to give notice of a procedural point to be raised at trial so as not to be accused of ambush, will be advised or even required to do so by letter, for if the Saint John Shipbuilding case is not to be followed, a party might raise a procedural point during trial by a formal motion, and then appeal the outcome before the conclusion of trial, inevitably prolonging the trial. In short, without the rule enunciated in the Saint John Shipbuilding case, trials would never end.

Counsel for the Defendant submits an extension would be prejudicial to her client as there is a need for certainty and finality to the 4 February 1994 trial judgment. Were the appeal on a procedural point to be successful, counsel for the Defendant points out there could be another five day trial. But that might well have been the outcome had the procedural point been dealt with as an element of the appeal of the judgment rather than as a pure interlocutory motion. Further, if this is prejudicial and is found to result from some oversight or neglect on the part of the Plaintiffs, the Defendant can always be compensated in costs.

Counsel for the Defendant also submits that the outcome of a new trial, even with the order of precedence reversed, would be the same. This is perhaps too simplistic an approach for counsel for the Plaintiffs is experienced: he felt it would be to his clients’ advantage to require the Crown to satisfy the onus by providing evidence first. This is a reasonable approach.

I have already touched upon the special circumstances of the case, notably that the Plaintiffs ought not to be prejudiced either by their counsel be- ing upfront in raising a procedural point at trial, or by counsel perhaps mistakenly relying on the Court of Appeal decision in the Saint John Shipbuilding case (supra). These observations lead to a more difficult aspect of the Plaintiffs’ motion.

As Madame Justice Reed pointed out in Noel & Lewis (supra) the intention of the Plaintiff during the whole of the period of delay is a relevant factor. The Plaintiffs’ affidavit material is sparse. However, I accept that counsel, once judgment was handed down against his client, intended and was instructed to appeal the case as a whole which, in counsel’s not unreasonable view, included the procedural issue of the order of proceeding. I am also satisfied that if, at the time of the written decision on the procedural point, counsel had been asked whether his client intended to appeal, assuming the Plaintiffs lost their case at trial, a reasonable answer would have been that certainly the Plaintiffs intended to appeal, of the written decision on the procedural point, counsel had been asked whether his client intended to appeal, assuming the Plaintiffs lost their case at trial, a reasonable answer would have been that certainly the Plaintiffs intended to appeal.

We now turn to the issue of merit and whether the 30 September 1993 reasons of the trial judge are at least arguably wrong. Put another way, do the Plaintiffs have an arguable case?

To me, an arguable case is one which is not frivolous, but a position or case open to debate, and to which counsel can bring a reasoned approach drawing from a foundation of knowledge and precedent which may lead to establishing a desired position.

Leaving aside counsel’s position that the trial judge’s reasons dealing with who should go first were not responsive, counsel spent some time in explaining his position. On the basis of the cases dealing with onus, there is an arguable case. More specifically, there have been instances in which the Minister has proceeded first. I have in mind, as an example, Minister of National Revenue v. Taylor, [1961] C.T.C. 211, 61 D.T.C. 1139 (Ex. Ct.). In the Taylor case, the Minister sought to reopen statute barred years so that they might be reassessed by showing misrepresentation. Mr. Justice Cameron of the Exchequer Court pointed out that while it was for the taxpayer to go first when it was merely a case of correctness of an assessment, where the case involved a re-assessment made after the statutory limitation had expired, the burden of proof lay on the Minister to first establish, to the satisfaction of the Court, that the taxpayer had made a misrepresentation or had committed a fraud: in re-assessing after the running of a statutory pe- riod, the Minister must be taken to have alleged misrepresentation or fraud and must prove it (page 214 ff). It is only after the Minister has satisfied the statutory requirement that there arises an onus on the taxpayer to deal with the propriety of the assessment (page 216). In my view, counsel for the Plaintiffs has a reasonably arguable case.

Finally, on all the circumstances, it is in the interests of justice, not only from the point of view of the Plaintiffs but also to settle, in the face of apparently conflicting case law in the Court on reopening statute barred taxation years, whether it flows from the onus on the Minister, that he who alleges fraud or misrepresentation must prove it, that the Minister must proceed first at trial.

I thank counsel for both providing good and interesting argument.

Motion granted.