Renaissance International v. MNR, 83 DTC 5024, [1982] CTC 393 (FCA)

Heald J:—I have concluded that the appeal should be allowed, and the notice sent by E A Chater, Director, Registration Division of the Department of National Revenue, Taxation, acting as the Minister’s delegate (pursuant to Income Tax Regulation 900(7)*, [1] dated November 21, 1980, should be set aside on the basis that there was a duty on the said Director to comply with the requirements of natural justice or to accord to the appellant procedural fairness and that the Director failed to do either in the circumstances of this case.

The appellant had been registered with the Department of National Revenue, Taxation, as a Canadian charitable organization since 1976. Paragraph 168(1 )(b) of the Income Tax Act, provides, inter alia:

NOTICE OF INTENTION TO REVOKE REGISTRATION

168. (1) Where a registered charity . . .

(b) ceases to comply with the requirements of this Act for its registration as such,

the Minister may, by registered mail, give notice to the registered charity, . . . that he proposes to revoke its registration.

Subsection 168(2) provides:

REVOCATION OF REGISTRATION

(2) Where the Minister gives notice under subsection (1) to a registered charity or to a registered Canadian amateur athletic association,

(a) if the organization or association has applied to him in writing for the revocation of its registration, the Minister shall, forthwith after the mailing of the notice, publish a copy thereof in the Canada Gazette, and

(b) in any other case, the Minister may, after the expiration of 30 days from the day of mailing of the notice, or after the expiration of such extended period from the day of mailing of the notice as the Federal Court of Appeal or a judge thereof, upon application made at any time before the determination of any appeal pursuant to susection 172(3) from the giving of the notice, may fix or allow, publish a copy of the notice in the Canada Gazette,

and upon such publication of a copy of the notice, the registration of the organization or association is revoked.

The relevant portions of subsection 172(3) reads as follows:

APPEAL FROM REFUSAL TO REGISTER, REVOCATION OF REGISTRATION, ETC.

(3) Where the Minister

(a) . .. gives notice under subsection 168(1) to such charity ... that he proposes to revoke its registration,

. .. the charity . . . in a case described in paragraph (a) . . . may notwithstanding section 24 of the Federal Court Act, appeal from . . . the giving of such notice to the Federal Court of Appeal.

The relevant portions of section 180 of the Income Tax Act reads as follows:

APPEALS TO FEDERAL COURT OF APPEAL

180. (1) An appeal to the Federal Court of Appeal pursuant to subsection 172(3) may be instituted by filing a notice of appeal in the Court within 30 days from

(b) from (sic) the mailing of notice to the registered charity . . . under subsection 168(1),

. . . or within such further time as the Court of Appeal or a judge thereof may, either before or after the expiry of those 30 days, fix or allow.

NO JURISDICTION IN TAX REVIEW BOARD OR FEDERAL COURT — TRIAL DIVISION

(2) Neither the Tax Review Board nor the Federal Court — Trial Division has jurisdiction to entertain any proceeding in respect of a decision of the Minister from which an appeal may be instituted under this section.

SUMMARY DISPOSITION OF APPEAL

(3) An appeal to the Federal Court of Appeal instituted under this section shall be heard and determined in a summary way.

The notice of intention to revoke the appellant’s registration as a registered charity was sent to the appellant by registered letter dated November 21, 1980 (AB p 85). In my opinion, the Director made two decisions in that letter. The first decision was a determination that the appellant had ceased to comply with the registration requirements of the Income Tax Act. The second decision made by him was to exercise the power conferred on the Minister pursuant to subsection 168(1) to give notice to the appellant that he proposed to revoke appellant’s charitable registration pursuant to the provisions of subsection 168(2).

In my view, both of those decisions are, in all likelihood, quasi-judicial decisions notwithstanding that the statutory scheme as set out supra does not specifically provide for participation by the party affected in the adjudicative process. This view is strengthened by the fact that the statute provides for an appeal to this Court, an appeal similar to appeals to this Court from the Trial Division. A perusal of sections 172 and 175 to 180 inclusive of the Income Tax Act makes it clear, in my view, that whereas the so-called “appeals” from an assessment directly to the Trial Division or from the Tax Review Board to the Trial Division are intended to be trials de novo, an appeal under section 180 to this Court is an appeal in the normal sense, that is, an appeal in which the question is whether or not the tribunal below was right on the basis of the materials which it had before it when it made its decision. The evidence is clear here that prior to making the two decisions referred to in his letter of November 21, 1980, the Director failed to observe the requirements of natural justice and of procedural fairness in that he reached a decision adverse to the rights of the appellant without first giving the appellant prior notice of the case against it and an opportunity to meet that case.* [2] The evidence is that in February of 1980, the Director’s attention was directed to a publication in the Toronto Globe and Mail which tended to case some doubt on the right of the appellant to have continued its charitable registration. As a result, he asked his staff to further investigate the matter. This investigation was carried on for some two months, then seemingly suspended until November of 1980, when, after receiving a further publication of the appellant’s and an anonymous newspaper article from the Toronto Sun and after several discussions with his staff members, the Director made the decisions referred to supra which he communicated to the appellant by the letter of November 21, 1980. These decisions were made without any notice being given to the appellant of the investigations preceding the decisions nor of the allegations upon which the Director proposed to make his decisions nor was the appellant given any opportunity to challenge those allegations or to be heard by the Director in response thereto.

It is said, however, by the respondent that since the Income Tax Act itself has provided the appellant and others in a similar position an opportunity to be heard in circumstances where the rights of those parties are, in some way, adversely affected, the legislation should not be supplemented where, as here, Parliament has addressed itself to this question. In the respondent’s view, the sending of the notice under subsection 168(1) is not a final determination of the appellant’s status as a registered charity. It is merely a proposal to revoke registration and thus has no effect until the Minister or his delegate, pursuant to subsection 168(2) publishes the notice in the Canada Gazette, which publication has the effect of revoking the charitable registration. I do not subscribe to that view of the matter. While the sending of the subsection 168(1) notice is not a final determination of the appellant’s status as a registered charity, it most certainly adversely affects that status because, firstly, it is a firm and unequivocal decision that the appellant no longer fulfills the registration requirements and is therefore no longer entitled to be a registered charity and, secondly, it puts the appellant on notice that at the expiration of 30 days from the mailing of the notice, it will be published in the Canada Gazette which publication, prsuant to subsection 168(2), revokes the appellant’s registration. If the appellant had not availed itself of the provisions for appeal to this Court or if that appeal were unsuccessful, the publication in the Canada Gazette and the resultant revocation of registration would follow in due course and without any further possibility of recourse or participation by the appellant.* [3] I am, accordingly, persuaded that the appellant’s rights are seriously and adversely affected by these “decisions” so as to impose upon the Director the duty to observe the requirements of natural justice, or at the very least, the duty to accord procedural fairness to the appellant. The provision for an appeal to this Court requires that appeal to be an appeal in the strict and traditional sense since it is not an appeal by way of a rehearing or trial de novo. Therefore, the appeal should be on a proper record of the evidence adduced before the Director which persuaded him to make the decisions herein impugned. In this case, the record of the material before the Director is incomplete since, admittedly, it does not contain all of the material that was before the Director. Furthermore, the record of the material before the Director has an even more serious defect — that is — it is a unilateral record since it contained no imput from the appellant. Such a circumstance fails, in my view, to satisfy either the requirements of natural justice or the duty to act fairly.* [4]

For these reasons, I would allow the appeal and set aside the notice dated November 21. 1980.

Pratte, J:—This is an appeal pursuant to subsection 172(3) of the Income Tax Act from the giving by the respondent to the appellant of a notice under subsection 168(1) to the effect that the respondent proposed to revoke the appellant’s registration as a registered charity.

The appellant relies on two grounds of appeal: first, that the respondent followed an incorrect procedure in making his decision and, second, that the respondent had no valid reason for revoking the appellant’s registration.

At the outset of the hearing, we decided that we would first hear the argument of both counsel on the first ground of appeal. This has now been done. We will not need to hear counsel any further because we have reached the conclusion that the appeal should be allowed for the reason that the respondent, before sending the appellant the notice pursuant to subsection 168(1), did not give it any opportunity to refute the allegations that were made against it.

In order to understand the issue, it is necessary to have in mind the following provisions of the Income Tax Act'.

168. (1) Where a registered charity or a registered Canadian amateur athletic association

(a) applies to the Minister in writing for revocation of its registration,

(b) ceases to comply with the requirements of this Act for its registration as such,

the Minister may, by registered mail, give notice to the registered charity or registered Canadian amateur athletic association that he proposes to revoke its registration.

(2) Where the Minister gives notice under subsection (1) to a registered charity or to a registered Canadian amateur athletic association,

(a) if the organization or association has applied to him in writing for the revocation of its registration, the Minister shall, forthwith after the mailing of the notice, publish a copy thereof in the Canada Gazette, and

(b) in any other case, the Minister may, after the expiration of 30 days from the day of mailing of the notice, or after the expiration of such extended period from the day of mailing of the notice as the Federal Court of Appeal or a judge thereof, upon application made at any time before the determination of any appeal pursuant to subsection 172(3) from the giving of the notice, may fix or allow, publish a copy of the notice in the Canada Gazette,

and upon such publication of a copy of the notice, the registration of the organization or association is revoked.

172. (3) Where the Minister

(a) refuses to register an applicant for registration as a registered charity or registered Canadian amateur athletic association, or gives notice under subsection 168(1) to such a charity or association that he proposes to revoke its registration,

the applicant or the charity or association, as the case may be, in a case described in paragraph (a), .. . may, notwithstanding section 2e of the Federal Court Act, appeal from . . . the giving of such notice to the Federal Court of Appeal.

180. (1) An appeal to the Federal Court of Appeal pursuant to subsection 172(3) may be instituted by filing a notice of appeal in the Court within 30 days from

(a) the time the decision of the Minister to refuse the application for registration or for a certificate of exemption or to revoke the registration of the profit sharing plan was served by the Minister by registered mail on the party instituting the appeal, or

(b) from the mailing of notice to the registered charity or registered Canadian amateur athletic association under subsection 168(1),

as the case may be, or within such further time as the Court of Appeal or a judge thereof may, either before or after the expiry of those 30 days, fix or allow.

(2) Neither the Tax Review Board nor the Federal Court — Trial Division has jurisdiction to entertain any proceeding in respect of a decision of the Minister from which an appeal may be instituted under this section.

(3) An appeal to the Federal Court of Appeal instituted under this section shall be heard and determined in a summary way.

The appellant was registered as a charitable organization under the Act when it received a notice, dated November 21, 1980, that had been sent by the respondent pursuant to subsection 168(1). The body of that notice reads as follows:

Re: Revocation of Registration of a Charity

You are hereby notified that I propose to revoke the registration of Renaissance International as a result of its failure to comply with the requirements of the Income Tax Act for registration as a charity inasmuch as it has devoted resources to acitivities that are not charitable activities and, after 30 days from the mailing of this notice, the following will be published in the Canada Gazette.

DEPARTMENT OF NATIONAL REVENUE, TAXATION

Notice is hereby given pursuant to subsection 168(1) of the Income Tax Act that I hereby propose to revoke the registration of the charity set forth below and that by virtue of subsection 168(2) thereof the revocation of the registration thereof will be effective on the date of publication in the Canada Gazette.

It is common ground that, before receiving that notice, the appellant had not been made aware either of the allegations retained against it or of the intention of the respondent to revoke its registration. It is for that reason that, in support of its appeal under subsection 172(3), it submitted that the respondent failed to comply with the requirements of procedural fairness or natural justice.

Counsel for the respondent made two answers to that submission: first, he said that while a registered charity has the right to be heard before its registration is revoked, the statute contemplates that the charity will be heard, not by the Minister, but by this Court on an appeal made pursuant to subsection 172(3). Second, he argued that, assuming that there was a failure by the respondent to comply with the requirements of procedural fairness, that irregularity is cured by the fact that the appellant will have, in this Court, the opportunity that was denied to it by the respondent to answer the allegations made against it.

I have no hesitation in rejecting that last argument. It is only in rare cases, in my view, that the hearing of an appeal may be held to cure the failure of a lower tribunal to comply with the requirements of natural justice and this is not one of those cases. Normally, it seems to me, an appellant has the right to be treated fairly both by the tribunal of first instance and by the appellate court.

I find much more merit in the respondent’s first argument that the various provisions of the Act manifest the intention of Parliament that a registered charity be given, before the sending of the notice provided for in subsection 168(1), an opportunity to be heard by this Court rather than by the Minister. What is important, it seems to me, is not that the registered charity be heard before the sending of the notice (which, in my opinion, does not affect its rights) but that it be heard before the revocation of its registration. For that reason, I would have no hesitation to adopt the respondent’s position if the statute provided that, after the sending of the notice, there could be a hearing de novo to determine whether the circumstances really warranted the sending of the notice. However, the statute does not provide for that kind of a hearing. What it says is that there may be an appeal to this Court after the notice has been sent. True, the word “appeal” is rather vague and, as was pointed out by Jackett, CJ in Srivastava v MMI, [1973] FC 138 at 148, may, depending on the context where it is used, refer to an appeal de novo or to an appeal normally decided on a record created in the inferior Court. However, in this instance, the right of appeal created by subsection 172(3) is a right of appeal to a Court which, it is well known, normally decides appeals on a record created in the inferior Court and accepts to receive further evidence only “on special grounds” (see Rule 1102(1)). Moreover, when the provisions of the Income Tax Act applicable to that appeal are contrasted with those of section 175 governing the appeals to the Trial Division, it becomes apparent that it was not intended that the appeal to this Court be an appeal de novo like the appeal in the Trial Division. I therefore conclude that the appeal created by subsection 172(3) is what I would call an ordinary appeal which the Court normally decides on the sole basis of a record constituted by the Tribunal of first instance. It follows, in my view, that the decision of the Minister to send a notice of revocation under subsection 168(1) must be arrived at in a manner enabling the Minister to create a record sufficiently complete to be used by this Court in deciding the appeal. This presupposes, in my view, that the Minister must follow a procedure enabling him to constitute a record reflecting not only his point of view but also that of the organization concerned.

For those reasons, I have concluded after much hesitation that, contrary to what was argued by counsel for the respondent, the provisions of the Income Tax Act do not impliedly relieve the Minister from the duty to comply with the rules of natural justice and procedural fairness before sending a notice pursuant to subsection 168(1). On the contrary, those provisions, as I read them, rather suggest that the Minister, before sending the notice, must first give to the person or persons concerned a reasonable opportunity to answer the allegations made against them.

I would, for those reasons, allow the appeal and set aside the notice given by the respondent to the appellant on November 21, 1980.