Serebryany v. M.N.R., docket 96-1345-UI

Date: 19980116

Docket: 96-1345-UI

BETWEEN:

TAMILLA SEREBRYANY,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent,

and

BORIS SEREBRYANY,

Intervenor.

Reasons for Judgment

Porter, D.J.T.C.C.

[1] This appeal was heard at Toronto, Ontario on the December 8, 1997.

[2] The appellant appeals the determination of the Minister of National Revenue (the "Minister") dated May 9, 1996, that her employment with Boris Serebryany, operating as Dabor Fuels Management (aka Rascal Gas Bar), the payor, from February 15, to July 8, 1995 was not insurable employment under the Unemployment Insurance Act (hereinafter referred to as “the Act”). The reason given for the determination was that the employment in question was excepted from insurable employment because the appellant and the payor were not dealing at arm’s length, nor were they deemed to be dealing at arm's length.

[3] The established facts reveal that the appellant at all material times was married to Boris Serebryany. Thus, pursuant to section 3 of the Act and subsection 251(1) of the Income Tax Act, as related persons they are in law deemed not to deal with each other at arm’s length. Accordingly the employment in question is, subject to the reasons given below, categorized by the Act as “excepted employment”, that is to say it is not employment which triggers the payment of unemployment insurance benefits upon its termination. Parliament in the scheme established under the Act has made provision for certain employment to be insurable, leading to the payment of benefits upon termination, and employment which is “excepted” and thus carrying no benefits upon termination. Employment arrangements made between persons who are not dealing with each other at arm’s length is categorized as “excepted employment”. Married persons are deemed not to be dealing with each other at arm’s length pursuant to section 251 of the Income Tax Act which governs the situation. Quite clearly the purpose of this legislation is to safeguard the system from having to pay out a multitude of benefits based on non-arm’s length employment arrangements which may be artificial or fictitious.

[4] The harshness of this situation has however been tempered by subparagraph 3(2)(c)(ii) of the Act, which provides for such employment between related persons to be deemed to be at arm’s length and thus in turn to be treated as insurable employment, if it meets all the other provisions, where the Minister is satisfied having regard to all the circumstances (including those items that are set out in the subparagraph) that it is reasonable to conclude that they would have entered into a substantially similar contract if they had (in fact) been dealing with each other at arm’s length. It may be helpful to reframe my understanding of this section. For people related to each other the gate is closed by the Act to any claim for insurance benefits unless the Minister can be satisfied that in effect the employment arrangement is the same as that which unrelated persons, that is persons who are clearly at arm's length, would have made. If it is a substantially similar contract of employment Parliament has obviously considered it to be only fair that it should be included in the scheme. However, the Minister is the gatekeeper. Unless he is so satisfied the gate remains closed and the employment remains excepted and the employee is not eligible for benefits.

[5] Section 61 of the Act deals with appeals to and determination of questions by the Minister. Subsection 61(6) requires that:

“...the Minister shall, with all due despatch, determine the question raised by the application...”.

[6] Thus the Minister has no discretion whether or not to decide the question, he is required by law to do so. If he is not satisfied, the gate remains closed and the employee is not eligible. If, however, the Minister is satisfied, without more-ado or any action on his part (other than notification of the decision) the employee becomes eligible for benefits, provided he is otherwise qualified. It is not a discretionary power in the sense that if the Minister is satisfied, he may then deem the employment to be insurable. He must make a decision and, depending on that decision, the law deems the employment to be either at arm’s length or not at arm’s length. In this sense the Minister has no discretion to exercise in the true sense of the word, for in making his decision he must act quasi-judicially and is not free to chose as he pleases. The various decisions of the Federal Court of Appeal on this issue reveal that the same test applies as to a myriad of other officials making quasi-judicial decisions in many different fields: see Tignish Auto Parts Inc. v. M.N.R. 185 N.R. 73, Ferme Émile Richard et Fils Inc. v. M.N.R., 178 N.R. 361, Attorney General of Canada and Jencan Ltd., F.C.A. A-599-96 and Her Majesty the Queen and Bayside Drive-in Ltd., F.C.A. A-626-96.

[7] The function of this Court then, upon appeal, is to review the decision of the Minister and decide whether it was arrived at lawfully, that is in accordance with the Act and the principles of natural justice. In the case of Bayside, supra, the Federal Court of Appeal laid out certain matters which should be considered by this Court when hearing these appeals. These are: (i) whether the Minister acted in bad faith or for an improper purpose or motive, (ii) whether the Minister failed to take into account all of the relevant circumstances as especially required by subparagraph 3(2)(c)(ii) or (iii) whether the Minister took into account an irrelevant factor. In its decision, the Federal Court of Appeal went on to say at page 9:

“...It is only if the Minister made one or more of these reversible errors that it can be said that his discretion was exercised in a manner contrary to law, and hence that the Tax Court Judge would be justified in conducting his own assessment on the balance of probabilities as to whether the respondents would have entered into substantially similar contracts of service if they had been at arm’s length”.

[8] There is no suggestion before me that that the Minister acted in bad faith or for any improper motive or purpose. I see no place where the Minister took into account irrelevant facts nor where he failed to take into account all of the relevant considerations. Amongst other matters enumerated as the facts upon which the Minister purported to base his decision, he gave consideration to the remuneration paid, the terms and conditions of the employment and the duration, nature and importance of the work performed. From an objective point of view it was reasonable for him to conclude that the parties would not have entered into a substantially similar contract of employment if they had been dealing with each other at arm’s length. It is true that in the course of the evidence it was established that when the appellant commenced her employment, it was not within the contemplation of the payor that the business would close at the end of June. The Minister appeared to have made a contrary assumption. That apart, there was ample evidence before him upon which he was entitled to reasonably and lawfully come to the determination that he did. Taking into account all the evidence of the witnesses presented before me, the admissions and documentary evidence, I am satisfied that the appellant has failed to demonstate otherwise and thus has not met the onus cast upon her by the law.

[9] The appeal is accordingly dismissed and the decision of the Minister affirmed.

Signed at Calgary, Alberta, this 16th day of January 1998.

"M.H. Porter"

D.J.T.C.C.