Date: 20020226
Dockets: 2000-3366(EI)
2000-3367(CPP)
BETWEEN:
TSS - TECHNICAL SERVICE SOLUTIONS INC.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
KENNETH ZDEBIAK,
Intervenor.
REASONS FOR JUDGMENT
Teskey, J.
[1] The Appellant TSS-Technical
Service Solutions Inc. ("TSS") appeals the decisions of
the Minister of National Revenue (the "Minister"),
both dated May 2, 2000, wherein he determined that
Kenneth Zdebiak ("Ken") was employed by TSS in
insurable employment within the provisions of the Employment
Insurance Act (the "Act") and its
regulations and in pensionable employment within the provisions
of the Canada Pension Plan ("CPP") and
its regulations for the period of September 7, 1999 to
October 20, 1999.
[2] As a result of the above rulings,
the Canada Custom and Revenue Agency ("CCRA") conducted
an audit of TSS and has assessed it a total of approximately
$161,000 for employment insurance premiums and pension payments
for the years 1999 and 2000.
[3] Because of the large assessment of
tax, examinations for discovery were held. For the many reasons
following herein, I cannot understand why the Attorney General of
Canada through the Department of Justice did not simply say to
the CCRA, after discoveries, you have no factual basis for your
determinations and assessment and a business such as TSS ought
not to be put to the expense it has obviously occurred to defend
itself. The Respondent's position herein is built on fantasy
and someone's imagination.
[4] TSS has completely destroyed any
purported factual basis for the ruling and the subsequent
assessment and the Appellant has shown that on the case law as it
now stands, there was no basis for the Respondent's
position.
[5] TSS called as witnesses
Christopher Robert Arthur ("Chris"), the
president and managing director of TSS,
Michelle Cherie Lynn Nicholson
("Michelle"), a Girl Friday employed by TSS and three
technicians, namely Michael Stephen John Dolan
("Michael"), Russell Kurt Ashe
("Russell") and Stephen John Hall
("Stephen") and filed, on consent, a summary of facts
established on the discoveries.
[6] The Respondent called Ken and
Thomas Steven Kovacs ("Tom"); both
technicians performed services for TSS and both had their
relationships with TSS terminated by TSS.
[7] When I refer to technicians, I
include Ken and Tom therein unless I specifically exempt one or
the other.
[8] Chris established the TSS
commercial operation in December of 1998, providing technical
service to various customers with computer problems, installing
computer networks in offices, hooking up internet connections and
cabling.
[9] June 30 was the fiscal year
end of TSS. Thus, the figures for June 30, 1999 reflect only
the first seven months TSS was in business and the figures for
June 30, 2000 are for a complete year.
[10] During 1999, a representative of Shaw
Cable ("Shaw"), a large TV cable corporation in Alberta
contacted Chris and suggested that they could do business
together.
[11] It was agreed between TSS and Shaw that
TSS would provide services to Shaw on a unit price for these
services.
[12] These services consisted of wiring
houses for cable TV or internet service, hooking up computers in
houses with cable TV that now wanted internet access using cable
as opposed to telephone lines.
[13] Homeowners would contact Shaw and
request the service that they desired. Shaw would then arrange a
time that the installation of the necessary supplies would be
performed in order to provide the desired service.
[14] Shaw had five firms that installed the
Shaw supplies of which TSS was only one such firm.
[15] TSS decided that the best way to
provide these services to Shaw would be to arrange with a number
of technicians on an independent contractor basis to perform the
services requested by Shaw.
[16] TSS on October 13, 1999 had 33
such technicians and on October 26 had
37 technicians.
[17] Although the issue herein is the
characterization of the contract between Ken and TSS, is it
employee/employer or independent contractor, the evidence from
Michael, Russell and Stephen was tendered to corroborate the
testimony of Chris.
[18] I accept all the testimony tendered on
behalf of the Appellant and where there is a conflict between the
evidence adduced by the Respondent as to relevant facts, I accept
that tendered by the Appellant's witnesses.
[19] TSS provided to Shaw a list of
technicians and the hours each was available to perform the
installations. Shaw then would use this list to schedule with its
customers when the installations would take place. Shaw would
provide TSS on a daily basis with what was described as a
"run sheet" for the next day. TSS still had control
over who went where and could assign various jobs to which
technician they picked. Also, if a technician was not available
for whatever reasons the job would be assigned to another
technician.
[20] The run sheet provided the date and
time that a technician who was identified by a code should attend
at a specific customer's home and what installation was to be
performed. This is all subject to my comments in the previous
paragraphs.
[21] There were basically three periods each
day, that is morning, afternoon and evening. Most technicians
would be available for the morning and afternoon periods or the
afternoon and evening periods. Those that took the morning period
were required to attend at TSS's office before 8:00 a.m.
to pick up their run sheet with accompanying work orders. If a
technician did not show by 8:00 a.m., the work orders were
given to other technicians. Those that were taking the afternoon
and evening periods were required to attend before
11:30 a.m. and the procedure was the same as for the
preceding period.
[22] The technician, on receiving the
assigned run sheet, would attend at Shaw's warehouse and pick
up all necessary supplies that had to be installed such as cable
wire, boxes, connections, computer modems and cards. Then he or
she would call the first customer and proceed to the required
site.
[23] Michelle was hired by TSS to perform a
multitude of tasks. These she took on willingly and put her whole
heart and soul into the operation. She obviously realized that
her employer, TSS, would be more financially successful the more
installations were successfully completed. The same applied to
the technicians. She now works for Calgary Honda and her
testimony is accepted without reservation.
[24] At the end of the day's work, the
technicians would return to TSS with their completed work orders.
This allowed TSS to invoice Shaw and be used to double check all
invoices submitted by the various technicians to TSS.
[25] When each potential technician was
originally interviewed, Chris would advise them the set rate that
TSS was offering. This was subject to negotiation if the
technician had experience and was smart enough to negotiate a
higher rate. The technicians were all advised that they would be
independent contractors running their own business and that they
needed a GST number and that the unit prices to be charged to TSS
contained GST. They were all told how to invoice TSS for their
installations.
[26] Ken signed a written contract with TSS
on September 14, 1999. He was given it in the morning so
that he could review its content. He signed it at the end of the
day and it was signed on behalf of TSS that same day.
[27] The contract was obviously prepared by
a lay person, it sets out that the technician is to be an
independent contractor, and that income tax, GST, CPP and
employment insurance premiums was the technician's
responsibility as well it contained a very restrictive
non-competition clause and several clauses under the option
"Training".
[28] When a new technician came on the
scene, Michelle would arrange with the new technician to team up
with an existing technician to acquire what portion of the skill
was lacking if any. The new technician was not paid for this one
to two week period when they trailed around an existing
technician performing the installations.
[29] This is what happened with Ken, who was
a computer expert but had no training or knowledge of the cabling
part of the required installation. He started going with another
technician on Tuesday, September 7, 1999 and was with two
different technicians until September 17, 1999. This way he
was learning how to install cable in customer's houses. His
computer skills made him a valuable technician to TSS.
[30] During September of 1999, Ken and Tom
got together and with the concurrence of TSS, they operated as a
team. Tom did the cable work while learning the required computer
skills and Ken did the computer work while continuing his
learning of the cable portion. It was agreed between TSS and Ken
that only one set of fees was to be paid by TSS for their joint
installations.
[31] Ken and Tom agreed that Ken would split
equally the remuneration earned by the two of them. Tom had a van
capable of holding a ladder and all the required safety
equipment. Ken had none of this nor the funds to acquire the
same. He was in the process of declaring bankruptcy.
[32] Between the two of them, they supplied
all the necessary tools to perform the various services,
including all safety equipment and a van that would hold a ladder
suitable for climbing telephone poles. Ken was given a cell phone
and an expensive meter to test the signal strength of cable.
These were the only items supplied by TSS and Ken was not charged
rent for these two items. Usually, the technicians had their own
cell phones or pagers and made individual different agreements
concerning the meter. Ken, in this regard, was not the usual
recruit and I conclude it was because of his extraordinary
computer skills that TSS took this into consideration.
[33] Specialized tools were purchased from
TSS by Ken with the agreement that he would pay for them in four
equal instalments. These were never paid for, but were returned
to TSS after he was advised he was no longer required by TSS.
[34] The team of Ken and Tom performed
installations on September 29 and 30, 1999. Ken delivered
what he considered as his bill to TSS (Exhibit R-9)
and received a cheque from TSS dated October 14, 1999 for
$355.92, which stated that the invoice period was
September 20, 1999 to September 30, 1999.
[35] The Ken and Tom team completed
installations during the first 14 days of October 1999.
Ken submitted his invoice to TSS (Exhibit R-10)
outlining all services provided and received a cheque from TSS
dated October 29, 1999 of $1,218.95 for the said services
which stated that the invoice period was October 1, 1999 to
October 31, 1999.
[36] Both cheques were split by Ken equally
with Tom.
[37] Although Ken claimed he did a little
computer service after October 15, 1999 but did not bother
to bill TSS for this, I reject this allegation outright and find
that October 14, 1999 was the last day any work was
performed.
[38] Tom claimed that he was given a blank
copy of a sub-contract agreement dated September 27,
1999 and that after reviewing it, he signed it and returned the
contract to Michelle. This agreement was never executed by TSS. I
find that Michelle by mistake prepared the agreement and the same
was not signed by TSS as the agreement with Ken was in force and
as far as TSS was concerned, they at that time were only dealing
with Ken. Subsequently, when Tom started performing his services
directly for TSS, the execution of the contract was
overlooked.
[39] Michelle, on behalf of TSS, sent
numerous e-mails to the technicians trying to get them to
be reachable at all times and to attend meetings that were held
for the purposes of discussing changes in procedures and
Shaw's requirements and advice from technical Shaw employees.
The technicians were not paid to attend these meetings, and many
simply ignored these directives. Ken attended all meetings.
[40] Ken, approximately one year before
working with TSS, had registered a sole proprietorship under the
name of "Blue Anchor Systems". He used this trade name
in attempting to be a computer technician. He was upset that his
first cheque from TSS was not made out to Blue Anchor
Systems.
[41] On October 6, Revenue Canada
confirmed to Blue Anchor Systems Kenneth Robert Zdebiak
that the application for Goods and Services registration was
accepted and a GST number was assigned.
[42] Ken knew that all the unit fees paid to
him included GST. After all relations ended with TSS, he attended
on Human Resources Canada to enquire how to calculate the GST he
had collected and to report and pay the same. At the same time,
he enquired as to possible programs he could take advantage
of.
[43] Someone at Human Resources took it upon
him or herself to prepare a record of employment for Ken dated
May 26, 2000 and sent it to Ken. Obviously, there is no
statutory provision for this and this was done quite improperly.
Attached to this record of employment are what is purportedly two
invoices from Kenneth Zdebiak dated October 1, 1999 and
October 16, 1999 for $355.95 and $1,218.95 respectively.
These may very well have been typed up by Michelle on behalf of
Ken from his summary of work performed that he submitted
(Exhibits R-9 and R-10). Nothing really hinges
on this as all it would do is tidy up TSS's bookkeeping.
[44] I reject Ken's allegation that a
two-week rotation schedule was posted at TSS's office,
particularly when his work record was as follows:
|
October 1
October 3
October 4
October 5
October 7
October 10
October 12
October 14
|
2:00 p.m. to
8:45 a.m. to
10:00 a.m. to
8:45 a.m. to
9:45 a.m. to
8:45 a.m. to
10:00 a.m. to
1:00 p.m. to
|
7:00 p.m.
6:30 p.m.
5:30 p.m.
10:45 a.m.
2:30 p.m.
2:30 p.m.
8:00 p.m.
8:30 a.m.
|
[45] Ken was free to work when and at what
times he wanted. He could take off anytime he wanted, like during
the day or the whole day. From the above schedule, it is easy to
see that he did not abide by TSS's wishes and his start times
were irregular.
[46] Although TSS desired their technicians
to start at agreed times, the ultimate goal was to complete the
requested Shaw installations in a timely, professional manner and
as many as possible in any given day. This policy worked to the
benefit of both TSS and the technicians.
[47] Shaw had a high volume of business
sufficient to keep all of TSS's technicians going
full-time. They all were computer literate and were free to
do computer solving problems with individuals on their own. TSS
did not want the technicians working for competitors. TSS knew it
could keep the technicians as busy as any individual technician
desired and at the same time TSS wanted the technicians to be
available to perform the installations and not jumping around
with competitors driving up the unit prices. In law, I believe
the restrictive covenant in the contract with Ken is completely
unenforceable and void.
[48] Where Ken's testimony conflicts
with that submitted on behalf of the Appellant, I reject the
allegations of fact by Ken.
[49] Shaw was a large customer of TSS, who
wanted to keep Shaw happy. The best way was to have the
installations done expertly and timely.
[50] I reject that the Appellant was
required to buy shirts from TSS and to wear the same and find
that the only dress code was that of Shaw that the technicians
present themselves in a neat and tidy fashion. Their clothes was
just another part of each technician's expense.
[51] I find that each technician was
responsible for sloppy and improper work and was responsible for
all damages.
[52] Each technician was advised that his
vehicle might be inspected at any time to make sure all necessary
safety equipment was available for use.
[53] I find that the installations were not
inspected by either TSS or Shaw during the process of
installation or after. However, if a customer complained either
to TSS or Shaw, an inspection would occur and if the installation
was not up to standard, the technician would have to
re-attend and fix whatever discrepancy that was causing the
problem at his or her own expense. If that technician did not do
so, another would attend and rectify the work and the original
technician would be charged for this.
[54] Each technician was paid only for
actual work performed and was responsible for all
expenses, errors and any damages that might occur.
[55] Both Ken and Tom, in evidence, and the
three technicians who gave evidence on behalf of TSS, stated that
they were operating as independent contractors operating their
own business and with the exception of a few minor areas,
confirmed the evidence adduced on behalf of TSS.
[56] Ken filed a Notice of Intervention. He
did not intend to be a party to these appeals. His concern was
that in his opinion, some of the alleged facts were not right and
that he may be responsible to TSS for legal costs. To this day,
he believes he was an independent contractor and not an
employee.
Analysis
Employment by Virtue of the Regulations
[57] The alternate position taken by the
Minister is that the Intervenor was employed by virtue of the
application of the regulations under both statutes. These
regulations specifically provide that employment will be
insurable employment where it is "employment of a person who
is placed in that employment by a placement or employment agency
to perform services for and under the direction and control of a
client of the agency".
[58] If no employment exists wherein the
individual is put under the direction or control of some party,
then neither regulation applies.
[59] My colleague Bell J., in Sara
Consulting & Promotions Inc. v. Canada (Minister of National
Revenue), [2001] T.C.J. No. 773 (Q.L.), said at
paragraph 94:
94. I shall deal quickly
with Respondent's submission that the Appellant, within the
meaning of Regulation 6(g) was a placement agency. It is
recalled that the Respondent's Reply states that if the
workers "were not employed under contracts of service with
the Appellant", then the workers were engaged in insurable
employment pursuant to Regulation 6(g). Using
counsel's premise that the workers "were not
employed" how could they possibly be "placed in ...
employment" by anyone? The Appellant was, and is, not a
placement or employment agency. That submission is rejected.
[60] I agree that a pre-requisite to
apply these regulations is that I must find that the technician
(i.e. Ken) was employed and under the control of Shaw, which is
obviously not the case. This provision would apply if Ken was
placed within the direct control of Shaw. This was not so.
Shaw's only concern was that the technician present a neat
tidy appearance and do the tasks in a professional manner. This
is not control to the extent to put Ken into an employment
relationship with Shaw.
[61] Paragraph 6(g) of the
Employment Insurance Regulations and section 34 of
the Canada Pension Plan Regulations provide the Minister
no assistance in this case as the Intervenor was not employed by
nor under the direction and control of Shaw Communications or any
other client of the Appellant.
Employment v. Independent Contractor
[62] The last word on this is the recent
decision of the Supreme Court of Canada in 671122 Ontario Ltd.
v. Sagaz Industries Canada Inc., 2001 SCC 59. Therein,
the Court was dealing with vicarious liability, however it had to
deal with employee vs. independent contractor distinction. The
Court referred to the Federal Court of Appeal's decision of
Wiebe Door and stated at paragraphs 47 and 48:
47. Although there is no
universal test to determine whether a person is an employee or an
independent contractor, I agree with MacGuigan J.A. that a
persuasive approach to the issue is that taken by Cooke J. in
Market Investigations, supra. The central
question is whether the person who has been engaged to perform
the services is performing them as a person in business on his
own account. In making this determination, the level
of control the employer has over the worker's activities will
always be a factor. However, other factors to consider
include whether the worker provides his or her own equipment,
whether the worker hires his or her own helpers, the degree of
financial risk taken by the worker, the degree of responsibility
for investment and management held by the worker, and the
worker's opportunity for profit in the performance of his or
her tasks.
48. It bears repeating
that the above factors constitute a non-exhaustive list,
and there is no set formula as to their
application. The relative weight of each will depend
on the particular facts and circumstances of the case.
[63] It was the late
Justice MacGuigan J.A., of the Federal Court of Appeal,
who said in Wiebe Door Services Ltd v. M.N.R., 87 DTC
5025 that there was a four-in-one test and summarized
as follow:
The Control Test
The control test looks at the level of control that one party
to the relationship exercises over the other. If there is a
significant level of control, the controlled individual will be
an employee. If, however, little or no control is exercised and
the individual is reasonably free to determine when and how the
work is performed, he will generally be considered to be an
independent contractor.
The Ownership of Tools Test
The ownership of tools analysis identifies the owner of the
implements that are used to perform the work. If these implements
are owned by the hirer, an employment relationship may exist. If
however, an individual supplies his own tools, he is likely to be
an independent contractor.
The Risk of Loss / Chance of Profit Test
Under the chance of profit/risk of loss analysis, one examines
what the parties have at stake as a result of the relationship.
If an individual stands to lose from the relationship, he will
generally be considered to be an independent contractor. If
however, there is no risk of loss, he will generally be an
employee. While this test can also be applied in reverse with
respect to profit, such an analysis is probably less helpful
since both an employment and contractor relationship can provide
profit, yet only a contractor relationship allows for a potential
loss.
The Extent of Integration Test
When examining the extent of integration, one considers if the
work performed by one party to the relationship is integral, or
merely ancillary, to the business of the other. If the work is
integral, an employment relationship will generally exist. If
however, the work is ancillary to the business, the individual
will generally be considered to be an independent contractor.
[64] The Federal Court of Appeal in Moose
Jaw Kinsman Flying Fins v. The Minister of National Revenue,
88 DTC 6099, shortly after the Wiebe Door decision,
confirmed the preferable and proper approach in deciding this
issue that one or more of the tests may have little or no
applicability, and that the overall evidence must be considered
when taking into account the tests which may be applicable, and
giving to all the evidence the weight which the circumstances may
dictate.
[65] I point out that the Respondent
stressed to this Court what I consider to be neutral facts that
do not lead to a conclusion one way or another.
Control
[66] Neither Shaw nor TSS controlled the
technicians. They were free to come and go and start when they
wanted. They could take holidays, days off and time off during a
working day without permission.
[67] Shaw set a schedule for installations
upon receiving a request for Shaw services from a customer.
Shaw's only concerns were that the technicians would not
inconvenience its customers unnecessarily and would present
themselves in a presentable appearance and do a professional
job.
[68] Neither Shaw nor TSS inspected the work
unless there was a complaint. It was to both Shaw and TSS's
advantage that the customers were satisfied.
[69] The fact that Shaw was concerned about
the quality of the service performed is not the same as
controlling the performance of the service by the technicians.
Herein, Shaw was concerned with quality but no attempt was made
by Shaw or TSS in controlling the actual installation.
[70] It cannot be said that either Shaw or
TSS controlled Ken or for that matter any of the technicians in
the sense of control for this test.
Ownership of Tools
[71] Although a current meter is relatively
expensive, approximately $1,800, it and the cell phone are of
small value compared to all the other tools and the motor vehicle
required for the performance of the installations. Shaw
maintained a help line which its customers and the technicians
could use and TSS assisted Ken only with the meter and cell
phone.
[72] The cell phone was as much to Ken's
benefit as TSS. He was the only technician who did not have his
own cell phone or pager.
Risk of Loss / Chance of Profit
[73] These items fell on the technicians
equally to TSS. Although the motor vehicle would be the single
biggest expense, the choosing of what vehicle to use, to own or
to lease, what insurance coverage to place thereon could make a
huge difference if a profit occurred. The technician's own
ability to perform the services efficiently and properly would
have a great deal to do with the loss or a good profit. Damage to
a residence could bankrupt the technician.
Integration Test
[74] As the courts have repeatedly said, in
the eyes of the worker "Whose business is this?"
In Ken's eyes as well as those technicians who gave evidence,
including that of Tom, they were in business for themselves. They
were not part of TSS or Shaw.
[75] Shaw is in the business of providing
multiple TV programs and internet service to customers. In order
to deliver this, the customer's residence has to have a cable
installed and other equipment in their residence or place of
business. The installations performed herein were only a prelude
to Shaw to supplying what the customer ordered, that is cable TV
or cable internet service.
Other Factors
[76] The fact that Shaw provided all the
supplies is a neutral factor. Of course, it wants its cable,
connections, junction boxes, modems out in its customers homes so
that if a problem occurs, service providers are always dealing
with the same cable and equipment.
[77] The fact that these technicians were
asked to attend meetings is also a neutral factor. It was to
everyone's advantage to attend and have these meetings. Even
if they were in fact mandatory, it is not an indication of
employment. The technicians attend on their own time and without
pay. Usually, an employee would attend on the employer's time
and be paid for the attendance by way of salary.
Non Competition Clause
[78] In the present case, this also is a
neutral factor. The quid pro quo of this was that TSS was
prepared to give as much service work to a technician as he or
she desired and for this TSS did not want its technicians jumping
ship or working for a competitor.
[79] The Respondent argues that the fact TSS
gave a new technician a rate sheet and said this is what the deal
is, is not indicia of controlling work. The evidence was that
this was negotiated. Ken just accepted the rate as final and he
was prepared to accept it.
[80] The fact that these technicians left
Shaw and/or TSS pamphlets at the customer premises, advising the
customer who to phone if they had complaints and who the
technician was, was not an indication of integration.
[81] Thus, based on the historical test, I
am satisfied that Ken was an independent contractor. However, I
feel that I must also look at what can be described as the modern
approach to taxing statutes.
[82] The Supreme Court of Canada has ruled
in express and clear words that a valid arrangement between
arm's length parties should not be denied a tax or other
advantage unless it is either a sham or the target of clear and
unequivocal statutory language.
[83] In Shell Canada Ltd. v. The
Queen, 99 DTC 5669, McLachlin J. (as she then was)
speaking for a unanimous Court, said at page 5676,
paragraph 39:
39. This Court has
repeatedly held that courts must be sensitive to the economic
realities of a particular transaction, rather than being bound to
what first appears to be its legal form: Bronfman Trust,
supra, at pp. 52-53, per Dickson, C.J.; Tennant,
supra, at para. 26, per Iacobucci, J. But there are at least
two caveats to this rule. First, this Court has never held that
the economic realities of a situation can be used to
recharacterize a taxpayer's bona fide legal relationships. To
the contrary, we have held that, absent a specific provision of
the Act to the contrary or a finding that they are a sham, the
taxpayer's legal relationships must be respected in tax
cases. Recharacterization is only permissible if the label
attached by the taxpayer to the particular transaction does not
properly reflect its actual legal effect: Continental Bank
Leasing Corp. v. Canada [98 DTC 6505], [1998] 2 S.C.R. 298,
at para. 21, per Bastarache, J.
[84] My colleague Bell J., in the
Sara decision, referred to above, said on pages 24
and 25:
... I accept the direction as expressed in Shell, that the
recharacterization of legal relationships is only permissible if
the label attached by the taxpayer to the transaction does not
properly reflect its actual legal effect. Admittedly, this
statement by the Supreme Court of Canada was in respect of tax
cases. However, in the absence of clear and credible evidence
that the description of a relationship is other than as agreed
between arm's length parties, the description agreed upon by
those parties must stand. There is no such clear and credible
evidence in this case.
[85] On the basis of this law, I believe the
moment Ken took the stand and indicated: "I dealt with TSS
at arm's length, I entered into a working relationship with
TSS as an independent contractor operating my own business Blue
Anchor and I intended to do so and today I believe I was not an
employee and I never intended to be an employee". In light
of all the evidence TSS has adduced, the hearing should have
ceased right then as the Respondent's position was demolished
by its own witnesses.
[86] The Respondent did not plead that the
agreement between Ken and TSS was a sham and Ken's evidence
in no way challenged or suggested that his relationship with TSS
was other than what the parties desired or intended.
[87] The Replies to the Notice of Appeal
herein contain a paragraph that says:
In deciding as he did, the Minister relied on the following
assumptions of fact.
Thereafter, are 42 subparagraphs of facts. It was agreed
that five of those subparagraphs were not relied upon by the
Minister. That is approximately 12 percent. The Reply
purports to be filed by Morris A. Rosenberg, Deputy
Attorney General of Canada, Solicitor for the Respondent, then it
is signed by a "B. Aylesworth", as Agent for the
Respondent.
[88] Counsel for the Respondent knew about
this at the latest in time during the discovery process. I
believe that counsel should have at that date amended the Reply.
I also believe that it is the first duty of counsel, on having a
case assigned to him or her, to check and make sure only facts
have been assumed and that they are correct and were in fact part
of the Minister determination or assessment which ever is the
issue.
[89] In these appeals, why didn't
counsel amend the reply? Could it be to purposely mislead the
Court or anyone of the general public reading it, or was it just
indifference? In argument, counsel for the Respondent did not
allude to this in anyway let alone offer an apology for this
unacceptable pleadings.
[90] My colleague Bowie J., in the
Cline-Schmidt v. The Queen decision, delivered
orally from the bench in London, Ontario on September 20,
2001, said:
... The jurisprudence has given a special status to
assumptions made by the Minister in assessing: see Hickman
Motors and the cases there cited. It is important therefore,
that the pleading of assumptions said to have been made by the
Minister in assessing be done with care, both to ensure that what
is pleaded is confined to facts, and to ensure that what is
pleaded to have been assumed by the Minister really was assumed,
and is not a creation of the drafter. Pleadings such as the one
before me tend to raise doubts as to the reliability of the
Replies filed by the Deputy Attorney General.
[91] Associate Chief Judge Bowman in
Shaughnessy v. the Queen, 2000-178(IT)G, signed on
January 9th, 2002, said at page 4, thereof when dealing with
assumptions.
13. ... The pleading of assumptions involves a serious
obligation on the part of the Crown to set out honestly
and fully the actual assumptions upon which the Minister
acted in making the assessment, whether they support the
assessment or not. Pleading that the Minister assumed facts that
he could not have assumed is not a fulfilment of the obligation.
The court and the appellant should be entitled to rely upon the
accuracy and completeness of the assumptions pleaded. Sadly, this
is becoming increasingly difficult. The entire system developed
in our courts relating to assumptions and onus of proof is in
jeopardy if the respondent does not set out the actual
assumptions on which the assessment is based with the complete
candour, fairness and honesty.
[92] I conclude that the five assumed facts
were the creation of the drafter's imagination. This practice
must stop. Surely the Deputy Attorney General and his counsel
from Justice do not intend to mislead taxpayer-appellants
and the judges of the Tax Court of Canada. This portion of the
pleadings is extremely important and must not mislead. The
counsel at trial is responsible for the Reply. It is not good
enough to simply say "I did not draft it". If it
contains facts not actually relied upon or is in improper form it
must be amended forthwith.
[93] If I had the jurisdiction I would have
awarded Solicitor and client costs to the Appellant for all work
after the examinations for discovery were completed and the
undertaking to amend the Reply was not immediately
forthcoming.
[94] The Attorney General of Canada is
responsible for all litigation which involves the Government of
Canada. It must fall on his plate to make sure that a system is
in place so that this problem is corrected. Perhaps the assumed
facts relied upon by the Minister should accompany a reassessment
of tax or on a determination under the Act.
[95] For all these reasons, these appeals
are allowed and the Minister's determinations are
reversed.
Signed at Toronto, Ontario, this 26th day of February,
2002.
J.T.C.C.
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