Citation: 2011TCC40
Date: 20110121
Docket: 2010-1587(IT)G
BETWEEN:
PATRICK E. NICHOLLS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR ORDER
V.A. Miller J.
[1]
The parties brought
several motions which were heard on December 13, 2010.
(1)
The Appellant brought
a motion pursuant to paragraph 58(1)(a) of the Tax Court Rules
(General Procedure) (the Rules) for the determination of a question
of law.
(2) The Respondent brought a
motion pursuant to paragraphs 44(1)(b) and 44(3)(c) of the Rules
for an Order to extend the time for serving the Respondent’s Reply to the
Notice of Appeal to 14 days from the date of the Order disposing of this
motion.
(3) The Appellant brought a
further motion pursuant to section 53 of the Rules wherein he requested
that all or part of the Reply to the Notice of Appeal be struck, or in the
alternative, pursuant to Rule 52 he made a request for particulars.
(4) The Appellant brought a
cross motion pursuant to section 53 of the Rules wherein he requested that the
Respondent’s motion for an extension of time to file its Reply be struck, or in
the alternative, that paragraph 21 of the Reply to Notice of Appeal and
paragraph 4 of the Respondent’s Reply to his motion be struck.
[2]
The Appellant filed a
Notice of Appeal for his 1998 taxation year on May 17, 2010. The Notice of
Appeal was served on the Department of Justice on August 13, 2010. The deadline
for filing the Respondent’s Reply to the Notice of Appeal (the Reply) was
October 12, 2010.
[3]
According to the
affidavit of Carla Riley-Green, legal assistant in the Tax Law Services Section
of the Department of Justice, she filed the Reply with the Tax Court of Canada
on October 7, 2010. On October 8, 2010, she caused the Appellant to be served
with the Reply at 78 Bartlett
Avenue, Toronto, Ontario. The proof of service, which was attached to her
affidavit as an exhibit, showed that the process server affixed a sealed
envelope to the door at 78
Bartlett Avenue. This sealed
envelope contained the Reply and Written Cost Submissions for another file
which the Appellant had in the Federal Court. On November 1, 2010, counsel for
the Respondent became aware that the Reply had been served on the Appellant’s
previous address. On November 2, 2010, counsel sent the Reply by registered mail
to the Appellant’s correct address. The Appellant has acknowledged that he
received the Reply.
Appellant’s Section 58 Motion
[4]
The Appellant has
brought a motion pursuant to section 58 of the Rules for the
determination of a question of law. The question posed by the Appellant is
whether the Minister of National Revenue (the Minister) was correct to deny a
business investment loss solely on the basis that the sale of certain shares
was made to a non-arm’s length party. The Respondent has opposed the motion.
[5]
Section 58 of the Rules
read as follows:
58. (1) A party may apply to
the Court,
(a) for the determination, before hearing, of a
question of law, a question of fact or a question of mixed law and fact raised
by a pleading in a proceeding where the determination of the question may
dispose of all or part of the proceeding, substantially shorten the hearing or
result in a substantial saving of costs, or
(b) to strike out a pleading because it
discloses no reasonable grounds for appeal or for opposing the appeal,
and the Court may grant judgment
accordingly.
(2) No evidence is admissible on an application,
(a) under paragraph (1)(a), except with
leave of the Court or on consent of the parties, or
(b) under paragraph (1)(b).
(3)
The respondent may apply to the Court to have an appeal dismissed on the ground
that,
(a) the Court has no jurisdiction over the
subject matter of an appeal,
(b) a condition precedent to instituting a valid
appeal has not been met, or
(c) the appellant is without legal capacity to
commence or continue the proceeding,
and the Court may grant judgment accordingly.
[6]
I have concluded that this
section 58 application is premature. The pleadings have not closed as the
Respondent has not served the Appellant with the Reply in accordance with the
Rules. The Appellant will only be properly served with the Reply after an Order
is issued from the Court. As well, the Appellant will have thirty days after
service of the Reply to file and serve an Answer. The relevant sections of the
Rules are as follows:
43. (1) In an appeal, the
pleadings shall consist of the notice of appeal, the reply to the notice of
appeal called “the reply” and the answer to the reply to the notice of appeal,
if any, called “the answer”.
(3) No pleading subsequent to an answer shall be filed
without the consent in writing of the opposite party or leave of the Court.
45. An answer, if any, shall be filed and served
within thirty days after service of the reply.
46. Pleadings are closed when
an appellant has filed and served an answer to the reply or the time for the
filing and serving of an answer has expired.
[7]
However, even if the
pleadings had been closed, I would have dismissed this application on the basis
that the question posed is not one which could appropriately be decided under
section 58.
[8]
The procedure under
section 58 is a two step process. First the court must determine if the
question is one which can appropriately be decided under section 58. If the
answer to the first step is positive, then the Court will fix a date for the
hearing of the question of law[1].
In making that determination under paragraph 58(1)(a) of the Rules,
the Court must be satisfied that there is no dispute as to any fact material to
the question of law to be determined[2].
[9]
The Respondent has opposed
the motion on the basis that there are a number of facts in dispute in this
appeal. It has listed the following assumptions made by the Minister and
additional facts relied on by the Minister as the facts in dispute:
a)
In 1997 the Appellant sold 8,500 shares of Mpact Immedia to an unknown party
for an unknown amount;
b)
In 1997 the Appellant transferred 236,211 shares of Mpact Immedia to the
Nicholls (Children) Family Trust in exchange for a promissory note valued at
$1.45 per share;
c)
The Nicholls (Children) Family Trust was insolvent and the promissory note
remained unpaid;
d)
The Appellant claimed a capital loss on the sale of the shares to the Nicholls
(Children) Family Trust of $345,830.95 and an ABIL of $266,123.21 on his 1998
T1 General Income Tax and Benefit Return;
e)
The Appellant and the Nicholls (Children) Family Trust were not at arm’s
length.
f)
The debt arising from the Appellant’s sale of shares to the Nicholls (Children)
Family Trust was not acquired for the purpose of gaining or producing income.
g)
The Notice of Determination dated February 1, 2010, states in error that the
net capital loss determined is nil. The Appellant was allowed a capital loss of
$354,830 for the 1998 taxation year. The Appellant’s non-capital loss (ABIL) claimed
was reduced to nil.
[10]
As there is a dispute as
to material facts in respect of the question of law to be determined, it is not
appropriate to order the requested determination[3].
For all of the above reasons, the Appellant’s section 58 motion is dismissed.
Respondent’s Motion to Extend the Time to Serve the
Reply
[11]
The grounds relied on by the
Respondent for its motion to extend the time to serve the Reply are as follows:
a)
The Appellant’s address was
previously 78 Bartlett Avenue, Toronto, Ontario.
b)
The Respondent’s database had the
Appellant’s previous address and the Reply was inadvertently served to the
wrong address
c)
Pursuant to paragraphs 44(1)(b)
and 44(3)(c) of the Rules, the Court may extend the period in
which the Respondent may serve its Reply.
d) The Respondent is able to show
that: a reasonable explanation for the delay exists, no prejudice to the other
party arises from the delay; the Respondent’s case has merit; and, the
Respondent had continuing intention to serve the Reply
[12]
The Respondent has relied on the
affidavit of Carla Riley-Green to bring the facts before the Court[4]. Those facts were not
disputed by the Appellant.
[13]
The Appellant has brought a cross
motion to oppose the Respondent’s motion. He has requested that the motion for
extension of time not be granted or in the alternative, that paragraph 21 of
the Reply be struck. The Appellant has objected to the extension of time on the
basis that there are “additional facts” plead in the Reply which were not
assumed by the Minister when he issued the Notice of Confirmation. In the
Reply, the Respondent relied on paragraphs 39(1)(c) and 40(2)(g)
of the Act whereas, in the Notice of Confirmation, the Minister relied
only on paragraph 50(1)(a) of the Act.
[14]
The “additional facts” plead in
the Reply are:
21.
The debt arising from the Appellant’s sale of shares to the Nicholls
(Children) Family Trust was not acquired for the purpose of gaining or
producing income.
22.
The Notice of Determination dated February 1, 2010, states in error that
the net capital loss determined is nil. The Appellant was allowed a capital
loss of $354,830 for the 1998 taxation year. The Appellant’s non-capital loss
(ABIL) claimed was reduced to nil.
[15]
It is the Appellant’s position
that the “additional facts” are ‘prejudicial, immaterial and irrelevant’ to the
only issue in the appeal which is whether the ABIL should have been disallowed on the basis that his sale of certain
shares was made to a non-arm’s length party.
[16]
Section 53 of the Rules
read as follows:
53. The Court may strike out or
expunge all or part of a pleading or other document, with or without leave to
amend, on the ground that the pleading or other document,
(a) may prejudice or delay the fair hearing of
the action,
(b) is scandalous, frivolous or vexatious, or
(c) is an abuse of the process of the Court.
[17]
The Appellant’s position
is entirely without merit. He has not shown how the Respondent’s pleadings fall
under any of the three grounds in section 53. It is now well settled law that
subsection 152(9) of the Act allows the Minister to plead additional
facts and to invoke a different basis for the assessment[5]. However, in the
circumstances of this appeal, the pleadings do not invoke a different basis for
the assessment; they only include “additional facts”. These “additional facts”
are consistent with the Minister’s reassessment.
[18]
The relevant sections of
the Rules with respect to serving the Reply are:
44. (1) A reply shall be filed
in the Registry within 60 days after service of the notice of appeal unless
(a) the appellant consents, before or after the
expiration of the 60-day period, to the filing of that reply after the 60-day
period within a specified time; or
(b) the Court allows, on application made before
or after the expiration of the 60-day period, the filing of that reply after
the 60-day period within a specified time.
(2)
If a reply is not filed within an applicable period specified under subsection
(1), the allegations of fact contained in the notice of appeal are presumed to
be true for purposes of the appeal.
(3) A reply shall be served
(a) within five days after the 60-day period
prescribed under subsection (1);
(b) within the time specified in a consent given
by the appellant under subsection (1); or
(c) within the time specified in an extension of
time granted by the Court under subsection (1).
(4)
Subsection 12(3) has no application to this section and the presumption in
subsection (2) is a rebuttable presumption.
[19]
The Federal Court of
Appeal in Canada (Attorney General) v. Hennelly[6] stated that the test which should be applied
when determining whether to grant an extension of time to file a pleading is:
[3] The proper test is whether the applicant
has demonstrated
1.
a continuing intention to pursue his or her application;
2.
that the application has some merit;
3.
that no prejudice to the respondent arises from the delay;
and
4.
that a reasonable explanation for the delay exists.
[20]
The Respondent has demonstrated a
continuing intention to pursue its position in this appeal. After counsel for
the Respondent learned that the Reply had not been served within the period
allowed by paragraph 44(3)(a) of the Rules, he caused the Reply
to be sent to the Appellant by registered mail on November 2, 2010.
[21]
I am satisfied that the Respondent
has shown that its case has some merit.
[22]
The Appellant has stated
that, if the extension is granted, he will suffer prejudice as he does not know
the case he has to meet given the conflict of assumptions between the Minister
and the Respondent. I have already found that the “additional facts” plead by
the Respondent are consistent with the assessment made by the Minister.
[23]
In General Motors
Acceptance Corp. of Canada Ltd. v. The Queen[7],
the Appellant brought a motion to strike paragraphs of the Reply on the basis
that the Minister was advancing a new basis for the assessment. Rip T.C.J., as
he then was, stated the following:
39 Applicant's
counsel submits that since a taxpayer's onus of proof is only with respect to
the facts and statutory provisions actually assumed by the Minister in the
making of the assessment, the Attorney General cannot allege any other facts or
rely on any other statutory provisions unless she does so within the prescribed
time to issue a new assessment of tax.
40 I
do not agree with counsel. The Minister may allege new facts, facts that came
to the Minister's knowledge after the assessment was issued, and may submit
additional statutory provisions, but the taxpayer must be informed of these
allegations and submissions in a timely manner, not on the eve of a trial and
definitely not at the appellate level. The taxpayer must have sufficient time
to consider and review the new allegations and submissions. And, of course, the
Crown has the onus of proving the allegations of facts it did not consider on
assessing and to convince the court that the provisions of the Act newly
relied on support the assessment.
41 In
the application at bar any additional submission of law, including statutory
provisions, if indeed the respondent alleged statutory provisions in her
pleadings that the Minister did not consider when assessing, was set out in the
respondent's reply and amended reply. The taxpayer was not taken by surprise
and suffered no prejudice. The taxpayer had plenty of time to challenge the
assessments by leading evidence in the normal course. The taxpayer has not
missed the opportunity to examine the Minister's officials for discovery and
adduce evidence at trial. This is not a situation where the Crown raised new
arguments simply because other arguments failed in other courts.20
The Tax Court is a court of first instance and it is in this Court that
findings of fact are made. The Minister is not appealing his own assessments.
[24]
This appeal is still at
the pleading stage. The Appellant still has the benefit of all the procedures
afforded by the Rules, including exchanging lists of documents and
discovery. The Appellant is not prejudiced by “additional facts” and statutory
provisions plead in the Reply. The Appellant has not suffered any prejudice by
the Respondent’s delay in serving the Reply.
[25]
The explanation provided by the
Respondent for the delay is a reasonable one. The delay in serving the Reply on
the Appellant was due to an administrative error. Ms. Riley-Green caused the
Reply to be served at the Appellant’s former address. As in Telus
Communications (Edmonton) Inc. v. Canada[8],
the delay is attributable to human error; and there is no indication of any
breakdown of the internal system put in place within the Department of Justice.
I note that the Respondent attempted to serve the Reply prior to the time
period which is specified in paragraph 44(3)(a) of the Rules.
[26]
For these reasons, all of
the Appellant’s motions to strike are dismissed. The Respondent’s motion is
granted and the Respondent has 14 days from the date of this Order to serve the
Appellant with the Reply to Notice of Appeal.
[27]
Costs shall be in the
cause.
Signed at Ottawa, Canada, this 21st day of January 2011.
“V.A. Miller”
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