Citation: 2011 TCC 279
Date: 20110527
Docket: 2010-1587(IT)G
BETWEEN:
PATRICK E. NICHOLLS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
AMENDED REASONS FOR ORDER
(Amended to change neutral citation)
Woods J.
[1]
This is an application by the appellant
to set aside the Order of Justice V. Miller made on January 21, 2011 (the
“January Order”) and to allow the underlying appeal.
[2]
It is the appellant’s submission that,
at the hearing which led to the January Order, there was serious misconduct on
the part of counsel for the respondent. In particular, it is alleged that the
January Order was obtained through fraud.
[3]
This application is brought
pursuant to subsection 172(2) of the Tax Court of Canada Rules (General
Procedure). The provision is reproduced below, with the relevant part
emphasized:
172. (2)
A party who seeks to,
(a) have a judgment set aside or varied on the ground
of fraud or of facts arising or discovered after it was made,
(b) suspend the operation of a judgment, or
(c) obtain other relief than that originally directed,
may make a
motion for the relief claimed.
Background
[4]
On May 17, 2010, the appellant
instituted an appeal in respect of a determination of loss for the 1998
taxation year. The substantive issue in the appeal is whether the appellant is
entitled to a deduction in the amount of $266,123 as an allowable business
investment loss (ABIL) incurred on the sale of shares.
[5]
On December 13, 2010, the
appellant brought an application in respect of the appeal which sought a
determination of a question of law pursuant to Rule 58(1)(a) of the Tax
Court of Canada Rules (General Procedure) (the “December Motion”).
It is this application that resulted in the January Order.
[6]
The question which the appellant
sought to have decided was whether the ABIL should be disallowed “for reason of
non-arm’s length alone.” The appellant submitted that an ABIL should not be disallowed
solely on that ground (Appellant’s Factum, December Motion, para 2, 5).
[7]
The January Order dismissed the
application for two reasons. First, it was concluded that the application was
premature because the Reply had not yet been served in accordance with the
Rules (Nicholls v The Queen, 2011 TCC 40, para 6).
[8]
Second, it was concluded that
there was a dispute as to material facts in respect of the question of law. The
relevant part of the reasons, para 7-10, are reproduced below.
[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. 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.
[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. For all
of the above reasons, the Appellant’s section 58 motion is dismissed.
[9]
In this application, the appellant
seeks to have the January Order set aside on the ground that the decision was
procured by fraudulent statements made by counsel for the respondent.
[10]
The purported fraudulent
statements (“Statements”) concern which facts that the appellant intends to
dispute. According to the appellant, the respondent falsely stated that the
appellant was disputing several of the facts asserted by the respondent.
[11]
The Statements were set out in the
respondent’s written representations filed prior to the hearing of the December
Motion. They read:
4. Here
there are a number of facts in dispute and this appeal should properly be heard
before a trial judge. The facts in dispute are found at the Respondent’s Reply
at paragraphs 20 to 22 and include:
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 $354,830.95 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.
[12]
The appellant submits that the Statements
are fraudulent because they falsely state that a number of facts are in
dispute. The appellant informed me that only one paragraph, (f) above, may possibly
be in dispute. The facts in the other paragraphs are not disputed.
[13]
Further, the appellant submits
that the respondent knew from the history of this matter that paragraphs (a)
through (e), above, were not in dispute. I was not referred to any supporting
evidence for this submission.
Discussion
[14]
The allegations that are made
against counsel for the respondent at the December Motion are serious. I will
first consider the applicable legal principles.
[15]
I was not referred to any judicial
decisions of this Court which have considered an application of this type. However,
the respondent referred me to a recent decision concerning a similar rule in Ontario: Robson
(Trustee of) v Robson, 2010 ONSC 4391.
[16]
Robson summarizes the relevant principles at paragraphs 23
and 24, and these are reproduced below.
[23] The
factors which must be established to set aside a judgment for fraud under Rule 59.06(2)
were set out by Osbourne J. (as he then was) in International Corona
Resources Ltd. v. LAC Minerals Ltd. (1988), 66 O.R. (2d) 610 (H.C.). They
are:
1. the fraud alleged must be proven on a reasonable balance of
probabilities.
2. the fraud must be material, that is, it must go to the foundation
of the case.
3. the evidence of fraud must not have been known to the moving
party at the time of trial.
4. the moving party must have exercised reasonable or due diligence
at the trial.
5. if the fraud alleged is that of a non-party, the determination of
fraud is subject to greater scrutiny.
6. the test
for due diligence is objective.
7. delay
will defeat a motion under Rule 59.06.
8. relief under Rule 59.06 is discretionary and the conduct of the
moving party is relevant.
9. at the end of the day, the moving party must show that a judgment
was procured by fraud, that there has been a new discovery of something material,
in that fresh facts have been found which, by themselves or in combination with
previously known facts, would provide a reason for setting aside the judgment.
[24] Fraud
in the context of Rule 59.06 is a fraud on the court. The cases which have considered
Rule 59.06 have adopted the definition of fraud set out by the House of Lords
in Derry v. Peek (1889), 14 App. Case. 337 (H.L.): “fraud is proved when it is shewn
that a false representation has been made (1) knowingly, or (2) without belief
in its truth, or (3) recklessly, careless whether it be true or false.” See: Vale
v. Sunlife Assurance of Canada Ltd. (1998), 39 O.R. (3d) 444 (Gen. Div.); Gregory
v. Jolley, [2001] O.J. No. 2313 (C.A.); Calabrese v. Weeks, [2003]
O.J. No. 4176 (S.C.J.); Granitile Inc. v. Canada, [2008] O.J. No.
4934 (S.C.J.).
[17]
It makes sense to follow the same
principles in considering Rule 172(2) of this Court.
[18]
In applying these principles here,
the appellant must show that the January Order was procured by fraud. He has
failed to do this.
[19]
First, the Statements were known
to the appellant at the time of the December Motion. This alone is fatal to
this application based on the third factor set out in Robson.
[20]
Second, the purportedly false
information was primarily within the knowledge of the appellant – not the
respondent. The appellant knew which facts, if any, he was disputing. I am not
satisfied that the appellant exercised reasonable due diligence at the hearing,
as required by the fourth factor set out in Robson. I would note that I
was not provided with a transcript of the proceedings at the December Motion.
[21]
Third, when the Statements were
made by counsel for the respondent, he had every expectation that the appellant
would inform the judge as to which facts he intended to dispute. The Statements
were not made with the intent to deceive.
[22]
Fourth, it has not been
established to my satisfaction by the appellant that the Statements were not
reasonable ones for the respondent to make in the circumstances. At the time
that the Statements were made, the litigation was at an early stage and the
notice of appeal did not clearly state which facts were in dispute.
[23]
Fifth, even if the Statements were
false, they did not procure the January Order. The main ground for the decision
was that the application was premature.
[24]
This is not a circumstance in
which it is appropriate to invoke Rule 172(2).
[25]
The appellant also took issue with
several other aspects of the respondent’s conduct. His arguments fall far short
of establishing fraud and it is not necessary that I discuss them in these
reasons.
[26]
For all of the above reasons, the
application will be dismissed.
[27]
As for costs, the respondent
sought costs in the amount of $3,000.
[28]
I agree that higher than usual
costs is warranted in these circumstances. The making of serious allegations of
fraud, where unsubstantiated, should be discouraged by this Court. On the other
hand, I am not satisfied that an award of $3,000 is appropriate.
[29]
I have decided to award costs to
the respondent in the amount of $1,000. The costs are to be payable forthwith.
[30]
Finally, counsel for the
respondent expressed great concern about the large number of proceedings that
have been commenced in the past few years by the appellant in reference to this
appeal and others. Counsel notes, for instance, that the appellant has already
filed four motions in respect of this appeal, including another motion to set
aside the January Order.
[31]
The respondent’s concerns are well
founded. I would order that the appellant be prohibited from instituting
further preliminary applications before this Court in respect of this appeal
without leave of the Court. Any request for leave should be made in writing.
[32]
I will also make arrangements for
a case management judge to be assigned in this matter.
Signed at Toronto, Ontario this 27th day of May
2011.
“J. M. Woods”
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