Citation: 2010 TCC 594
Date: 20101119
Docket: 2008-3820(GST)G
BETWEEN:
SENG CHIN SIOW,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR ORDER
Pizzitelli J.
[1]
This is a motion by the Respondent
to strike out the Notice of Appeal and dismissing the Appeal for abuse of
process under Rule 53 of the Tax Court of Canada Rules (General Procedure).
[2]
Rule 53 states:
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,
…
(c) is an
abuse of the process of the Court.
Background
[3]
The Appellant in this matter is
challenging an assessment issued against him as a director of 906325 Ontario
Inc. which operated as Handi-Jac Shampoo and Shine (the “Company”) pursuant to
subsection 323(1) of the Excise Tax Act (which I will refer to as
the “Act”) for the Company’s unpaid GST liability.
[4]
Paragraph 11 of the Appellant’s
Notice of Appeal sets out the issues. The Appellant’s arguments as to why
he is not liable under the assessment may be summarized as follows.
Argument 1 Para. 11(a) The Minister
never properly assessed the Company for its tax liability in the first place,
the suggestion being that the Company was never mailed or received any
assessment.
Argument 2 Para.11(b)
The Minister was statute barred from assessing the Company under section 298 of
the Act and hence was statute barred from assessing the Appellant as a
director under subsection 323(4) of the Act;
Argument 3 The Certificate issued by the
Minister, pursuant to section 316 of the Act is a nullity as a result of
the positions taken by the Appellant in Arguments 1 and 2 above.
Argument 4 It should be noted that a fourth
argument, a due diligence defence, which was pleaded in paragraph 11(d) of the
Appellant’s appeal, was withdrawn before this hearing.
[5]
During an exchange of
correspondence between the parties prior to this hearing, the Respondent
requested that the Appellant admit the authenticity of the Certificate of
Non-Payment dated July 15, 2005 registered with the Federal Court as No.
3925-05, the Writ of Seizure and Sale dated July 15, 2005 issued pursuant
thereto, the Levy Report dated February 13, 2006, the Third Party notice of
assessment against the Appellant as director dated March 8, 2006 and an undated
Corporate Profile Report, which by the Appellant’s Response to Request to
Admit, were admitted on October 26, 2010.
[6]
Based on the Appellant’s advice that
it would not be pursuing its due diligence defence and its admission of the
authenticity of the Certificate and the other documents, the Respondent brings
this motion on the grounds stated in paragraph 5 of the Notice of Motion:
5.
the only argument advanced by the appellant in support of the Appeal is a
collateral attack on the Certificate which is deemed by statute to be a
judgment of the Federal Court and is thereby an abuse of the Tax Court of
Canada’s appeal process; …
Position
of the Respondent
[7]
In a nutshell, the Respondent’s
position is that once a Certificate for Non‑Payment is registered in the
Federal Court pursuant to subsection 316(2) of the Act, the Federal
Court has sole jurisdiction to deal with any challenges as to the validity of
such Certificate and there is no need to look through the Certificate to issues
of the validity of the underlying assessment through process in the Tax Court
of Canada. To do so, argues the Respondent, is to make a collateral attack on
the decision of a Court having jurisdiction over the subject matter. In support
of this position, the Respondent argues that the only effect of Argument 1 and Argument
2 above referred to is to challenge the validity of the Certificate, which is
what Argument 3 does, so in substance the only argument advanced by the
Appellant is really the validity of the Certificate. I will refer to this
position as the “Jurisdiction Argument”.
[8]
In addition, the Respondent
effectively argues that based on the facts of the pleadings taken as true
together with its admissions above, the Appellant has no grounds for appeal or
chance at succeeding in Arguments 1 and 2 even if the Court found they constituted
issues different than in Argument 3. The Respondent argues that the Appellant has
not denied he was a director or that he ceased to be a director, has withdrawn
his due diligence defence and that any challenges to the underlying assessments,
as Arguments 1 and 2 may be, are not challenges to the quantum of the
assessment against the Company and hence not within the realm of cases allowing
such challenges by third parties. Furthermore, the Respondent argues the
Appellant does not dispute that the GST is owing by the Company due to his
admission of the authenticity of the Certificate and the Levy Report, which are
the preconditions to a directors’ liability assessment under paragraph 323(2)(a)
of the Act. As a result, the Respondent takes the position the Appellant
has no valid grounds of appeal. I will refer to this as the “Merits Argument”.
[9]
The Appellant’s position is that
there is no case law which gives the Federal Court exclusive jurisdiction
to the challenge of a Certificate unless the grounds for challenge deal with
the process or the preconditions dealing with the issuance of the Certificate.
To phrase it another way, the Appellant is arguing that when issues dealing
with the question or validity of assessments are involved, those fall within
the jurisdiction of the Tax Court of Canada even if the result is a challenge
to the validity of a Certificate and it is up to the taxpayer to decide where
it should go for relief. In addition, the Appellant takes the position that
since the issuance of a notice of assessment is a precondition to pursuing
collection procedures under subsection 315(1) of the Act, then
failure to issue a valid notice of assessment, as argued in Arguments 1 and 2,
effectively renders the issuance of a Certificate null and void; which is
Argument 3.
[10]
The Appellant also argues that the
arguments it raises as Argument 1 and Argument 2 are separate issues dealing
with the underlying assessment per se and not substantively the same as
Argument 3 and should be heard on their merits because the case law, although
“muddled”, as she put it, supports the position that a director can challenge
the Company’s underlying assessment, in its entirety, as well as any part
of its quantum, and in effect, the Appellant should not be deprived of its day
in court.
The
Law
[11]
The relevant provisions of the Excise
Tax Act as they read at the time of filing the returns, with no substantive
difference to those still in effect today for purposes of this motion, are:
315 (1) The Minister may not take any collection action
under sections 316 to 321 in respect of any amount payable or remittable by a
person that may be assessed under this Part, other than interest or penalty
computed at 6% per annum, unless the amount has been assessed.
…
316
(1) Any tax, net tax,
penalty, interest or other amount payable or remittable by a person (in this
section referred to as the “debtor”) under this Part, or any part of any such
amount, that has not been paid or remitted as and when required under this Part
may be certified by the Minister as an amount payable by the debtor.
316 (2) On production to the
Federal Court, a certificate made under subsection (1) in respect of a debtor
shall be registered in the Court and when so registered has the same effect,
and all proceedings may be taken thereon, as if the certificate were a judgment
obtained in the Court against the debtor for a debt in the amount certified
plus interest and penalty thereon as provided under this Part to the day of
payment and, for the purposes of any such proceedings, the certificate shall be
deemed to be a judgment of the Court against the debtor for a debt due to Her
Majesty and enforceable as such. …
…
323
(1)
Where a corporation fails to remit an amount of net tax as required under
subsection 228(2) or (2.3), the directors of the corporation at the time the
corporation was required to remit the amount are jointly and severally liable,
together with the corporation, to pay that amount and any interest thereon or
penalties relating thereto.
323 (2) A director of a corporation
is not liable under subsection (1) unless
(a) a certificate for the amount of
the corporation’s liability referred to in that subsection has been registered
in the Federal Court under section 316 and execution for that amount has been
returned unsatisfied in whole or in part;
…
323 (3) A director of a corporation is not
liable for a failure under subsection (1) where the director exercised the
degree of care, diligence and skill to prevent the failure that a reasonably
prudent person would have exercised in comparable circumstances.
323 (4) The Minister may assess any
person for any amount payable by the person under this section and, where the
Minister sends a notice of assessment, sections 296 to 311 apply, with such
modifications as the circumstances require.
323
(5) An
assessment under subsection (4) of any amount payable by a person who is a
director of a corporation shall not be made more than two years after the
person last ceased to be a director of the corporation.
Analysis:
[12]
I will now deal with
the position of the parties, particularly the issues of Jurisdiction and Merit,
as I referred to above separately, although in some respects note that they are
inter-related.
Jurisdiction Argument:
[13]
The Respondent’s
position is based on both the wording of subsection 316(2) of the Act which
deems the registration of the Certificate to be a judgment of the Federal Court
against the debtor for the amount certified plus interest and penalty and to be
enforceable as such and hence subject to judicial review as would a judgment of
that Court and the doctrine of collateral attack which the Respondent argues
prohibits the Appellant from seeking to challenge the validity of the
Certificate, deemed a judgment of the Federal Court, in this Court.
[14]
There is no argument
between the parties as to the meaning of the subsection. In fact, there is no
argument made as to the meaning of the doctrine of collateral attack, which was
explained in the case of Leroux v. Canada (Revenue Agency), 2010
BCSC 865, 2010 DTC 5123, a decision of the British Columbia Supreme Court,
relied upon by the Respondent where the Plaintiff brought an action against
Canada Revenue Agency (“CRA”) for damages on the basis the defendant’s conduct
of audits, assessments and collection procedures relating to both the Income
Tax Act and Excise Tax Act caused his substantial business empire to
collapse and impoverished him and the CRA made application to strike the claim
as an abuse of process under that Court’s Rules. In paragraphs 27 and 28 of
that case, B.M. Preston J. described the doctrine as follows, relying on the
decisions of the Supreme Court of Canada:
27. A collateral attack involves a challenge to the
correctness or validity of a decision in previous independent proceedings. The
case authority requires that, when applying the doctrine, a court must look
behind the cause of action pled to determine whether, in pith and substance,
the action calls into question the validity of the previous decision. If it
does, it must be struck as an abuse of process.
28. The rule against collateral attack was articulated by the
Supreme Court of Canada in Wilson v. The Queen, [1983] 2 S.C.R. 594 at
599:
It has long been a fundamental rule that a court order, made by a
court having jurisdiction to make it, stands and is binding and conclusive
unless it is set aside on appeal or lawfully quashed. It is also well settled
in the authorities that such an order may not be attacked collaterally—and a
collateral attack may be described as an attack made in proceedings other than
those whose specific object is the reversal, variation, or nullification of the
order of judgment.
[15]
The disagreement
between the parties is that the Respondent considers all three of the
Appellant’s arguments, which I referred to earlier as Arguments 1, 2 and 3, as
in substance being an attack against the validity of the Certificate in issue
while the Appellant argues that while Argument 3 is such an attack, its
Arguments 1 and 2 are independent arguments, notwithstanding that they may also
form the basis for the Appellant’s third argument.
[16]
In support of its
position, the Respondent had referred the Court to a series of cases which it
argues supports its position that the Federal Court has exclusive jurisdiction
over any attacks against the validity of a Certificate and that the Appellant
may not look through the Certificate to bring arguments on the underlying
assessments giving rise to the Certificate. The Respondent relies on Pozzebon
v. R., 98 DTC 1940, Curylo v. Minister of National Revenue,
92 DTC 1250, both decisions of this Court and on the Federal Court’s
decisions in Her Majesty The Queen v. Star Treck Holdings Ltd.,
77 DTC 5311 (F.C.T.D.) and other authorities therein cited, in support of its
position. In Pozzebon, the Appellant challenged the validity of the
assessment against him as a director under section 227.1 of the Income
Tax Act for unremitted source deductions, provisions similar to subsection
323(1) of the Excise Tax Act in issue here, on the basis that the
Sheriff’s nulla bona Report was undated, a deficiency in process
governed by the Federal Court Act. In Curylo, the argument
was that the Certificate was issued in the wrong name and in Star Treck
an error in the spelling of the name in the Certificate, and other documents.
In all of these cases, there is no dispute that the Federal Court had
jurisdiction. In Pozzebon, O’Connor, T.C. J., in paragraphs 39 and 40 of
his reasons confirmed in effect that irregularites in a process governed by the
Federal Court Act must be ruled upon by the Federal Court, relying
on Curylo and Star Treck and stated in paragraph 39:
39 … The Tax Court is a creation of statute and has no inherent
jurisdiction. Therefore it would appear that the Federal Court is the proper
forum to determine the merits of the Appellant’s argument that the Minister,
and the Sheriff, did not correctly follow the procedural rules set out in the Federal
Court Act.
[17]
I agree with the
Appellant’s position that these authorities confirm the Federal Court’s
jurisdiction to deal with challenges against the validity of the Certificates
or other processes such as the Sheriff’s reports contemplated by the Rules of
that Court and stated to be preconditions to a director’s liability under
section 227.1 of the Income Tax Act or similar section 323 of the Act.
I do not however agree that once a Certificate is issued under subsection
316(2) of the Act, the Appellant has no right to look through the
certificate and challenge the underlying assessment. In fact, in Curylo,
Beaubier J. made it clear in paragraph 27 that the director had the right to
dispute the amount alleged owed by the corporation, and in turn by the
director, when the director is assessed, in this Court. This right has been the
subject of significant judicial interest over the past decade and I believe it
is accepted law that such right does indeed exist as supported by Federal Court
of Appeal decisions which I will discuss in further detail later.
[18]
I do not give any
weight to the case of Canada (Minister of National Revenue – M.N.R.) v. Vu,
2004 FC 1783, [2004] G.S.T.C. 174 (F.C.), decided by Lafrenière Prothonotary of
the Federal Court, and affirmed by the decision of O’Keefe J. in Canada
(Minister of National Revenue – M.N.R.) v. Vu, 2005 FC 788,
[2005] G.S.T.C. 113 (F.C.) which the Respondent relies upon to suggest all
matters relating to the Certificate, including a challenge to the underlying
assessment on the basis it was not properly mailed hence issued, are within the
jurisdiction of that Court. It should be noted that Counsel for the Respondent
suggested that as the case was considered by the Federal Court of Appeal, all
three levels of the Federal Court process supports her position. In the Vu
case, the Appellant initially brought three motions to the Court requesting the
Certificate for GST debt be quashed, the lien against her property lifted and
the reassessment against her should be quashed. Due to a bank sale of the
property in question under power of sale proceedings prior to the hearing of
the motions, the only issue left to be decided at the hearing was the last
issue dealing with quashing the reassessment which the Court dismissed on the
basis that it found the Notice of Assessment had been properly sent. In my
view, the Federal Court did not have jurisdiction to quash a GST assessment in
any event since the Act provides for an objection and appeal mechanism
from assessments in sections 301 to 306 of that Act, which brings the
issue within the jurisdiction of the Tax Court of Canada. Section 18.5 of the Federal
Courts Act provides that the Federal Court has no jurisdiction over the
assessment. Moreover, the Federal Court of Appeal did not deal with an appeal
of the assessment issue, only an appeal as to costs in the matter and
accordingly cannot be said to have supported the Federal Court’s jurisdiction
in the matter of the underlying assessment.
[19]
I must also disagree
with the Respondent that the arguments of the Appellant all in substance seek to
ultimately challenge the Certificate for two reasons. Firstly, there is no
dispute and it is trite law that this Court has jurisdiction to deal with the
issues of the validity of the issuance of an assessment and the issue of
assessments for statue-barred years, the issues raised in the Appellant’s
Arguments 1 and 2. Subsection 323(4) of the Act specifically provides
that where the Minister sends a notice of assessment to a director the
provisions of sections 296 to 311 of the Act apply, which sections include
the appeal process to this Court. These issues can be decided independently of
the issue of the validity of the Certificate in Argument 3. Secondly,
regardless of whether the Certificate is declared a nullity by the Federal
Court or not, does not impact the right of this Court to vary or vacate the
assessment of the Appellant in any appeal properly brought before this Court.
While it is clear that pursuant to paragraph 323(2)(a) of the Act
that the registration of a certificate with the Federal Court under section 316
and execution for that amount being returned unsatisfied in whole or in part
are preconditions to assessing a director for liability of a corporations net
tax or remittances, it is not a requirement to appealing any such assessment
that the director must first challenge such certificate or results of such
execution in Federal Court. Accordingly, not all roads lead to a challenge of
the Certificate as the Respondent seems to suggest.
[20]
Having stated the
above, it also follows that I do not agree with the Respondent’s position that
only where an appellant challenges the quantum of the assessment does he have
the right to challenge the debtor’s underlying assessment. In addition to the
authorities that support the Appellant’s position in this regard which I will
discuss in the context of the Merit Argument, I submit that it would be a
ridiculous result if an appellant could only challenge quantum of assessment as
opposed to validity of the entire assessment that would in effect render the
quantum “zero”.
[21]
At this point I wish to
make it clear that I agree with the Appellant that the Appellant would
have had the option to challenge the validity of the Certificate in Federal
Court if he so chose, and that the Federal Court would have been clearly within
its jurisdiction to determine whether any preconditions to the issuance of a
Certificate had been met, including in my view, whether the issuance of a valid
notice of assessment contemplated by subsection 315(1) of the Act is
such a precondition. However, I am not in any way suggesting that in making
such choice the Appellant could assume both the Federal Court and this Court
had overlapping jurisdiction to render a decision on both the validity of a
certificate and changing the underlying assessment. Regrettably, a
taxpayer, would have to look to both courts if for any reason it wished to do
both.
[22]
As this Court has the sole
jurisdiction to deal with the validity of the assessment and whether to vary or
vacate an assessment, matters not decided by the Act of issuing and registering
a Certificate under section 316 with the Federal Court, deemed to be a
judgment of the Federal Court, then it follows that there can be no collateral
attack on a decision of the Federal Court that it either did not or could not
make for lack of jurisdiction.
[23]
The Leroux case itself,
relied upon by the Respondent, recognized that a party can seek a different
remedy in a different Court having jurisdiction over such different remedy. In
paragraph 30, thereof the Court stated:
30 … There
is no collateral attack where, based on a review of the pleadings and the
record, the Plaintiff is not seeking to challenge or undermine the decision but
rather to claim damages in tort or contract.
[24]
The only collateral attack in this
case would be the Appellant’s Argument 3 wherein he seeks to challenge in Tax
Court the validity of the Certificate deemed a judgment of the Federal Court.
The Appellant’s relief sought in Arguments 1 and 2 however standing on their
own merits, do not constitute collateral attacks to the Certificate.
Merit Argument
[25]
The Respondent as I
said takes the position that the Appellant has in fact no chance of success.
The Respondent relies on the case of Shoreline Penthouse of Barrie Ltd. v. Canada,
2007 TCC 609, [2007] G.S.T.C. 147, where V.A. Miller J., relying on the Supreme
Court of Canada’s decision in Hunt v. Carey Canada Inc. [1990] 2 S.C.R.
959 and the Federal Court of Appeal’s decision in Main Rehabilitation
Co. v. Canada, 2004 FCA 403, 2004 DTC 6762 (F.C.A.) reiterated the test for
striking pleadings in paragraph 7 thereof:
7. The test that is applied for striking out pleadings is
whether assuming the facts stated in the pleadings are true, is it “plain and
obvious” that the appeal cannot succeed? … Only if the appeal is certain to
fail should the Notice of Appeal be struck. …
[26]
As the Appellant
pointed out however, the Federal Court of Appeal’s decision in Shubenacadie
Indian Band v. Canada (Minister of Fisheries and Oceans), 2002 FCA 255,
[2002] F.C.J. No. 882 (QL), which also relied on the Hunt case above,
makes it clear that the party seeking to strike must meet a very high onus as
the threshold for chance of success is very low. In paragraph 6 of that
decision, Sexton J.A. expressed the sentiment in the following way:
6. Although the pleading is very broad and encompassed in
general terms, these are not such defects as to permit the Statement of Claim
to be struck out so long as a cause of action, however tenuous, can be gleaned
from a perusal of the Statement of Claim. We agree with the Motions Judge that
a party bringing a motion of this sort has a heavy burden and must show that it
is beyond doubt that the case cannot possibly succeed at trial. Only if there
is no chance of success, or to put it another way, if the action is certain to
fail, can the Statement of Claim be struck out. …
[27]
The Respondent argued
that since the Appellant has not pleaded it was not a director at any time, has
in effect waived the due diligence defence contemplated by subsection 323(3) of
the Act, had not pleaded the two-year time limit defence under
subsection 323(5) of the Act which prevents an assessment being made
against a director more than two years after he ceased being a director and had
admitted the authenticity of the Certificate and Sheriff’s Levy Report being
the two preconditions to assessing the director under paragraph 323(2)(a)
of the Act that the Appellant has no grounds for appeal, assuming of
course that the Court accepts that the Appellant may not go behind the Certificate
and challenge the underlying assessment of the corporation in this case as
argued. The Respondent in effect argued the Appellant’s only substantive
argument was the validity of the Certificate which is beyond the jurisdiction
of this Court.
[28]
I have already
determined that I consider the Appellant’s Arguments 1 and 2 to be within the
Court’s jurisdiction to hear. I do not agree with the Respondent’s position
that the ability of the Appellant to challenge the debtor’s underlying
assessment has been limited to cases where a passive director was involved or
where only the quantum of the assessment is being challenged.
[29]
In support of the
Respondent’s quantum argument it relied on the dictum of V.A. Miller J. in the Shoreline
Penthouse case above who struck out the pleadings for the reasons stated in
paragraph 8 thereof:
8. The Notice of Appeal does not challenge the assessments.
The quantum and calculation of the tax is never questioned. …
[30]
The appellant in that
case relied on equity maxims as the basis for reducing the assessment and V.A.
Miller J., relying on Bowie J.’s decision in Hamilton v. Canada, 2006
TCC 603, [2007] 1 C.T.C 2504, agreed this Court had no jurisdiction in equity
and that the Court’s jurisdiction is limited to applying the provisions of the Act
to the facts of the case and determining the correctness of the assessment. I
do not view the Shoreline Penthouse case as standing for the proposition
that the court’s jurisdiction must somehow be limited to only the quantum and
calculation of the tax in any strict sense, but rather that there must be a
challenge to the assessment in some form and not just a reliance on equity
maxims. In any event, as I said earlier, any argument that may effectively lead
to reducing the Appellant’s assessment to a “zero” balance is in my view a
quantum argument in the simplest sense of the word. As I stated earlier, it
would be ridiculous to suggest one can argue to reduce an assessment but not
invalidate it altogether.
[31]
As for the Respondent’s
suggestion that existing authorities limit the challenge of underlying
assessments by directors to those only dealing with passive directors, I note
that in a recent decision of the Federal Court of Appeal in Abrametz v. Canada,
2009 FCA 70, 2009 G.S.T.C 43 (F.C.A.), the Federal Court of Appeal allowed a
sole director to challenge an underlying assessment. I also note that
counsel for the Respondent admitted the law was not settled on this issue,
which is, in and of itself, reason enough to give the Appellant opportunity to
further its appeal having regard to the low threshold principle for success
earlier enunciated by the Appellate courts in the Hunt and Shubenacadie
cases above referred to, although I am of the view that the right of a director
to challenge an underlying assessment is, in most cases, the prevailing view of
the current law.
[32]
In summary, I do not
agree with the Respondent that the pleadings in the Notice of Appeal, do not
disclose grounds for appeal that do not have any chance of succeeding, other
than Argument 3 found in paragraph 11(c) of the Notice of Appeal requesting the
Certificate be declared a nullity since I agree that any such relief is within
the jurisdiction of the Federal Court and that the doctrine of collateral
attack serves to prevent the Appellant from seeking that remedy in this Court,
although as I said, it is not a remedy the Appellant needs to achieve as a
condition to succeeding in his other grounds for appeal. This Court however has
jurisdiction to entertain the grounds for appeal set out in Arguments 1 and 2
found in paragraphs 11(a) and (b) of the Notice of Appeal on their own merit.
[33]
Accordingly, the motion
is granted in part and in accordance with the power of this Court to strike all
or any part of the pleadings, with or without leave, on grounds of abuse of
process pursuant to Rule 53(c) above set out, only the Appellant’s
grounds for appeal in paragraph 11(c) of the Notice of Appeal is struck,
together with that part of paragraph 16 of the Notice of Appeal found in the
first sentence thereof following the words “S.298(1)” which reads: “and
therefore any Certificate issued pursuant to S. 316 and filed in the
Federal Court of Canada pursuant to S. 323(2)(a) is a nullity, and the
precondition for director’s liability found in S. 323(2)(a) remains
unfulfilled.” Such provisions of course are struck out without prejudice to any
rights the Appellant may have to seek such relief from the Federal Court on
such argument if he so chooses.
[34]
Costs of this motion
shall be in the cause.
Signed at Ottawa, Canada, this 19th day of November
2010.
“F.J. Pizzitelli”
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