Citation: 2009TCC97
Date: 20090219
Dockets: 2008-1601(EI)
2008-1602(CPP)
BETWEEN:
MARK SHEPPARD,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
Rowe, D.J.
[1] The Appellant
Mark Sheppard (“Sheppard”) appealed from two decisions issued by the Minister
of National Revenue (the “Minister”) on April 28, 2008 pursuant to the Employment
Insurance Act (the “Act”) and the Canada Pension Plan (the “Plan”),
wherein the Minister decided the employment of Sheppard with Positive Dyslexia
Ltd. (“PDL”) from September 1, 2006 to January 17, 2007 was not insurable or
pensionable because he was not employed under a contract of service.
[2] The Appellant and
counsel for the Respondent agreed both appeals could be heard together.
[3] The position
taken by the Minister as stated in the Reply to the Notice of Appeal (“Reply”)
is that Sheppard and Susan Hall (“Hall”) and Tyler Norton (“Norton”) were equal
partners in carrying on a business known as Trident Learning Centre (“Trident”)
and that he was not an employee of PDL.
[4] Mark Sheppard
testified he is a resident of Vancouver and has been teaching for 20 years. He has a Master
of Education degree and is certified by the British Columbia College of
Teachers (“BCCT”) to teach in British
Columbia. Sheppard stated he defined
Trident as a school because a learning centre operates outside of usual school
hours and that the correct name for Trident was Trident Learning Community (“TLC”).
The full-time instructors at TLC were himself and Hall at the teaching facility
located in the premises known as Klee Wyck House on Keith Road in West Vancouver
and Norton worked part-time as an outdoor activities instructor. PDL was a
corporation wholly owned by Hall and most of the pay cheques issued to Sheppard
were signed by Hall and drawn on a PDL account at Coast Capital Savings but
Sheppard received one or more payments from another account belonging to The
Whole Dyslexic Society (“TWDS” or “Society”). Only four children attended TLC
and Sheppard was the only teacher certified by BCCT. Sheppard stated Hall
provided him with direction through e‑mail messages – often daily - and
that her office was close to the classroom and she was able to hear the content
of his instruction to the children, all of whom were assigned a rank equivalent
to Grade 4. Sheppard stated TLC had a Principal – Peter Tongue (“Tongue”)
who attended the school and observed Sheppard teaching a class on two separate
occasions and later reported he was satisfied with Sheppard’s methods. Sheppard
was injured in a motorcycle accident on October 1, 2006 but went to work the
following day and although he needed to take pain relievers for some time
thereafter, did not miss a day of teaching during the relevant period.
Initially, TLC was supported by an individual who had made a substantial
financial contribution but that support was withdrawn in January, 2007.
Sheppard stated he was informed by Hall that other supporters of TLC were in a
position to fund the school on an ongoing basis. Sheppard stated he did not
question this information because earlier in his career he had charged out his
services to a wealthy businessman at the rate of $4,000 per month for teaching his
child daily based on one-half day teaching time. Sheppard referred to a letter
– Exhibit A-1 - from Hall dated January 5, 2007 covering a variety of subjects
pertaining to his teaching methods and other related matters affecting the operation
of the school. Sheppard stated he had known Hall for many years and was aware
that although she was not registered with BCCT, she was certified as a Davis
Dyslexia Correction Method Facilitator by an institution based in California.
Over the course of several years, he had discussed with Hall his vision of a
school and she was interested in amalgamating a teaching philosophy known as
the Waldorf Method with the Davis Method. Sheppard obtained his Bachelor of
Education degree at Mount Allison University and moved to Vancouver in
1998 where he began teaching a Grade 2 class and remained with that group until
they went through Grade 7. Sheppard stated the Waldorf Schools are world-wide
with over 1000 independent schools and 1400 kindergartens in 60 countries. The
founder was Rudolf Steiner and the educational philosophy is based on a concept
of interdisciplinary learning that integrates practical, artistic and
conceptual elements which include creative as well as analytical components. A
school – Aspengrove - in Nanaimo, British Columbia,
required a teacher certified in the Waldorf Method and hired Sheppard as a
staff member for the 2005/2006 academic year but the contract was not renewed.
Sheppard stated it was while travelling on the ferry between Horseshoe Bay and Nanaimo that he
encountered Hall and began discussing the concept of the school later known as
TLC. In August, they continued their discussion of the new venture and Sheppard
stated he and Hall intended to be partners but no formal documentation was
prepared subsequently in that regard. Sheppard stated that when discussing the
matter of the new school with Hall, he informed her that he needed an annual
salary of $65,000 and she countered by offering the sum of $60,000 which he
accepted on the understanding his salary would increase to the original amount
requested, either in the form of money or by receiving certain benefits once
the operation of the new school was taken over by TWDS, a non-profit society.
The concept envisaged by Sheppard and Hall was that students would return to
classes within the regular system in accordance with the provincial curriculum.
He was aware that different standards and rules apply once there are more than
10 students in an entity like TLC. Sheppard stated he had not contemplated any
method of receiving remuneration other than in the form of a monthly salary.
Sheppard stated that in his experience as a teacher, it is extremely important
to be hired by Easter in a particular academic year as otherwise it is
difficult to find a teaching position that commences in September. With respect
to his monthly pay cheques in the sum of $5,000 Sheppard stated he was aware
none of the usual source deductions had been made but did not inquire about
that omission and merely cashed the cheques for 3 months. He considered the pay
arrangement was an interim measure until TWDS – through its financially secure
members - assumed responsibility for the ongoing operation of TLC. His December
cheque was late but as of January 10, 2007, he still assumed TWDS would pay him
in full. Sheppard received a letter – Exhibit A-4 – dated January 24, 2007,
signed by a Director of TWDS on behalf of the Board of Directors (“Board”) of
the Society in which he was informed that although TLC had opened in September,
2006, the Board at that time “made it clear that it did not want to operate TLC
within the [T]WDS. Consequently, Positive Dyslexia Ltd. took on the operations
of the TLC, not the [T]WDS. The Board that is currently in place was elected
with a view to ultimately transferring the operations of the TLC to the [T]WDS.
Unfortunately, funding for TLC was abruptly ended before the new Board could
consider or vote on the assumption of the project.” The letter continued as
follows, “As of today’s date, the Board has not approved any such transfer and,
therefore, assumes no responsibility or obligation for the operations of the
TLC, which remains under the operation of Positive Dyslexia Ltd. and we
respectfully suggest that you contact Sue Hall.” Sheppard received a letter – Exhibit
A-5 – from Hall on the letterhead of PDL - dated January 31, 2007 - in which
she advised that two families had withdrawn their children from TLC and Norton
had resigned from the faculty on January 15, 2007. Hall stated therein that the
last day of operation of TLC was January 17, 2007 and enclosed a cheque – in
the sum of $1,250 – drawn on the PDL account and added that TWDS – probably -
would send Sheppard a cheque in the sum of $2,500 to pay the balance of his
outstanding salary. Hall also advised Sheppard that PDL would recommence its
previous business operation by providing Davis Dyslexia Correction programs and
expressed regret concerning the demise of TLC. Sheppard stated he later
received payment in full for his services as a consequence of obtaining a
favourable decision from the British Columbia Employment Standards Branch based
on his status as an employee. Sheppard stated he had provided Hall with a
letter of reference prior to starting his teaching position and that no steps
were undertaken by himself, Hall and Norton to pursue the initial suggestion
that they form a partnership for the purpose of operating TLC. As requested by
Hall, Sheppard submitted invoices to PDL – through Hall - in the sum of $5,000
per month. Norton worked one day a week for three weeks and then one complete
week during which the education was undertaken outdoors and included activities
such as sailing. The schedules of instruction were prepared by Hall and are
included in the bundle of documents filed by the Appellant as Exhibit A-6. Some
of the students at TLC had never been enrolled in a school within the
provincial educational system. Sheppard stated it was not practical for him to
have worked elsewhere when he was teaching at TLC because he taught classes
every day and did preparation at night. He also performed other duties such as
renting a dinghy from a sailing academy for use by Norton and the students.
Sheppard referred to an exchange of e-mails – Exhibit A-7 - between himself and
Hall which he characterized as complaints by certain parents about his methods
and alleged lack of communication skills. He pointed to a line on page 2 –
towards the bottom – in which Hall stated her summary of the sentiment
expressed by her at the meeting with parents where she stated “None of the
mistakes were severe enough to warrant instant dismissal.”
[5] Sheppard was
cross-examined by counsel for the Respondent. Counsel – with the consent of the
Appellant – filed as Exhibit R-1, a binder containing documents at tabs 1 to
35, inclusive. Sheppard acknowledged he had written an e-mail – tab 1 – on May
19, 2006, to Hall in which he expressed his excitement about the possibilities
of the forthcoming academic year in the context of the idea they had discussed
for a new school. In another e-mail – tab 2 - dated May 28, 2006 – Sheppard
made a reference to working “together into the future” with Hall. On October 7,
2006, Sheppard sent a lengthy e-mail – tab 5 – to Hall in which he discussed
various matters including Hall’s lack of experience in dealing with more than
one student at a time and issues pertaining to student behaviour, scheduling of
meetings and curriculum requirements. Sheppard stated he was fulfilling the
role of a teacher but Hall was the sole administrator. He admitted that at the
outset he was not certain as to the nature of the relationship between Hall and
her corporation – PDL - and himself, but considered it had developed into one
of employer-employee as of the commencement of the academic year in September.
Hall had operated PDL for years as an entity for the purpose of providing
training for students affected by dyslexia. Sheppard stated that when he wrote
an article – tab 3 – about TLC and the three-fold nature of the institution
which incorporated the Davis Method, the Waldorf Method and an Outdoor
Education Program, he was doing so in his role as a teacher and any reference
to “we” – page 2, second paragraph – was not intended to denote any ownership
on his part but to make the point that he and others involved in TLC had a
particular purpose in providing a different type of education to its students.
Sheppard stated Hall was the expert in the Davis Method and that he was willing
to accept instruction from her in that respect even though he had 20 years
teaching experience in other fields. He taught Hall’s son at the Vancouver Waldorf School and considered Hall had hired him because he could
adapt that educational philosophy to accommodate the Davis Method. Counsel
referred Sheppard to his reply – at the top of the page – to an e-mail – tab 22
– sent to him on January 14, 2007 by Hall - and suggested his response was
inconsistent with someone accepting direction. Sheppard pointed out that the
handwriting appearing on the e-mail copy was his own and had been placed there
when corresponding with the CRA Rulings Officer. Sheppard stated he did not
consider Tongue - who had a background in traditional education - had followed
proper observational techniques when visiting Sheppard’s classroom compared
with those utilized at the Vancouver Waldorf School where he had undergone independent evaluations.
Sheppard stated he attempted to teach mainly in accordance with the Waldorf
Method during his tenure at TLC. An exchange of a series of e-mails – tab 7
- between November 3 and November 5, 2006 (to be read in reverse order from the
back of the tab) pertain to the need for Sheppard to write his own job
description and include his comments about the inability to meet the provincial
curriculum requirements as well as regarding other topics. In the course of
another exchange of e-mails – tab 17 – with Hall on January 5, 2007, Sheppard –
fourth paragraph of the e-mail on page 1 - referred therein to the financial
problems encountered by TLC and to the reason for the agreement that he “would
be the only actual, full-time TLC employee is that it was recognized that it
would be nearly impossible for me to take on outside work unless we drastically
reorganized our schedule somehow.” Sheppard was referred to an e-mail – tab 12
– sent to Hall in which he discussed his remuneration when teaching at
Aspengrove and the amount he could be paid working in the public educational
system and his agreement to teach for less money at TLC. Sheppard stated he was
aware Hall could earn as much as $3,000 per week – through PDL – from teaching
and thought she might be in a position to forego withdrawing money from TLC
until proper funding could be secured from a wealthy patron and other parents.
Although there were 3 students in September and 4 students in October, Sheppard
had not been concerned about the viability of TLC because he understood the
premises at Klee Wyck House had been leased – for at least one year - by the
parent of a student and believed the school could occupy the main house on the
grounds without paying any rent. From his perspective, Sheppard considered his
role was that of a qualified teacher responsible for the educational core of
the fledgling entity. He acknowledged that some parents expressed concern about
his teaching methods and although he had less than complete recall of certain
portions of the period following his motorcycle accident in October, 2006, he was
aware one parent had a problem with some aspect of his behaviour. He stated
that Tongue – TLC Principal - supported him by stating at a meeting of the
parents of the 4 students that Sheppard was a qualified, experienced teacher.
Sheppard stated he had not been aware of any discontent on the part of any
parent until December 17, but had undergone a knee operation and was
suffering ongoing discomfort attributable to his neck injury. He conceded that
a combination of disabilities may have affected his classroom behaviour to some
extent. In an e-mail to Hall – tab 13 – dated December 18, 2006 – Sheppard
expressed his disagreement regarding her plan to meet with the parents of 3 of
the 4 students and suggested she should consult Tongue before proceeding.
Sheppard stated he was accustomed to the Waldorf procedures in which a teacher
would not be excluded from attending a meeting with parents and school
administration. Sheppard agreed he was well aware that he would not be
receiving the usual employment benefits associated with a teaching position and
accepted the requirement to submit an invoice to PDL prior to receiving his
monthly payment. He prepared the invoices – tab 25 – and at some point early in
2007 received a cheque from an account in the name of TWDS which caused him to
believe it had assumed responsibility for TLC operations. Sheppard stated he
was upset about the loss of his teaching position at TLC and made
representations to TWDS in which he stated that he had been employed under
contract and should not be subject to dismissal. In furtherance of this
position, Sheppard attended at the classroom in Klee Wyck House to demonstrate that
he was ready, willing and able to provide his teaching services according to
his contract. Sheppard stated he realized he had not had any dealings with TWDS
and that all negotiations and arrangements had been entered into with Hall and
PDL, her corporation. Sheppard stated his only entrepreneurial experience arose
from providing private teaching or tutoring services in his birthplace –
Bermuda - prior to moving to Vancouver. While teaching at Aspengrove, deductions were taken
from Sheppard’s pay but not from his first cheque and it was this delay in that
process which led him to believe the payroll would be regularized once TWDS
took over the operation of TLC. In the interim, he was satisfied with the
method in place whereby he received payment from PDL. Sheppard admitted he was
not a person versed in business nor was he concerned with money matters and
perceived himself as belonging to a world more attuned to cultural pursuits.
[6] The Appellant
closed his case.
[7] Susan Hall was
examined in direct by counsel for the Respondent. Hall testified she resides in
North Vancouver and immigrated to Canada from England in 1999 after receiving certification from Davis
Dyslexia Association International as a Davis Facilitator. She is self-employed
and works with dyslexic children and adults. She met Sheppard when her son
attended the Vancouver Waldorf School and understood he was taking training in the Davis
Method and that two of his own children had received benefit of that program.
On the ferry to Nanaimo, she met Sheppard and his son and began talking with
Sheppard about starting a new school in order to meet the needs of a parent who
had approached her to discuss an educational concern. This parent disagreed
with some advice that she should home‑school her child and discussed the
matter with her husband who was prepared to provide funding to obtain alternate
instruction for their child. Hall stated she wanted to combine the Waldorf and
Davis programs and to add an outdoor education component that would be taught
by Norton. On August 6, 2006, she met with Sheppard, Norton and Tongue to
discuss the concept of the new school. Tongue declined to participate in the
venture as a founding member so Hall and Sheppard and Norton opened TLC in
September. Hall was confident in Sheppard’s ability to apply methods of Waldorf
instruction and it was clear to her they would be operating the school as equal
partners since she was a single mother and not in a financial position to be an
employer. The main house on the Klee Wyck property was available because she
had rented it earlier from the municipality of West Vancouver in the course of carrying on her
business through PDL. The rental was month-to-month and West Vancouver
invoiced TWDS at an hourly rate of $15 for use of the premises on the basis the
school was in session 4 days a week during 3 weeks a month with the last
week being reserved for outdoor training. Hall stated she was aware Sheppard
required the sum of $60,000 per year and she needed an equivalent amount to
meet her own financial demands. She was able to earn money during the fourth
week of each month when the TLC students were participating in the outdoor
component of their education. Hall stated she discussed with Sheppard the
ramifications of being self-employed because she understood he had been an
employee throughout his career as a teacher. Norton billed his services at $200
per day and directed his invoices to PDL of which she was the sole shareholder
and Director. In turn, PDL submitted invoices – tab 27 - to TLC even though
Hall knew it was not a legal entity and inserted a note at the bottom of each
invoice requesting that payment – by cheque – should be payable to Sue Hall.
Hall stated she envisaged Sheppard’s role as a teacher who would be willing to
assist Norton in carrying out the outdoor activity portion of the program.
Meetings between herself, Sheppard and Norton were held on Monday afternoons
and according to her understanding of their agreement, all three were partners
and Tongue – who had declined to participate on that basis – provided his
services – as Principal – as an independent consultant. There was no
documentation prepared to formalize any agreements. The monthly tuition for
each student was $900 and Hall anticipated any shortfall would be covered by
donations received from a wealthy patron and two other supporters and that
additional students would come “flooding in” once the existence of TLC became
known to parents of children with specific learning disabilities. There was no
advertising or marketing program undertaken and even though she and Sheppard
and Norton had discussed the possibility of opening other similar schools, they
were content to rely on word-of-mouth advertising to attract other students.
Hall understood she was to be responsible for the portion of the education
program composed of instruction in the Davis Method. She thought Sheppard would
draw upon the TLC experiment in the course of writing his doctoral thesis. Hall
identified the letter – tab 3 – prepared by Sheppard for insertion in the Vancouver
Waldorf School bulletin and since she was not qualified to teach in British Columbia,
accepted that he had complete control over teaching methods. When referred by
counsel to her e-mail – tab 22 – to Sheppard, Hall characterized it as a
suggestion concerning certain teaching methods rather than as constituting
direction. Hall stated her initial understanding was that she and Norton and
Sheppard would be partners in the new enterprise but her corporation – PDL –
had an existing bank account and she utilized it to pay for the establishment
of TLC and its subsequent operations. Tongue had a long, distinguished career
as a Principal of a division within St. Michael’s University School in Victoria and
agreed to attend at TLC once a month to carry out his function as Principal,
although it was not intended that he have any authority over Sheppard. Tongue
sent an invoice – tab 27 – dated September 19, 2006 - to PDL in the sum of $550
including travelling expenses of $150. The school operated from 9:15 a.m. to
3:00 p.m. but Hall and Sheppard worked longer hours and Sheppard did not
agree to start earlier because he had to take his children to their own school.
Hall described the method used at TLC which was for Sheppard to structure his
own curriculum while she used her own methods to instruct students during the
afternoon class. Hall stated she hoped TWDS would take over operation of the
school since it was a non-profit society - with status as a charity - that she
had formed and continued to be a member of the Board during the TLC experiment.
In her view, TLC was part of the four-fold objective of the Society which had
about $10,000 in an account. Hall stated she expected to receive a further sum
of $15,000 from a parent and anticipated the funds required to operate on an
ongoing basis would be forthcoming from other parents or sources including
charitable donations. Unfortunately, the majority of the Board voted against
TWDS taking on the TLC school as a project and left TLC in the position where –
with only 4 students – it had monthly revenue of $3,600 and the monthly rent
for the premises was $1,600. Hall had estimated that TLC could attract 16
students which – at $900 tuition each – would have produced sufficient revenue
to cover all operational costs including remuneration for her, Norton and
Sheppard. Supplies for teaching his own class were provided by Sheppard whose
style had been characterized as “larger-than-life”, “dramatic”, “engaging” by
parents whose children had been taught by him at the Vancouver
Waldorf School. Hall met with 3 sets of parents on December 18, 2006
and Sheppard met with them on an individual basis the following day after which
it was time for the Christmas break. On December 31, Hall and Norton and
Sheppard met and decided to hold another meeting on January 5, 2007. Another
meeting with the parents was held on January 3, 2007 and the minutes – tab 18 –
were prepared by one of them and Sheppard and Hall’s son also attended. It
became apparent Norton did not want to work with Sheppard and suggested his
behaviour and style were not compatible with the outdoor training segment and
wanted Hall to fire him. Hall stated her response was to advise Norton that she
was not his employer but agreed she had written the comment – tab 23 - second
page of the e-mail – that although Sheppard had made some mistakes they were
not sufficiently severe to “warrant instant dismissal.” Hall stated she left
before the meeting ended and it had been made clear to her that no more money
would be forthcoming from one of the parents – Kelly Taylor – and her husband,
whom Hall had expected to be major providers of ongoing operational funding.
The money disbursed from the PDL account had been derived from tuition fees and
donations. Hall stated she did not withdraw the sum of $9,500 required to
reimburse her for her services and Tongue was owed some money for his services
but Norton had been paid in full. She was aware Sheppard needed to be paid the
sum of $5,000 per month and was aware he was paid in full – later - even though
it was necessary for TWDS to issue cheques on its account to herself, Norton
and Sheppard. Hall stated she understood TWDS intended to issue one cheque to
PDL and it would have issued separate cheques to herself, Norton and Sheppard.
Hall acknowledged Sheppard was not involved with any financial matters arising
from the operation of TLC and was concerned with receiving his monthly payment
of $5,000.
[8] Hall was
cross-examined by the Appellant. Hall stated Norton submitted invoices under
the name of TN Research – example found in tab 27 – for providing his services
at the rate of $200 per day. In the invoice, the customer was identified as Trinity Learning Center and a request was contained at the foot thereof that
payment be made in the form of a cheque payable to TN Research. Hall stated she
was content with the merger of the Waldorf curriculum with the Davis Method.
Hall considered that she and Sheppard and Hall had commenced the venture as
business partners but assuming TWDS would have assumed responsibility for the
ongoing operation of TLC, Sheppard could have provided his services either as an
employee or as an independent contractor. Hall stated the role of Tongue – as
Principal – was to act as an intermediary so parents could communicate their
concerns. Hall recalled Sheppard complained to her that he did not want Tongue
to attend his class to observe teaching methods unless the procedure was in
accordance with the Waldorf Method. The first complaint from a parent was received
in October, 2006 and Tongue attended at Sheppard’s class thereafter and
informed the parents subsequently that Sheppard had a Master’s degree in
Education and was well-qualified to teach. Hall was referred to a bundle of
three documents – Exhibit A-6 – titled in sequence, Daily Timetable, Timetable
2006‑2007 and TLC Daily Schedule. Hall identified them as schedules and
timetables prepared by her following consultation with Sheppard and Norton.
[9] Counsel for the Respondent
did re-examine Hall and did not adduce any additional evidence.
[10] The Appellant
submitted that he was first and foremost an educator without any experience in
business and had agreed to participate in a venture with Hall and Norton for
the purpose of creating a new school that would be more than a school in the
traditional sense. In his view, there were no acts taken to formalize the
relationship into any structure other than as administered by Hall through her
wholly-owned corporation – PDL - and that he was treated throughout the
relevant period as an employee even though no source deductions were taken from
his monthly salary.
[11] Counsel for the Respondent
submitted there was evidence of intent that Sheppard, Hall and Norton were to
proceed as business partners with the intent the school would prosper and other
similar centres could be opened to accommodate demand as parents with children
affected by dyslexia or those seeking alternate education in accordance with
the Waldorf philosophy became aware of their service. In counsel’s view of the
evidence, it was apparent Sheppard had a substantial risk of loss by choosing
to provide his services to a fledgling, experimental school rather than seeking
employment within the public system or at an established private school. The content
of e-mails sent by Hall to Sheppard concerning his teaching methods were
characterized as advice to a business colleague rather than direction from an
employer to an employee. Counsel submitted that in the event the Court was
reluctant to conclude Sheppard was a member of a business partnership, the
evidence disclosed he was not an employee of PDL but had provided his services
as an independent contractor. Counsel pointed out that Sheppard sent a monthly
invoice to PDL and submitted it was merely because PDL had an existing bank
account that it was convenient for Hall to utilize it for purposes of
administering the finances of TLC.
[12] The first issue
that must be dealt with is the matter of the alleged partnership because if
Sheppard was providing his services within that business structure, he cannot
have been an employee engaged in insurable or pensionable employment with PDL
even if PDL was technically a member of the partnership instead of Hall in her
personal capacity.
[13] Sections 2 and 4
of the British Columbia Partnership Act, R.S.B.C. 1996, c. 348, provide:
2 Partnership
is the relation which subsists between persons carrying on business in common
with a view of profit.
…
4 In
determining whether a partnership does or does not exist, regard must be had to
the following rules:
(a) joint
tenancy, tenancy in common, joint property, common property or part ownership
does not of itself create a partnership as to any property that is so held or
owned, whether the tenants or owners do or do not share any profits made by the
use of the property;
(b) the
sharing of gross returns does not of itself create a partnership, whether the
persons sharing the returns have or have not a joint or common right or
interest in property from which or from the use of which the returns are
derived;
(c) the
receipt by a person of a share of the profits of a business is proof in the
absence of evidence to the contrary that he or she is a partner in the
business, but the receipt of a share, or of a payment contingent on or varying
with the profits of a business, does not of itself make him or her a partner in
the business, and in particular
(i) the
receipt by a person of a debt or other liquidated amount by installments or
otherwise out of the accruing profits of a business does not of itself make him
or her a partner in the business or liable as a partner,
(ii) a
contract for the remuneration of an employee or agent of a person engaged in a
business by a share of the profits of the business does not of itself make the
employee or agent a partner in the business or liable as a partner,
(iii) the
spouse or child of a deceased partner who receives by way of annuity a portion
of the profits made in the business in which the deceased person was a partner
is not merely because of the receipt a partner in the business or liable as a
partner,
(iv) the
advance of money by way of loan to a person engaged or about to engage in a
business, on a contract between that person and the lender under which the
lender is to receive a rate of interest varying with the profits or is to
receive a share of the profits arising from carrying on the business, does not
of itself make the lender a partner with the person carrying on the business or
liable as a partner, as long as the contract is in writing and signed by or on
behalf of all the parties to it, and
(v) a person
receiving by way of annuity or otherwise a portion of the profits of a business
in consideration of the sale by him or her of the goodwill of the business is
not, merely because of the receipt, a partner in the business or liable as a
partner.
[14] In the decisions Continental
Bank Leasing Corp. v. Canada, [1998] 2 S.C.R. 298, Backman v. Canada,
[2001] 1 S.C.R. 367 and Spire Freezers Ltd. v. Canada, [2001] 1 S.C.R.
391, the Supreme Court of Canada outlined the proper approach for determining
the existence of a partnership in the context of income tax appeals. In Backman,
supra, at paragraph 17, Iacobucci and Bastarache JJ. determined that a
partnership exists if it satisfies the essential elements of a partnership
provided under the relevant provincial law.
[15] Section 2 of the British Columbia
Partnership Act, supra, defines partnership as “the relation which
subsists between persons carrying on business in common with a view of profit”.
Accordingly, the Supreme Court’s decisions in Continental Bank, supra,
at paragraph 22, Backman, supra, and Spire Freezers, supra,
confirmed that the three essential elements of a partnership are: (1) a
business, (2) carried on in common, (3) with a view to profit.
[16] In paragraphs 25
and 26 of Backman, supra, Iacobucci and Bastarache JJ. outlined
the inquiry that must be made by the courts when determining the existence of a
partnership:
25 As
adopted in Continental Bank, supra, at para. 23, and stated in Lindley &
Banks on Partnership, supra, at p. 73: “in determining the existence of a
partnership … regard must be paid to the true contract and intention of the
parties as appearing from the whole facts of the case”. In other words, to ascertain
the existence of a partnership the courts must inquire into whether the
objective, documentary evidence and the surrounding facts, including what the
parties actually did, are consistent with a subjective intention to carry on
business in common with a view to profit.
26 Courts
must be pragmatic in their approach to the three essential ingredients of
partnership. Whether a partnership has been established in a particular case
will depend on an analysis and weighing of the relevant factors in the context
of all the surrounding circumstances. That the alleged partnership must be
considered in the totality of the circumstances prevents the mechanical
application of a checklist or a test with more precisely defined parameters.
[17] The British Columbia
Partnership Act, supra, at section 6, defines “business” as including
every trade, occupation and profession.
[18] In Backman,
supra, the Supreme Court of Canada explained what is required to fulfill
the “business” requirement in paragraph 20:
20 The
existence of a valid partnership does not depend on the creation of a new
business because it is sufficient that an existing business was
continued. Partnerships may be formed where two parties agree to carry on
the existing business of one of them. It is not necessary to show that the
partners carried on a business for a long period of time. A partnership may be
formed for a single transaction. As was noted by this Court in Continental
Bank, supra, at para. 48, “[a]s long as the parties do not create what amounts
to an empty shell that does not in fact carry on business, the fact that the
partnership was created for a single transaction is of no consequence.”
Furthermore, to establish the carrying on of a business, it is not necessary to
show that the parties held meetings, entered into new transactions, or made
decisions: Continental Bank, supra, at paras. 31-33. A business may be
established even in circumstances where the sole business activity is the
passive receipt of rent, … [Emphasis added.]
[19] With respect to
the requirement that the business be carried on “in common”, the Court in Backman,
supra, explained as follows:
21 In
determining whether a business is carried on “in common”, it should be kept in
mind that partnerships arise out of contract. The common purpose required for
establishing a partnership will usually exist where the parties entered into a
valid partnership agreement setting out their respective rights and obligations
as partners. As was noted in Continental Bank, supra, at paras. 34-35, a
recognition of the authority of any partner to bind the partnership is
relevant, but the fact that the management of a partnership rests with a single
partner does not mandate the conclusion that the business was not carried on in
common. This is confirmed in Lindley & Banks on Partnership (17th ed.
1995), at p. 9, where it is pointed out that one or more parties may in fact
run the business on behalf of themselves and the others without jeopardizing
the legal status of the arrangement. It may be relevant if the parties held
themselves out to third parties as partners, but it is also relevant if the
parties did not hold themselves out to third parties as being partners. Other
evidence consistent with an intention to carry on business in common includes:
the contribution of skill, knowledge or assets to a common undertaking, a joint
property interest in the subject matter of the adventure, the sharing of
profits and losses, the filing of income tax returns as a partnership,
financial statements and joint bank accounts, as well as correspondence with
third parties: see Continental Bank, supra, at paras. 24 and 36.
[20] With respect to
the “view to profit” requirement, the Court in Backman, supra, held it
is necessary to inquire into the intentions of the parties involved:
22 A
determination of whether there exists a “view to profit” requires an inquiry
into the intentions of the parties entering into an alleged partnership. At the
outset, it is important to distinguish between motivation and intention. Motivation
is that which stimulates a person to act, while intention is a person’s
objective or purpose in acting. This court has repeatedly held that a tax
motivation does not derogate from the validity of transactions for tax purposes
[…]. Similarly, a tax motivation will not derogate from the validity of a
partnership where the essential ingredients of a partnership are otherwise
present […]. The question at this stage is whether the taxpayer can
establish an intention to make a profit, whether or not he was motivated by tax
considerations. [Emphasis added.]
[21] In addition, the
Court held that it is sufficient for a taxpayer to demonstrate that there was
an “ancillary profit-making purpose”:
24 An
ancillary purpose is by definition a lesser or subordinate purpose. In
determining whether there is a view to profit courts should not adopt or employ
a purely quantitative analysis. The amount of the expected profit is only one
of several factors to consider. The law of partnership does not require a net gain
over a determined period in order to establish that an activity is with a view
to profit. For example, a partnership may incur initial losses during the
start up phase of its enterprise. That does not mean that the relationship is
not one of partnership, so long as the enterprise is carried on with a view to
profit in the future. Therefore, where a partnership is formed with the
predominant motive of acquiring a tax loss, it is not necessary to show an
intention to profit by the amount necessary to recoup the acquired losses or
produce a net gain. [Emphasis added.]
[22] There was no
reliable independent evidence that revealed any intention on the part of Hall,
Sheppard and Norton to act as partners during the relevant period. Except for
Hall’s testimony, the evidence does not support a finding that Norton acted as
though he was a member of a legal partnership as opposed to a willing
participant in a venture. He provided his services on a part-time basis and –
using the name TN Research - invoiced PDL at the rate of $200 per day and
received payment from PDL. Having regard to the entire facts, it is apparent
Sheppard intended his participation to be that of a colleague in a new
education experiment that could combine his qualifications as a teacher versed
in the Waldorf Method with those of Hall who held certification in the Davis
techniques. The evidence is clear that he did not turn his mind towards the
formation of a legal partnership as he was adamant that he receive an annual
salary of $60,000 per year initially, with the understanding that - either in
the form of cash or through receiving certain benefits - he would receive an
additional $5,000 during the following year. Sheppard did not deal with any
aspect of the finances but was aware there were only 4 students in the school
as of October, 2006 and that the combined amount of their tuition was only
$3,600 per month. Hall considered that Sheppard could be transformed into
either an employee or an independent contractor once TWDS assumed operation of TLC
but the only person playing any role in the administration of finances and
payment of expenses – including rent for Klee Wyck House and the invoices of
both Sheppard and Norton - was Hall through PDL, her wholly-owned corporation.
There is no evidence that Hall, Sheppard and Norton held themselves out as
partners in the legal sense and there was no documentation in the form of a
valid partnership agreement nor was there any oral evidence consistent with
their intention to function as a business partnership. In the meetings with
parents, there is no indication Hall ever disclosed that Sheppard was a
business partner. Instead, there was a discussion about acceding to the demands
of the parents that he be discharged as a consequence of certain classroom
behaviour. Hall did not agree the conduct complained of was sufficient to
warrant “instant dismissal.” The thrust of the e-mails exchanged between Hall
and Sheppard and Hall and others during the relevant period is not consistent
with the behaviour of partners in a business enterprise, although there were
some attempts on the part of both Norton and Hall to do so ex post facto
through letters or e-mails. There is no evidence of any intent expressed by
either Sheppard or Norton nor of any actions consistent with any such intent
that their services would be remunerated by receiving a share of the profits of
TLC which existed in name only to describe the educational experiment and was
not a legal entity.
[23] A review of the
evidence discloses there was no opportunity for profit for the venture as
structured nor was there any business plan in place that could lead to a profit
in the future. The intent of Hall was to negotiate a takeover of TLC by TWDS, a
non-profit society she had founded and continued as a member of its Board. Once
absorbed into Society with its charitable status, the opportunity for profit
would not exist per se although TWDS could hire Hall, Sheppard and
Norton to provide services, either as employees – in the case of Sheppard - or
could pay Hall and Norton for their services through PDL and TN Research,
respectively. There were no adequate funds on hand in the TWDS account to fund
any ongoing operation of TLC and the wishes and hopes that the experiment would
be saved by a white knight with bags of money was completely unrealistic as
demonstrated by the withdrawal of interim funding by one or more of the parents
of the only four students enrolled at the school.
[24] The discussions
between Hall and Sheppard during the ferry voyage and subsequent meetings
between themselves and with Norton demonstrates that – at best – there was a
consensus they would work towards another arrangement that would enable them to
pursue a common goal of providing parents with an educational alternative for
their children. Their subsequent conduct between September 1, 2006 and January 17,
2007 did not manifest any intention to transform their relationship from the
sharing of education philosophies into one having legal consequences that would
flow from a valid business partnership. As of February 2, 2007 – Hall prepared
a letter – tab 28 – which announced that as of January 31, 2007, PDL ceased
trading. In a letter - dated January 31, 2007 – tab 24 – Hall wrote to Sheppard
and stated in the second sentence of the first paragraph:
… You and I
and Tyler Norton (the Faculty) jumped into the unknown as partners in name (no
money having been part of the agreement) and I agreed to run TLC under my
existing business of Positive Dyslexia Ltd. until such time as The Whole
Dyslexic Society was able to take over the operation of TLC.
[25] In my assessment
of the evidence, that statement is an accurate depiction of the events that
transpired because the unknown remained unknown and Hall continued to carry on
the business of PDL which – as of September 1, 2006 –also included TLC.
[26] The testimony of
Sheppard reveals his understanding of the arrangement with Hall and Norton to
have been consistent with two of the definitions of partner, found in The
Canadian Oxford Paperback Dictionary, Oxford University Press Canada 2000:
partner: 1a
a person, organization, country, etc. who shares or takes part with another or
others in some activity (Canada’s trading partners). b a
person who is associated with another or others in the carrying on of a
business with shared risks and profits. 2 a colleague or associate.
[27] It is clear
Sheppard did not see himself as other than a qualified teacher providing his
services in return for a monthly payment and did not intend to be involved as a
partner in a business with shared risks and profits.
[28] I conclude there
was no partnership in existence with respect to TLC during the relevant period
and that the Appellant, Hall and Norton did not establish themselves as
partners – equal or otherwise - in TLC, as assumed by the Minister and stated
in the Reply.
[29] Notwithstanding
this finding, that is not the end of the matter. In the case of Canada v.
Schnurer Estate (C.A.), [1997] 2 F.C. 545 also at Schnurer v. Canada
(Minister of National Revenue – M.N.R.), [1997] F.C.J. No. 121 Court file:
A‑315-96, the Federal Court of Appeal considered the duty of a Tax Court
judge when hearing an appeal from a determination to section 70 of the Unemployment
Insurance Act, the predecessor to section 103 of the Act. Chief
Justice Isaac – writing for the Court – stated at paragraph 16:
…
In my
respectful opinion, the Deputy
Tax Court Judge erred in law in concluding that the applicant could not rely
upon both paragraphs 3(1)(a) and 3(2)(c) in responding to the appeal from the
Minister's determination. The authorities in this Court clearly establish that
in a section 70 appeal, the Tax Court must focus on the validity of the
Minister's determination, and not on the validity of the Minister's specific
reasons, or the subsections of the Unemployment Insurance Act relied upon, for
that determination. As stated by Desjardins J.A. in Barrette v. Canada
(Minister of National Revenue--M.N.R.), "What is important is the
conclusion arrived at by the Minister, not the sections of the Act on which he
relied. Similarly, in Canada (Attorney General) v. Doucet, Marceau J.A. stated
the following:
It is the
Minister's determination which was at issue before the judge, and that
determination was strictly that the employment was not insurable. The judge had
the power and duty to consider any point of fact or law that had to be decided
in order for him to rule on the validity of that determination. This is assumed
by s. 70(2) of the Act . . . and s. 71(1) of the Act . . . so provides immediately
afterwards, and this is also the effect of the rules of judicial review and
appeal, which require that the gist of a judgment, which is all that is
directly at issue, should not be confused with the reasons given in support of
it.
[30] Although it was
not contemplated by the Minister in issuing the decision nor is it addressed
directly in the Reply, there are certain assumptions stated therein that are
relevant to the issue of whether Sheppard provided his services to PDL as an
employee or as an independent contractor. Those assumptions are as follows:
11. …
f)
the Payor did not exercise control over the services provided by the
Appellant;
g)
the Appellant determined which hours he would work;
h)
the Appellant negotiated his remuneration package with the Payor;
i)
the Appellant invoiced the Payor for his services;
j)
the Payor did not deduct withholdings from the Appellant’s pay;
k)
the Appellant was free to work elsewhere teaching during the Period;
l)
the Appellant did not receive training from the Payor;
m)
the Appellant was not supervised; and
n)
the Appellant decided curriculum, content, hours and disciplinary
methods used and had the final say on students.
[31] In several recent
cases including Wolf v. The Queen, 2002 DTC 6853, The Royal Winnipeg
Ballet v. The Minister of National Revenue – M.N.R., 2006 DTC 6323 (“Royal Winnipeg Ballet”), Vida
Wellness Corp. (c.o.b. Vida Wellness Spa) v. Canada (Minister
of National Revenue - M.N.R.),
[2006] T.C.J. No. 570 and City Water International Inc. v. Canada (Minister
of National Revenue – M.N.R.), [2006] F.C.J. No. 1653, there was no issue
in this regard due to the clearly‑expressed mutual intent of the parties
that the person providing the services would be doing so as an independent
contractor and not as an employee. That is not the case in the within appeals
as Sheppard and Hall did not address this issue except that Hall contemplated
the possibility Sheppard could provide his services as either an employee or as
an independent contractor once TWDS had taken control of the operation of TLC.
[32] The Supreme Court
of Canada in 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., [2001]
2 S.C.R. 983 – (“Sagaz”) dealt with a case of vicarious liability and in
the course of examining a variety of relevant issues, the Court was also
required to consider what constitutes an independent contractor. The judgment
of the Court was delivered by Major, J. who reviewed the development of the
jurisprudence in the context of the significance of the difference between an
employee and an independent contractor as it affected the issue of vicarious
liability. After referring to the reasons of MacGuigan, J.A. in Wiebe Door
Services Ltd. v. Canada (Minister of National Revenue - M.N.R.), [1986] 2
C.T.C. 200 and the reference therein to the organization test of Lord Denning -
and to the synthesis of Cooke, J. in Market Investigations Ltd. v. Minister
of Social Security, [1968] 3 All E.R. 732 - Major, J. at paragraphs 47
and 48 of his judgment stated:
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.
[33] I will examine
the facts in the within appeals in relation to the indicia set forth in the
judgment of Major, J. in Sagaz.
Level of control
[34] Sheppard was a
qualified teacher with 20 years experience including his tenure at the Vancouver
Waldorf School and Hall did not have the qualifications to be
certified by the BCCT but was certified as a facilitator in the Davis Method by
the relevant organization. It is apparent from all the evidence – including the
e‑mails – that Hall functioned as the Administrator of TLC and in that
capacity was not reticent about stating her opinion pertaining to certain of
Sheppard’s teaching methods. She arranged for Tongue – the consultant providing
his services as Principal of TLC – to observe Sheppard in the classroom. The
statement by Hall that Tongue was to serve only as a go-between between the
three-person Faculty and the four sets of parents does not strike me as
reasonable. Hall’s demeanour at the meeting with the parents on January 14,
2007 as disclosed by her e-mail – tab 23 – is not consistent with a partner
discussing the conduct of another partner but smacks of a superior considering
complaints about the conduct of a subordinate and then weighing them to
determine whether that person should be dismissed. From the perspective of
Sheppard, once he started teaching at TLC in September and thereafter, he
believed he was subject to the control of Hall who issued him pay cheques each
month drawn on the PDL account.
Provision of equipment
and/or helpers
[35] Sheppard used his
own supplies in the classroom but neither the extent nor the cost was referred
to in evidence. Since he had been a teacher for many years utilizing the
Waldorf Method, it is reasonable to assume much of the material used by him had
been in possession earlier. There was no need for Sheppard to hire any helpers
or to provide any equipment.
Degree of financial risk and responsibility for investment and
management
[36] Sheppard did not invest any money in the TLC venture. He was aware that
he would be teaching at a new private school with an experimental component but
did not pay a great deal of attention to the security of that position until he
was not fully paid for his services during the month of December. By the end of
January, 2007, Sheppard probably wished he had obtained employment with an
established private school or a public school in the Greater Vancouver area but
he had been assured by Hall that she was exploring various methods for the
purpose of ensuring the future financial stability of TLC. Sheppard was not
required to manage any staff but participated in meetings with Hall and Norton
pertaining to scheduling, class activities, communication with parents and
other matters related to the operation of TLC.
Opportunity for profit in
the performance of tasks
[37] There was no
opportunity for Sheppard to profit in the performance of his task as a teacher
at TLC. He was insistent that he receive an annual remuneration - which he took
pains to characterize as salary on several occasions – of at least $60,000 to
be paid at the rate of $5,000 per month. There was no opportunity for him to
profit had Society assumed responsibility for the ongoing operation of TLC
except that if it could have had sufficient money on hand or the means to
raise funds, it would have afforded him some security until the academic term
ended. Unfortunately, Society did not possess sufficient funds and moreover
declined to become involved in the TLC operation. Outside of that, there was nothing
of consequence in place between Sheppard and Hall and Norton that would entitle
him to reap any financial gain even if Hall had been successful in duplicating
the TLC experiment elsewhere and obtaining a financial benefit through some
franchise arrangement or royalty agreement.
[38] Hall chose to
utilize PDL as the vehicle by which Sheppard’s teaching services could be
obtained - and retained - for purposes of the TLC venture. There was no intent
at the outset that Sheppard provide his teaching services as an independent
contractor and an analysis of the relevant indicia referred to in Sagaz,
supra, results in a finding that there was an employer-employee
relationship existing between PDL and Sheppard.
[39] I conclude Sheppard was employed by PDL during the relevant period and
the within appeals are allowed. Both decisions of the Minister are varied to
find that:
Sheppard was engaged in insurable and
pensionable employment with Positive Dyslexia Ltd. from September 1, 2006 to
January 17, 2007.
Signed at Sidney, British
Columbia, this 19th day of February,
2009.
“D. W. Rowe”
Email this Content