Docket: 2006-3022(IT)G
BETWEEN:
HOVEY VENTURES INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Motion heard on February 13, 2007 at Vancouver, British Columbia
Before: The Honourable
Justice G. Sheridan
Appearances:
|
Counsel for the Appellant:
|
Douglas
H. Christie
|
|
|
|
|
Counsel for the Respondent:
|
David Everett
|
____________________________________________________________________
JUDGMENT
Upon motion by the Respondent:
(a) for an Order under paragraph
58(1)(b) of the Tax Court of Canada Rules (General Procedure) ("Rules")
striking out the Notice of Appeal because it discloses no reasonable grounds
for appeal;
(b) in the alternative, an Order
under paragraph 53(b) of the Rules to strike out the Notice of
Appeal on the ground that the Notice of Appeal is scandalous, frivolous or
vexatious;
(c) in the further alternative, an
Order under paragraph 53(c) of the Rules to strike out the Notice
of Appeal on the ground that the Notice of Appeal is an abuse of process;
(d) in the further alternative, an
Order under paragraph 44(1)(b) of the Rules extending the time in
which the Respondent may file a Reply to the Notice of Appeal; and
(e) costs.
And having heard the submissions of counsel and read
the materials filed by the parties;
It is ordered that:
1. the Notice of Appeal be struck
out pursuant to paragraph 58(1)(b) of the Tax Court of Canada Rules
(General Procedure); and
2. the appeal is dismissed with
costs to the Respondent, in accordance with the attached Reasons for Order.
Signed
at Ottawa, Canada, this 15th day of March, 2007.
"G. Sheridan"
Citation: 2007TCC139
Date: 20070315
Docket: 2006-3022(IT)G
BETWEEN:
HOVEY VENTURES INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Sheridan, J.
[1] The Respondent
brings a motion for an Order:
(a) under paragraph 58(1)(b)
of the Tax Court of Canada Rules (General Procedure) ("Rules")
striking out the Notice of Appeal because it discloses no reasonable grounds
for appeal;
(b) in the alternative, an Order
under paragraph 53(b) of the Rules to strike out the Notice of
Appeal on the ground that the Notice of Appeal is scandalous, frivolous or
vexatious;
(c) in the further alternative, an
Order under paragraph 53(c) of the Rules to strike out the Notice
of Appeal on the ground that the Notice of Appeal is an abuse of process;
(d) in the further alternative, an
Order under paragraph 44(1)(b) of the Rules extending the time in
which the Respondent may file a Reply to the Notice of Appeal; and
(e) costs.
[2] The Appellant,
Hovey Ventures Inc., was assessed by the Minister of National Revenue for its
failure to comply with a Requirement to Pay issued under Section 224 of the Income
Tax Act. Pursuant to the Requirement to Pay, the Appellant was assessed for
amounts owed to Witold Loykowski, the tax debtor named in the Requirement
to Pay.
[3] The Appellant filed a Notice of Appeal, challenging
the assessment on the basis that it was
not liable for any amounts under the Requirement to Pay assessment because, at
all times relevant to the appeal, the tax debtor was acting in his capacity as
a "natural person". According to the Appellant, a "natural
person" is not subject to pay tax under the Act and therefore, the
Canada Revenue Agency was without authority to assess the Appellant for any
amounts it paid to the tax debtor for his services pursuant to their agreement.
This theory has been used, without success, by defendants facing tax evasion charges.
In the recent case of R. v. Sydel[1], Meyers, P.C.J., rejected the "natural
person" argument which he summarized as follows:
…[that] there
is not proof beyond a reasonable doubt, that Parliament intended to tax people
who declare themselves to be "natural persons"; any money earned by
an individual in their capacity of a "natural person", as opposed to
their capacity as a taxpayer or legal representative of the taxpayer is not
subject to the Income Tax Act requirement to pay taxes, nor are
they required by the Income Tax Act, to file T1 Individual Income Tax
returns.[2]
[4] According to the
Respondent, the "natural person" premise upon which the Notice of
Appeal is based is completely without merit. Further, the Crown argues that
even if the "natural person" argument may properly form the basis for
a challenge to the constitutionality of the Requirement to Pay provisions, such
a claim is not properly brought before the Tax Court of Canada as its
jurisdiction does not extend to the alleged inappropriateness of the actions of
the Minister's officials:
[7] …
Courts have consistently held that the actions of the CCRA cannot be taken into
account in an appeal against assessments.
[8] This
is because what is in issue in an appeal pursuant to section 169 is the
validity of the assessment and not the process by which it is established. …
Put another way, the question is not whether the CCRA officials exercised their
powers properly, but whether the amounts assessed can be shown to be properly
owing under the Act (Ludco Enterprises Ltd. v. R. [1996] 3 C.T.C. 74 (F.C.A.)
at p.84).[3]
[5] Counsel for the Respondent went on to say that,
although most of the Notice of Appeal is devoted to the "natural
person" argument, what few facts there are support the correctness of the
Minister's assessment: in paragraphs 2, 4 and 5 of Part 2: The Material Facts Relied Upon the Appellant alleges that there was a written
agreement between the Appellant and the tax debtor[4] for the performances of services, such services were
performed by the tax debtor who received compensation for them from the
Appellant during the relevant period[5].
Furthermore, nowhere in the Notice of Appeal is there any challenge to the
amount assessed. For the purposes of considering an application to strike, the facts
in the pleadings must be taken as proved[6].
Counsel for the Respondent submitted it would be improper for the Court to allow
the Appellant to use affidavit evidence to bolster pleadings which are, on
their face, defective.
[6] For these
reasons, the Respondent's position is that the present case is one where it is "plain
and obvious"[7]
that the Appellant's case discloses no
reasonable cause of action and accordingly, it ought to be struck out under
Rule 58(1)(b) or alternatively, under Rules 53(b) or (c)
for being, "respectively, scandalous, frivolous and vexatious", or "an
abuse of process". Counsel for the Respondent submitted that a Notice of
Appeal which discloses no reasonable cause of action or which is beyond the
jurisdiction of the Court is, by definition, an abuse of process.
[7] Counsel for the
Appellant opposed the motion, arguing that it was by no means "plain and
obvious" that the appeal had no chance of success. In his view, the jury
was still out on the "natural person" argument, although he offered
no case law in support of that position. He did, however, advise the
Court that he had been counsel for the accused in the Sydel case, which,
as of this hearing date, was being challenged on other grounds. He argued that
affidavit evidence was properly admissible on an application to strike and
urged the Court take into account the contents of two affidavits: that of Troy
Hovey, president of Hovey Ventures Inc. and of Witold Loykowski, the tax
debtor named in the Requirement to Pay.
[8] The Appellant
had not filed an application to seek leave to amend its Notice of Appeal.
However, mid-way through the submissions of counsel for the Appellant, I asked
counsel whether that possibility had been considered prior to the Respondent's
motion. Counsel for the Respondent replied that he had raised the subject with
counsel for the Appellant when he [Mr. Christie] became counsel of record. The
only response he received was service of the Appellant's affidavits – which
were, at that point, intended only for use in resisting the order to strike. While
not responding directly to my question, counsel for the Appellant signaled his
interest in seeking leave to amend and suggested that even if the affidavits were
inadmissible for the purposes of the Respondent's motion, they ought to be
considered in respect of the Appellant's request for leave to amend.
[9] Not surprisingly, the Respondent was opposed to the
Appellant's request, arguing that the defects of the Notice of Appeal were such
that they could not be cured by a simple rewrite and that the affidavits (even
if admissible) were equally flawed. Mindful of the consequences to the
Appellant if an order to strike were granted, however, I felt compelled to
consider the Appellant's last-minute request for leave to amend. I did so with
some reluctance given the circumstances in which such leave was sought; it
seems to me that in filing affidavits to resist the Respondent's motion, the
Appellant recognized certain weaknesses in the Notice of Appeal and yet, chose
not to take the proper steps to have it amended. In any event, turning to the
Appellant's request for leave to amend, in Sweet v. Canada
Décary, J. considered the balancing act required in determining whether to
strike out an appeal or to permit amendments to it:
21 It
is not the duty of a judge to redraft pleadings. It is his or her duty,
however, to closely examine a proceeding before determining that it cannot be
saved through proper amendments. To use the words of my brother Stone in Krause
…, the judge seized with a motion [to strike pleadings[10]] must decide
whether the document is "so defective that it cannot be cured by simple
amendment". This determination requires a balancing act which cannot be
subject to any definite norms. Each proceeding is to be assessed on its own
merits, with consideration being given to, inter alia, the personal situation
of the party, the issues and arguments raised, the manner and tone in which
they are raised, the number and proportion of allegations that are defective and
the readiness of the amendments needed. Where the Court is dealing with a
self-represented litigant, it should resist being too easily put off by the
mere phrasing of allegations and arguments that do not fall within established
legal parameters. [Footnote added.]
[10] Having considered
the Notice of Appeal and supporting affidavits in light of the Sweet
factors, I agree with the Respondent's position that the Notice of Appeal is "so
defective it cannot be cured by simple amendment". The first step in Sweet
is to consider the "situation of the Appellant", including whether
the Appellant is self‑represented. In the present case, the Notice of
Appeal is signed by "Troy Hovey", president of the Appellant.
Below his signature appear the words "Legal Counsel yet to be
retained", suggesting that the Notice of Appeal was drafted without the
benefit of legal advice. By the time of the motion to strike, the Appellant was
represented by counsel; indeed, by counsel who according to his own
intervention, had considerable experience with the "natural person"
argument upon which the Notice of Appeal is based. The "natural
person" argument that dominates Part V: Reasons Relied Upon by
Appellant of the Notice of Appeal employs the same sort of language used in
the "natural person" cases cited by the Court in Sydel. In these circumstances, the most likely
conclusion is that the Appellant intended to frame its pleadings as it did; the
defects in the Notice of Appeal are not attributable to the Appellant's stated
lack of legal counsel at the time it was drafted. As for the "issues and
arguments raised" in the Notice of Appeal, again, they are all premised
solely on the "natural person" argument and are presented in a
"manner and tone" more in keeping with the advancement of an anti‑tax
campaign than an assertion of the incorrectness of the assessment. Probably for
the same reasons, of "the number and proportion of allegations that are
defective", all but some portions of a few paragraphs of the Notice of
Appeal are dedicated to the "natural person" argument.
[11] As for the affidavits,
while unlike the Notice of Appeal, they call into question the amount assessed,
the information deposed is contradictory and ambiguous; one has only to compare
paragraph 5 of Part 2 of the Notice of Appeal with paragraph 4 of the
affidavit of Troy Hovey in respect of the performance of services and the
receipt of compensation. More damning, the contents of the affidavits, like the
Notice of Appeal, are skewed by the affiants' fundamental belief that, as a
"natural person", the tax debtor was not taxable.
[12] All in all, I
agree with counsel for the Respondent that more than a simple rewrite would be
necessary to rehabilitate the Notice of Appeal; indeed, it would require the
Court to engage in the sort of judicial redrafting specifically warned against
in Sweet. Accordingly, the Appellant's request for leave to amend is
denied.
[13] Returning now to the Respondent's motion, having heard
the submissions of counsel and read the materials filed, I am persuaded that
the Respondent has made its case for the striking out of the Notice of Appeal under paragraph 58(1)(b)
of the Tax Court of Canada Rules (General Procedure) and that the Notice
of Appeal must be considered as drafted, not as further clarified in supporting
affidavits. Paragraph 58(2)(b) of the Rules
provides that "no evidence is admissible on an application [under paragraph
58(1)(b)]". However, even if I had admitted the affidavits, for the
reasons set out above in respect of the Appellant's request for leave to amend,
their contents would not have persuaded me that the Notice of Appeal disclosed
a reasonable cause of action. In my view, the "natural person"
argument is without merit; further, the Tax Court of Canada is without
jurisdiction to consider the issues raised with respect to the correctness of
the actions of the CRA in assessing the Appellant under the Requirement to Pay.
To the extent that there are facts buried in the "natural person"
argument, when taken as proven, they do not set out a basis upon which the
Appellant could successfully challenge the correctness of the assessment under
the Requirement to Pay. The Notice of Appeal is struck out pursuant to
paragraph 58(1)(b) of the Tax Court of Canada Rules (General
Procedure) and the appeal is dismissed with costs to the Respondent.
Signed at Ottawa, Canada, this 15th day of March, 2007.
"G. Sheridan"
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