Citation: 2006TCC53
Date: 20060125
Docket: 2003-3814(GST)G
BETWEEN:
LES FACTUMS INSTANTER S.E.N.C.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Archambault J.
[1] Les Factums
Instanter S.E.N.C. (Instanter) is appealing two assessments, one dated
October 26, 2001, in respect of the period from February 1, 2001 to April 30,
2001, the other dated November 5, 2001, in respect of the period from May 1,
1999 to July 31, 2001.
Essentially, the amounts of the assessments represent amounts of Goods and
Services Tax (GST) which the Minister of Revenue of Quebec (Quebec
Minister), acting as the mandatary of the Minister of National Revenue (Minister),
claims that Instanter should have collected when it provided taxable supplies –
namely the preparation of appeal briefs – to advocates in private practice
whose services had been retained in the context of legal aid mandates. The
justification for this position depends on whether these advocates – in respect
of the acquisition of such supplies – were acting as the mandataries of a
provincial government organization that enjoys tax immunity in respect of the
applications of the Excise Tax Act (Act). In his pleadings, Counsel for the Respondent
acknowledged that advocates in private practice who had obtained a mandate from
a legal aid centre (centre) pursuant to the Legal Aid Act, R.S.Q.,
c. A-14 (LAA) were representing the centre as mandataries when they
provided legal services to people (recipients) to whom the director
general of the centre had delivered a document entitled "Certification of
Eligibility and Mandate" (certification and mandate).
[2] In addition, there
is no dispute over whether the centres constitute government organizations that
enjoy the tax immunity that is explicitly stipulated of section 122 of the
Act. In admitting that advocates in private
practice provided legal services as mandataries of the centres, which enjoy tax
exempt status, Counsel for the Respondent drew not only on the LAA, but also on
the Interpretation Bulletins and administrative practices of the Quebec
Minister in respect of the Quebec tax legislation (Revenu Québec
Interpretation Bulletins). In particular, he drew on the following
paragraphs of bulletin QST 138‑1 of November 28, 1997:
APPLICATION OF THE ACT
1. Under section 138 of the act [Quebec
Sales Tax Act (QSTA)], a supply of a professional legal aid service
provided under a legal aid program authorized by the Government of Québec and made
by a corporation responsible for administering legal aid under the Legal
Aid Act (R.S.Q., chapter. A‑14) is exempt.
Exempt Supply of Professional Legal Aid Services
2. Under the Legal Aid Act, professional
legal aid services are supplied by legal aid centres established in
accordance with that act. These services, the supply of which is
exempted, may be provided by:
(a) an
advocate or notary in the employ of a legal aid centre;
(b) an
advocate or notary in private practice to whom a legal aid centre has
given a mandate.
...
Professional Services Supplied to a Legal Aid Corporation by an Advocate
or Notary in Private Practice
5. A supply of professional services by an
advocate or notary in private practice made to a legal aid corporation in the
course of executing a mandate given to him by that centre constitutes a taxable
supply.
6. In its capacity as a body of the
Government of Québec, though, a legal aid centre does not pay any QST
when it purchases taxable supplies. Consequently, no QST is payable by the
legal aid corporation in respect of the supply of professional services made to
it by an advocate or notary in private practice in the course of the
performance of a mandate given to him by that centre.
[My emphasis.]
[3] In order for a
supply to be exempt, both pursuant to section 138 of the QSTA and under
schedule V, part V, section 1 of the Act, the exemption must be in respect of
the provision of a professional legal aid service dispensed under a legal aid
program approved by a government, here the Government of Quebec, and provided
by a centre responsible for the administration of legal aid or by the
administrator of the program, here a centre or its director. The position taken by the Revenue
Quebec interpretation bulletin (supra) thus reveals that the Quebec
Minister considers that the director of the centre is the provider, through a
mandatary, namely an advocate in private practice, of legal aid services to the
recipients.
[4] Consequently, the
only question that remains to be addressed is whether the production of appeal
briefs, which are provided by Instanter to advocates in private practice in the
course of executing a mandate to provide legal aid services did so on behalf of
these advocates or on behalf of the centres. In other words, did these
advocates act as mandataries of the centres when they acquired the taxable
supplies at issue from Instanter? According to Counsel for the Respondent, the
advocates were acting on their own behalf and thus do not enjoy any tax
immunity. Counsel for Instanter maintained that the advocates were acting as
mandataries of the centres and as a result Instanter did not have to levy any
GST in respect of the supplies in question by virtue of the centres' immunity
from taxation.
The facts
[5] According to
section 52 LAA, a
recipient has the choice of retaining the services of an advocate employed by a
centre or of an advocate in private practice. Once it has been established that
the recipient is entitled to legal aid and an advocate in private practice has
been chosen, the centre delivers a document of attestation and mandate to the
advocate (Exhibit A‑1, tab 5), bearing the name and the address of
the recipient and of the advocate to whom the mandate is assigned. It also
includes the following certification clause: [translation] "This is to
certify that the goods/services ordered/purchased are for the use of,
and have been purchased by the ABOVE-NAMED COMMUNITY LEGAL AID CENTRE, with
Crown funds and are thus not subject to GST or QST." Below is added: "AT
THE REQUEST OF THE PERSON WHOSE NAME APPEARS OPPOSITE, WE GIVE YOU THE
FOLLOWING MANDATE.”
(My emphasis.) It is stated that the mandate must be carried out personally
by the advocate as far as the essential elements are concerned. The
certification is signed by the director general (or by another person for the
director general).
[6] Advocates in
private practice who used the services of Instanter to produce appeal briefs
automatically send it copies of the certification and mandate during the
relevant periods. This document allowed Instanter to obtain free of charge from
the clerks of the courts the transcript of the evidence presented at the trial
hearing.
[7] According to Jean‑Luc Paris
and Marcel Guérin, who testified at the request of Instanter, the vast majority
of, if not all, advocates use the services of a company that produces briefs in
order to prepare the briefs required by the Court of Appeal of Quebec and by
the Supreme Court of Canada. They do so in order to meet the many strict
requirements specified in the rules of procedure of these courts. Generally
speaking, advocates in private practice can only receive fees for legal aid
after they have fulfilled their legal aid mandate. It is possible, however, to
send a provisional bill, in which the centre can be asked to reimburse the
expenditures on having briefs prepared by a company such as Instanter.
Instanter prepares the invoice, on a form belonging to the centre, describing
the service provided by Instanter, which also shows the centre's file number
and the date of the mandate and other similar information. It is mandatory that
the provisional bill be signed by the advocate to whom the centre has assigned
the mandate. Initially, Instanter did not show the amount of GST/QST when it
prepared the invoices. Following an audit by the Quebec Minister and at the
request of the Minister's auditors, Instanter began in 1998 to show the amounts
of these taxes. The Commission,
however, refused to reimburse them.
[8] Mr. Paris and Mr.
Guérin confirmed that they were not registrants for the purposes of the Act.
Mr. Paris stated that, prior to 2001, 99% of his legal services were provided
to legal aid. Since 2000-2001, all his mandates had come from legal aid. Mr.
Paris has been registered since 2001. From 1996 to 2000, he did not believe
that he was required to be registered, as he believed he had the status of a
small supplier. In order to determine if he was entitled to this status, he
believed that he need only consider his net income and not, as is required, the
gross income. He also confirmed that if he claimed from the centre the amount
of GST for the services of Instanter, his claim was subject to a correction
notice to deduct from the amount reimbursed any amount in relation to taxes
(GST/QST). He confirmed that Instanter did not recover from him the amount of
these taxes that the centre and the Commission refused to pay and that he
himself claimed no Input Tax Credit (ITC) in respect of the supplies
provided by Instanter.
[9] The Secretary of
the Commission stated that, to her knowledge, advocates in private practice did
not act as mandataries of the centres. They were instead mandataries of the
recipients. The role of a centre was limited to certifying the recipients'
eligibility for financial aid for the legal services provided by these
advocates, checking the extent of the mandate and authorizing this mandate (on
behalf of the recipients). This role included retaining the services of
experts. That is why the Secretary of the Commission considered the recipients
to be the clients of advocates in private practice. In her view, these
advocates did not have the power to incur the costs of preparing briefs on behalf
of the centres. The centres did not get involved in carrying out the mandate of
these advocates. At one time, advocates in private practice could ask the
Commission to pay directly companies like Instanter, which produced the briefs.
However, the Commission put an end to this practice in 2000. It now pays the
advocates' expenses by cheque, and the advocates can either endorse the cheque
over to the companies or make out a new cheque to them. Obviously, if the
services of Instanter are required by an advocate who is a salaried employee of
a centre, the cheques are sent directly to Instanter by the Commission.
[10] The Secretary of the
Commission also acknowledged that advocates in private practice obtained
special authorization from the centres with regard to the production of briefs
when exceptional expenses were involved. In most cases, such authorization was
not necessary, as is the case of the expenses for bailiffs and for law stamps.
On the other hand, when the mandate involves representing a recipient in a
trial court, authorization must be obtained from the centre to retain the
services of experts and in connection with travel costs. According to the
Secretary, the mandate given to advocates in private practice had to be
fulfilled in accordance with accepted standards. She also confirmed that the
Commission refused to pay that portion of the expenses claimed by advocates in
private practice that pertained to taxes, namely, the GST and the QST, because
the centres enjoyed immunity from taxes. On cross-examination, she also stated
that the Commission did not reimburse rental costs nor photocopier repair costs
for advocates in private practice.
Analysis
[11] In order to
determine whether Instanter should collect GST when providing its services to advocates
in private practice in the context of a legal aid mandate, it is important to
establish whether the real acquirer of this service was the advocate himself,
on his own behalf, or whether the acquirer was in fact a centre by virtue of
the mandate existing between the centre and the advocate. Since the Act does not specify the
circumstances in which a mandate may exist, we must refer to the rules of civil
law in Quebec, as they exist within the Civil Code of Quebec (Civil
Code or C.C.Q.). This approach is consistent with the provisions of
section 8.1 of the Interpretation Act, which reads as follows:
[12] The relevant
provisions of the Civil Code can be found at articles 2130 and following.
This is what they say:
2130. Mandate is a contract by which a person, the mandator, empowers
another person, the mandatary, to represent him in the performance of a
judicial act with a third person, and the mandatary, by his acceptance,
binds himself to exercise the power.
The power, and
where applicable, the writing evidencing it are called the power of attorney.
...
2136. The
powers of a mandatary extend not only to what is expressed in the mandate, but also to anything that may be inferred
therefrom. The mandatory may carry out all acts which are incidental to
such powers and which are necessary for the performance of the mandate.
2137. Powers granted to persons to perform an act, which is an ordinary part of their
profession or calling or which may be inferred from the nature of such
profession or calling, need not be mentioned expressly.
...
2142. In the performance of the mandate, the mandatary,
unless prohibited by the mandator or usage, may require the assistance of another person and delegate powers to
him for that purpose.
The mandatary
remains liable towards the mandator for the acts of the person assisting him.
...
2157. Where a mandatary binds himself, within the limits
of his mandate, in the name of and on behalf of the mandator, he is not
personally liable to the third party with whom he contracts.
The mandatary is
liable to the third person if he acts in his own name, subject to any rights
the third person may have against the mandator.
...
2160. A mandator is liable to third persons
for the acts performed by the mandatary in the performance and within the
limits of his mandate unless, under the agreement or by virtue of usage, the
mandatary alone is liable.
The mandator is
also liable for any acts which exceed the limits of the mandate, if he has
ratified them.
...
2163. A person who has allowed it to be believed that a
person was his mandatary is liable, as if he were his mandatary, to the third
person who has
contracted in good faith with the latter, unless, in circumstances in which the
error was foreseeable, he has taken appropriate measures to prevent it.
[My emphasis.]
[13] In the Dictionnaire
de droit québécois et canadien by Hubert Reid, Montréal, Wilson &
Lafleur Ltée, 1994, a "juridical act" is defined as: [translation] "A manifestation
of one or more desires intended to produce effects of law. E.g., a bilateral
contract, a will." In light of the admissions that have been made in
this appeal, we must consider the juridical act intended by a mandate conferred
by a centre upon an advocate in private practice as being the provision of legal
services to a recipient on behalf of the centre, in accordance with the
provisions of the LAA. It is accordingly the centre that provides, through the
intermediary of the mandatary advocate, the legal service to the recipient.
This legal service provided to the recipient consists of representing the
recipient in their legal proceedings, which constitutes a separate mandate.
There are thus two mandates, one between the centre and the recipient and the
other between the centre and the advocate in private practice in order to
execute the first mandate. The recipient is thus legally the client of the
centre, since an advocate in private practice acts merely as a mandatary of the
centre in delivering his services. This description is consistent with the primary
mission of the centres, which is to provide legal services to recipients,
either through its advocates on staff, or through duly mandated advocates in
private practice.
[14] I believe that the
existence of this dual mandate is the source of the confusion in the testimony
by the Secretary of Commission when she stated, not only that advocates in
private practice did not have a mandate to represent the centres in dealing
with Instanter, but that she saw no mandate except that between a recipient and
an advocate in private practice. Clearly, Counsel for the Respondent is laying
great stress on the first part of the statement in order to conclude that the
mandates, whose existence between the centre and an advocate in private
practice he acknowledges, did not extend to obtaining services to produce
briefs on behalf of the centres.
[15] In my view, it has
been established here not only that advocates in private practice acted as
mandataries of the centres when they used the services of Instanter, but also that
Instanter was fully aware of the existence and the extent of this mandate.
Advocates in private practice who discharged legal aid mandates had the power
to perform all the acts which flowed from their obligation to provide legal
services on behalf of the centres, as is stipulated in article 2136 C.C.Q. For
mandates to act before the Appeal Courts, the acts included producing appeal
briefs. As stipulated in article 2137 C.C.Q., the powers of a mandatary do not
need to be mentioned expressly in the mandate. They can be deduced from the
nature of the mandate bestowed. It is general practice among advocates in
private practice to retain the services of a company that writes appeal briefs.
The centres were well aware of this practice, as they routinely received
requests for reimbursement of this type of expense, and they did reimburse it.
Moreover, as is stipulated in article 2142 C.C.Q., the mandataries are entitled
to obtain assistance and, in the case of advocates in private practice, here,
the preparation of appeal briefs did not constitute an essential aspect of
their responsibilities, which they had to discharge personally. Furthermore,
there is no existing convention or usage which might show that advocates who
accept legal aid mandates must be held personally responsible for the costs of
preparing briefs (article 2160 C.C.Q.).
[16] In support of this
conclusion, Counsel for Instanter cited the decision Thémis Multifactum inc.
v. Maitre Alain Brassard, REJB 2000‑17469, handed down by
Boyer J. of the Court of Quebec and confirmed, for [translation] "the reasons set out by the
Trial Judge", on June 9, 2000 by the Quebec Court of Appeal (No. 500‑09‑009271‑008).
This case involved a claim made to an advocate by Thémis Multifactum in respect
of appeal brief writing services. At issue was whether the advocate could be
held personally responsible for payment of the account of $7,046.69. The answer
to this question did not depend solely on the existence and the extent of the
mandate, but also depended on whether the mandate had been disclosed to the
brief writing company, as is required by article 2157 C.C.Q. With regard to the question of the
extent of the mandate, Boyer J. concluded as follows:
[translation]
(e-) The
nature of the use of the service provider
23 The
implementation of the appeal procedure in penal cases requires a number of
steps to meet the requirements set by the rules of the Court of Appeal. One
of these consists of the preparation of a brief on the facts, the questions
at issue and the grounds for appeal invoked. This work is necessary to the
exercise of the legal right of his client. As a result, an advocate who
places the order to prepare the appeal file with a specialist service provider
chooses to obtain the assistance of a third party, as he in principle has the
right to do. In so doing, he commits a juridical act, namely that of
concluding a contract for services with this third party. With respect to
the contrary opinion, the Court considers from then on that this act occurs
in the context of the discharge of the mandate ad litem of the advocate,
even though the advocate must assume responsibility for the documents prepared
by the service provider.
[My emphasis.]
[17] In my view, the
Secretary of the Commission erred when she testified concerning the nature and
extent of the mandate conferred on advocates in private practice and, in
particular, when she stated that advocates in private practice did not have a
mandate to represent the centres when such advocates retained the services of
Instanter. In contrast to what Counsel for the Respondent did and what is also
done in the certification and mandate document delivered by the centres (which
contains the statement: [translation] "at the request
[of the recipient], we assign you the mandate..."), the Secretary of the
Commission did not acknowledge that the services of advocates in private
practice are provided on behalf of the centres. Since she misconstrued the
nature of the legal relationship between the centres and advocates in private
practice, it is not surprising that she believed that the advocates did not
have a mandate to retain the services of brief writing companies on behalf of
the centres.
[18] Another indication
of the confusion of the Secretary of the Commission and the incoherence of her
position is the fact that the Commission refused, by virtue of its tax
immunity, to pay GST on disbursements billed by advocates in private practice
for the services of Instanter. In acting thus, the Commission showed that the
services rendered by Instanter to advocates in private practice were on behalf
of the centres, since those are the only circumstances under which the
Commission could enjoy tax immunity. The Commission had to reimburse the full
amount of the disbursements by advocates in private practice, since these were
costs inherent in the instances and procedures incident to the legal aid
mandate.
If the advocates did not act as mandataries of the centres when they used the
services of Instanter, the Commission would not have been able to invoke its
tax immunity, because it would not have been, at that time "the
acquirer" of the taxable supply.
[19] The Quebec Minister
states in his QSTA bulletins that correspondents’ fees, stamp taxes and the
advance paid to a sheriff for a seizure of immovables constitute expenses
incurred by an advocate as the mandatary of his client. The fees of bailiffs, stenographers
and expert witnesses are not included. However, these costs are listed in a
previous version, dated June 28, 1996, of the bulletin cited at note 14 of
these Reasons! I do not understand how the Quebec Minister can distinguish
between these costs which are excluded from the mandate and those that are
included and justify his interpretation. The same applies to his position as
set out in the Interpretation Bulletin QST 61-3 dated January 31, 2003, where
he states at paragraph 4 that, "... the expenses incurred by an
attorney in private practice for the services of a business specialized in the
preparation of facta on appeal ... in the course of fulfilling a mandate
given by a legal aid centre ... do not generally constitute expenses incurred
by the attorney in his or her capacity as the client’s mandatary." I
prefer to adopt the approach taken by Boyer J. who, in Thémis Multifactum,
supra, at paragraph 23, concluded that [translation] "... this action occurs in the context
of carrying out the mandate ad litem of the advocate ...".
[20] In contrast to what
occurred in Thémis Multifactum,
in the instant case, legal aid mandates were disclosed to Instanter. In
fact, the certification and mandate documents given to advocates in private
practice were forwarded to Instanter, and this allowed it to obtain without
cost the transcript of the debates before the trial courts. According to the
claims of Counsel for Instanter, the handing over of these certification and
mandate documents to Instanter authorized the latter not to collect taxes when
the taxable supplies were billed by Instanter to these advocates, who were
acting in the context of a legal aid mandate. The clause that certified tax
immunity was included and the administrative requirements of the tax
authorities were accordingly met.
[21] The conditions under which an advocate in private
practice operates in discharging a legal aid mandate are public (and not in the
private domain as are those in Thémis Multifactum), just as the schedule for his fees are
published.
They are established by government decree. The fees are modest. According to
paragraph 19 of decrees 1455‑97
and 539‑2001
(applicable during the period at issue): "Disbursements are part of the
statement of fees and include fees for expert reports and other fees pertaining
to proceedings incidental to the legal aid mandate, including expenses for
subpoena by bailiff or by registered or certified mail." They are "paid
by the legal aid body."
In disclosing their legal aid mandate to Instanter, the advocates clearly
indicate that their remuneration is strictly limited to the fees provided for
in the tariff and which they will be able to claim from the centres as
disbursements
the sums committed for the production of an appeal brief. On the other hand,
Instanter was involved in the process by which the appeal brief production
services that it provided to advocates in private practice were billed to the
centres; it further indicated on the invoices the centres' file number. It
waited until the advocates received the cheque from the Commission to be repaid
for its services. Instanter thus knew full well that these production expenses
were not borne by the advocate but rather by the centres.
[22] Before terminating
my analysis of this question, one clarification must be added. Even if the
mandate of advocates in private practice had not been disclosed to Instanter
and the advocates could be held responsible for the amounts due to Instanter,
that would not necessarily mean that no mandate contract existed between the
centres and the advocates in respect of the use of Instanter's services.
[23] For all these
reasons,
the appeals by Instanter are allowed and the two assessments are referred back
to the Minister for reconsideration and reassessment, on the basis that
advocates in private practice were acting as mandataries of Her Majesty the
Queen in right of the Province of Quebec when they obtained the provision of
Instanter services and Instanter was not required to collect GST in respect of
this supply. With costs.
Signed at Montréal, Quebec, this 25th day of January
2006.
"Pierre Archambault"
Translation certified true
on this 25th day of July 2006
Monica F.
Chamberlain, Reviser
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