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Citation: 2006TCC363
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Date: 20060623
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Dockets: 2006-348(GST)G; 2006-497(GST)G;
2006-506(GST)G; 2006-543(GST)G;
2006-816(GST)G and 2006-987(GST)G
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BETWEEN:
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BANQUE NATIONALE DU CANADA,
CANADA TRUST COMPANY,
THE TORONTO-DOMINION BANK,
AMEX BANK OF CANADA,
LA BANQUE CANADIENNE IMPÉRIALE DE COMMERCE,
BANK OF MONTREAL,
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Appellants,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR ORDER
Bowman, C.J.
[1] The appellants in these motions will be referred to collectively as the "banks". They seek an order under section 58 of the Tax Court of Canada Rules (General Procedure) for the determination of the following question:
Were the services at issue in this appeal "financial services" as defined in subsection 123(1) of the Excise Tax Act, R.S.C. 1985 c.E-15 (as amended) ("ETA")?
[2] Section 58 of the Rules reads as follows:
Question of Law, Fact or Mixed Law and Fact
58. (1) A party may apply to the Court,
(a) for the determination, before hearing, of a question of law, a question of fact or a question of mixed law and fact raised by a pleading in a proceeding where the determination of the question may dispose of all or part of the proceeding, substantially shorten the hearing or result in a substantial saving of costs, or
(b) to strike out a pleading because it discloses no reasonable grounds for appeal or for opposing the appeal,
and the Court may grant judgment accordingly.
[3] The grounds for the motion are stated in the Notice of Motion as follows: (I am treating the Bank of Montreal motion and pleadings as representative.)
1. The question to be determined has been identified as an issue by the parties at paragraph 12 of the Notice of Appeal and paragraph 9 of the Reply to Notice of Appeal.
2. The Appellant admits the allegations contained in paragraph 8 of the Reply to Notice of Appeal.
3. Given the Appellant's admission in the preceding paragraph and the other admissions contained in the pleadings, there is no substantial disagreement between the parties concerning the facts pertinent to the question to be determined.
4. The determination of the question will dispose of all or part of this appeal, substantially shorten the hearing or result in a substantial saving of costs.
5. It is in the interest of Justice to have this motion granted and dealt with expeditiously.
6. Such other ground as counsel may advise and this Honourable Court may permit.
[4] The banks' position is that since the parties agree on the issue and since they admit all of the assumptions made on assessing, no further evidence is necessary and the matter can be disposed of as a question of law.
[5] Paragraph 12 of the Notice of Appeal reads:
12. The principal issue is whether the services paid for by the appellant to various collection agencies were "financial services" as defined in subsection 123(1) of the ETA. To the extent that the services constitute financial services, such services are "exempt supplies" as defined in the ETA.
Paragraph 8 of the Reply, reads:
8. In so assessing and confirming the Appellant, the Minister relied on the following assumptions of fact:
a) The Appellant is a financial institution;
b) The Appellant contracted with various collection agencies in order to collect payment by its debtors who were in default;
c) The task of the collection agencies was to recover and deposit the amounts in a trust account, the beneficiary of which was the Appellant;
d) Within the parameters established by the Appellant these collection agencies could accept a lesser amount of the debt as a final settlement;
e) In exchange for these services, the collection agencies receive a percentage of the amounts thus recovered.
Paragraph 9 of the Reply, reads:
9. Are the services offered to the Appellant by the collection agencies, financial services as defined in subsection 123(1) of Part IX of the ETA?
[6] The banks contend that all of the facts are before the court that would enable it to make a determination of law. The respondent opposes the motion and says that the matter should proceed to trial in the ordinary way in which evidence is called. The respondent also points out that the same issue has already been heard by Justice Angers in an appeal by the Canadian Imperial Bank of Commerce. Judgment in that appeal has been reserved.
[7] Mr. Ezri's arguments on this point are as follows:
There are three reasons why these cases should be heard in the usual manner rather than under Rule 58:
1) The issue raised by this motion was the subject of a full trial on November 30, 2005 involving one of the same appellants. That case was: La Banque Canadienne Imperiale de Commerce v. Her Majesty The Queen; Court Number: 2004-1427(GST)G (hereinafter CIBC #1) and was heard before Angers J.T.C.C. We enclose the pleadings in that file. The decision in that case is currently under reserve. In that Case, the Tax Court had the benefit of hearing from a witness for the Appellant who was examined and cross examined. The Court also received a transcript of the discovery of the Appellant, and joint books of documents. In our submission, the interests of justice are best served by having the issue raised in this motion decided on the basis of the best possible evidence. That evidence is to be found in the record of trial that has already taken place and not in a truncated proceeding such as the one contemplated by the Appellants.
2. Although the Appellants have accepted the facts in the Replies to Notice of Appeal, there is a difference between facts that are pled and the evidence that may underlie them or that may exist in addition to those facts. In these appeals there are a number of deficiencies in the factual record that would be put befor the Court that militate against granting the Appellants' motion. Some examples of these factual issues are as follows:
(a) None of the contracts for collection agency services have been provided to the Respondent; we note in this regard that the Minister of National Revenue in the CIBC #1 case conducted an audit of the appellant's GST rebate claim and reviewed the contracts. In these cases no audit of any kind was conducted; the fee structure in the CIBC #1 contracts was an important element in the Respondent's argument that non-financial services were the dominant element of the supply.
(b) The Respondent has no information as to what percentage of the files assigned to an agency result in a recovery. This evidence may be relevant because the dispute between the parties arises in part out of allegations by the Appellants that the collections agencies provide financial services by debiting and crediting the debtor's accounts. However during the trial of CIBC #1 there was some testimony given on cross examination to suggest that the recoveries are in the range of only 15 to 20% of the amounts owing. The Respondent will wish to explore this issue further in the upcoming trials in order to ascertain what percentage of files assigned actually result in a recovery such that an account is debited or credited. Similar questions will arise with respect to the number of accounts for which an agreement is reached to accept an amount that is less than the balance owing in full payment of the account (this is the Appellant's "variation" of a financial instrument, argument).
We enclose a copy of the Respondent's written submissions in CIBC #1 wherein the Respondent referenced evidence outside the scope of the pleadings in 12 out of 19 of the paragraphs outlining the facts of the case. It is unfair to the Respondent to be forced to a hearing without having a chance to lay the same factual foundation as was available to it in CIBC #1. The Respondent relies upon the Spencer decision in support of its submission that it is inappropriate to seek what is essentially a summary judgment, in the absence of a proper factual foundation.
14 I do not think that this case is an appropriate one in which to render judgment under Rule 170.1, allowing the appeal on the basis of one proposition of law pulled from the replies. This is particularly so where, as here, no facts have been established and indeed no documents have been produced and no discoveries have been held. It is only under the most obvious circumstances that judgment under Rule 170.1 should be given. This is certainly not one of them.
16. On the merits of the first question, therefore, much the same reasoning applies to the Rule 58 question as to the Rule 170.1 question. The appropriateness of a determination under Rule 58 must be clear and obvious. The question propounded by the appellant may ultimately be a question of law but it is entirely surrounded by questions of fact.
3. The purpose of the Appellants motion appears to be an attempt to obtain a favourable judgment on the merits and try to create vested rights to defeat proposed amendments to the Excise Tax Act that are contained in the recent Budget Bill (excerpt enclosed) and that would be retroactive to 1990 if passed. Those amendments confirm that collection agency services are subject to GST. While there is nothing improper in the appellants' objective, that objective is not one that was envisioned by Rule 58. If, as the Respondent submits, the issue in these cases is not well suited for a Rule 58 disposition, then Appellant's motion should be dismissed.
[8] If I were called on to decide whether the services provided by the collection agencies are financial services, I would be unable to do so on the basis of the facts stated or admitted in the pleadings. To deal intelligently with the issue, I would need to know just what the collection agencies do. The meaning of "financial service" is a question of law but it is one that must be based upon a proper evidentiary foundation.
[9] I do not agree that this is an appropriate case for a determination of a question of law under section 58 of the Rules. I am not critical of the banks' desire to have the matter determined before the retroactive amendments providing that the services of collection agencies are not financial services come into effect. Nothing turns on their motive, however. My reason for dismissing the motion is simply that the question propounded is not purely a question of law that can be decided in a vacuum. One need only read the definition of financial services under subsection 123(1) of the Excise Tax Act to see how essential to a determination whether the definition applies is the factual underpinning of what the person claiming the exemption does. I need not repeat the lengthy definition in subsection 123(1). The Notice of Appeal sets out with sufficient particularity the factual determination that must be made before one can decide whether the service being provided is a financial service.
[10] Paragraph 16 of the Notice of Appeal in the Bank of Montreal appeal reads:
16. The collection services rendered by the collection agencies constitute financial services because they are described in any of the following paragraphs of the definition of "financial service" found in subsection 123(1) of the ETA:
(a) the...receipt or transfer of money, whether effected by the exchange of currency, by crediting or debiting accounts or otherwise [...];
(d) the...variation, transfer of ownership or repayment of a financial instrument (i.e., the debt securities giving rise to the amounts owing) [...];
(f) the payment or receipt of money as...interest, principal...or any similar payment or receipt of money in respect of a financial instrument (i.e., the debt securities giving rise to the amounts owing) [...];
(l) the agreeing to provide, or the arranging for, a service referred to in any of (the above) paragraphs [...].
[11] Counsel referred to certain decisions of this court in which applications under section 58 of the Rules were considered: Webster et al. v. The Queen, 2001 DTC 738; Spencer v. The Queen, 2001 DTC 964. In both of those cases the applications were dismissed essentially on the ground that the question propounded was surrounded by factual considerations that were best left to a trial judge where the factual and legal issues could be dealt with. I do not think it would be appropriate for me as a motions judge to set down the question for another judge to decide without any evidence. The trial judge might very well believe that he or she should hear evidence.
[12] I would not wish these reasons to be taken as discouraging the use of section 58 of the Rules. It certainly has a function in an appropriate case. However, the factual question what the collection agencies do is so essential a component of the determination whether their services fall within the definition of subsection 128(1), that it would be inappropriate and indeed impossible to try to determine the question in the abstract without evidence.
[13] The motions are dismissed with costs. There should be one set of counsel fee in respect of all the motions.
Signed at Ottawa, Canada, this 23rd day of June 2006.
Bowman, C.J.
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