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Citation: 2003TCC454
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Date: 20031217
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Docket: 2003-992(IT)G
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BETWEEN:
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MAIN REHABILITATION CO. LTD.,
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Appellant,
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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
Woods J.
Background
[1] In this
motion the Crown seeks an order striking out parts of a notice of
appeal that relate to the conduct of the Canada Customs and
Revenue Agency during an audit of Main Rehabilitation Co. Ltd.
The ground upon which the Crown relies is section 53 of the
Tax Court Rules (General Procedure). Section 53
provides:
53. The Court may strike
out or expunge all or part of a pleading or other document, with
or without leave to amend, on the ground that the pleading or
other document,
(a) may prejudice
or delay the fair hearing of the action,
(b) is scandalous,
frivolous or vexatious, or
(c) is an abuse of
the process of the Court.
[2] The
threshold for applying section 53 is high. It is not to be
applied unless the issue raised in the notice of appeal clearly
has no merit. The outcome must be "plain and obvious"
and the result "beyond reasonable doubt:" Hunt v.
Carey Canada Inc.[1] and Davitt v. The Queen.[2]
[3] In March
2003, Main Rehabilitation filed a notice of appeal in respect to
income tax assessments for the 1996, 1997 and 1998 taxation
years. The notice of appeal is reproduced in Appendix A, with the
parts that the Crown seeks to strike out underlined. The appeal
is based on two grounds:
· that the
instigation and conduct of the audit was abusive; and
· that
certain business expenses were improperly disallowed.
[4] The alleged abusive conduct by the
CCRA is described in the notice of appeal as follows:
· the audit
was triggered by a false tip by a disgruntled shareholder;
· the
"auditor" had not yet passed her exams;
· the
supervisor who managed the audit was related to someone who was a
friend of the disgruntled shareholders; and
· the audit
was illegal, abusive, unconstitutional and protracted.
Main Rehabilitation submits that these facts warrant quashing
the assessments on the grounds that they are an abuse of process
at common law and a breach of section 7 of the Charter of
Rights and Freedoms.[3]
[5] This appeal is not the first time
that Main Rehabilitation seeks relief for the conduct of the CCRA
during this audit. In 1999, it filed an application for judicial
review in the Federal Court of Canada in respect of the
instigation of the audit and the conduct of the CCRA during the
audit. That application was dismissed on procedural grounds on
November 23, 1999. The decision was appealed and the appeal
subsequently withdrawn.
[6] The Crown submits that it is
appropriate to strike out the parts of the notice of appeal
dealing with the conduct of the CCRA because it is not relevant
in an appeal of an assessment under section 169 of the Income
Tax Act. It submits that the only relevant consideration is
the correctness of the assessments and that the process by which
they were arrived at has no bearing on this determination. The
Crown also submits that, even if the conduct of the CCRA were
relevant, the conduct described in the notice of appeal is not so
egregious as to warrant this extraordinary relief.
[7] For the reasons that follow, I
would allow the Respondent's motion to strike out the parts
of the notice of appeal relating to the conduct of the CCRA
during the audit.
Applicability of common law abuse of process
[8] Main Rehabilitation submits that
all courts have an inherent jurisdiction to give relief for an
abuse of their own process. Reference was made to United
States of America v. Cobb[4] and Re Abitibi Paper Company Limited and
The Queen.[5]
The common law discretion to provide relief for abuse of process
was described by Madam Justice Arbour in Cobb, a case
dealing with extradition proceedings:
[37] Canadian courts have an
inherent and residual discretion at common law to control their
own process and prevent its abuse. The remedy fashioned by the
courts in the case of an abuse of process, and the circumstances
when recourse to it is appropriate were described by this Court
in R. v. Keyowski, [1988] 1 S.C.R. 657 at pp. 658-59, 40
C.C.C. (3d) 481:
The availability of a stay of proceedings to remedy an abuse
of process was confirmed by this Court in R. v. Jewitt,
[1985] 2 S.C.R. 128. On that occasion the Court stated that the
test for abuse of process was that initially formulated by the
Ontario Court of Appeal in R. v. Young (1984), 40 C.R.
(3d) 289. A stay should be granted where "compelling an
accused to stand trial would violate those fundamental principles
of justice which underlie the community's sense of fair play
and decency", or where the proceedings are "oppressive
or vexatious" ([1985] 2 S.C.R. at pp. 136-37). The Court in
Jewitt also adopted "the caveat added by the Court in
Young that this is a power which can be exercised only in the
'clearest of cases'" (p. 137).
[9] Counsel for Main Rehabilitation
suggests that there is a vacuum in tax law with respect to the
principle described in Cobb. He colourfully described the
Tax Court as being in a cocoon, perhaps suggesting that tax cases
are behind the times with respect to extraordinary remedies.
[10] The question is whether it is
appropriate for the Tax Court to provide a remedy for improper
conduct by CCRA officials in the course of an audit. The only
remedy that the Tax Court could give is a reduction or
elimination of taxes otherwise owing. This Court has no
jurisdiction to award damages and Main Rehabilitation does not
suggest otherwise. I note that other courts have on occasion
awarded damages arising from conduct of the CCRA: Longley v.
Canada (M.N.R.).[6]
[11] The Tax Court clearly has authority to
stay proceedings that are an abuse of its own process, that is,
the litigation process: Yacyshyn v. Canada.[7] However, courts have
consistently held that the actions of the CCRA outside the
litigation process should not be taken into account in an appeal
of an assessment in the Tax Court.[8]
[12] In Ludco Enterprises Ltd. v.
Canada,[9] several taxpayers whose claim for a
deduction of interest was disallowed by the Minister of National
Revenue argued in an action commenced in the Federal Court that
they were discriminated against because other taxpayers in
identical circumstances had been treated differently. On appeal,
Chevalier D.J. rejected the application of the principles of
natural justice to decisions of the CCRA:
... Neither the Minister of National Revenue nor his
employees have any discretion whatever in the way in which they
must apply the Income Tax Act. They are required to follow it
absolutely, just as taxpayers are also required to obey it as it
stands. ... [it] is not possible to judge their actions by
varying and flexible criteria such as those required by the rules
of natural justice. In determining whether their decisions are
valid the question is not whether they exercised their powers
properly or wrongly, but whether they acted as the law governing
them required them to act.
[13] The issue was most recently considered
in the context of an application for judicial review where a
taxpayer had been denied access to certain information that was
available to the appeals officer: Webster v. Canada.[10] Although
the application originated in the Federal Court, Sharlow J.A.
made the following observation about an appeal to the Tax
Court:
[21] I would add that the right
to appeal an income tax assessment to the Tax Court is a
substantial one. The mandate of the Tax Court is to decide, on
the basis of a trial at which both parties will have the
opportunity to present documentary and oral evidence, whether the
assessments under appeal are correct in law, or not. If the
assessments are incorrect as a matter of law, it will not matter
whether the objection process was flawed. If they are correct,
they must stand even if the objection process was flawed.
[14] Main Rehabilitation has not referred me
to any authorities that have applied the concept of abuse of
process where there is a substantive right of appeal, such as
that provided for income tax assessments. Accordingly, I see no
reason to depart from the principle stated by Madam Justice
Sharlow.
[15] During the hearing of the motion,
counsel for Main Rehabilitation brought to my attention a case
that he had recently argued and that was pending in the Federal
Court of Appeal. That decision has since been released. In
Dwyer v. Canada,[11] the Court of Appeal considered the
applicability of the abuse of process doctrine to the conduct of
the CCRA during an investigation/audit in an income tax appeal.[12] The Court
concluded that there was no abuse of process on the facts and did
not address the threshold question of whether the assessment
should be quashed even if there were an abuse of process. Because
this threshold question was not discussed, I would not consider
that Dwyer overrules settled law on the question of the
relevance of the conduct of the CCRA in an income tax appeal.
Applicability of section 7 of Charter
[16] Main Rehabilitation submits that the
conduct of the CCRA also constitutes a breach of section 7 of the
Charter of Rights and Freedoms. Section 7 provides:
7. Everyone
has the right to life, liberty and security of the person and the
right not to be deprived thereof except in accordance with the
principles of fundamental justice.
[17] The Crown suggests that section 7
protection applies only to individuals and therefore cannot
extend to the appellant: Dywidag Systems International, Canada
Ltd. v. Zutphen Brothers Construction Ltd.[13] Main Rehabilitation on
the other hand suggests that section 7 can in certain
circumstances apply to corporations. Counsel referred to the
following passage by the Supreme Court of Canada in R. v
Wholesale Travel Group Inc.:[14]
Wholesale Travel has standing to challenge the
constitutionality of the false/misleading advertising provisions
under ss. 7 and 11(d) of the Charter and may
benefit the finding that these provisions are
unconstitutional.
[18] The Supreme Court's decision does
not extend section 7 Charter protection to corporations
except that corporations may benefit from a finding that a
statutory provision is invalid on the basis of section 7.[15] That exception has
no applicability here. Accordingly, because Main Rehabilitation
is a corporation, it cannot avail itself of section 7 of the
Charter.
Effect of Federal Court application
[19] The Crown submits that because Main
Rehabilitation previously sought relief in the Federal Court of
Canada, it would be an abuse of process of this Court to permit
Main Rehabilitation to seek relief again in this Court. In light
of my conclusion on the other issues, it is not necessary that I
make a finding on this.
Conclusion
[20] Main Rehabilitation's position has
no merit in law. The actions of the CCRA during an audit are not
relevant to an appeal to this Court regardless of whether the
actions are described as discriminatory, unfair, in error, or
abusive. It is appropriate to strike out the parts of the notice
of appeal that relate to the abuse of process issue. The passages
in the notice of appeal in Appendix A that are underlined should
be struck out. The respondent will have 45 days from the date of
the order to file a reply and the respondent will have costs of
the motion in any event of the cause.
Signed at Ottawa, Canada, this 17th day of December, 2003.
J. M. Woods J.
APPENDIX A
NOTICE OF APPEAL
(A) ADDRESS OF THE
APPELLANT:
C/O 637 College Street
Suite 203
Toronto, ON
M6G 1B5
(B) ASSESSMENT UNDER
APPEAL:
1. The
assessments under appeal are from notices of reassessment, dated
December 13th, 2002, with respect to the Appellant's 1996 and
1997 taxation years, and a notice of confirmation, also dated
December 13th, 2002, with respect to the Appellant's 1998
taxation year, which notices were all received by the Appellant
on December 20th, 2002.
(C) MATERIAL FACTS:
2. The
Appellant is a duly incorporated company, pursuant to the laws of
Ontario and Canada is in the business of relining water mains. It
has done work in Ontario, Quebec, and attempted to obtain
contracts in, inter alia, Italy and Cuba as work in Canada
is restricted to non-winter months.
3. The
Appellant Corporation has various directors, shareholders, and
officers.
4. One of its
officers, Mr. Robert Taddeo, did in 1996, 1997, and 1998, incur
various travel expenses, with respect to attempting to obtain
contracts, inter alia, in Cuba and Italy.
5. During the
same taxation years in question, the Appellant, in addition to
the travel expenses incurred by its Vice-President described in
paragraph # 4 above, did also, through Mr. Taddeo and other of
its directors, officers, and employers, incur mean, entertainment
and promotion, and reimbursement-of-workitems expenses, incurred
in the course of business and for the purposes of earning
income.
6. Following
an illegal, abusive, unconstitutional and protracted
audit, the Respondent disallowed the Appellant's expenses as
follows:
a) 1996 - in
the amount of $319,404, by notice of assessment dated December
15, 1999;
b) 1997 - in
the amount of $289,480, by notice of assessment dated April 3,
2000;
c) 1998 - in
the amount of $78,198 by notice of assessment dated June 18,
2001;
which assessments included penalty and interest on revised
income from the disallowed expenses.
7. The
Appellant objected to the above assessments as follows:
a) 1996 - on
March 10th, 2000;
b) 1997 - on
April 28th, 2000;
c) 1998 - on July
3rd, 2001.
8. By
correspondence dated December 13th, 2002, and received by the
Appellant December 20th, 2002, the Respondent responded to the
Appellant's objections as follows:
a) 1996 - by
issuing a reassessment and slightly varying the amounts
disallowed;
b) 1997 - by
issuing a reassessment and slightly varying the amounts
disallowed;
c) 1998 - by
confirming the amounts disallowed.
9. The
Appellant states, and fact is, that all amounts disallowed were
improperly disallowed as they were, in the vast main, incurred in
the proper course of business, and for the purpose of earning
income.
10. The Appellant
further states that he audit which triggered the reassessment(s)
was based on mala fides and an abuse of authority and
unconstitutional due to, inter alia, the following
reasons:
a) it was
triggered by a so-called "anonymous" false tip and
allegation by a disgruntled shareholder engaged in litigation
against the Appellant in the Ontario Courts;
b) it was
conducted by an "auditor" (accountant/bookkeeper?) who
had not yet passed her exams;
c) it was
managed by a supervisor related to a municipal inspector who had
dealings with directors, officers and employees, as well as being
a friend of the disgruntled shareholders set out in (a) above, of
the Appellant;
d) the
audit conducted was as described in paragraph 6 above.
11. Such further acts
as counsel may advise during the course of the appeal.
(D) ISSUES TO BE DECIDED:
12. Whether the audit
was an abuse of authority, at common law, and an abuse of
process, contrary to ss. 7 of the Charter?
13. Whether the amounts
disallowed were improperly disallowed under the Income Tax
Act by the Respondent?
(E) STATUTORY
PROVISIONS:
14. The Appellant relied,
inter alia, on the following statutory
provision:
a) ss.
18(1)(a), 165(3) of the Income Tax Act;
b) s. 7 and 15
of the Charter;
c) such
further provisions as counsel may advise during the course of the
appeal.
(underlining added)
(F) REASONS:
14. The Appellants states
that the reasons for the appeal are:
a) that the
audit and assessment are an abuse of authority and process at
common law, ss. 7 and 15 of the Charter, based on the
ethnic background and nationality of the officers, directors, and
employees of the Appellant, namely southern Italian;
b) the
assessments are in blatant and obstinate error in their
disallowance of properly incurred business expenses for the
purpose of earning income.
(G) RELIEF SOUGHT:
15. The Appellant
therefore respectfully requests that:
a) the
assessments be stayed; or
b) quashed or set
aside; or
c) remitted to
the Minister for reassessment in accordance with the reasons of
the Court;
d)
solicitor-client costs of this appeal; and
e) such
further and other relief as this Honourable Court deems just.
(H) DATE:
March 6, 2003
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