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Citation: 2004TCC40
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Date: 20040113
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File: 2001-1923(GST)G
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BETWEEN:
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AU PIED DU MONT SAINTE-ANNE
CONDOMINIUMS LE VILLAGE VACANCES ANIMÉES INC.,
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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 JUDGMENT
François
Angers J.
[1] This
is an appeal from an assessment made on August 6, 1999, under Part IX of the Excise
Tax Act (the “Act”), numbered 9213435. The Deputy Minister of Revenue of
Quebec (“Deputy Minister”), on behalf of the Canada Customs and Revenue Agency
(“CCRA”), is claiming the sum of $24,148.86 for the period beginning November
1, 1994, and ended October 31, 1996. The Deputy Minister maintains that the
Appellant failed to collect and remit the Goods and Services Tax (“GST”) on a
payment of $281,151.28 made to the Appellant. In his calculations, the Deputy
Minister took into account the fact that the Appellant was entitled to input
tax credits totalling $2,606.74. However, he also took into account the fact
that the Appellant owed $2,977.48 in interest and $4,097.54 in penalties.
These figures are not in dispute, and the Appellant has informed the Court that
it would withdraw its appeal from the portion of the assessment that is
prescribed.
[2] It
should also be noted that the Appellant paid GST on the $3,750 payments
received as management fees and that the Deputy Minister did not include the
GST on these amounts in the calculation of the assessment at issue.
[3] The
only point at issue, as the Respondent maintains, is whether the Appellant
acted as an agent for the condominium corporations, and in so doing, was not
required to collect and remit the GST to the Deputy Minister, or whether it
provided taxable management services to these corporations.
[4] The
Appellant is a business corporation that, at all relevant times, operated a
resort, rented out condominium units (the units), and offered various services
to the occupants. It has approximately 80 shareholders, including some who are
also owners of units located in this centre. At the time, 176 units were
available for rental purposes. Five condominium corporations unite and
represent all the owners of the units. Each condominium corporation represents
the condominium owners of each of the phases of development of the project.
Most of the units were sold as investments, thus intended for rental in the
same manner as the Appellant’s units. Approximately 120 units were entrusted
to the Appellant for rental purposes by the five condominium corporations
operating under the name Syndicat des copropriétaires de Place au Pied du Mont
Sainte‑Anne Phase I to V, depending on the year of development.
[5] In
order to ensure the rental of the units, to have a permanent presence on-site,
and to benefit from the cost savings arising from negotiations as a group, each
of the condominium corporations had agreed, through a Memorandum of Agreement,
to entrust the Appellant with some responsibilities respecting the management
of current operations. The Appellant already owned a building on site which
contained an administration office and reception area, a swimming pool, an
activity room, and the equipment required to wash the bedding. It also had the
staff on hand to provide these services.
[6] The
Memorandum of Agreement between the Syndicat des copropriétaires de Place au
Pied du Mont Phase III and the Appellant was filed in evidence as an
example. A similar Memorandum was signed by the other condominium corporations,
covering the period beginning October 1, 1995, and ended September 30, 1996.
The preamble states that, among other points, the purpose of this understanding
is to [Translation] “enable the realization of savings through group negotiation
and shared management of the site.” To this end, the Memorandum designates the
Appellant [Translation] “as the manager of certain current activities under the
responsibility of the Syndicat.”
[7] The
Memorandum specifies that:
1) the Appellant shall negotiate
contracts for snow removal (par. 1(a)), container rental and transportation
(par. 10(a)), and insurance (par. 12(a));
2) in addition to hiring the staff
required to meet the requirements of the Memorandum (par. 18), the Appellant is
required to hire a lifeguard for the swimming pool (par. 9(a)), a security
guard for the night shift (part. 11), and activity leaders (par. 15(b));
3) the Syndicat is required to pay
$3,750 per phase, per year, as “management fees”;
4) complaints are to be filed with
Appellant and the Syndicat (par. 32 to 34). However, where a complaint is not
related to the application of the memorandum, the director is to forward it to
the Syndicat for follow-up (par. 35);
5) any increase in unforeseen
expenses is to be assumed by the Syndicat. The Appellant agrees to render the
shared services at cost, thereby realizing no profits (par. 39);
6) the Appellant is to inform the
Syndicat of any budgetary item increase and obtain authorization before
incurring the expense (par. 40).
[8] At
the time, Pierre Petitclerc acted as President of one condominium corporation
and Chairman of the Appellant’s Board of Directors. According to him, the
objective of the Memorandum was to respond to the owners’ concerns, because if
the units were not rented out and maintained, the investment would not be
successful. The notion was to create a continuous presence.
[9] He
summarized the functioning of the Memorandum by stating that the responsibility
for the implementation of his role was conferred upon the Appellant’s Director
General, Mr. Louis Michaud. Mr. Michaud was responsible for soliciting service
proposals to submit to the condominium corporations for their approval. The
same is true of tenders for snow removal, lifeguards for the swimming pools,
insurance, and waste collection. The Appellant was to prepare a budget and
submit it to the condominium corporations for their approval. A number of
post-dated cheques were written and remitted to the Appellant. These payments
were to cover the services paid for by the Appellant, at the Appellant’s cost.
Where the costs came in below budget, the Appellant would not realize a profit,
because a credit would be given to the Syndicat for the following year. Where
the costs were higher than budgeted, the Syndicat was to cover the increase,
further to its approval.
[10] This Memorandum was in effect during the period at issue. In October
1996, the Appellant chose not to renew the agreement owing to its
dissatisfaction with some elements. It decided to provide its management
services at an agreed on rate. The Appellant was no longer required to render
accounts, and it assumed all of the risks relating to the cost of services.
[11] The Appellant and the Respondent filed some contracts in evidence,
such as:
1 — a contract for snow removal
services with Ladufo Inc., in which only the name of the Appellant appears;
2 — a contract for insurance
coverage with Les Assurances René Beauregard Inc. The name of the insured
in this contract is “Condominiums Au Pied du Mont Phase I-II-III-IV-V”;
3 — a contract with Groupe Sani‑Gestion
Inc. for the rental of containers in the tenant’s name: Condominiums au Pied du
Mont Inc.;
4 — a contract for bus
transportation (shuttle service), concluded by the Appellant, Tours Côté de
Beaupré Mont Sainte‑Anne Inc., and Ms. Thérèse Saillant;
5 — a contract concluded by Senco
and Condos au Pied du Mont, listing the address of work as Phases I‑II‑III‑IV‑V,
176 units, and the administrative centre;
6 — a contract concluded by the
Appellant and Les Arpents Verts enr., which stipulates that the conditions are
identical for Phases I to V.
[12] The Appellant’s financial statements show shuttle service expenses
totalling $24,500 under “condominium fees,” which is the exact amount, not
including GST, that is stipulated in the contract between the Appellant and
Tours Côté de Beaupré. The financial statements also include salary and
equipment rental expenses that appear to have been generated by the Memorandum
of Agreement.
[13] The Director General, Louis Michaud, confirmed Mr. Petitclerc’s
testimony. He was responsible for soliciting proposals, submitting them to the
condominium corporations for approval, and awarding contracts once approved.
He stated that during the period at issue, the expenses incurred were paid by
the Appellant on behalf of the condominium corporations from funds obtained in
advance. Had the Appellant lacked funds, the Syndicat would have forwarded
funds to it. The majority of the contracts were signed by the Appellant. Mr.
Michaud was authorized to sign on behalf of the Appellant.
[14] Éric Morency works at landscaping maintenance. He operates a
business under the company name “Les Arpents Verts.” He is one of the service
providers who signed a contract with the Appellant. He testified that the
conditions were identical for all five phases (condominium corporations). He
stated that Louis Michaud contacted him to solicit a tender. Mr. Michaud
explained to him that he was obligated to consult with the condominium
corporations’ owners before accepting the tender. The contract was approved
only the following spring. Although he had signed his contract with the
Appellant, he stated that if he caused any type of damage, he would have to resolve
any issues with the condominium corporations’ managers, not with Louis Michaud.
After 1996, he signed contracts with each condominium corporation and with the
Appellant for the reception centre, but Louis Michaud remained the
spokesperson, paid by the Appellant.
[15] Given the issue at hand, an analysis of the content of the contract is
necessary to establish whether the Appellant acted as an agent for the
condominium corporations in such a way that it was not required to collect
GST. This is a relevant issue, owing to section 178 of the Act that was in
effect during a portion of the period at issue. This section read as follows:
178 For the purpose of this Part, where in
making a supply of a service a person incurs an expense for which the person is
reimbursed by the recipient of the supply, the reimbursement shall be deemed to
be part of the consideration for the supply of the service, except to the
extent that the expense was incurred by the person as an agent of the
recipient.
[16] For the period beginning April 24, 1996 (the date on which section 178
was repealed), and ended on October 31, 1996, the Appellant may submit that it
was acting as an agent in order to contest the assessment, because the
application of the provisions of the Act gives the same general result. In Libra
Transport (B.C.) Ltd. v. Canada, [2001]
T.C.J. no. 254 (Q.L.), Bowie J. arrived at the same conclusion, as stated in
paragraph 15:
. . . Section 178 of the Act, prior
to its repeal, specifically excluded such amounts from the consideration for
services. That section
was repealed because it was redundant; the same result is arrived at as a
matter of legal principle.
[17] The Civil code of Québec, S.Q. 1991, c. 64 (C.c.Q.)
defines “mandate” in section 2130 as follows:
Mandate is a contract by which a person, the mandator,
empowers another person, the mandatary, to represent him in the performance of
a juridical act with a third person, and the mandatary, by his acceptance,
binds himself to exercise the power.
[18] According to P. Popovici’s [sic] book, “La Couleur du
mandat,” Éditions Thémis, 1995, on page 18, the essence of a mandate is
the power of representation and the performance of a juridical act.
[19] The CCRA has established the essential qualities of agency in its
policy statement P‑182. The Federal Court of Appeal makes a reference to
this policy in Glengarry Bingo Association v. Canada, [1999] F.C.J. no. 316 (Q.L.), as follows:
... Although not determinative of the meaning of
"agency" in section 178, the draft policy statement P-182 referred
to, although not binding, is a useful tool in determining whether an agency
relationship exists.
[32] P-182 identifies three
essential qualities of agency. These are the consent of both the Principal and
Agent, the authority of the Agent to affect the Principal's legal position and
the Principal's control of the Agent's action. Since I find that GBA did not
have the capacity to affect the legal position of its members, I find it
unnecessary to address the other factors which Revenue Canada has indicated are
required for a finding of agency.
[20] Regarding this last essential quality, the CCRA states in policy P-182
that:
In a relationship of agency, it
should be clear that the principal has a degree of power over the actions of
the agent; the agent would be acting as an extension of the principal and,
therefore, would be under the principal’s general direction and control.
[21] It appears to me that it is necessary to establish the presence of the
following qualities in order to find that agency exists:
1 — the performance of a legal transaction;
2 — the consent of the principal and the
agent;
3 — the authority of the agent to
affect the legal position of the principal;
4 — the control that the principal
exercises over the actions of the agent.
[22] In Policy P-182, the CCRA also recommends that the following
indicators of agency be taken into consideration to determine whether agency
exists, once the essential qualities have been established:
1 — Remuneration: the agent
receives a set fee for the activities undertaken to be completed rather than
the profit from a transaction;
2 — Ownership of property:
generally speaking, an agent does not acquire any interest in the property
obtained from a third party as ownership passes directly to or from the
principal;
3 — Liability of
contract/liability for payment: the principal is liable for contracts and
payments;
4 — Accounting practice:
the fact that a person segregates from his own funds any monies received or
paid out in connection with another person is indicative of an agency capacity;
5 — Best efforts: an agent
usually undertakes to use his best efforts in acting for his principal, rather
than guaranteeing to achieve a certain result to or on the principal’s behalf;
6 — Assumption of risk:
would normally be borne by the principal;
7 — Alteration of property
acquired: the principal is solely entitled to alter the nature of the
property;
8 — Use of property or service
by agent: the principal only should normally be entitled to use the
property.
[23] It is the Appellant’s responsibility to show, on a balance of
probabilities, the existence of an agency relationship (see Glengarry,
supra). To this end, the Memorandum of Agreement becomes an essential tool
in determining the nature of the relationship the Appellant has established
with the condominium corporations. The preamble expresses the intention of the
parties to this agreement to realize savings through group negotiations and
through shared management of Au pied du Mont Sainte‑Anne resort. The
Appellant is designated as the manager of some current activities for which the
Syndicat is responsible. Management fees are payable to the Appellant under
paragraph 27, and the expenses relating to commitments stipulated in the
agreement are payable at their actual cost, based on the budget submitted.
[24] Counsel for each of the parties submitted criteria for application and
the manner in which they are to be applied in the case at hand. The issue involves
mainly the first criteria, that is, whether the Appellant had the authority to
represent the condominium corporations in carrying out a legal transaction with
a third party. According to policy P-182, this corresponds to the authority of
the agent (Appellant) to affect the principal’s (the condominium corporations)
legal position. In Glengarry, supra, Sexton J. explained this
criteria, saying that the most current example of the manner in which an agent
can affect the principal’s legal position is the conclusion of a contract in
the principal’s name.
[25] In this case, the Memorandum of Agreement authorizes the Appellant to
negotiate a contract for snow removal, container rentals, waste collection, and
insurance. The Appellant’s Director General was to solicit proposals or
tenders for services and have them approved by the condominium corporations
prior to signing an agreement or a contract. Each of the contracts filed in
evidence refer to the five phases of the condominium corporations, except the
contract for container rentals (document I-3) and the contract for bus
transportation (document I-4), in which neither the condominium corporations
nor the phases are identified. It is my opinion that the fact of identifying
phases or referring to them is not sufficient to conclude that a contractual
commitment was made by the condominium corporations to these third parties.
The same is true regarding references to the same street address. The
confirmation of insurance provides a bit more detail about the name of the
parties insured, but the policy was not filed in evidence. Therefore, it
appears to me that it is impossible to conclude that in this case, the
Appellant had the capacity to affect the legal position of the condominium
corporations, because it did not conclude any contracts with a third party in
the name of the condominium corporations. It is my opinion that these are
contracts signed and proposals made for the benefit of the Appellant and the
condominium corporations with a view to realizing savings through group
negotiation and shared management of the resort, as proposed in the preamble to
the memorandum.
[26] The background for the creation of the Memorandum is this large group
of owners who all have in common the goal of seeing the resort functioning
smoothly. Given that the Appellant was retained exclusively by the co-owners
of the resort, and that it has all the infrastructures in place to operate the
resort, it is normal that the condominium corporations would have recourse to
its services. In addition to the contracts that the Appellant was to negotiate
and have approved, it was to ensure the services described in paragraph 26 of
the memorandum. To do so, the Appellant needed employees such as lifeguards,
security guards, and activity leaders. The condominium corporations’ only
contractual obligation was to give post-dated cheques to the Appellant every
three months. That, in my opinion, does not give rise to a legal obligation of
the condominium corporations toward the third parties. The responsibility
under the contracts and for the staff, and the obligation to make payments
belongs to the Appellant entirely. The Director General confirmed in his
testimony that any third party was to address him directly, where this party
had not received payment. The condominium corporations’ only obligation was to
make their payments to the Appellant in accordance with the memorandum. Where
an excess amount was refunded to the condominium corporations or a deficit was
to be covered by them, it is my opinion that these are not risks that a
principal would usually assume in a principal-agent relationship.
[27] The fact that the condominium corporations pay for expenses at cost
and that the payments are made to the Appellant for this purpose does not, in
my opinion, make the condominium corporations’ liable to the third parties.
Moreover, such payments do not necessarily give rise to the conclusion of a
principal-agent relationship (see Glengarry, supra).
[28] In this case, the Memorandum stipulates that the condominium
corporations must approve the annual budget and subcontracts. At first glance,
it would appear that the condominium corporations exercise control over the
Appellant with respect to carrying out its functions. It is my opinion that
this is a control over the expenses to be incurred in the management of the
resort, rather than the control of a principal over its agent in concluding a
legal transaction on behalf of the principal. The evidence does not show
conclusively that condominium corporations agreed to authorize the Appellant to
render them liable in a legal transaction.
[29] In this case, there are some indications of the existence of an
agent. For example, the Appellant does not realize any profits, because the
condominium corporations pay its actual cost. The management fees are not
calculated on the basis of the profits generated, but rather, they are set at a
fixed rate, and the Appellant’s responsibility in carrying out the Memorandum
is one of a prudent and diligent person, in accordance with section 2138 of the
C.c.Q. which stipulates that the agent is bound to
fulfil the mandate it has accepted with prudence and diligence. These positive
indications are, nonetheless, not sufficient to conclude that a principal-agent
relationship was created in this case, because it is necessary, above all, to
meet the requirements established in case law. See Glengarry, supra; S.K.
Management Inc. v. Canada, [2003] T.C.J. No 131 (Q.L.); Evergreen
Forestry Services Ltd. v. Canada, [1999] T.J.C. No 193 (Q.L.); and Shvartsman
v. Canada, [2002] T.C.J. No 148 (Q.L.).
[30] For the reasons set out above, it is my opinion that a principal-agent
relationship does not exist between the condominium corporations and the
Appellant. Under the memorandum, the Appellant was not expressly authorized to
act as an agent. The evidence does not indicate that the Appellant acted in
such a manner that leads to the conclusion that such a relationship existed
between the Appellant and the condominium corporations, that is, the authority
to commit and bind the condominium corporations in a legal transaction. It is
not sufficient to simply negotiate an agreement to create a principal-agent
relationship; the agreement must commit and bind the principal. This is not so
in this case. Even the rental of the units gave rise to a contractual
relationship with the Appellant. All the evidence points to the creation of a
management mandate rather than an agency agreement. For these reasons, the
appeal is dismissed, with costs.
Signed at Edmundston,
New Brunswick, this 13th day of January 2004.
Angers
J.
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