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Citation:2004TCC149
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Date: 20040220
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Docket: 2003-3612(IT)I
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BETWEEN:
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Syed Yousuf Ahmad,
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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
Paris, J.
[1] The Respondent has applied for an
Order quashing the Appellant's appeal. In the alternative,
the Respondent seeks an Order granting the Respondent an
extension of time of 30 days to file a Reply to the Notice
of Appeal.
[2] Prior to filing this appeal, the
Appellant had successfully appealed a reassessment for the same
taxation year to this Court. The Appellant is now appealing the
reassessment that was issued by the Minister of National Revenue
as the result of the judgment of this Court in that earlier
appeal. The Respondent is seeking to quash the Appellant's
appeal this time around on the grounds that the Court, in its
judgment on the first appeal, conclusively dealt with the issues
that are now being raised.
[3] In order to understand the
positions of the parties on this application, it is necessary to
set out in some detail the background to, and history of, the
Appellant's first appeal.[1]
[4] The Appellant worked for Atomic
Energy Canada Limited ("AECL") from 1967 to 1987. In 1984, he was
demoted by AECL due to certain actions taken by AECL's major
customer, Ontario Hydro. In August 1986, the Appellant
brought an action in the Ontario Superior Court against
Ontario Hydro for inducing AECL to breach his employment
contract.
[5] On December 24, 1993,
the Appellant won his suit against Ontario Hydro and was
awarded general damages of $488,525.00, damages for libel of
$40,000.00 and interest on those amounts by the
Ontario Superior Court.
[6] On July 22, 1997, the
Ontario Court of Appeal affirmed the trial
judgment and award. The Appellant received the damages as set out
above, and interest thereon as follows:
Pre-judgment interest [2] $388,212.00
Post-judgment interest [3]
$199,371.00
Per diem interest [4]
$6,329.00
[7] The total amount of the
pre-judgment and post-judgment interest that related to the award
of general damages (as opposed to the award of damages for libel)
was $548,965.00.
[8] The Minister of National Revenue
reassessed the Appellant on March 16, 2001 to include
the general damages of $488,525.50 and interest of $548,965.00 in
his income for 1997.
[9] The Appellant objected to that
reassessment. In his Notice of Objection, the Appellant stated
the issues to be:
(a) whether a receipt of damages for the tort of inducement to
breach a contract is income;
(b) whether an amount described as interest awarded in respect
of a judgment for damages is income; and
(c) whether the legal costs incurred in bringing a suit for
inducement to breach of a contract are deductible in computing
income. [5]
[10] The Minister subsequently confirmed the
reassessment and the Appellant appealed to this Court.
[11] In his Notice of Appeal, the Appellant
set out the issues as:
(a) whether the damages awarded for the tort of inducement to
breach a contract is income; and
(b) whether the amount described as interest in respect of the
period prior to the determination of an award of damages is
income. [6]
[12] At the opening of the hearing of the
appeal, the Appellant's counsel made the following statement
to the Court:
"For the record, we are claiming that the pre-judgment
interest is simply a part of the damage award and is not interest
and subject to tax. We are not making the same claim with respect
to the post-judgment interest, because the post-judgment
interest arose out of an award that was made by Williams, J. at
the trial." [7]
[13] Miller, J. rendered his judgment and
reasons in the appeal on September 11, 2002. In those
reasons, he set out the issues as:
(a) [w]hether the general damages are income pursuant to
subsection 56(1) of the Income Tax Act as a retiring
allowance, being an amount received as damages in respect of a
loss of an office or employment [and]
(b) [w]hether the amount described as pre-judgment interest is
brought into income as interest pursuant to paragraph
12(1)(c) of the Income Tax Act.[8]
[14] He found that the general damages did
not fall within the definition of retiring allowance and that the
interest was not covered by paragraph 12(1)(c). He
therefore allowed the appeal and referred the matter back to the
Minister of National Revenue for reassessment on the basis that
the general damages and pre-judgment interest were not
taxable receipts to the Appellant.
[15] The Minister reassessed the Appellant
for the 1997 taxation year on October 25, 2002 and
deleted the general damages and pre-judgment interest from his
income[9]. A
subsequent reassessment was issued on December 18, 2002
to delete a penalty that had been missed in the prior
reassessment[10].
[16] On December 30, 2002 the
Appellant purported to object to the October 25, 2002
and December 18, 2002 reassessments. The Minister did
not act on those objections on the basis that the Appellant was
precluded from objecting to the reassessments by virtue of
subsection 165(1.1) of the Income Tax Act.
[17] The Appellant has now appealed from
those reassessments to this Court raising the issue of whether
the post-judgment and per diem interest on the award of general
damages should have been included in his income in his 1997
taxation year, and the Respondent has brought this Motion to
quash the appeal.
[18] The Respondent's grounds are as
follows:
1. The issue
raised in the Notice of Appeal, the taxation of post-judgment
interest, is res judicata, as the issue properly
belonged to a cause of action between the same parties upon which
the Tax Court of Canada pronounced a final judicial decision;
2. Subsection
165(1.1) of the Income Tax Act prohibits the Appellant
from objecting to a reassessment issued pursuant to an order of a
court vacating, varying or restoring the assessment or referring
the assessment back to the Minister for reconsideration and
reassessment where the matter was conclusively determined by the
Court;
3. Subsection
169(2) prohibits the Appellant from appealing a reassessment
issued pursuant to an order of a court vacating, varying or
restoring the assessment or referring the assessment back to the
Minister for reconsideration and reassessment where the matter
was conclusively determined by the Court.
[19] The Respondent's position is that
the Appellant raised the question of taxability of the
post-judgment interest and per diem interest in his Notice of
Appeal in the earlier appeal, and that the Appellant's
counsel conceded at the hearing of the appeal that it was
taxable. Alternatively, the Respondent takes the position that,
if I were to find that the matter was not raised in the appeal,
it was an issue that was related to those in the appeal and one
that could have been raised at that time. In either case the
Appellant is precluded by the principle of
res judicata and by subsection 165(1.1) of the
Act from objecting to the reassessments and by subsection
169(2) from appealing from the reassessments. The relevant
provisions read as follows:
165(1.1) Notwithstanding subsection (1), where at any
time the Minister assesses tax, interest or penalties payable
under this Part by, or makes a determination in respect of, a
taxpayer
(a) under
subsection 67.5(2), subparagraph 152(4)(b)(i) or
subsection 152(4.3) or (6) or 164(4.1), 220(3.4) or 245(8) or in
accordance with an order of a court vacating, varying or
restoring the assessment or referring the assessment back to the
Minister for reconsideration and reassessment,
(b) under
subsection (3) where the underlying objection relates to an
assessment or a determination made under any of the provisions or
circumstances referred to in paragraph (a), or
(c) under a
provision of an Act of Parliament requiring an assessment to be
made that, but for that provision, would not be made because of
subsections 152(4) to (5),
the taxpayer may object to the assessment or determination
within 90 days after the day of mailing of the notice of
assessment or determination, but only to the extent that the
reasons for the objection can reasonably be regarded as relating
to a matter that gave rise to the assessment or determination and
that was not conclusively determined by the court, and this
subsection shall not be read or construed as limiting the right
of the taxpayer to object to an assessment or a determination
issued or made before that time.
169(2) Notwithstanding subsection (1), where at
any time the Minister assesses tax, interest, penalties or other
amounts payable under this Part by, or makes a determination in
respect of, a taxpayer
(a) under
subsection 67.5(2) or 152(1.8), subparagraph 152(4)(b)(i)
or subsection 152(4.3) or (6), 164(4.1), 220(3.4) or 245(8) or in
accordance with an order of a court vacating, varying or
restoring the assessment or referring the assessment back to the
Minister for reconsideration and reassessment,
(b) under
subsection 165(3) where the underlying objection relates to an
assessment or a determination made under any of the provisions or
circumstances referred to in paragraph (a), or
(c) under a
provision of an Act of Parliament requiring an assessment to be
made that, but for that provision, would not be made because of
subsections 152(4) to (5),
the taxpayer may appeal to the Tax Court of Canada within the
time limit specified in subsection (1), but only to the extent
that the reasons for the appeal can reasonably be regarded
(d) where the
assessment or determination was made under subsection 152(1.8),
as relating to any matter specified in paragraph
152(1.8)(a), (b) or (c), and
(e) in any
other case, as relating to any matter that gave rise to the
assessment or determination
and that was not conclusively determined by the Court, and
this subsection shall not be read or construed as limiting the
right of the taxpayer to appeal from an assessment or a
determination issued or made before that time.
[20] It is the Appellant's position that
the post-judgment and per diem interest issues were not matters
that were conclusively dealt with by this Court in its judgment
of September 11, 2002 because those issues were not and
could not have been raised in that appeal.
[21] The Federal Court of Appeal has
reviewed the scope of the limitation in subsection 165(1.1)
on a taxpayer's right to object to a reassessment in
Chevron Canada Resources Ltd. v. The Queen[11]. In that case
the taxpayer purported to file a Notice of Objection to a
reassessment that was issued pursuant to a Consent Judgment of
this Court. The Notice of Objection dealt with matters that were
covered by the settlement between the parties, and with new
matters that had not previously been objected to. The parties
brought an application in this Court under section 173 of the
Income Tax Act for a determination of whether the taxpayer
was precluded from filing the Notices of Objection by the
provisions of subsection 165(1.1).
[22] Bowman, A.C.J. of this Court found that
the new matters to which the taxpayer was objecting were
reasonably related to the matters which gave rise to the
reassessments and had not been conclusively decided by the Court.
Therefore the taxpayer's right to object to those matters was
not precluded by subsection 165(1.1).
[23] On appeal, the Court upheld the finding
that the new matters were reasonably related to the matters which
gave rise to the reassessments but reversed the finding that
these matters had not been conclusively determined by the
Tax Court in its Consent Judgment. As such, the taxpayer was
barred by subsection 165(1.1) from objecting to the reassessments
in respect of those matters. The Court of Appeal rejected the
taxpayer's argument that the Consent Judgment only disposed
of the specific issues which it addressed and no more. It held
that, by virtue of the doctrine of res judicata, a
judgment of a Court conclusively determines all undecided but
related matters to the subject of the litigation, including those
that could have been raised at the time. The Court referred to
the following comments of the Judicial Committee of the Privy
Council in Thomas v. Trinidad & Tobago
(Attorney General)[12]:
The principles applicable to a plea of
res judicata are not in doubt and have been
considered in detail in the judgment of the Court of Appeal. It
is in the public interest that there should be finality to
litigation and that no person should be subjected to action at
the instance of the same individual more than once in relation to
the same issue. The principle applies not only where the remedy
sought and the grounds therefor are the same in the second action
as in the first but also where, the subject matter of the two
actions being the same, it is sought to raise in the second
action matters of fact or law directly related to the subject
matter which could have been but were not raised in the first
action. The classic statement on the subject is contained in the
following passage from the judgment of Wigram, V.C., in
Henderson v. Henderson (1843), 3 Hare 100, at
page 115:
"... where a given matter becomes the subject of
litigation in, and of adjudication by, a court of competent
jurisdiction, the Court requires the parties to that litigation
to bring forward their whole case, and will not (except under
special circumstances) permit the same parties to open the same
subject of litigation in respect of matter which might have been
brought forward as part of the subject in contest, but which was
not brought forward, only because they have, from negligence,
inadvertence, or even accident, omitted part of their case.
The plea of res judicata applies, except in special
cases, not only to points upon which the court was actually
required by the parties to form an opinion and pronounce a
judgment, but to every point which properly belonged to the
subject of litigation, and which the parties, exercising
reasonable diligence, might have brought forward at the
time." (Emphasis
added.)
[24] The Court found that subsection
165(1.1) permitted further objections after reassessments made in
accordance with a judgment of this Court "with respect to
issues related to the matter that gave rise to [the
reassessment], but which were not available at the time of the
earlier litigation."
[25] The Court held that the Consent
Judgment had conclusively determined all the matters which had
given rise to the reassessments including all undecided but
related matters.
[26] In this case I am satisfied that the
issue of whether the post-judgment and per diem interest was
taxable was not raised by the Appellant in his Notice of Appeal
filed in his previous appeal. The reference in the Notice of
Appeal to "interest in respect of the period prior to the
determination of an award of damages"[13] is a reference to pre-judgment
interest only. The comments made by the Appellant's counsel
at the opening of the hearing before Miller, J. to the effect
that the post-judgment interest was accepted as being taxable
were to clarify that this particular matter was not in issue.
[27] However, I am also satisfied that this
question was related to the matter that was before the Court at
that time. There, the Appellant was contesting the manner in
which the Minister had taxed certain damages and interest he had
been awarded in his lawsuit against Ontario Hydro. All of
the interest the Appellant received flowed from the award made by
the court against Ontario Hydro, and the issues of whether
the component parts of the interest award were taxable were
inter-related.
[28] Even if I had found that the matter
that the Appellant now seeks to raise was not related to any of
the issues in his first appeal, it is an issue that he could have
raised the issue in the first appeal. It appears to me that it
was raised in his original objection. The description of the
issues set out in the Appellant's original Notice of
Objection included the following:
(b) whether an amount described as interest awarded in respect
of a judgment for damages is income;[14]
[29] This statement leads me to conclude
that the Appellant, at that stage of the proceedings, had
intended to put in issue the taxability of all of the interest
that he had received as a result of his lawsuit, including the
post-judgment and per diem interest. The comments made by his
counsel at the hearing that I have cited above indicate that
further consideration had been given to this post-judgment
interest issue at that point, and that the Appellant had decided
not to pursue it in his appeal.
[30] There is nothing before me to indicate
that it was not possible for the Appellant to raise the issue in
his earlier appeal, had he wished to do so. I do not accept the
Appellant's suggestion that the issue was too complex to
raise in the original appeal because the taxability of the
post-judgment and per diem interest depended on the outcome of
other issues in the appeal, particularly whether the damage award
given by the Ontario Superior Court was a retiring
allowance. It is often the case in litigation that the
determination of a particular issue in a particular way will
influence the determination of related issues, but this does not
relieve a party from the obligation of putting forward all of the
foreseeable related issues at once. Otherwise, as it has already
been observed, there might be no end to litigation.
[31] Nor is there evidence before me of any
special circumstances that would warrant me overlooking the rule
of res judicata. The Appellant simply did not bring
forward an issue that could and, had he so wished, should have
been raised in the earlier litigation.
[32] For these reasons, I find that the
issues raised by the Appellant in his most recent Notice of
Objection and Notice of Appeal were conclusively determined by
the judgment of Miller, J. dated September 11, 2002.
Therefore he is prohibited by subsection 165(1.1)(e) from
objecting to the October 25, 2002 reassessment and he
is prohibited by paragraph 169(2)(e) from bringing an
appeal on these issues. The Respondent's motion is granted
and the appeal is hereby quashed.
Signed at Ottawa, Canada, on this 20th day of February
2004.
Paris, J.
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