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Citation: 2004TCC480
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Date: July 2, 2004
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Docket: 2004-1415(IT)G
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BETWEEN:
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HUGH STANFIELD,
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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
Bell, J.
[1] The
Respondent filed and served on the Appellant on Friday, June 18, 2004 Notice of
Motion for an order extending the time within which the Respondent could file
and serve its Reply to the Notice of Appeal to August 31, 2004, with costs
"payable forthwith and in any event of the cause."
[2] Appellant's
counsel advised the Court that he agreed, even though the appropriate notice
had not been given, to have the motion heard on Monday, June 21, 2004. The time
for filing the Reply expired on Saturday, June 19, 2004, but was, in accordance
with the appropriate Rules, extended to June 21, 2004, the date of the hearing.
Appellant's counsel also advised the Court that he and his co-counsel spent the
weekend preparing material for this hearing. That material consisted of a
twenty-five paragraph affidavit by his associate, Elizabeth Junkin, attaching
nine exhibits, a thirty-one paragraph affidavit by the Appellant, sworn on June
20, 2004 and a Book of Authorities containing the pertinent sections of the Tax
Court of Canada Rules (General Procedure) ("Rules"), sections of
the Income Tax Act ("Act") and the text of various
cases.
[3] The
Notice of Motion was brought because Appellant's counsel, on instructions from
the Appellant, advised Respondent's counsel that the Appellant would not
consent to an order for the extension of time to file the Reply to the Notice
of Appeal.
[4] An
affidavit by one Ron D.F. Wilhelm, (“Wilhelm”), containing twenty-five
paragraphs and attaching several exhibits and dated June 18, 2004 set forth
circumstances relating to the appeal.
[5] No
oral evidence was tendered or was sought to be tendered.
[6] The
foregoing affidavits disclose that,
1. The Minister of National Revenue
("Minister") reassessed the Appellant on July 17, 2002 for his 1998
taxation year disallowing a claimed loss of $6,202,959 respecting a certain
trading joint venture;
2. The Appellant filed and served a
Notice of Objection on the Minister on August 30, 2002;
3. On April 7, 2004 the Appellant
filed a Notice of Appeal to this Court respecting the reassessment;
4. On April 20, 2004 this Court
transmitted a copy of the Notice of Appeal to the Deputy Attorney General of
Canada;
5. Wilhelm. Lynn Burch (“Burch”),
and Robert Carvalho (“Carvalho”), were, on May 11, 2004 assigned as counsel for
the Respondent in this matter.
6. Wilhelm's affidavit stated that
as of that date no Canada Revenue Agency ("Revenue") materials had
been forwarded to the Department of Justice.
7. On May 13, 2004 the Litigation
Manager in Revenue advised that his section had not received any file material.
8. On May 19, 2004 Wilhelm reviewed
printed Revenue materials of approximately 500 pages and stated that the legal
issues involved were complex and that the materials contained:
…only one of numerous source and
other documents that would allow me to properly understand this appeal and
prepare the Reply.
9. On May 20, 2003 Wilhelm
requested additional materials from Revenue and followed up that request on May
28, 2004. He was advised on that day that one Chris Fleming (“Fleming”) was in
charge of most of Revenue materials but that he was away from the office until
May 31, 2004.
10. On May 31, 2004 and June 1, 2004
Wilhelm and Fleming exchanged "voice mail messages".
11. On June 2, 2004 Wilhelm advised
Fleming that it was important that he received all Revenue materials as soon as
possible, "particularly given the deadline for filing the Reply."
Fleming advised Wilhelm that he was "very busy dealing with a complex
case" and that he had a lot of materials respecting the transactions in
issue that were loaded "on to a computer server for ease of use."
12. On June 7, June 9 and on June 11,
2004 Wilhelm called Fleming and was advised that:
…the process was going slowly because there are over
14 thousand computer files involved and the system appeared to be trying to
conduct a virus scan of each one before copying.
13. On June 11, 2004 Wilhelm called
Elizabeth Junkin ("Junkin") advising of the difficulty in obtaining
Revenue materials necessary to prepare the Reply. He advised that he would be
seeking an extension of time to file the Reply.
14. On June 16, 2004 Wilhelm again
called Fleming and left a "voice mail message" for him to call
respecting the materials and compact disks.
15. On June 16, 2004 Edwin Kroft
(“Kroft”), counsel for the Appellant called Wilhelm and advised that the
Appellant would not consent to an extension of time for filing the Reply.
16. On June 17, 2004 Fleming called
Wilhelm and advised that he should receive the compact discs that day and that
they contained about 18,000 pages of documents. Fleming also advised that he
had identified approximately 110 Revenue employees involved in "the
subject transactions" and that he had not checked with each of them to
confirm that he had all of Revenue's materials.
17. Junkin's affidavit described in
some detail the communications between one Deanna Pumple ("Pumple"),
of the Tax Avoidance Section of Revenue requesting certain information and
documents relating to the losses claimed.
18. An April 7, 2000 letter from
Pumple informed the Appellant that Revenue had concluded its review of his trading
activities.
19. The Appellant's response of May
6, 2000 suggested that Revenue did not "have a very good grasp on markets
(particularly commodities and futures) and the way they work." This letter
went on to challenge the knowledge of departmental officials both with respect
to the nature of the transactions and the state of law in Canada.
20. Pumple's letter of September 12,
2000 to the Appellant advised that Revenue was making arrangements with its
head office to consult with specialists.
21. On February 12, 2002 Pumple wrote
to the Appellant notifying him of proposed adjustments to his 1998 tax return.
22. Appellant's counsel requested
information pursuant to the Privacy Act and received 101 pages of
documents including Pumple's audit report for the Appellant's 1995 to 1990
taxation years, such letter being signed by Pumple on April 29, 2002.
23. The Minister issues a Notice of
Reassessment dated July 17, 2002 respecting that taxation year.
24. On August 30, 2002 the Appellant
filed a Notice of Objection.
25. A September 5, 2002 letter from
the Appeals Division of Revenue acknowledged the Notice of Objection and stated
that:
Our Investigations Division is
examining the taxation affairs of a number of individuals who have claimed
commodities losses, operating losses, interest expenses, and other claims
related to future contracts, which were subject to review by our Tax Avoidance
Division…
We are holding your Notices of
Objection in abeyance for the duration of this investigation.
26. No notification of confirmation
respecting the said reassessment was received by the Appellant or his
representatives.
27. Pumple's August 27, 2002
requested documentation and the completion of a detailed questionnaire
respecting the Appellant's 1999 and 2000 taxation years.
28. On September 20, 2002 the
Appellant filed an application to the Federal Court – Trial Division for
judicial review of the aforesaid request for information and attached
questionnaire seeking an order that the act by the Minister was invalid or
unlawful and restraining the Minister from taking any action against the
Applicant for failure to respond to the letter.
29. Various steps including the
preparation of an affidavit by Pumple and the cross-examination of her.
30. The Appellant brought a motion to
the Federal Court of Canada seeking an order compelling the Respondent to
provide certain documents and for Pumple to re-attend the cross-examination to
answer certain relevant questions.
31. This motion was heard by Mr.
Hargrave (“Hargrave”), Prothonotary on February 3, 2003.
32. In his Reasons for Order dated
April 20, 2004 Hargrave granted the motion in part and ordered the production
of the "principal file" referred to in the audit report.
33. The Respondent provided the
Appellant with that principal file, a binder containing approximately 2 inches
of documents.
34. The Appellant filed a Notice of
Appeal to this Court on April 7, 2004.
35. A May 13, 2004 letter from Burch
advised Appellant's counsel that a Reply would be filed in the near future.
36. Wilhelm advised Dunkin by
telephone on June 11, 2004 that he was working on this matter. This was
described as the "first telephone contact from the Department of Justice …
since the receipt of the foregoing letter…."
37. On June 16, 2004 Kroft advised
Wilhelm that the Appellant was not prepared to consent to the request for an
extension of time.
38. The Appellant's affidavit of June
20, 2004, in reference to Wilhelm's affidavit aforesaid, stated that he
vehemently denied that there was no prejudice to him by further delays by the
Respondent.
39. That affidavit also stated that
in his 1999 taxation year he declared the profit corresponding to the loss
claimed in 1998. The affidavit goes on to say that Revenue left the profit in
his income thereby issuing inconsistent reassessments for those two years and
that his tax debt was, accordingly, "huge".
40. Appellant said that as a result
of these actions by Revenue his health was affected and he was taking
anti-depressant medication. His affidavit went on to describe the damage to his
credit reputation and also how his economic position would suffer and how his
wife's health was deteriorating because of these events.
41. He described his experience and
expertise with computers and commented questioningly on the results reached by
Revenue.
[7] The
grounds for the motion stated in the Notice of Motion are:
1. the
Respondent intends to file a Reply to the Notice of Appeal;
2. there is an
arguable case for supporting the reassessment at issue;
3. the reason
the Respondent requests the extension of time to file the Reply to the Notice
of Appeal is due to the enormous volume of materials collected during the audit
process that need to be organized and produced by the Canada Revenue Agency as are
relevant to this Appellant and at this time, counsel for the Respondent simply
to not have all the materials necessary to put forward the Respondent's
position with sufficient particularity;
4. an extension
of time for the Respondent to file the Reply to the Notice of Appeal causes no
prejudice to the Appellant;
5. denial of an
extension of time for the Respondent to file the Reply to the Notice of Appeal
causes significant prejudice to the Respondent;
6. denial of an
extension of time for the Respondent to file the Reply to the Notice of Appeal
would hamper this Court's ability to be fully apprized of all the relevant
facts and assumptions, particularly given the complexity of the issues
involved.
[8] Burch,
representing the Respondent, submitted that the Respondent had done all it
could do in order to obtain material necessary for the preparation of a Reply
to the Notice of Appeal. She also said that because the records of the
Appellant may be relevant to other investigations, the only way for Revenue to
give the Department of Justice information was by compact discs.
[9] Appellant's
counsel referred to Rule 44 which reads as follows:
Time for Delivery of
Reply to Notice of Appeal
44.(1) A reply shall be
filed in the Registry within 60 days after service of the notice of appeal
unless
(a) the
appellant consents, before or after the expiration of the 60-day period, to the
filing of that reply after the 60-day period within a specified time; or
(b) the
Court allows, on application made before or after the expiration of the 60-day
period, the filing of that reply after the 60-day period within a specified
time.
He pointed out that under Rule 44(2) the allegations of fact in the Notice
of Appeal are presumed to be true and that under 44(4) that presumption
is a rebuttable presumption.
[10] Counsel pointed out that under subsection 163(3) of the Act the
burden of establishing the facts justifying an assessment of penalty is upon
the Minister. He then referred to Canada (Attorney General) v. Hennelly,
[1999] F.C.J. No. 846 (F.C.A.), a decision of Muldoon, J. of the Federal Court
of Canada. Counsel said that he decided, in respect of an inadvertent failure
to file a certain record within the time provided, that inadvertence was not a
sufficient ground at law for the forgiving of the failure to meet a required
time limitation. Muldoon, J. said:
On the basis of that jurisprudence
this motion, unfortunately for the applicant, is to be dismissed, because even
candidly admitted inadvertence will not suffice in the absence of the
respondent's forgiving consent. Here no one concerned was in a coma or
otherwise incapacitated, and while inadvertence is a more than a sufficient
ground for sympathy for every day of the inadvertent delay, it is not a
sufficient ground in law and in the jurisprudence.
On appeal to the
Federal Court of Appeal McDonald, J.A. said:
The proper test is whether the
applicant had demonstrated
1. a continuing
intention to pursue his or her application;
2. that the
application has some merit;
3. that no
prejudice to the respondent arises from the delay; and
4. that a
reasonable explanation for the delay exists.
He then agreed
with the decision of Muldoon, J.
Counsel also referred to Chin v. Canada (Minister
of Employment and Immigration), [1993] F.C.J. No. 1033. In this case an
Applicant filed an application for leave to apply for judicial review of a
decision of an immigration officer. It was required to be filed by before
August 27, 1993. A request for an extension of time for filing same was made on
the ground that counsel for the Applicant was going to be attending an
out-of-town bar convention and would be unable to complete the application
record before her departure. The request was denied. Reed, J. said:
I think I should set out my
approach to motions for extensions of time. I start with the premise that the
time limits set out in the rules are meant to be complied with. If they are too
short then requests should be made to have the rules amended so that the time
limits are lengthened. I do not grant requests for extensions of time merely
because it is the first time that counsel has asked or because the workload
which counsel has assumed is too great. I think such decisions are unfair to
those counsel who refuse clients because their work-load is too heavy to allow
them to meet required deadlines or who "pull out all the stops" to
meet the deadlines, at great inconvenience to themselves. As I have indicated I
take the view that the time limits set out in the rules are meant to be
complied with and they are meant to apply to everyone equally. If an automatic
extension was meant to be available merely because counsel seeks one, then the
rules should provide for such an automatic extension, for everyone, when such
is sought.
[11] Kroft then referred to Junkin's affidavit and submitted that counsel
for the Respondent had access to documents before the Reply filing period had
expired. He referred to Revenue's proposal to the Appellant and the conclusion
of Revenue determining that the Appellant was involved in a sham. He suggested
that the matter was the simple issue of whether the Appellant was entitled to
the losses and referred to the documents and the position of Revenue which he
suggested were foundation enough for preparation of a reply to the notice of
appeal. He referred also to the 1999 taxation year in which the amount of
revenue declared by the Appellant had been left in his income, this being
exactly opposite to the decision made with respect to the disallowance of loss
in the preceding year. He referred to the Order of Prothonotary Hargrave in the
Federal Court judicial review matter and particularly to the reasons for same
in which Hargrave said:
The so called principal file,
referred to in question 50 and following, is to be produced.
[12] Counsel also referred to Wilhelm's affidavit stating that the
Respondent, namely Revenue, not the Department of Justice had the necessary
material and seemed not to be cooperating with Wilhelm in its production to the
Department of Justice. With reference to the materials that were available at
the time of the Federal Court judicial review Appellant's counsel questioned
how Wilhelm could not know all that needed to be known to prepare a Reply.
[13] Appellant's counsel also referred to Budget Steel Ltd. v. Seaspan
International Ltd. where the matter at issue was the appropriate test to
apply in order to consider an application for the late filing of a defence to a
counterclaim. Hargrave, Prothonotary said:
As I understand the Plaintiff's
argument, it is that a late defence ought to be accepted so long as the case is
arguable on its merits and there is no demonstrable prejudice, to the other
side, which cannot be compensated for in costs. To exceed to the Plaintiff's
view would be to acknowledge that time limits in the Federal Court Rules
mean little or nothing. The Plaintiff submits that the test set out in Hennelly
(supra) is too severe. … given the facts, I am of the view that the
Plaintiff may in fact have an extension. However I would note in passing that
in Bellefeuille v. Canada (Human Rights Commission) (1993), 66 F.T.R. 1
(Fed. T.D.), at 4, Madam Justice Reed allowed an extension of time for the
filing of a judicial review record, on the basis of a four-part test identical
to that set out half a dozen years later by the Court of Appeal in Hennelly.
[14] In Bellefeuille v. Canada (Human Rights Commission), [1993]
F.C.J. No. 168 an application was filed four months late and no reasonable
explanation was offered for the delay. Reed, J. said:
Counsel for the respondents argues that insofar as the
merits of the application are concerned, the applicant must
demonstrate: (1) a continuing intention to pursue his appeal; (2)
that there is some merit in his application; (3) that no prejudice to the
respondents arises as a result of the delay and (4) that a reasonable
explanation for the delay exists. It is quite clear that conditions
(1) and (3) are met. With respect to condition (2), the applicant's
claim is not frivolous. The respondent, Commercial Transport
(Northern) Ltd., made extensive submissions to the Canadian Human Rights
Commission which apparently caused the Commission not to follow the
recommendations of the Canadian Human Rights Officer who initially reviewed the
complaint, which submissions were filed out of time and to which the applicant
had no opportunity to respond.
There
is no doubt, however, that a reasonable explanation for the delay which
occurred has not been provided. This is not a case where there has
been a brief delay. Four months elapsed between the time when the
application record should have been filed and when it was
filed. This is not a mere administrative slip or minor
non-compliance with the rules. What is more, even after counsel for the
applicant was notified, by letter dated November 3, 1992, that he had ten days
to respond or have the application struck, it was still another month before
any attempt was made to file an application record. For reasons
essentially similar to those given by Mr. Justice Teitelbaum, I conclude that a
reasonable explanation has not been given.
We
all appreciate, that in busy law practices and especially in overworked legal
aid clinics, it is not easy to meet deadlines. At the same time, the
timely and expeditious disposition of applications before the courts is very
much a matter of public as well as private concern and in the public as well as
private interest.
This was affirmed by the Federal Court of Appeal.
[15] Reference was also made to Discovery
Research Systems Inc. v. R, 92 DTC 1306, a decision of this Court. Bonner,
J. said:
The
intent of the Tax Court Act in its present form and of the Rules is
clearly set out in section 3 of the Rules. Cases are to be dealt with as
expeditiously as circumstances and considerations of fairness and justice
permit. If extensions of the time for filing replies were permitted in cases of
delay caused by simple inadvertence there would be a swift return to the
"bad old days" when, under the rules which governed proceedings
commenced before 1991, the great majority of replies were served and filed well
after the 60-day deadline. That practice was one of the evils the present Rules
were intended to eradicate. The Rules would be rendered toothless if late
filing were permitted in cases such as this.
The last day for filing and serving the Reply was
August 25, 1991. This was overlooked until October 4, 1991. The learned
Justice said:
It
appears to be a simple case of oversight.
[16] Reference was also made to Foundation
Instruments Inc. v. R, 92 DTC 1879, in which Garon, J., as he then was,
said after reference to the comments in Discovery Research Systems:
Applying
these principles to the facts of the present situation, I am of the view that
the present case is not a proper one for granting an extension of time for
filing the reply. It seems to me that an extension of time for filing or
serving the reply to the notice of appeal should not be granted if the
tardiness is ascribable to an administrative oversight or an error of the type
with which we are concerned here. On the other hand, such remedy would seem to
be an appropriate exercise of the Court's discretion if the delay is
attributable to a clearly unforeseen event or unusual circumstance over which
the respondent had little or no control and the latter is able to show due
diligence in coping with the situation.
[17] Reference was also made to Telus
Communications (Edmonton) Inc. v. R. 2004 G.T.C. 70, in which an extension
of time was granted.
[18] Finally, in resisting
Respondent's motion, Appellant's counsel referred to the grounds for the motion
contained in the Notice of Motion under discussion and with respect to the
second reason, asked how the Respondent knew that there was an arguable case if
it did not have the material necessary to file a reply. With respect to the
third reason, he challenged that an extension of time was necessary
…
due to the enormous volume of materials collected during the audit process that
need to be organized and produced by the Canada Revenue Agency as are relevant
to this Appellant and at this time, counsel for the Respondent simply do not
have all the materials materials necessary to put forward the Respondent's
position with sufficient particularity.
[19] With respect to the ground that
an extension of time causes no prejudice to the Appellant, counsel for the
Appellant stated that the Appellant's affidavit evidence was to the contrary.
He further challenged whether there was any "significant prejudice to the
Respondent" asking what that significant prejudice was. Finally, with
respect to the sixth ground he referred to the apparent lack of knowledge of
"all the relevant facts and assumptions" stating simply that a
reassessment had been issued, thereby suggesting that the Minister had the
facts necessary so to do.
[20] The Appellant is one of
over one hundred taxpayers involved in the transactions under examination.
There is no doubt that the respondent has taken a substantial length of time in
order to process this matter. The Court does not have knowledge of the
transactions and their complexity. It has no information respecting the
relation of any one taxpayer to any other taxpayer and whether the present
Appellant is in a unique situation or whether he is interconnected with other taxpayers
and, if so, how he is so connected. Appellant's counsel advised the Court that
this was not a test case, implying that there may be some difference from other
taxpayer's circumstances. However, that is an unsafe assumption for this Court
to make because it has no knowledge of what may have taken place respecting the
selection of a test case if, in fact, any discussion of that matter has
occurred. This appeal involves a large sum of money and it appears that the
total is enormous.
[21] This is not a situation in
which the Reply has not been filed because of inadvertence. It is not a
situation where the delay is borne of any personal desire of counsel to be
elsewhere. It is not an application brought after four months of delay. Failure
to file a Reply by June 21, 2004 is not the result of any oversight. Whereas
some of the authorities are firm in the tests to be applied to applications for
extension of time, and while I have some sympathy with the submissions of
Appellant's counsel, I cannot conclude that no extension of time should be
given in this case. While realizing, if the motion is denied, that there would
be only a presumption that the allegations of fact in the Notice of Appeal
would be true and while that presumption is rebuttable, the facts surrounding
the Appellant's claim are best known to him, including perhaps, those with whom
he was associated in the transactions. Logically, the Court should be better
informed of the circumstances if the Appellant presents his case in the normal
way. This Court must be interested in fairness and in justice and it appears to
me that those objectives are better served by this case proceeding in the
normal fashion. While Appellant's counsel urges the Court to find that the
Respondent had all facts necessary for the preparation of a Reply, counsel for
the Minister have, according to Wilhelm's affidavit and submissions made at
this hearing not obtained all the information apparently necessary for the
preparation of a proper Reply. It is idle for me to hypothesize about whether
this matter was assigned to present counsel for the Respondent at a time early
enough for them to have obtained required information. I must, however, say
that assessments should be made, generally only after appropriate fact collection
and examination by the Respondent. Normally, that information would enable the
preparation of a Reply. Respondent’s counsel did not deal with that
proposition when put to her by the Court.
[22] It should be stated that
this matter was to be heard before another Justice of this Court on June 21,
2004. The question of that Justice having some potential conflict of interest
was considered by him on that day and he decided that day, to withdraw from
hearing this motion. As I was sitting in Vancouver during that week and as the
23rd of June became clear for me, I decided, on June 21, rather than have the
parties wait, to hear this motion.
[23] I shall issue an Order to
the effect that the Respondent may file and serve a Reply to the Notice of
Appeal herein on or before July 30, 2004.
[24] The Respondent, curiously,
asked for costs in its motion. Having regard to the fact that it was the party
seeking relief from this Court and having regard to the fact that no motion for
the extension for time was brought until 3 days before the deadline and having
regard to the above comments respecting the basis for reassessment being in the
Respondent’s possession and to the extraordinary effort of Appellant's counsel
over the weekend to prepare for this short notice hearing, costs in the sum of
$2,500 are awarded to the Appellant payable forthwith by the Respondent.
Signed at Ottawa, Canada, on this 2nd day of
July, 2004.
Bell,
J.
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