Date: 19990216
Docket: 97-753-UI
BETWEEN:
CARYL NEGRI,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
and
DIAMOND AUTO COLLISION INC.,
Intervenor.
Reasons for judgment
Porter, D.J.T.C.C.
[1] This appeal was heard at Toronto, Ontario, on October 22,
1998.
[2] The Appellant appeals the determination of the Minister of
National Revenue (the "Minister") dated February 6,
1997 that her employment with Diamond Auto Collision Inc. (the
"Company") from August 1, 1995 to January 12, 1996
was not insurable employment under the Unemployment Insurance
Act (hereinafter referred to as the "Act").
The reason given for the determination was that:
"... your employment was excepted from insurable
employment because you were not dealing at arm's length nor
were you deemed to be dealing at arm's length with Diamond
Auto Collision Inc."
[3] The established facts reveal that the Appellant is the
sister–in-law of Gregorio Pannia who at the material
times owned all the outstanding shares of the Company. Thus,
pursuant to section 3 of the Act and subsection 251(1) of
the Income Tax Act, as related persons they are in law
deemed not to deal with each other at arm's length.
Accordingly the employment in question is, subject to the
exception contained in subparagraph 3(2)(c)(ii) of the
Act, categorized as "excepted employment", that
is to say it is not employment which triggers the payment of
unemployment insurance benefits upon its termination. The
Minister has determined that the employment does not fall within
the exception and the Appellant has appealed that decision.
The Law
[4] In the scheme established under the Act, Parliament
has made provision for certain employment to be insurable,
leading to the payment of benefits upon termination, and other
employment which is "excepted" and thus carrying no
benefits upon termination. Employment arrangements made between
persons, who are not dealing with each other at arm's length,
are categorized as "excepted employment". Brothers and
sisters-in-law are deemed not to be dealing with each other at
arm's length pursuant to subsection 251(1) of the Income
Tax Act, which governs the situation. Quite clearly the
purpose of this legislation is to safeguard the system from
having to pay out a multitude of benefits based on artificial or
fictitious employment arrangements.
[5] The harshness of this situation has however been tempered
by subparagraph 3(2)(c)(ii) of the Act, which
provides for such employment between related persons to be deemed
to be at arm's length and thus in turn to be treated as
insurable employment, if it meets all the other provisions,
where the Minister is satisfied having regard to all the
circumstances (including those items that are set out)
that it is reasonable to conclude that they would have
entered into a substantially similar contract if they had
(in fact) been dealing with each other at arm's
length. It may be helpful to reframe my understanding of
this section. For people related to each other the gate is closed
by the Act to any claim for insurance benefits unless the
Minister can be satisfied that in effect the employment
arrangement is the same as that which unrelated persons, that is
persons who are clearly at arm's length, would have made. If
it is a substantially similar contract of employment, Parliament
has deemed it to be only fair that it should be included in the
scheme. However the Minister is the gatekeeper. Unless he is so
satisfied the gate remains closed and the employment remains
excepted and the employee is not eligible for benefits.
[6] Section 61 of the Act deals with appeals to and
determination of questions by the Minister. Subsection 61(6)
requires that:
"... the Minister shall, with all due despatch, determine
the question raised by the application ..."
[7] Thus the Minister has no discretion whether or not to
decide the question. He is required by law to do so. If he is not
satisfied, the gate remains closed and the employee is not
eligible. If however he is satisfied, without more ado or any
action on the part of the Minister (other than notification of
the decision) the employee becomes eligible for benefits,
provided he is otherwise qualified. It is not a discretionary
power in the sense that if the Minister is satisfied he
may then deem the employment to be insurable. He must
"determine the question" and depending on that
determination the law deems the employment to be either at
arm's length or not at arm's length. In this sense the
Minister has no discretion to exercise in the true sense of the
word, for in making his decision he must act quasi-judicially and
is not free to chose as he pleases. The various decisions of the
Federal Court of Appeal on this issue reveal that the same test
applies as to a myriad of other officials making quasi-judicial
decisions in many different fields. See Tignish Auto Parts
Inc. v. M.N.R., 185 N.R. 73, Ferme Émile Richard et
Fils Inc. v. M.N.R., 178 N.R. 361, Attorney General of
Canada and Jencan Ltd., (1997) 215 N.R. 352 and Her
Majesty the Queen and Bayside Drive-in Ltd., (1997) 218 N.R.
150.
[8] The function of this Court then, upon appeal, is to review
the decision of the Minister and decide whether it was arrived at
lawfully that is in accordance with the Act and with the
principles of natural justice. In the case Her Majesty the
Queen v Bayside et al., supra, the Federal Court of
Appeal laid out certain matters which should be considered by
this Court when hearing these appeals. These were:
(i) whether the Minister acted in bad faith or for an
improper purpose or motive, (ii) whether the Minister failed to
take into account all of the relevant circumstances as especially
required by subparagraph 3(2)(c)(ii) or (iii) whether
the Minister took into account an irrelevant factor.
[9] The Court went on to say:
"It is only if the Minister made one or more of these
reviewable errors that it can be said that his discretion was
exercised in a manner contrary to law and ... the Tax Court judge
would be justified in conducting his own assessment on the
balance of probabilities as to whether the respondents would have
entered into substantially similar contracts of service, if they
had been at arm's length"
[10] It was argued that the stated facts upon which the
Minister relied were in many cases wrong or misapprehended and
that he did not have all the facts at hand. Again I remind
myself, when reviewing these submissions, that it is not for this
Court to substitute its opinion of the evidence for that of the
Minister. However, if his or her manner of arriving at the
decision was unlawful in the context of the judgments set out
above, those affected parts of the stated facts may be
disregarded and I must then consider whether that which is left
affords justifiable grounds for the decision. If those grounds,
standing alone, are sufficient for the Minister to form a
decision, albeit that the Court may not agree with it, the
decision must stand. If on the other hand there is no basis left
upon which the Minister might lawfully make such a decision, from
an objective and reasonable point of view, then such decision may
be struck down and the Court can consider the evidence before it
on appeal and make its own decision. Similarly if the Minister
failed to take into account relevant facts that he should have
taken into account and the decision is not sustainable from a
reasonable and objective point of view in light of those facts,
the Court may again interfere.
[11] In summary then, if there are sufficient facts before the
Minister for his decision, it is his or her determination to make
and if he or she is "not
satisfied" it is not for this Court to
substitute its view of those facts and say he or she should have
been satisfied. Similarly, if he or she was satisfied it is not
for this Court to substitute its view that he or she should not
have been satisfied (an unlikely scenario in any event). Only if
the decision is reached in an improper manner and it is
unreasonable, from an objective point of view, on the basis of
the facts which were properly or should properly have been before
the Minister, may the Court interfere.
[12] I am fortified in this approach by a number of decisions
of various Courts of Appeal across the country and the Supreme
Court of Canada in related decisions concerning the issue of
various processes under the Criminal Code, which subsequently
came to be reviewed by the Courts and are in my view analogous to
the present situation. The standard of review of the validity of
a search warrant was set out by Cory, J.A. (as he then was) in
Times Square Book Store, Re (1985) 21 C.C.C. (3d) 503
(C.A.), where he said that it was not the role of the reviewing
judge to look at or consider the authorization of a search
warrant de novo and it was not open to the reviewing judge
to substitute his or her own opinion for that of the issuing
judge. Rather, on review, the first issue to be decided was
whether or not there was evidence upon which a justice of the
peace, acting judicially, could determine that a search warrant
should be issued.
[13] The Ontario Court of Appeal reiterated and expanded
upon this point of view in R. v. Church of Scientology of
Toronto and Zaharia (1987) 31 C.C.C. (3d) 449 C.A. leave to
appeal refused. In suggesting that the reviewing Court look at
the "totality of the circumstances" the Court said at
492:
"Obviously if there is not such evidence to provide a
basis for such a belief (that a criminal offence had been
committed) it cannot be said that in those circumstances the
justice should be satisfied. There will, however, be cases where
such evidence (showing reasonable grounds) does exist and the
justice could be satisfied but where he or she is not satisfied
and does not exercise his or her discretion in favor of issuing a
search warrant. In these circumstances, the reviewing judge must
not say that the justice should have been satisfied and should
have issued the warrant. Similarly, if the justice in such
circumstances says that he or she is satisfied and issues the
warrant, the reviewing judge must not say that the justice should
not have been so satisfied."
[14] The Supreme Court of Canada endorsed this approach in
R. v. Garofoli (1990) 2 S.C.R. 1421. The late Mr.
Justice Sopinka, when dealing with the review of the issue of
an authorization to wiretap, then said:
"..While a judge exercising this relatively new power
need not comply with the Wilson criteria, he should not
review the authorization de novo. The correct approach is
set out in the reasons of Martin J.A. in this appeal. He
states...
If the trial judge concludes that, on the material
before the authorizing judge, there was no basis upon which he
could be satisfied that the pre-conditions for the
granting of the authorisation exist, then, it seems to me that
the trial judge is required to find that the search or seizure
contravened s. 8 of the Charter.
The reviewing judge does not substitute his or her view for
that of the authorizing judge. If, based on the record which was
before the authorizing judge as amplified on the review, the
reviewing judge concludes that the authorizing judge could have
granted the authorization, then he or she should not interfere.
In this process, the existence of fraud, non-disclosure,
misleading evidence and new evidence are all relevant, but,
rather than being a prerequisite to review, their sole impact is
to determine whether there continues to be any basis for the
decision of the authorizing judge."
[15] This approach appears to have been adopted by almost
every appellate court in the country. (See R. v. Jackson
(1983) 9 C.C.C. (3d) 125 (B.C. C.A.); R. v. Conrad et al.
(1989) 99 A.R. 197; 79 Alta. L.R.; (2d) 307; 51 C.C.C. (3d) 311
(C.A.); Hudon v. R. (1989) 74 Sask. R. 204 (C.A.); and
R. v. Turcotte (1988) 60 Sask. R. 289; 39 C.C.C. (3d)
193 (C.A.); R. v. Borowski (1990) 66 Man. R. (2d) 49; 57
C.C.C. (3d) 87 (C.A.); Bâtiments Fafard Inc. et autres
c. Canada et autres (1991) 41 Q.A.C. 254 (C.A.);
Société Radio-Canada v. Nouveau-Brunswick
(Procureur général) et autres (1991) 104 N.B.R.
(2d) 1; 261 A.P.R. 1; 55 C.C.C. (3d) 133 (C.A.); R. v. Carroll
and Barker (1989) 88 N.S.R. (2d) 165; 225 A.P.R. 165; 47
C.C.C. (3d) 263 (C.A.); R. v. MacFarlane (K.R.) (1993) 100
Nfld. & P.E.I.R. 302; 318 A.P.R. 302; 76 C.C.C. (3d) 54
(P.E.I. C.A.). It seems to me most relevant to a review of the
Minister's determination, which is itself a
quasi-judicial decision.
Stage 1 - Analysis of the Minister's
decision
[16] I turn now to consider in detail how the Appellant
challenges the decision of the Minister. The facts upon which the
Minister was said to rely are set out in the Reply to the Notice
of Appeal. They read as follows:
"(a) the Payor incorporated on March 6, 1987;
(b) the Payor's business is an automobile repair shop and
towing operations;
(c) the Payor's sole shareholder is Gregorio (Greg)
Pannia;
(d) the Appellant is the shareholder's sister-in-law;
(e) the Appellant was hired as an assistant to the office
administrator, Lori Pannia, the Appellant's sister;
(f) the Appellant's duties were the collection of tow call
run sheets from drivers and matching them with tow calls
requested by the different associations, private tow calls and
accident tow calls and the performance of various office
work;
(g) the Appellant's rate of pay was established at $650.00
per week regardless the hours worked;
(h) the Appellant worked 28 to 30 hours a week;
(i) the approximate wage rate of $22.00 an hour is excessive
for this type of work;
(j) the excessive salary is inconsistent with an arm's
length contract of employment;
(k) the Appellant gave birth to a child in April 1995, went to
work for the Payor in August 1995 and applied for parental leave
after completing her 21 weeks required to qualify for employment
insurance benefits;
(l) no other worker was hired by the Payor to perform the
Appellant's duties before and after the period;
(m) the purported engagement of the Appellant for the exact
number of weeks required to qualify for unemployment insurance
benefits when no one needed to be hired to perform the alleged
services before and after the period in question is inconsistent
with an arm's length contract of employment;
(n) the Appellant is related to the Payor within the meaning
of the Income Tax Act;
..."
[17] The Appellant agrees with items 4(a), 4(b), 4(c), and
4(d). She disagrees with the remainder completely or in part.
[18] The Appellant was the sole witness at the hearing of
the appeal. She explained that she had considerable work
experience in the administration of small business offices and
produced glowing references as a testament to this. She had
given birth to her second child in April 1996 after some four
years absence from the workforce. Her brother-in-law owned and
operated a tow truck and body repair business. He suggested to
her some four months after the birth of her second child that
she come and work for him in his business. At around this time
her husband had suffered injuries from an accident and that was
causing economic problems for them. Although her sister worked
in the business for her husband, as it was described in
evidence, it was in a state of total chaos. Whilst her
brother-in-law was a good truck driver and body-man, he was
hopeless in organizing his business affairs. His wife, the
sister of the Appellant, was too involved in the
day-to-day things going on such as dispatching
trucks, to keep up properly with the administrative work. Thus
in many cases there were many tow truck trips not billed out
and in other cases drivers had double or triple charged the
business. Thus there were boxes and boxes of things to be
sorted out and dealt with.
[19] In a sense items 4(e) and (f) were accurate but they
totally understated the breadth and immensity of the work which
the Appellant was required to undertake, and to which she brought
to bear her extensive administrative and secretarial skills.
[20] Similarly the Appellant agreed to an extent with items
4(g), 4(h) and 4(i). However she again pointed out that it failed
in stating "regardless of the hours worked" and
"... $22.00 an hour is excessive ..." to take into
account the immensity of the work she was undertaking, her level
of skill, the value of her work to the business, the fact that
her sister was paid a comparable wage, that she had been paid
that amount four years previously in her former office work, and
that she frequently took work home to do over and above the four
days that she worked regularly at the office premises. She also
pointed out that as she was on salary she did not expect to keep
track of hours.
[21] With regard to item 4(l) she said that the chaos had
piled up before she arrived because her brother-in-law kept
thinking that he would get to it, but never did. She left in
January 1996 because her baby was having a bad time with ear
infections and whilst trying to cope with her husband's
injuries, things had piled up on her. She had not anticipated
taking leave when she started, but felt that she needed to do
that in January. She did not anticipate taking much time off, and
talked to her brother-in-law frequently about going back to work
in the near future. Thus he did not find anyone to replace her.
Then she started to suffer from depression for which she was on
medication and from which it took her some time to recover. She
did however go back to work the following August and remained
with the business for a whole year.
[22] She took great exception to the implied suggestion in
items 4(k) and 4(m) in the Reply to the Notice of Appeal that she
had deliberately set out to work simply for a period time to
obtain her maternity leave benefits.
[23] It seems to me that what is missing from the
Minister's consideration of the facts is the immensity of the
work undertaken, the skill which she brought to the job, the true
reasons why she left when she did and why she did not come back
right away as expected, the value of the work to the business and
the quite simply put genuine nature of this Appellant which
clearly did not come out in the formalised facts. In point of
fact the investigator who prepared the facts for the Minister
took quite a jaundiced view of those facts and left the clear and
prejudicial impression on paper that this whole thing was some
kind of ploy to obtain maternity benefits, whereas in fact it was
nothing of the sort.
[24] I am firmly of the view that if the Minister had had
before him all these facts, along with an awareness of the truly
genuine nature of the Appellant he could not have lawfully come
to the decision which he did from an objective and reasonable
point of view. These facts were all relevant facts and they were
not before him. Furthermore there was an element of bias in the
facts presented to the Minister, and in the language used. The
decision of the Minister has surely to be based on
straightforward facts without the editorial of the fact finders
being included either overtly or impliedly from the language
used. The decision of the Minister is accordingly not sustainable
in law and I must now advance to the second stage of the appeal
process and decide whether on all of the evidence the parties,
had they been at arm's length, would have entered into a
substantially similar contract of employment, taking into account
all of the circumstances including those specifically set out in
paragraph 3(2)(c) of the Act.
Stage 2 - Review of the Evidence
[25] I was most impressed by the evidence of the Appellant.
She struck me as a very honest and genuine person and I do not
have the slightest difficulty in accepting her evidence in its
entirety. She explained fully and completely what had happened.
She was challenged by counsel for the Minister about the deposit
of certain of her pay cheques and the delays which had occurred.
Her explanations seemed quite normal and reasonable to me. There
were no excessive or long delays in these deposits. She explained
in clear terms what her duties and responsibilities were, why
they were worth the amount that she was paid and how relative to
what she had earned four years previously in an office position
it could not be considered excessive. She explained why she left
and why she did not come back for a while. She claimed her
maternity benefits as she was in my view entitled to do, and
there is not a hint that this was some kind of ploy other than
that the dates were consistent with her working the minimum
amount of time before she stopped work and claimed benefits.
There is nothing in the law which says she cannot arrange her
affairs accordingly, as long as the arrangement is a genuine
contract of employment, which I am quite satisfied it was. The
question then becomes on of whether taking into account all the
circumstances outlined in the Act they would have entered
into substantially the same arrangements if they had been at
arm's length. I have no hesitation in saying they would have.
The Appellant was clearly an asset to the business and well worth
the money paid to her. It was consistent with what her sister was
being paid and consistent with what she had earned in comparable
office circumstances some time previously. She left for health
and family reasons. She intended to return quite shortly but
again for health reasons her return was delayed. It was for this
reason that nobody was hired to replace her. Eventually she did
return and stayed for a one-year period which is evidence in
itself of the validity of her work.
Conclusion
[26] After considering all of the evidence, both oral and
written and the exhibits entered before me, I am well satisfied
on the balance of probabilities that indeed the arrangement was
genuine and one which, having regard to all the circumstances of
the employment, including the remuneration paid, the terms and
conditions, the duration and the nature and importance of the
work performed, it is reasonable to conclude they would have
entered into had they been at arm's length, or at least a
substantially similar one.
[27] The appeal is accordingly allowed and the decision of the
Minister is vacated.
Signed at Calgary, Alberta, this 16th day of February
1999.
"Michael H. Porter"
D.J.T.C.C.
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