Date: 19991206
Dockets: 95-209-IT-G; 95-1938-IT-G
BETWEEN:
ALAMEDA HOLDINGS INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for judgment
P.R. Dussault, J.T.C.C.
[1] The appellant is a bankrupt company. 125978 Canada Inc.
was authorized to proceed with the appeals under section 38
of the Bankruptcy and Insolvency Act by a decision dated
February 26, 1999 of the Superior Court of Quebec in the
District of Montréal.
[2] The appeal in docket 95-209(IT)G concerns an
assessment made on April 28, 1993 for the appellant's
1974 taxation year. The appeals in docket 95-1938(IT)G
concern assessments made on March 18, 1994 for the
appellant's 1982 and 1983 taxation years.
Points at Issue
[3] The assessment made on April 28, 1993 for the
appellant's 1974 taxation year was pursuant to a judgment by
this Court of March 8, 1993 on a consent to judgment
produced by the parties. The notice of assessment indicates an
amount of tax of $138,762.05, arrears interest of $340,121.14, a
dividend refund ("DR") of $5,333.00, a credit of
$70,270.75 in the refundable dividend tax on hand
("RDTOH") account and an unpaid balance of $441,314.19
(exhibit R-1, tab 3). Only the amount of the
interest is in issue.
[4] The assessment for the appellant's 1974 taxation year,
which was the subject of an appeal and the aforementioned consent
to judgment, was made on March 7, 1984. During its 1974
taxation year, the appellant disposed of two immovable properties
and treated each transaction as giving rise to a capital gain.
The effect of this treatment by the appellant was to bring about
an increase in its RDTOH account. In the assessment of
March 7, 1984, the Minister of National Revenue (the
"Minister") determined that the two transactions had
produced not a capital gain, but rather business income. Tax was
thus assessed at $260,158.80, the interest at $193,593.17, the DR
at $446.00, the RDTOH at nil and the balance payable at
$421,069.97 (exhibit R-1, tab 2). The settlement
reached between the parties, which was the subject of the consent
to judgment and of the judgment of March 8, 1993, was that
one of the transactions had resulted in the realization of a
capital gain and the other in business income.
[5] The appellant disputes only the amount of interest in the
assessment made on April 28, 1993 pursuant to the judgment,
claiming that the amount of the previous assessment made on
March 7, 1984 was paid following receipt of the notice of
assessment and that the Minister may not assess an amount of
interest where he himself has made the representation, in his
correspondence with the appellant between the date of the
assessment and that of the consent judgment, that there was no
unpaid balance and that the appellant would receive a refund. On
this point, the appellant argued that the doctrine of estoppel or
that of fin de non-recevoir applied.
[6] Furthermore, the assessments of March 18, 1994 for
the appellant's 1982 and 1983 taxation years were made
following the assessment of April 28, 1993 for the
appellant's 1974 taxation year. This last assessment had
resulted in an increase in the appellant's RDTOH account
balance for that year relative to the previous assessment of
March 7, 1984, since it was admitted that one of the two
transactions had given rise to a capital gain and not business
income. However, in view of the DRs which the appellant had
received in previous years, the balance of its RDTOH account at
the end of each of its 1982 and 1983 taxation years was reduced
to nil and the DRs previously granted for those years were
disallowed. The problem here stems from the fact that no
reassessment was made at the time reducing the balance of the
account to nil for the 1982 and 1983 taxation years as a result
of the reassessment of March 7, 1984 for the appellant's
1974 taxation year. The reason was apparently that this last
assessment was never posted in Revenue Canada's computer
system dealing with corporations ("CORPAC") and thus no
reassessment was made for each of the subsequent taxation years,
more particularly for 1982 and 1983.
[7] In making the assessments of March 18, 1994 for the
appellant's 1982 and 1983 taxation years, the Minister relied
on the provisions of subsection 152(4.3) of the Income
Tax Act (the "Act") which authorizes
consequential assessments on certain conditions. However, the
appellant contends that these years are statute-barred and that
the provision invoked by the Minister is not applicable in this
case.
Summary of Evidence
[8] Mark Schwartz testified first for the appellant. It
was he who founded the corporation for his daughters' benefit
in 1970 or 1971. The purpose of the corporation was to hold
immovable property. At the time, Mr. Schwartz was very
active in residential construction in the western part of
Montréal Island and on the South Shore. Some
500 houses a year were built by a number of corporations
which he controlled, one of the main ones being Saratoga
Construction Inc.
[9] In 1975, the group of companies was the subject of an
investigation conducted by Revenue Canada's special
investigations unit. The investigation lasted a number of years
and documents were seized, in particular from the offices of
lawyers, notaries and accountants and at Mr. Schwartz's
home. According to Mr. Schwartz, not all the documents
seized were returned and the others were "in disorder".
Mr. Schwartz also described the great confusion that reigned
during those years. He said that Revenue Canada's collections
unit, which had a list of all the companies and the lands which
they owned, began demanding guarantees from each one of them, to
the point where everything was mixed up and he now cannot say who
owed what and who paid what.
[10] On March 7, 1984, the appellant was assessed a
substantial sum for its 1974 taxation year. The appellant
objected to the assessment and instituted an appeal. According to
Mr. Schwartz, a settlement was reached during the hearing in
1993 as a result of a suggestion to that effect by
Judge Garon of this Court. Although he said he was not very
happy with this outcome, Mr. Schwartz indicated that he
accepted the settlement on condition that he be given an
immediate refund. He was told at the time that this would not
take more than 30 days. However, the appellant never
received a refund. On the contrary, the assessment, made on
April 28, 1993 following the settlement reached at the
hearing and the judgment giving effect to that settlement, showed
arrears interest of $340,121.14 since Revenue Canada, reversing
its previous position, now assumed that the amount of the
assessment made on March 7, 1984, which had been the subject
of the appeal, had never been paid (exhibit A-9).
[11] Mr. Schwartz filed in evidence a number of Revenue
Canada documents, including notices of assessment, statements of
account and a refund cheque, all bearing dates between 1985 and
1993 and showing that the appellant had no balance payable during
that period and that it was even entitled to a refund for certain
years (exhibits A-1 to A-5 and A-7).
[12] Mr. Schwartz stated that, as far as he could
remember, the amount of the assessment of March 7, 1984 was
paid, although he did not recall that amount having been remitted
in a single payment. He said that the amounts of the assessments
were generally paid in a number of instalments on a continuing
basis.
[13] Mr. Schwartz asserted that no amount was owed to the
government since all outstanding amounts had to be paid in 1984
and 1985 because it would otherwise have been impossible to carry
on with operations.
[14] Mr. Schwartz did not file in evidence any documents
of the appellant or of any other company in the group that could
show that the amount of the assessment of March 7, 1984 had
in fact been paid.
[15] Furthermore, note 2 to the appellant's financial
statements dated November 30, 1987 (exhibit R-1,
tab 5) states the following under the heading
"Contingent Liability":
In March 1984, Revenue Canada Taxation had issued Notices of
Reassessments for the period 1974 to 1981, amounting to
approximately $367,000 including interest to date of the
reassessment.
The company has filed Notices of Objection relating to
these reassessments and has not made a provision for income
taxes relative thereto, since the amount payable cannot be
determined with sufficient precision. The effect of any
settlement would be corrected to retained earnings.
(Emphasis added.)
[16] When asked to comment on this note in relation to another
note accompanying the appellant's financial statements to
November 30, 1993 in which it is not stated that the amount
of the assessment represented a contingent liability,
Mr. Schwartz simply answered that the accountant had told
him this was standard procedure.
[17] Daniel Benson, a chartered accountant with Friedman
& Friedman, the firm handling the accounting for the group of
corporations in which Mr. Schwartz had an interest,
including the two Saratoga corporations ("the Saratoga
group"), also testified.
[18] Mr. Benson, who started working for the Saratoga
group in 1979, began by emphasizing that, prior to 1982, he was a
member of the auditing team responsible for preparing the
financial statements and that he was with the tax group from 1982
to 1988. In his testimony, Mr. Benson pointed out the
problems that arose as a result of the investigation and the
assessments, some of which dated back to 1977. He stated that the
files of all the companies were so to speak "frozen" at
Revenue Canada, that the payments were made every month and that
some companies might have made payments for others. According to
him, the companies' internal controller,
Pierre Turcotte, had handled the payments.
[19] Mr. Benson said he remembered the notice of
assessment of March 7, 1984, which was handed over to the
law firm Phillips & Vineberg for the purpose of filing an
objection and instituting an appeal. He maintained that the
amount of the assessment had been paid by the appellant itself or
by other companies. He reiterated that the controller was the one
responsible for negotiating and making the payments and that he
himself had no direct personal knowledge that the liability had
in fact been discharged.
[20] In 1993, at the request of the lawyers representing the
appellant, Mr. Benson went to Revenue Canada's offices
to check the correspondence and documents relating to the
payments. As Revenue Canada officials only had the computerized
statements, Mr. Benson was unable, he said, to take his
audit of the statements any further. Mr. Benson stated that since
the appellant had not retained any documents either, he was
unable to validate Revenue Canada's computerized statements
and informed the lawyers of this. The lawyers then apparently
obtained a number of documents under the Access to Information
Act, but none pertained to collections.
[21] While asserting that, as a result of the assessments,
some of which dated back to 1977, and of the draft assessments
known of since 1977 or 1978, some of the companies were entitled
to tax reductions or credits by virtue of loss carry-overs,
Mr. Benson admitted that he personally had no knowledge of
any payment made for the appellant by one of those corporations
between 1982 and 1988. He stated, however, that, prior to 1982,
such payments were made by the operating companies and by
Mr. Schwartz with respect to tax payable by companies in the
group.
[22] Mr. Benson also stated that all the payments made
were entered in the accounts and that there was therefore no
reason to add to the financial statements a note on that subject.
Thus, according to Mr. Benson, the note added to the financial
statements of November 30, 1987 (exhibit R-1,
tab 5) had nothing to do with the payment itself. And yet,
as counsel for the respondent pointed out, the note added to the
financial statements of November 30, 1993
(exhibit R-2, page 7, note 7.b)), indicates
that, as a result of the consent judgment, the appellant
"anticipated a substantial tax refund including interest of
approximately $550,000," not an assessment of $414,314.69,
since Revenue Canada "had consistently issued statements of
account indicating that no prior year balances were due by the
company." Consequently, in counsel's opinion, these
notes could in practice relate just as much to payments as to
refunds. Mr. Benson's answer was simply that the notes
were different. That explanation is vague to say the least.
[23] Mr. Benson also stated in his testimony that he had
read a report on objection which stated in paragraph 3 that
there were no collection problems to report and that the tax had
been paid (exhibit A-10, page 2).
[24] For the moment, my only commentary is once again that no
direct evidence was adduced to show that any payment of the
amount assessed on March 7, 1984 was made either by the
appellant itself or by other corporations for the appellant.
[25] Pierre Turcotte, the Saratoga group's internal
controller from 1977 to 1984, also testified for the appellant.
Mr. Turcotte left his position for personal reasons in the
summer of 1984, but apparently remained in touch with
Mr. Schwartz until the fall of that year.
[26] Mr. Turcotte stated that he remembered the
assessment of March 7, 1984 and that the notice of
assessment had been handed over to the external auditors,
Friedman & Friedman. He said that the government had many
guarantees and that the decision was made to proceed with the
payment of the amount of the assessment. He noted that he did not
remember the details of the arrangement made for this purpose
since it was the auditors who had handled it. He stated that
there was a request for payment and that the amount of the
assessment was paid by the Saratoga corporations. Drawing on his
experience, Mr. Turcotte said that payment arrangements had
always been made involving the issuing of "postdated"
cheques over a period of six to 12 or 15 months, generally
for equal amounts, particularly in the case of large assessments.
He added that when there were amounts receivable by certain
companies in the group, these credits were applied to reduce the
amounts owed by other companies. According to Mr. Turcotte, the
reconciliation would have been entered in the books of the
Saratoga company because it issued the cheques for the group of
companies. The amounts paid would appear as "advances"
made to the appellant. Mr. Turcotte admitted that he did not
check to see whether the cheques had been cashed. He also
admitted that he did not do the bank reconciliation and concluded
his testimony by saying that the payments in the case of this
assessment were spread over a period of a year to a year and a
half.
[27] A number of Revenue Canada officials were also called as
witnesses by counsel for the appellant. They were
Carl Deslongchamps, Pierre Brodeur,
Hélène Chaîné,
Monique Déry and Normand Durocher.
[28] Mr. Deslongchamps read the appellant's file in
February 1993, a short time before the appeal from the assessment
of March 7, 1984 was heard. Mr. Deslongchamps was with
the Appeals Division at that time. While convinced at first that
Revenue Canada's position was valid on the merits, he was led
to change his mind at the hearing and to take part in a proposed
settlement by agreeing that one of the transactions at issue
would be considered as giving rise to a capital gain rather than
to business income. The proposal was accepted by the appellant on
the condition that the file be processed quickly and the refund
cheque issued as soon as possible. According to the information
that Mr. Deslongchamps had at the time, that is the CORPAC
system information relevant to the appellant, there was no
balance payable, so he assumed that the amount of the assessment
at issue had been paid and he undertook to have everything done
quickly. Once the appellant's file was returned to him,
Mr. Deslongchamps himself handed it over to a certain
Jean-Guy Francoeur in the Objections Division for
processing. The file was subsequently returned to him and he then
forwarded it to Ms. Blais-Chénard in the
Problem Resolution Program section.
[29] Approximately one week later,
Ms. Blais-Chénard called him back to inform him
that the assessment of March 7, 1984 had never been entered
in the CORPAC system and that an error had thus been made in
updating the computer system.
[30] As the appellant's representatives claimed that the
amount of the account had been paid, said Mr. Deslongchamps,
a search was then undertaken with respect to all the companies in
the group, but that no one was able to trace any payment whatever
by any one of those companies. Nor was any payment shown in the
CORPAC central system.
[31] New discussions were subsequently held with counsel for
the appellant, who was informed of this result. Counsel was asked
at that time to provide evidence since the taxpayer claimed it
had made payments. Counsel had none. However, he provided a list
of all the companies that might have been concerned since there
would have existed at that point an overpayment of approximately
$400,000 belonging to the appellant. Further checks in the CORPAC
system, in which both assessments and payments are posted,
yielded no results. Nor did the collection files contain any
information to the effect that payments had been made by other
companies. Mr. Deslongchamps stated that
Ms. Blais-Chénard even sent him a
reconstruction of the accounts of all the corporations concerned
prepared by Ms. Déry. As no one was able to trace any
proof of payment whatever, the decision was made not to issue a
refund cheque and to refer the case to the Objections Section so
that a reassessment could be issued.
[32] Pierre Brodeur, an auditor with Revenue Canada,
worked in the Collections Section from 1984 to 1988. At first he
stated that the name Alameda was unknown to him, although he was
familiar with the names Saratoga and Habitations Montvillage Inc.
(a corporation in the group) and that of Mark Schwartz.
Despite searches conducted in Montréal on the very morning
these appeals were heard, no one was able to trace any collection
file concerning the appellant dating back to the period from 1984
to 1988. According to Mr. Brodeur, a collection file would only
exist if an outstanding balance had remained unpaid. Although he
admitted that certain guarantees had been given by some companies
for others, and in particular by the appellant according to a
letter to him dated March 10, 1985 (exhibit A-12),
Mr. Brodeur did not remember what specific guarantees had
been given by which companies or for which companies they had
been given. Nor did he recall any specific collection action with
respect to the companies in the group for which he had been given
responsibility since, he said, guarantees had already been
provided. He also did not remember whether the assessment of
March 7, 1984 had given rise to collection action. Lastly,
as to the question of payment, Mr. Brodeur testified that
all payments are posted in the CORPAC system and that there is
only one system for cash receipts. As for the collection files,
they generally contain information pertaining to the taxpayer as
well as guarantees, correspondence and agreements.
[33] Hélène Chaîné is an
assessment officer and, more precisely, handles problems in
files. In her testimony, she explained in particular that all
payments by cheque are the object of a double entry in the
computerized systems, and that a payment made by a corporation is
posted in the CORPAC system. She also explained that it is
possible for corporations with credits to transfer them to other
corporations, which generally occurs following an assessment.
With the aid of the statements of account and the CORPAC
statements for the appellant, Saratoga Construction Ltd. and
Saratoga Construction Inc., she found three cheques dated
December 5, 1976, December 26, 1976 and
January 28, 1977 for $21,190.83 each, which had initially
been credited by mistake to Saratoga Construction Ltd.'s
account whereas they should have been credited to that of the
appellant. The error was subsequently corrected and the amounts
were credited to the appellant as of those same dates. According
to Ms. Chaîné, what happened was that the
cheques had been entered in the wrong account; it was not a case
of credits being transferred from one company to another. Based
on her analysis of the statements of account and the CORPAC
statements since 1976, Ms. Chaîné stated that
the assessment of March 7, 1984 was not posted in the CORPAC
system prior to March 1993 as a result of what was stated to be a
system error, which was recorded for the first time on
March 15, 1984, and that no payment was made by or for the
appellant in respect of that assessment.
[34] Ms. Chaîné also testified concerning
the assessments made on March 18, 1994 for the
appellant's 1982 and 1983 taxation years. She explained in
detail how the $70,270.75 credit to the RDTOH account resulting
from the assessment made on April 28, 1993 pursuant to the
consent judgment had been applied to the taxation years after
1974 and 1975. According to Ms. Chaîné, based on the
refunds previously obtained by the appellant for those subsequent
years, there remained no balance for 1982 or 1983, hence the
assessments of March 18, 1994 to cancel the refunds
previously received by the appellant, to which it was not
entitled.
[35] Monique Déry is a corporate services officer
at Revenue Canada. In 1993, she received from
Ms. Blais-Chénard a request, which had come to
the latter from Mr. Deslongchamps, to produce the detailed
statements of account for certain corporations in the group,
including Habitations Montvillage Inc., Saratoga Holdings,
Saratoga Construction and the appellant, Alameda Holdings.
Ms. Déry also retranscribed the memos (T2020)
appearing in the appellant's file (exhibit R-3).
She pointed out that there was definitely a problem in the
computer system, although she was unable to explain what it was
or its cause. It should be noted that the very first memo in the
file is dated January 1985 and reads as follows:
[TRANSLATION]
Assessment is getting the T2s. Appeals does not want notices
of reassessment issued.
[36] The second is dated March 1985 and reads:
[TRANSLATION]
T867 rejected for 1974-1975.
Assessment needs T2s. TX9 for 1973 to 1979 in
Objections. First contact with Alain Ducharme.
Call back in 1½ months.
[37] Another memo, dated December 9, 1985, reads as
follows:
[TRANSLATION]
Rejection T867 – 1974, 1975, 1978. Reason R.D.T.O.H.
T867 to be redone according to Correction of Errors. After
contact with Ottawa, reason for rejection, that the 78 T867 RPT
does not change the reduction. (Error on T867).
Hélène Chaîné called Appeals, the
files are at the Department of Justice. F/UP February 28,
1986 to process message + T867.
[38] These memos, which note the rejection, nevertheless do
not explain why no reassessments for the subsequent years,
including 1982 and 1983, were made at that time.
[39] According to Ms. Déry, no automatic
interception of the tax refunds to the appellant was put in the
computer system prior to an interception on September 11,
1995. An interception designated as IBM interception was put in
on July 21, 1986 so that, according to Ms. Déry,
any new information could be checked by the person who had put in
that type of interception.
[40] Ms. Déry also explained that an automatic
refund interception does not prevent tax payments or tax
transfers from being entered in the system.
[41] In examining Saratoga Construction Ltd.'s statement
of account (exhibit R-6), Ms. Déry was
unable to trace any payment or transfer for the appellant's
benefit, apart from the three cheques for $21,190.83 initially
credited by mistake to Saratoga Construction Ltd. rather than to
the appellant on December 5 and 26, 1976 and
January 28, 1977. As stated above, the error was corrected
and the payments were credited to the appellant
(exhibit R-4).
[42] The statement of account for Saratoga Construction Inc.
(exhibit R-7) does not show that transfers were made
for the appellant's benefit either. It reveals only a series
of six payments of $4,920 made from September 1988 to February
1989 for a total of $29,520.
[43] In short, Ms. Déry said it was impossible to
trace a series of payments spread over a period of six to 14 or
15 months, which were made for the appellant's benefit
and totalled $421,069.
[44] Counsel for the appellant also called
Normand Durocher, a collection agent with Revenue Canada, as
a witness. According to Mr. Durocher, the proof of claim
dated June 19, 1998 pertaining to the appellant's
bankruptcy was based on the reassessment made in 1993 for the
appellant's 1974 taxation year and on subsequent assessments
for 1982, 1983 and 1990, not on the assessment made in 1984 for
the 1974 taxation year, which moreover appears nowhere in the
CORPAC system or in the appellant's collection file. Mr.
Durocher stated that this collection file was not opened until
June 1993, approximately one month after the assessment. He
said he checked the previous years back to 1980 and even before
that to determine whether the appellant was indebted and whether
payments had been made. He said that if payments had been made
following the assessment made in 1984, the relevant information
would have been posted in the system. According to him,
absolutely nothing had happened and no payments had been made
since 1980. The fact that the assessment made in 1984 was not
posted in the system would not have prevented payments from being
credited if any had been made. Mr. Durocher also asserted
that, if amounts had been retained in another company's
account rather than being transferred to the appellant's
account, the company concerned would have been notified that it
had excess credits and the amounts would have been remitted after
a certain period of time.
[45] In short, once again there is no evidence to establish
that any payment was made by the appellant itself or by another
corporation for the appellant's benefit or that any transfer
was made from another corporation's account in respect of the
assessment made in 1984 for the appellant's 1974 taxation
year.
1. Assessment of April 28, 1993 for the
appellant's 1974 taxation year
(docket 95-209(IT)G)
(a) Appellant's Position
[46] Counsel for the appellant disputes the interest component
in the assessment made in 1993 for the appellant's 1974
taxation year, arguing first that there is ample evidence that
the assessment made in 1984 for that same year was paid. Next,
pleading the doctrine of estoppel, he contended that the Minister
could not be allowed to claim that no payment had been made when
he had clearly suggested the contrary over a number of years and
the appellant suffered prejudice as a result by instituting an
appeal from this assessment and agreeing to a settlement in 1993
in the belief that it would then obtain a refund.
[47] On the question of payment, counsel for the appellant
moreover admitted a number of points that would indicate that
payment was not made. Ms. Chaîné's
testimony suggests this since the historical analysis of the
documents traced indicates not only that no payments were made,
but also that the assessment made in 1984 was never posted in the
computer system. Counsel for the appellant also admitted that the
note to the financial statements for the taxation year ended
November 30, 1987 likewise suggests that the appellant did
not pay the amount of the assessment.
[48] Despite this evidence, counsel for the appellant noted
other evidence which he thought favoured the argument that
payment had been made. Thus, he said, it had been demonstrated
that the Saratoga group could not continue its operations without
making payments and providing guarantees. The testimony of
Mr. Deslongchamps of Revenue Canada also establishes that
the documents consulted showed that all payments had been made,
which is confirmed by the outside auditor who stated that the
appellant had no unpaid debt.
[49] The statements of account and a cheque from the
Department of Revenue filed in evidence (exhibits A-1
to A-5 and A-7) also show either a nil balance or a
refund. In addition, counsel for the appellant pointed out that,
at the time, in 1984, a taxpayer who disputed an assessment
nevertheless had an obligation to pay and that section 225.1
of the Act was added only for the years following 1985.
Revenue Canada thus had the right to proceed with collection of
the debt despite the objection and the appeal. Counsel also
pointed out that the IBM interception in the computer system was
cancelled in the early 1990s since certain amounts were refunded
to the appellant at that time. Lastly, counsel for the appellant
reminded the Court that the evidence showed there had indeed been
some errors respecting payments by one corporation for another
and that errors could thus also have occurred respecting payment
of the assessment made in 1984.
[50] Counsel for the appellant further contended that a
taxpayer can adequately defend himself only to the extent that
Revenue Canada's documents are complete, which is not the
case here since the collection files could not be traced. Counsel
also noted the absence of Mr. Ducharme, whose testimony
could have provided some clarification. He felt that Revenue
Canada must accept responsibility for the fact that everyone
assumed that the assessment had been paid right up until the
settlement was reached in 1993.
[51] Counsel for the appellant argued next that the only
reason why the appellant instituted an appeal from the
assessment, proceeded with that appeal and finally accepted a
settlement was that it would be able to obtain a tax refund,
which everyone had moreover confirmed at the time.
Mr. Schwartz, the principal, was thus misled by this
presentation of the facts by Revenue Canada employees which
induced him to act against the appellant's interests, hence
the reliance on the doctrine of estoppel or that of fin de
non-recevoir in order to have the assessment vacated with
respect to interest.
[52] In his written comments submitted after the hearing,
counsel for the appellant set out quite a theory on the
application of the doctrine of estoppel or of fin de
non-recevoir, according to which theory the respondent
would be prevented from arguing that the appellant did not pay
the 1984 assessment and the 1993 assessment would thus not be
valid in respect of the interest assessed.
[53] Counsel for the appellant thus argued that the doctrine
of estoppel occurs in civil law, albeit under another name, that
of fin de non-recevoir, which shares its characteristics
and conditions of application with those found in the common law
equivalent. Noting however that there are differences between the
two concepts, differences on which he did not feel it necessary
to elaborate, counsel for the appellant nevertheless asserted
that the ultimate purpose behind these notions is arguably the
same and that their application leads in practice to the same
conclusions. Thus counsel for the appellant contended that, in
essence, Revenue Canada cannot consistently maintain and confirm
a payment of a debt and subsequently deny the existence of the
same payment when the alleged debtor incurred substantial
expenses in attempting to retrieve the sums Revenue Canada had
clearly acknowledged were paid. Finally, and in light of the case
law on the applicability of the doctrine of estoppel in common
law jurisdictions across Canada, it would be a travesty to
suggest that Revenue Canada, through the actions of its
representatives, could be held accountable in all provinces and
territories throughout Canada but not in the province of Quebec.
The consequences of Revenue Canada's adopted, verified and
confirmed position in respect of the payment of Alameda's
debt, cannot differ in scope and result solely based on the fact
that the actions giving rise to the appellant's request took
place within a civil law jurisdiction. In support of his
arguments, counsel for the appellant referred to the following
cases:
- Sinyor Spinners of Canada Ltd. c. Leesona Corp.,
[1976] C.A. 395 (C.A.Q.);
- National Bank of Canada v. Soucisse et al., [1981]
2 S.C.R. 339 (S.C.C.);
- Québec (Procureur général) c. le
Tribunal d'arbitrage de la fonction publique, [1998]
R.J.Q. 2771 (decision of the Superior Court of Quebec,
currently under in appeal);
- Gabias v. Mainville, [1922] R.J.Q. 32
(vol. 33) (C.Q.B.) ;
- Rawleigh v. Dumoulin, [1926] S.C.R. 551
(S.C.C.).
(b) Respondent's Position
[54] Relying on the analysis of estoppel by Beetz J. of
the Supreme Court of Canada in Soucisse, supra, and on
doctrine, counsel for the respondent stated that a defence of
estoppel may not be used to extinguish a right but only to
prevent its enforcement. According to counsel, as we are not
dealing here with a tax debt collection procedure, but rather
with an appeal from an assessment, the only way for the appellant
to have the amount of assessed interest changed is to prove that
the debt was extinguished.
[55] In the alternative, counsel for the respondent argued
that, in any event, the appellant did not establish the elements
necessary in order to avail itself of a fin de
non-recevoir and invoked no specific rule of law on which it
would be based. He says that fins de non-recevoir must be
distinguished from the doctrine of estoppel, which is not part of
Quebec law. On this point, counsel for the respondent referred to
remarks by Mignault J. of the Supreme Court of Canada in
Grace and Company v. Perras, [1921]
62 S.C.R. 166, at page 172, cited by Beetz J.
in Soucisse, supra, at pages 360 and 361.
Furthermore, in Rawleigh v. Dumoulin, supra,
Mignault J. of the Supreme Court of Canada wrote as follows
at page 556:
[TRANSLATION]
Generally speaking, it may be said that no fin de
non-recevoir is allowed in the absence of a rule of law which
permits it.
[56] Counsel for the respondent further emphasized that the
basis for a fin de non-recevoir relied upon in
Soucisse, supra, was the wrongful conduct of the
party against whom the fin de non-recevoir was raised and
that its source was article 1053 of the Civil Code of Lower
Canada (now article 1457 of the Civil Code of Quebec). Thus,
according to counsel for the respondent, to present this
"defence", the appellant had to prove the
Minister's fault, the damage caused and the nexus between the
fault and the damage. In his view, no such proof was forthcoming.
An error was certainly committed by the Minister's agents,
who told the appellant that its debt was paid and that it would
be receiving a refund. According to counsel for the respondent,
this error was committed only on the day of the trial and was
corrected as soon as it was discovered. It was an honest mistake,
not the result of carelessness.
[57] This error, counsel for the respondent continued, must be
considered in the light of the fact that the Minister never
represented the debt as having been forgiven or erased. In view
of the size of the debt and given the note to the financial
statements of 1987, counsel for the respondent argued that the
appellant knew that the debt had not been paid. Furthermore, it
was unable to provide at the hearing any details as to when or
how the alleged payment or payments had been made. Lastly,
counsel for the respondent argued that the appellant's
insistence on obtaining an immediate refund is also consistent
with the argument that it was aware of the error made by the
Minister and that it chose not to correct it, hoping to thus
receive an amount to which it was not entitled. That being the
case, counsel for the respondent felt that it was the appellant
that thereby acted wrongfully and that it cannot plead its own
turpitude.
[58] Counsel for the respondent submitted that the
appellant's allegation that it suffered damage by signing a
consent to judgment that it would not have signed but for the
promise of a refund is questionable, self-serving and unsupported
by the evidence adduced. The appellant, he said, made no attempt
either to institute proceedings before the Tax Court of Canada to
have the judgment varied on the basis that new information had
been discovered after it had been rendered, or to institute an
appeal before the Federal Court—Trial Division or the
Federal Court of Appeal. Counsel for the respondent asserted that
the inference one may draw from this failure to act is that the
fact that the debt was or was not paid was not a significant
consideration in signing the consent to judgment or that the
appellant was less concerned by the consent to judgment than by
the possibility of benefiting from the Minister's error.
Thus, on either hypothesis, the appellant suffered no damage in
signing the consent to judgment.
[59] Lastly, counsel for the respondent argued that even if
the Court came to the conclusion that the Minister is at fault
and that the appellant suffered damage in signing the consent to
judgment, no nexus was established between this fault and the
damage since the damage resulted more from the appellant's
failure to act after the error was discovered. Furthermore, as it
was alleged that the appellant's proceeding with the appeal
from the assessment was essentially based on the fact that it
expected a refund, it is its own misunderstanding and not the
false statement of the Minister's agent that is the cause of
the damage.
[60] Counsel for the respondent also pleaded the fin de
non-recevoir based on the rule of nemo auditur
turpitudinem suam allegans referred to in Soucisse,
supra, and submitted that no unlawful or immoral conduct
by the Minister has been demonstrated in the instant case.
(c) Analysis
[61] Subsection 161(1) of the Act provides that a
taxpayer shall pay interest at the prescribed rate on any amount
by which the total tax payable for a year exceeds the total tax
paid "for the period during which that excess is
outstanding". In assessing the appellant in 1993 for its
1974 taxation year, the Minister assumed as a fact that the
amount of the previous assessment for the same taxation year,
that is, the assessment of March 7, 1984, had not been paid
and he therefore assessed interest accordingly. The onus was
therefore on the appellant to show on the balance of
probabilities that the amount of that assessment was paid. It
might be added that the amount of the assessment represents a
civil debt and that it is incumbent upon the debtor, in
accordance with the principle stated in article 2803 of the
Civil Code of Quebec, to provide proof of payment of that debt.
As Jean Pineau, Danielle Burman and Serge Gaudet
emphasize in Théorie des Obligations,
3e éd., Montréal, Les
Éditions Thémis, 1996, at page 489,
no. 324:
[TRANSLATION]
In accordance with the principle established by
article 2803 C.C.Q., the creditor is required to prove the
existence of the obligation and the debtor the fulfilment of that
obligation.
[62] The appellant did not provide such proof of payment.
Apart from mere statements, assumptions, suggestions and
insinuations, there is absolutely nothing in the evidence that
might tend to show that any payment was made in respect of the
amount of the assessment made in 1984. On the contrary.
[63] Although the collection files of the corporations in the
Saratoga group, of which the appellant was a member, could not be
traced, Revenue Canada's statements of account for the
corporations concerned do not contain the slightest indication
that any payment or transfer might have been made by or for the
appellant. The suggestion that transfers were made by the various
corporations of the Saratoga group for the appellant is in no way
supported by the documents filed in evidence. The same is true of
the suggestion that the amount of $421,069.97 was paid by 6 to 14
or 15 cheques spread over a period of a year to a year and a
half.
[64] It is curious to note that the appellant was able to
produce Revenue Canada documents from the relevant
period—documents such as statements of account, copies of
refund cheques and notices of assessment indicating a nil
balance—but unable to file any of its own internal or other
documents which could have provided some indication, no matter
how slight, of payment of the amount of the assessment made in
1984.
[65] Moreover, in my view, the note to the 1987 financial
statements, which were filed by the respondent
(exhibit R-1, tab 5), is revealing as to the true
state of affairs and merely confirms that no payment was ever
made. I reproduce that note again for ease of reference:
2: CONTINGENT LIABILITY
In March 1984, Revenue Canada Taxation had issued Notices of
Reassessments for the period 1974 to 1981, amounting to
approximately $367,000 including interest to date of the
reassessment.
The company has filed Notices of Objection relating to
these reassessments and has not made a provision for income
taxes relative thereto, since the amount payable cannot be
determined with sufficient precision. The effect of any
settlement would be corrected to retained earnings.
(Emphasis added.)
[66] An error was of course made by Revenue Canada officials.
That fact was clearly established. The initial error resulted
from the impossibility of entering the elements of the assessment
of March 7, 1984 in the computer system. The balances and
refunds generated by the system were therefore so generated
without the information pertaining to that assessment. The
undertaking to provide a quick refund, given at the time of the
settlement reached with respect to that assessment in 1993, was
here again merely the consequence of this initial error. Nor is
it surprising to note that no collection action was taken against
the appellant in the absence of any information in the system
respecting the assessment made.
[67] The appellant contends that the doctrine of estoppel or
that of fin de non-recevoir should have applied to prevent
the Minister from assessing interest since he had always
suggested and indicated through his officials that the amount of
the assessment had been paid so that the appellant acted to its
own detriment by instituting an appeal from that assessment, by
proceeding with the appeal and by signing a consent to
judgment.
[68] I shall begin by saying that the appellant's position
is ambivalent to say the least. Counsel for the appellant
attempted by all possible means to convince me that the appellant
had indeed paid the assessment of March 7, 1984 and that the
appeal should be allowed on the basis of the evidence adduced on
this point. Counsel for the appellant then argued that the
appellant had been misled by Revenue Canada officials who stated
both in writing and orally that there was no balance outstanding,
and that this presentation of the facts induced the appellant to
act to its detriment by instituting an appeal, proceeding with
that appeal and signing the consent to judgment. If the appellant
was convinced that it had paid, as counsel attempted to show, one
wonders how it can claim that it was misled by Revenue Canada and
that the presentation of the facts by Revenue Canada officials
formed the basis of its position as to whether it should
institute and proceed with the appeal and sign the settlement.
Counsel for the respondent's suggestion that the appellant
knew it had not paid and that it tried to take advantage of the
error committed is not a completely hare-brained theory and the
facts adduced in evidence can very certainly support such an
inference.
[69] In his Droit administratif, vol. 1,
4e éd., Les Éditions Yvon Blais
Inc., 1996, at pages 48 et seq., Patrice Garant does an
historical analysis of the application of the Civil Code to the
Crown since the Privy Council's decision in Exchange Bank
of Canada v. The Queen (1886), 11 A.C. 157. At page 53
Patrice Garant writes in particular:
[TRANSLATION]
More recently, the Court of Appeal and Superior Court have
unhesitatingly reaffirmed that, while the Crown is subject to the
common law, it is so subject "in Quebec, generally speaking,
as codified in the Civil Code . . . and the Code of
Civil Procedure".156 This principle also applies
to the federal Crown.157
In the broad field of contracts and civil liability in
particular, it has thus almost always been admitted in case law
that, in the absence of an express overriding provision in
statute law or by virtue of the prerogative, the Civil Code of
Quebec and the Code of Civil Procedure must be applied to both
the federal and provincial Crown just as the common law is
applied in the other provinces.158
In 1989, the Supreme Court confirmed that "the Quebec
Act established the preeminence of the civil law in matters
relating to property and civil rights".159 The
court held that public bodies are governed by public law and the
common law in all matters pertaining to their status and powers;
in other matters, if there are reasons to turn to the droit
commun, it is the Civil Code that applies: "In Quebec,
the 'droit commun'—that is, the common law
of the land—is the civil law."160 Whether
in contracts or in torts, a public body, which in our view
includes the Crown, is, "within the operational sphere of
its discretionary powers . . . subject" to civil law
standards of conduct.161
_________________________________
156. Société des Alcools du Québec
c. Steinberg, supra, note 139, p. 2705.
157. Société du crédit agricole du
Canada c. Smyth, [1994] R.J.Q. 1107, 1110,
[TRANSLATION] "It is clear from doctrine and case law that,
in Quebec, the federal Crown is subject solely to the Civil Code
and Code of Civil Procedure."
158. See on these points, infra, Chapters VII and
XIX.
159. Laurentide Motels v. Beauport (City),
[1989] 1 S.C.R. 705, 722 (Beetz J.) 737,
(L'Heureux-Dubé J.).
160. Ibid., p. 724; P.A. CÔTÉ,
"La détermination du domaine du droit civil en
matière de responsabilité civile de
l'Administration québécoise",
Mélanges Jean Beetz, Éd. Thémis,
1995, pp. 395-404.
161. Ibid., p. 725; for the other provinces, these
standards are those of private common law: Just v.
British Columbia, [1989] 2 S.C.R. 1228.
[70] Counsel for the appellant pleaded the doctrine of
estoppel and that of fins de non-recevoir. According to
counsel, the characteristics and conditions of application of
these two institutions are similar, and so should be their
effects. This is an over-simplification in my view. I believe
that the doctrine of estoppel cannot be pleaded in the instant
case and that it is the Civil Code of Quebec that applies. In
Soucisse, supra, Beetz J. of the Supreme Court
of Canada distinguishes between the two concepts, while
recognizing that there has often been confusion between the two
and that both terms are used. He refers in particular to Mignault
J.'s opinion in Grace and Company, supra, that
the concept of estoppel, as applied in the English system, is
unknown to the civil law. However, he expressly acknowledges the
existence of fins de non-recevoir in civil law and
recognizes that one possible legal basis for a fin de
non-recevoir might be the wrongful conduct of a party under
articles 1053 et seq. of the Civil Code of Lower Canada
(articles 1457 et seq. of the Civil Code of Quebec).
[71] As counsel for the appellant referred to no particular
rule in the Civil Code of Quebec in support of the fin de
non-recevoir pleaded, it is impossible to determine precisely
what conditions should have been met in order to succeed on that
basis. However, if one assumes, as did counsel for the
respondent, that a fin de non-recevoir might be based on
articles 1457 et seq. of the Civil Code of Quebec, it would
still have been necessary to prove the fault, the damage and the
causal relationship between the two. And Mr. Schwartz's
assertions notwithstanding, the Court can only observe that no
real damage was proven, nor was it demonstrated that the
appellant was induced to act to its own detriment. One really
wonders how a taxpayer can claim that instituting an appeal from
an assessment of $421,069.97, proceeding with that appeal and
ultimately settling the dispute partly to its advantage can be
actions which it takes to its detriment, regardless of whether
the tax was paid or not, unless of course the appeal is utterly
frivolous. I do not accept Mr. Schwartz's testimony that
the appeal was instituted, prosecuted and ultimately settled in
order to recover amounts previously paid, as though establishing
the appellant's tax liability would have been of no
consequence if the tax had not already been paid. On the one
hand, if the appellant's officers were convinced that the
amount of the assessment had been paid, it is hard to see how it
can now be stated that the decision to institute an appeal, the
decision to proceed with that appeal and the decision to settle
were induced by the statements of Revenue Canada employees. On
the other hand, if those officers knew or ought to have known
that the amount of the assessment had not been paid, the Minister
cannot be held responsible for inducing the appellant's
course of action in seeking to secure an unjustified benefit,
since it knew that the facts as presented by Revenue Canada's
officials were incorrect. In such a case, the only conclusion can
be that the appellant is responsible for its own misfortune.
[72] As stated above, I believe the doctrine of estoppel is
not applicable in the instant case. I will nevertheless venture a
few remarks in view of the position adopted by counsel for the
appellant on this question.
[73] In Canadian Superior Oil v. Hambly, [1970]
S.C.R. 932, Martland J. of the Supreme Court of Canada
summarized the essential elements of "estoppel by
representation" as follows, at pages 939 and 940:
The essential factors giving rise to an estoppel are I
think:
(1) A representation or conduct amounting to a representation
intended to induce a course of conduct on the part of the person
to whom the representation is made.
(2) An act or omission resulting from the representation,
whether actual or by conduct, by the person to whom the
representation is made.
(3) Detriment to such person as a consequence of the act or
omission.
[74] As may be seen, the intention to induce a course of
conduct constitutes an essential element of the doctrine of
"estoppel by representation". On this point, in The
Law Relating to Estoppel by Representation, 3rd ed.
(London: Butterworth, 1977), Bower and Turner emphasize the
essential nature of this factor as follows, at page 93:
It is clear that for the purposes of estoppel, no less than
for those of an action for misrepresentation, inducement in fact
is established by proof that the representation was made both
with the object, and with the result, of inducing the representee
to alter his position. Neither element suffices without the
other. To prove the representor's intention to produce the
effect comes to nothing, unless the effect itself be proved; and
it is equally idle to establish the result, unless it be also
shown that the representor, actually or presumptively, intended
to bring it about.
[75] In the instant case, not only was this intent not proved,
it was never even alleged. Nor could it have been given the
absurd position in which the Minister would have placed himself
by having such an intent. There was an error and the incorrect
presentation of the facts was merely the result of that error,
nothing more. It could not be claimed that this incorrect
presentation by Revenue Canada officials was made with any
intention to induce one course of conduct or another on the
appellant's part. To suggest such a thing would have been
ridiculous.
[76] Considering this single fundamental element of
"estoppel by representation", a defence based on this
doctrine would in any case have had no chance of succeeding.
[77] In conclusion, I find that the appellant has not shown on
the balance of probabilities that the amount of the assessment
made on March 7, 1984 for its 1974 taxation year had been
paid and thus that the assessment made on April 28, 1993 was
incorrect with respect to the interest assessed.
[78] Furthermore, the appellant had not shown that the
Minister was not entitled to make the assessment of
April 28, 1993 as he did. I therefore find that the
assessment is valid. The appeal from that assessment is
accordingly dismissed.
(2) Assessments of March 18, 1994 for the
appellant's 1982 and 1983 taxation years
(docket 95-1938(IT)G).
(a) Appellant's Position
[79] As stated above, these assessments were made in order to
reduce the appellant's RDTOH account to nil and cancel the
refunds of $17,500 and $3,436.01 previously received for the 1982
and 1983 taxation years respectively. Counsel for the appellant
contended that these assessments are not valid since they were
made after the normal assessment period. He also submitted that
the Minister could not rely on the provisions of
subsection 152(4.3) of the Act respecting
consequential assessments since the reassessment made on
April 28, 1993 for the appellant's 1974 taxation year as
a result of the consent judgment had the effect of increasing,
not reducing, the appellant's RDTOH account for its 1974
taxation year. The reassessments were thus intended to compensate
for the fact that no adjustments were made to the balance of this
account for the years after 1974, in particular for 1982 and
1983, following the assessment of March 7, 1984 for the
appellant's 1974 taxation year, since it was as a result of
this assessment that the balance of the account should have been
reduced.
(b) Respondent's Position
[80] Counsel for the respondent argued that the assessments
are valid based on subsection 152(4.3) of the Act. In
his view, the assessments take into account the balance of the
RDTOH account as established by the assessment of April 28,
1993 for the appellant's 1974 taxation year as well as the
refunds received in subsequent years, so that no amount was
refundable for 1982 and 1983 since the total refundable amount
had been received for the years following 1974 but prior to 1982
and 1983, as explained by Ms. Chaîné of Revenue
Canada.
(c) Analysis
[81] Subsection 152(4.3) provides as follows:
Notwithstanding subsections (4), (4.1) and (5), where the
result of an assessment or a decision on an appeal is to change a
particular balance of a taxpayer for a particular taxation year,
the Minister may, or where the taxpayer so requests in writing,
shall, before the later of the expiration of the normal
reassessment period in respect of a subsequent taxation year and
the end of the day that is one year after the day on which all
rights of objection and appeal expire or are determined in
respect of the particular year, reassess the tax, interest or
penalties payable, or redetermine an amount deemed to have been
paid or to have been an overpayment, under this Part by the
taxpayer in respect of the subsequent taxation year, but only to
the extent that the reassessment or redetermination can
reasonably be considered to relate to the change in the
particular balance of the taxpayer for the particular year.
[82] This provision was added by S.C. 1993, c. 24,
subsection 90(2) and amended by S.C. 1994, c. 21,
subsection 76(2). It is applicable to reassessments and
redeterminations in respect of taxation years made after
June 10, 1993 that relate to changes in balances for other
taxation years made as a result of assessments made, or decisions
on appeals rendered, after December 20, 1991 except that,
where the day referred to in subsection 152(4.3) of the
Act as "the day on which all rights of objection and
appeal expire or are determined in respect of the particular
year" occurred before June 10, 1993, that subsection of
the Act shall be read as if that reference were to June
10, 1993.
[83] This transitional rule covers the situation herein and
renders subsection 152(4.3) of the Act theoretically
applicable since the reassessments for the 1982 and 1983 taxation
years were made on March 18, 1994, that is in the year
following June 10, 1993, the date on which the
appellant's right of appeal for the 1974 taxation year is
deemed to have been determined since the judgment was rendered on
March 8, 1993.
[84] In the assessment of March 7, 1984 for the
appellant's 1974 taxation year, the balance of the RDTOH
account was set at nil. In the assessment of April 28, 1993
following the consent judgment, it was set at $70,270.75. The
balance was thus increased, not decreased. The reassessments for
1982 and 1983 reducing the balance of the RDTOH account to nil
and cancelling the refunds of $17,500 and $3,436.01 previously
received for those years thus do not logically result from the
change in the account balance determined by the assessment of
April 28, 1993 since that balance was increased at that
time.
[85] In fact, the Minister should actually have made
reassessments and cancelled the refunds given for the years after
1974, including 1982 and 1983, following the assessment of
March 7, 1984 for the appellant's 1974 taxation year by
which the balance of the RDTOH account was reduced to nil. If
such assessments had been made at the appropriate time,
consequential reassessments for the years after 1974 could have
been made pursuant to the consent judgment on the basis of
subsection 152(4.3) of the Act so as to reflect the
increase in the balance of the account resulting from the
judgment and reflected in the assessment made on April 28,
1993.
[86] As the Minister did not make reassessments for the years
after 1974, more particularly for the 1982 and 1983 taxation
years, following the reassessment made on March 7, 1984, he
could not rely on subsection 152(4.3) of the Act in
order to do so on March 18, 1994 since these reassessments
cannot reasonably be considered to relate to the change in the
balance of the RDTOH account resulting from the assessment made
on April 28, 1993 as a result of the consent judgment. As
noted above, the change in the balance for 1974 consisted in an
increase, not a decrease, of that balance.
[87] Nothing is changed by asserting that the result for the
1982 and 1983 taxation years is in any event the same as it would
have been if the Minister had made assessments for those years at
the appropriate time following the assessment of March 7, 1984
for the 1974 taxation year. The Minister cannot do indirectly
what the Act does not allow him to do directly.
[88] The appeals from the assessments made on March 18,
1994 for the appellant's 1982 and 1983 taxation years are
thus allowed and the assessments are vacated.
[89] To summarize, the appeal from the assessment made on
April 28, 1993 for the appellant's 1974 taxation year is
dismissed and the appeals from the assessments made on
March 18, 1994 for the appellant's 1982 and 1983
taxation years are allowed and the assessments are vacated, the
whole with costs to the respondent.
Signed at Ottawa, Canada, this 6th day of December 1999.
"P.R. Dussault"
J.T.C.C.
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