Date: 20001023
Dockets: 1999-3627-EI,
1999-3957-EI,
BETWEEN:
CLARENCE GODIN,
YVON GODIN
Appellants,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent
Reasonsfor
Judgment
Watson, D.J.T.C.C.
[1]
These appeals were heard on common evidence at Bathurst,
New Brunswick, on October 13, 2000.
[2]
The appellants are appealing decisions by the Minister of
National Revenue ("the Minister") dated May 27, 1999,
according to which the employment they held with N.Y.C.
Construction Ltée, the payer, during the periods at issue,
namely from March 10 to October 19, 1997, and February 26 to
October 16, 1998, in Yvon Godin's case, and from February 24
to November 14, 1997, and February 13 to October 31,
1998, in Clarence Godin's case, is excluded from insurable
employment within the meaning of the Employment Insurance
Act on the ground that they and the payer were not dealing
with each other at arm's length.
[3]
The applicable statutory provisions are found in subsections 5(2)
and (3) of the Employment Insurance Act and section 251 of
the Income Tax Act.
[4]
Subsections 5(2) and (3) of the Employment Insurance Act
read in part as follows:
(2)
Insurable employment does not include
. . .
(i)
employment if the employer and employee are not dealing with each
other at arm's length.
(3)
For the purposes of paragraph (2)(i),
(a)
the question of whether persons are not dealing with each other
at arm's length shall be determined in accordance with the
Income Tax Act; and
(b)
if the employer is, within the meaning of that Act, related to
the employee, they are deemed to deal with each other at
arm's length if the Minister of National Revenue is satisfied
that, 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 that they would have entered into a
substantially similar contract of employment if they had been
dealing with each other at arm's length.
[5]
Section 251 of the Income Tax Act reads in part as
follows:
Section 251: Arm's length.
(1)
For the purposes of this Act,
(a)
related persons shall be deemed not to deal with each other at
arm's length . . . .
(2) Definition of "related persons". For the
purpose of this Act, "related persons", or persons
related to each other, are
(a)
individuals connected by blood relationship, marriage or
adoption;
(b)
a corporation and
(i)
a person who controls the corporation, if it is controlled by one
person,
(ii)
a person who is a member of a related group that controls the
corporation, or
(iii)
any person related to a person described in subparagraph (i) or
(ii) . . . .
[6]
In Ferme Émile Richard et Fils Inc. v. M.N.R., 178
N.R. 361, Décary J.A. of the Federal Court of Appeal
clearly stated that, in applying subparagraph 3(2)(c)(ii)
of the Unemployment Insurance Act (now
paragraph 5(3)(b) of the Employment Insurance
Act), what must be considered is whether the Minister's
decision "resulted from the proper exercise of his
discretionary authority", and that the appellant must first
present "evidence of wilful or arbitrary conduct by the
Minister, evidence which is generally not easy to
obtain".
[7]
In Her Majesty the Queen v. Bayside Drive-In Ltd. (1997),
218 N.R. 150, a decision signed on July 25, 1997, Isaac C.J.
of the Federal Court of Appeal stated:
At the threshold stage of the inquiry, review by the Tax Court
is confined to ensuring that the Minister has exercised his
discretion in a lawful manner. If, and only if, the Minister has
exercised his discretion in a manner contrary to law can the Tax
Court then proceed to a review of the merits of the
determination.
[8]
In Maple Lodge Farms v. Government of Canada, [1982] 2
S.C.R. 2, the Supreme Court of Canada stated the following at
pages 7-8:
. . . It is, as well, a clearly-established rule that the
courts should not interfere with the exercise of a discretion by
a statutory authority merely because the court might have
exercised the discretion in a different manner had it been
charged with that responsibility. Where the statutory discretion
has been exercised in good faith and, where required, in
accordance with the principles of natural justice, and where
reliance has not been placed upon considerations irrelevant or
extraneous to the statutory purpose, the courts should not
interfere.
[9]
In making his decisions, the Minister relied on the following
allegations of fact in Clarence Godin's appeal:
[TRANSLATION]
(a)
the payer is a corporation that has been duly incorporated in the
province of New Brunswick since May 26, 1989, or thereabouts, and
whose shareholders are:
Yvon Godin (the appellant's
brother)
33%
Clarence Godin (the
appellant)
33%
Nicholas Godin (the appellant's
father)
34%
(b)
the payer operates a residential and commercial construction
business;
(c)
the payer operates all year round, depending on the work
available;
(d)
the appellant's work for the payer involved making estimates,
handling orders, taking deliveries and doing carpentry work;
(e)
Yvon Godin, the appellant's brother, did more or less the
same work and also looked after the payer's books;
(f)
the appellant's father said that he was not actively involved
in the day-to-day operation of the payer;
(g)
for his carpentry work, the appellant was paid a weekly salary of
$750.00 for 45 hours;
(h)
the appellant prepared estimates and sought out contracts for the
payer without being paid;
(i)
during the periods at issue, in addition to the 45-hour weeks,
the appellant was entered on the payer's payroll record at
$133.28 for eight weeks in 1997 and five weeks in 1998;
(j)
eight hours of work are indicated for the weeks referred to in
subparagraph (i), whether the appellant worked one, two or three
days during the week;
(k)
during certain periods, work was performed without the payer
having either the appellant or any other employee listed on its
payroll record;
(l)
the payer's payroll record does not accurately show when the
appellant worked for the payer;
(m)
the hours of work noted on the payroll record do not accurately
reflect the number of hours actually worked by the appellant;
(n)
the appellant and the payer are related persons within the
meaning of the Income Tax Act;
(o)
the appellant and the payer are not dealing with each other at
arm's length;
(p)
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 not reasonable to conclude that the appellant and the payer
would have entered into a substantially similar contract of
employment if they had been dealing with each other at arm's
length.
[10] The
Minister relied on similar allegations of fact in Yvon
Godin's appeal.
[11] At the
hearing, the appellants admitted the facts alleged in
subparagraphs (a) to (e) and (g) to (o) and denied those
alleged in subparagraphs (f) and (p).
[12] The
burden of proof is on the appellants. They must show on the
balance of evidence that the Minister's decisions are
unfounded in fact and in law. Each case turns on its own
facts.
[13] It would
seem that, before ruling on the case in accordance with the
powers conferred on it by section 104 of the Employment
Insurance Act, the Court must first decide the following
question: have the appellants been able to discharge their burden
of proving on the balance of evidence that the Minister's
decisions resulted from "wilful or arbitrary conduct"
or an exercise of his discretion that was "contrary to
law" in circumstances where he was not "satisfied"
that it was "reasonable to conclude" that the employer
and the employee "would have entered into a substantially
similar contract of employment" if they had not been deemed
not to deal with each other at arm's length under paragraph
251(1)(a) of the Income Tax Act?
[14] Having
regard to all the circumstances of the case, particularly the
testimony, the admissions and the documentary evidence, I am
satisfied that the appellants have not been able to prove on the
balance of evidence that the Minister acted wilfully or
arbitrarily or in a manner contrary to law in making his
decisions.
[15] The
appellants' employment during the periods at issue is
therefore excluded from insurable employment under subsection
5(2) of the Employment Insurance Act.
[16] The
appeals are dismissed and the Minister's decisions dated
May 27, 1999, are confirmed.
[17] The
appellants testified honestly and openly at the hearing and
demonstrated that they acted in good faith when they applied for
employment insurance benefits for 1997 and 1998, given that they
had been making the same applications since 1989 and been
considered insurable from 1989 to 1996. Their employment was the
same during those previous years and was with the same payer as
during the periods at issue.
[18] In these
rather exceptional circumstances, I am strongly recommending that
the Commission review these cases in the light of subsection
56(1) of the Employment Insurance Regulations, which reads
in part as follows:
56. (1) . . . an amount owing under
section 43 . . . or 65 of the Act may be written off by the
Commission if
. . .
(f) the Commission considers that, having regard to all
the circumstances,
. . .
(ii)
the repayment of the . . . amount would result in undue hardship
to the debtor.
(iii)
Signed at Ottawa, Canada, this 23rd day of October 2000.
"D.R. Watson"
D.J.T.C.C.
Translation certified true on this 30th day of November
2001.
[OFFICIAL ENGLISH TRANSLATION]
Erich Klein, Revisor
[OFFICIAL ENGLISH TRANSLATION]
1999-3627(EI)
BETWEEN:
CLARENCE GODIN,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Appeal heard on common evidence with the appeal
of Yvon Godin (1999-3957(EI)) on October 13, 2000, at
Bathurst, New Brunswick, by
the Honourable Deputy Judge D.R. Watson
Appearances
For the
Appellant:
The Appellant himself
Counsel for the
Respondent:
Vlad Zolia
JUDGMENT
The
appeal is dismissed and the Minister's decision confirmed in
accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 23rd day of October 2000.
D.J.T.C.C.
Translation certified true
on this 30th day of November 2001.
Erich Klein, Revisor
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