Date: 20000915
Docket: 1999-203-GST-I
BETWEEN:
IMMEUBLES SANSFAÇON INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Tardif, J.T.C.C.
[1] This is an appeal from a notice of assessment bearing
number 7213209, dated October 24, 1997, in the amount of
$79,716.91, that was confirmed, following an objection dated
August 31, 1998, by a decision that reads as follows:
[TRANSLATION]
The Minister of Revenue has reviewed the facts and reasons set
out in your notice of objection and has decided that:
The assessment was made in compliance with the Act,
inter alia, but without limiting the generality of the
foregoing, in that the supply by the municipality, the Town of
Saint-Émile, of the service of installing sanitary
and storm sewer infrastructure for the Développement
Plein-Sud – Phase VI housing development and doing various
curb construction and street paving work is exempt under section
22 of Schedule V, Part VI of the Excise Tax Act and the
input tax rebates claimed cannot be allowed given the provisions
of section 169 of the said Act.
[2] The notice of assessment ensued from a refusal to allow
certain input tax credits ("ITC").
[3] During the years in issue, the appellant was a real estate
developer; it developed residential sectors within the Town of
Saint-Émile (the "Town").
[4] After identifying a certain sector, the appellant would
make a proposal to the Town regarding a project for the
construction of a number of homes.
[5] If it was interested in having the project carried out,
the Town would then have experts make a detailed evaluation of
the cost of infrastructure, including sewage and water systems
and asphalting.
[6] To obtain the municipality's approval, the appellant
had to promise to pay most of the infrastructure construction
costs identified by the municipality's experts.
[7] During the initial phases of residential developments, the
municipality took charge of carrying out all the infrastructure
work and later claimed the amounts it had spent plus the
applicable taxes.
[8] The municipality would first evaluate the costs of the
project submitted by the appellant who then had to decide whether
it would go ahead with the project. If it decided to go ahead,
the municipality would initiate the building process through
calls for tenders, all in accordance with the applicable statutes
and regulations.
[9] The Town was the principal contractor and took care of
obtaining tenders for the work. Interested businesses would
obtain the book of specifications and all relevant information
from the professionals employed by the Town.
[10] The entire tendering process and the subsequent
acceptance of the lowest complying bid took place without the
appellant's involvement.
[11] At the same time, the municipality had agreed with the
appellant that the appellant would take care of all the
disbursements. Following various inspections by town agents
checking on progress on worksites, the Town would authorize full
or partial payment depending on circumstances. The contractor
concerned would then prepare an invoice and send it to the
municipality which would in turn send it immediately to the
appellant for payment. The appellant would then pay the amount
owed, plus the applicable taxes. After the payments had been
made, the appellant would claim the input tax credits.
[12] These are the main facts revealed by the evidence. In
support of her arguments, the respondent produced documentary
evidence.
[13] Once the appellant's project had been accepted, the
municipality initiated the tendering process. After reviewing the
tenders submitted in response to the invitation to tender, the
Town of Saint-Émile generally passed a resolution
accepting the lowest complying bid and the whole constituted a
real contract. To illustrate the process, I consider it helpful
to reproduce the contents of Resolution
number 96-082-03
(Exhibit I-2) :
[TRANSLATION]
EXCERPT FROM THE MINUTES OF THE
TOWN COUNCIL
OF THE TOWN OF SAINT-ÉMILE
COPY OF RESOLUTION
SESSION OF MONDAY, MARCH 4, 1996
RESOLUTION NUMBER 96-082-03
OUTCOME OF THE TENDER OPENING
PROJECT 11601, RUE DE MONTRACHET
AND SIGNING AUTHORITY FOR THE CONTRACT
It is moved by Councillor Pierre Verret, seconded by
Councillor Miville Cloutier, and unanimously resolved that this
Council, following the opening of tenders on February 26, 1996,
in respect of Project 11601, rue de Montrachet, which resulted in
the following tenders:
1 - Les Excavations Lafontaine inc. $258,741.94
2 - Construction B.M.L. Division de Sintra $263,445.72
3 - Les Excavations Nadeau et fils inc. $263,452.56
4 - Henri Labbé et fils inc. $268,746.91
5 - Métro Excavation inc. $269,702.43
6 - Les Entreprises P.E.B. ltée $269,773.08
7 - Vallier Ouellet $279,929.32
8 - Giroux et Lessard ltée $301,651.64
9 - G. Chouinard et fils inc. $400,836.71
accept, on the recommendation of the Génivar
engineering firm, the lowest complying bid, namely, that of Les
Excavations Lafontaine inc., at $258,741.94, and authorize the
Mayor and the Chief Executive Officer and Clerk, or their
substitutes, to sign the contract. Since phase 1A is immediate,
phase B will have to be part of an agreement with the developer.
The signing of the contract is conditional on the developer's
providing a bank guarantee.
A D O P T E D.
. . .
[14] The respondent also produced a letter from the Town of
Saint-Émile. The contents of this letter included
the following (Exhibit I-1):
[TRANSLATION]
Subject: Confirmation of agreement with the developers
File no.: 1-11-2/27
Dear Sir,
I hereby confirm the agreement with the developers on the
method of paying the contractors for the road infrastructure.
Under this agreement, invoices are to be sent directly to the
developers by the contractors (including the engineers,
laboratories . . .). The Municipality shall act in a supervisory
capacity only.
Note should be taken of the fact that the contract is signed
by the contractor and the municipality but payments are to be
made by the developers. The latter are to submit in this regard a
bank guarantee letter covering the estimated cost of the
work.
I trust that this information will be of use to you and I wish
you a happy holiday season.
Jean Savard, Chief Executive Officer and
Secretary-Treasurer
[15] When the appellant wanted to introduce additional
documentary evidence, it was met by the respondent's vigorous
objection that such evidence had the effect of contradicting
valid written instruments.
[16] The respondent's objection was very important in that
it had a direct effect on the admissibility of a major portion of
the appellant's evidence.
[17] As for the appositeness of the respondent's
objection, I think it would be appropriate to recall the words of
Judge Pierre Dussault of this Court in Brigitte Tanguay
v. Her Majesty the Queen, [1997] T.C.J. No. 16;
Judge Dussault wrote as follows:
...
The documents filed in evidence support the testimony heard
respecting the circumstances of the transfer of the property and
the nature of the total consideration agreed upon between the
parties.
Having regard to the evidence adduced, I do not believe that
the notarized contract constituted a simulation designed to
deceive third parties or that the agreement between the appellant
and her spouse respecting the repayment for his share of the
property constituted a counter-letter. I find that the Minister
cannot assess by disregarding this agreement the existence of
which, in my view, the appellant proved on the balance of
evidence as she was at liberty to do so in the absence of any
restriction on giving testimony on this point. This evidence
moreover was completed by the filing of documents supporting the
probability of such an agreement. I will simply take the
liberty of adding that the prohibition enacted by
article 1234 of the Civil Code of Lower Canada
against testimony for the purpose of contradicting the terms of a
valid written instrument does not apply in tax matters. . .
.
(Emphasis added.)
[18] The respondent would like this Court to take into account
primarily the agreement signed after the tender was accepted, the
tender itself constituting a genuine contract. However, the
contract that the respondent believes should be the decisive
document for the Court to consider contains a condition that
opens the door to introducing documents essentially related to
it, and the respondent's objection should accordingly be
overruled.
[19] Moreover, the resolution contains a condition that may
readily be defined as an essential consideration. I refer to the
following excerpt from the said resolution:
[TRANSLATION]
...
accept, on the recommendation of the Solivar engineering firm,
the lowest complying bid, namely, that of Métro Excavation
Inc., and authorize the Mayor and the Chief Executive Officer and
Clerk, or their substitutes, to sign the contract with
Métro Excavation Inc., conditional on the
developer's depositing a bank guarantee letter and on the
signing of the memorandum of understanding with the
developer.
A D O P T E D
(Emphasis added.)
[20] The respondent cannot argue that the documents relied on
by the appellant are inadmissible or contradict the alleged
contract; the documents that the appellant wishes to introduce in
evidence basically relate to, explain and complete the evidence
while shedding light on the entire contractual relationship
between the parties.
[21] These various documents in no way contradict the
agreement entitled [TRANSLATION] "Memorandum of
Understanding" between the Town and the appellant. Rather, I
believe that they complete and clarify the nature and purpose of
the rights and obligations of the parties. Moreover, the words:
"to sign the contract with Métro Excavation
Inc., conditional on the developer's depositing a bank
guarantee letter and on the signing of the memorandum of
understanding with the developer", are most certainly a
commencement of written proof that opens the door to the
introduction of evidence disclosing all of the facts that
generated rights and obligations.
[22] On the one hand, the documentary evidence established
that the Town had an important role to play in carrying out the
infrastructure work. The Town was also a key factor in that,
without its intervention, none of the work would have been
possible. It initiated the process and supervised the performance
of the work.
[23] On the other hand, it is equally clear that the financial
responsibility arising from the performance of the work did not
lie with the Town. There is no doubt that this responsibility was
in no way debatable, uncertain or vague; formal and contractual
guarantees were provided for and these were enhanced by the bonds
usually posted in such cases.
[24] This is also quite apparent from the documentary evidence
as a whole.
[25] It would perhaps have been preferable if all the
documents relative to the supplies covered by this appeal had
been prepared in such a way as to specify the involvement of all
the interested parties, in particular, the Town of
Saint-Émile, the appellant and the contractors.
[26] If this had been done, there would undoubtedly have been
no dispute.
[27] Was the appellant required, under an agreement regarding
a supply or otherwise, as the case may be, to pay the
consideration for the supply, thus becoming, under section 123 of
the Excise Tax Act (the "Act"), a
recipient who could claim the ITC?
[28] It is appropriate at this point to reproduce the
memorandum of understanding between the appellant and the Town of
Saint-Émile (Exhibit I-3) :
[TRANSLATION]
CANADA
PROVINCE OF QUEBEC
TOWN OF SAINT-ÉMILE
MEMORANDUM OF UNDERSTANDING
BETWEEN:
The Town of Saint-Émile, a legally constituted body
politic governed by the provisions of the Cities and Towns Act of
Quebec, having its place of business at 6180 des Érables,
Saint-Émile, G3E 1K6, duly represented for the purposes
hereof by Mayor Renaud Auclair and Chief Executive Officer and
Clerk Jean Savard, by virtue of Resolution number 96-081-03
adopted at the session of Monday, March 4, 1996, a certified true
copy of which is annexed hereto and is an integral part of this
agreement;
Hereinafter: The Town
AND:
Immeubles Sansfaçon Inc., a legally incorporated
company, having its place of business at 1121 Chemin Sainte-Foy,
Suite 101, Québec, G1S 2M2, duly represented by Yvan
Asselin and Bruno Sansfaçon, sole owners of the
company;
Hereinafter: The Developer
WHEREAS the Developer has submitted a project for a
residential development entitled: "Développement
Plein sud, phase VI";
WHEREAS the Developer is the owner of the streets
concerned, namely, part of de Montrachet and part of
Cabernet-Sauvignon;
WHEREAS lighting, water, sanitary and storm sewer,
road, asphalt and curb work is required on the lots referred to
above;
WHEREAS the engineering firm Génivar has
prepared drawings and specifications numbered 11601, and whereas
that firm is responsible for supervision of the work;
WHEREAS it is appropriate to set out the obligations of
each party in a memorandum of understanding;
NOW THEREFORE, THE TOWN AND THE DEVELOPER AGREE AS
FOLLOWS:
CLAUSE 1:
The above preamble is an integral part of this Memorandum.
CLAUSE 2:
The Developer undertakes to pay the Town the entire cost of
infrastructure work performed by the tenderer or tenderers
selected, including contingent costs for the services of
engineers, a notary, lawyers, surveyors and testing laboratories
and for lighting and all other costs associated with the
project.
CLAUSE 3:
The Developer shall remit, when this Memorandum is signed, a
bank guarantee letter covering the cost of the project estimated
at $434,000. The letter of guarantee amount may be
decreased following any payment of an invoice by the Developer
and contribution by the Town.
The Developer shall pay in full any invoices presented by the
City, in accordance with the recommendations of the
Génivar engineering firm, within 25 days from the date the
invoice is sent. Interest on late payments shall be 15% annually
prorated over the number of days late after the 25-day
period.
CLAUSE 4:
Before the work begins, the Developer shall transfer to the
Town full ownership of the streets on which the work is to be
performed for a nominal amount of $1.00.
All necessary deeds of easement and rights of way shall be
registered in favour of the Town at the same time.
The Mayor and the Chief Executive Officer and Clerk, or their
substitutes, are authorized to sign on behalf of the Town of
Saint-Émile any document relating to the transfer of the
streets, rights of way or easements.
CLAUSE 5:
The Town undertakes to perform the work set out in this
Memorandum diligently, in accordance with the contract signed
with the tenderer or tenderers selected.
CLAUSE 6 :
Conditional on approval of the borrowing by-law by the Quebec
Department of Municipal Affairs, the Town undertakes to pay the
Developer an amount representing the Town's contribution to
the work, estimated by the Génivar firm at $53,223.43,
which corresponds to half the total costs per linear foot
depending on the length of the parcel of land earmarked for the
school and purchased by the Town. This amount shall be adjusted
to reflect actual costs after the outcome of the call for tenders
is known.
The Town's contribution shall be paid to the Developer
proportionately, as the work is approved by the Génivar
engineers.
If the asphalting and curb work are done in two stages over a
period of more than 10 months, the Town's contribution shall
be paid in an amount proportionate to the work performed and in
accordance with the method set out above.
The Town's contribution shall be payable on condition that
all invoices presented by the Town be paid by the Developer.
CLAUSE 7:
The engineering firm, the testing laboratory and the tenderer
or tenderers performing the work are hired by the Town.
CLAUSE 8:
The infrastructure, water supply, lighting, sanitary and storm
sewer, road, asphalt and curb works shall in toto remain
the property of the Town.
IN WITNESS WHEREOF THE PARTIES HAVE SIGNED IN TRIPLICATE, AT
SAINT-ÉMILE, THIS 10th DAY OF APRIL 1996.
THE TOWN THE DEVELOPER
(signature)
(signature)
Renaud Auclair, Mayor Yves Asselin
(signature)
(signature)
Jean Savard, Chief Executive Bruno Sansfaçon
Officer and Clerk
Analysis
[29] What must be decided then is the extent to which the
appellant, which did not contract directly with the service
providers, but which was unequivocally required, under an
agreement between it and the co-contracting municipality, to pay
the consideration for the performance of the various work
involved, may be defined as a recipient within the meaning of
section 123 of the Act.
[30] In the normal course of things, the answer should be
found in the Act's definition of
"recipient".
The relevant provisions
[31] Sections 23 and 123 of the Act read as
follows:
...
23.(1) [definition as added by S.C. 1990, c. 45, subs.
12(1)]
"recipient", in respect of a supply, means the
person who pays or agrees to pay consideration for the supply or,
if no consideration is or is to be paid for the supply, the
person to whom the supply is made;
123.(1) [definition as amended by S.C. 1993, c. 27, subs.
10(1), deemed to be in force on December 17, 1990]
"recipient" of a supply of property or a service
means
(a) where consideration for the supply is payable
under an agreement for the supply, the person who is liable under
the agreement to pay that consideration,
(b) where paragraph (a) does not apply and
consideration is payable for the supply, the person who is liable
to pay that consideration [italics added] . . .
and any reference to a person to whom a supply is made shall
be read as a reference to the recipient of the supply.
[French version] “ acquéreur ”
a) personne qui est tenue, aux termes d'une
convention portant sur une fourniture, de payer la
contrepartie de la fourniture;
b) personne qui est tenue, autrement qu'aux termes
d'une convention portant sur une fourniture, de payer la
contrepartie de la fourniture;
[italics added] . . .
Par ailleurs, la mention d'une personne au profit de
laquelle une fourniture est effectuée vaut mention de
l'acquéreur de la fourniture.
[32] If reference is made to the English version of the
definition of "recipient",[1] paragraph (b) can apply
only in a case where there is no agreement for a supply. Yet, the
French version[2]
does not exclude the possibility that paragraph (b) can
apply despite the existence of an agreement for a supply. Which
interpretation is to be preferred? To better understand and
appreciate the scope of paragraph (b), one must refer to
the explanatory notes of the Minister of Finance relating to Bill
C-112, amending the definition of "recipient" in
1993, so as to better understand the intent of Parliament[3] regarding the proper
interpretation of the notion of "recipient":
Some questions have arisen in cases where a person pays
consideration for a supply for which another person contracted.
Often it is the case that an agent pays consideration on behalf
of a purchaser who is liable to pay. Where an agent makes a
payment on behalf of a purchaser, the purchaser is considered to
have paid that consideration and is therefore the only
"recipient" of the supply. However, to avoid any
ambiguity in this regard, the definition
"recipient" is amended by setting out each case under a
separate paragraph so as to clarify that each is mutually
exclusive.[4]
[italics added]
[33] It appears that Parliament wanted to further clarify the
notion of recipient in relation to the former definition to
avoid any ambiguity and not to change the meaning and the
original scope of the definition. That former version could lead
to some confusion because it was silent on the parties' legal
obligations. As a result of the amendment, in a case where
consideration has to be paid, the recipient is the one who,
ultimately, under an agreement for a supply [according to
paragraph (a)] or otherwise [according to paragraph
(b)], is liable to pay that consideration.
[34] The situations provided for by paragraphs (a) and
(b) are mutually exclusive in the sense that there cannot
be two separate recipients, one under paragraph (a), the
other under paragraph (b). This does not mean,
however, that if there is an agreement for a supply, paragraph
(a) cannot apply. Paragraph (b) could apply despite
the existence of an agreement for a supply in a case where the
person liable to pay under that agreement is not required to pay
anything at all.[5]
In the instant case, according to the bank guarantee letter
provided by the appellant and the agreement whereby the
contractors directly invoice the appellant (Exhibits A-2, A-3,
A-7, A-8, A-9 and A-11), the Town is under no obligation to pay
anything at all in respect of the consideration for the
supply.
[35] It seems obvious to me that the mandator is the recipient
within the meaning of the definition in section 123 of the
Act, provided, however, that the mandate has been
disclosed to the co-contracting supplier.[6] In the instant case, the situation is
very close to the tacit mandate provided for in article 2132 of
the Civil Code of Québec.[7] Such a finding is all the more
logical since the mandate was disclosed to the contractors and,
at the request of the Town, the contractors agreed from that time
on to invoice the appellant directly. The documentary evidence
has amply established that the appellant was legally obligated to
pay the consideration for the supplies. Even if I were to find
that this obligation arose neither from an agreement for supplies
nor from a mandate, it would still have to be concluded that the
appellant was legally obligated to pay the consideration, in a
case where paragraph (a) did not apply.
[36] The Honourable Judge Pierre Dussault of this Court in
163410 Canada Inc. v. Canada,[8] held that an agreement between the
ultimate payer for the supply and the intermediary, who was
dealing with the supplier, was an agreement for a supply
within the meaning of paragraph (a) of the definition of
"recipient" in subsection 123(1) of the Act.
[37] In that case, the appellant company was also a real
estate developer. For the purposes of a particular project,
amounts belonging to it were held in escrow by an intermediary.
As a result of difficulties in carrying out the project, the
amounts held by the intermediary were used to pay the fees of a
law firm, with which the intermediary had contracted, for
resolving the difficulties encountered by the appellant. An
agreement between the appellant and the intermediary who had
contracted with the supplier of services clearly indicated that
the services were to be paid for from the amounts belonging to
the appellant that were held by the intermediary. The
intermediary was then required to account to the appellant for
the amounts thus spent by itemizing the fees incurred.
Judge Dussault reached the conclusion that, even though the
supplier of services had contracted with an intermediary,
"it was the appellant which was actually required to pay the
fees invoiced . . .".[9] According to Judge Dussault, "the agreement
[between the intermediary and the appellant], to which [the
supplier of services] was also implicitly a party . . . concerns
the supply of legal services and alters the initial agreement
between [the intermediary and the supplier of services] in this
regard."[10]
[38] In the light of that decision, the upshot is that the
memorandum of understanding between the Town and the appellant
concerns the supply of services and alters the agreements between
the Town and the various contractors in this regard. The
contractors (the suppliers within the meaning of the Act)
were implicitly parties to the memorandum of understanding
between the appellant and the Town. Although the memorandum of
understanding does not specify any obligation on the part of the
contractors towards the appellant, the later agreement according
to which the contractors undertook to send the invoices directly
to the developer removes any ambiguity in that regard. In point
of fact, the appellant had to pay the consideration for each of
the supplies, as the Town was ultimately released from doing so
by the bank guarantee letter provided by the appellant.
[39] I therefore find that the appellant was in fact the
recipient.
[40] For these reasons, the appeal is allowed.
Signed at Ottawa, Canada, this 15th day of September 2000.
"Alain Tardif"
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Translation certified true on this 8th day of January
2001.
Erich Klein, Revisor
Email this Content