Date: 19971231
Dockets: 95-2546-UI; 95-2547-UI
BETWEEN:
ALISA DAVIES, SUE McDOWELL,
Appellants,
AND
THE MINISTER OF NATIONAL REVENUE,
Respondent,
Reasons for Judgment
Bowie, J.T.C.C.
[1] These two appeals are brought from determinations made by
the Minister of National Revenue (the Minister) on September 12,
1995, pursuant to paragraph 61(3)(a) of the
Unemployment Insurance Act[1] (the Act), as it was at that time.
The two Appellants are sisters. They both worked for Sleep Cheap
Inns of Canada Inc. (Sleep Cheap), which operated a motel known
as Inn by the Falls, in Niagara Falls, Ontario. Alisa Davies was
employed there from November 18, 1990 to October 11, 1991, and
Sue McDowell was employed from November 18, 1990 to October 10,
1991.[2] Following
their lay offs, they both applied for benefits under the
Act, and both were denied, on the basis that their
employment by Sleep Cheap was not insurable employment, because
they were related to the employer. They each requested a
determination pursuant to paragraph 61(3)(a) of the
Act. The relevant part of the Minister’s
determination in each case reads as follows:
It has been decided that this employment was not insurable for
the following reasons: you were not dealing at arm’s
length, nor were you deemed to be dealing at arm’s length,
with Sleep Cheap Inns of Canada Inc. o/a Inn by the Falls.
...
The decision in this letter is issued pursuant to
paragraph 61(3)(a) of the Unemployment
Insurance Act and is based on paragraph 3(2)(c) of
the Unemployment Insurance Act.
[2] It is from these decisions that the Appellants bring these
appeals. The issues in the two appeals are identical. The
Appellants assert by their Notices of Appeal that the shares of
Sleep Cheap were, at the relevant time, owned by one James
Courville, to whom they are not related. The Respondent’s
position is that all of the outstanding voting shares of Sleep
Cheap were, at the relevant time, controlled by Sam Mingle, who
is the father of the Appellants. The Appellants raised no issue
concerning the Minister’s exercise of his discretion under
subparagraph 3(2)(c)(ii) of the Act. Both
Appellants, and the Respondent, agreed at the opening of the
hearing that the appeal of Sue McDowell would proceed, and that
the outcome of the appeal of Alisa Davies would be determined by
the result in the McDowell appeal. Sue McDowell gave evidence;
Alisa Davies did not.
[3] It is not disputed that Sam Mingle is the father of the
two Appellants, and that the two Appellants would therefore be
related to Sleep Cheap if he controlled that corporation.[3] Sue McDowell, in her
evidence, said that during the period of employment the motel was
managed by James Courville, and a lease was introduced into
evidence whereby the motel premises were leased by the owner,
335381 Ontario Ltd., to Sleep Cheap Inns of Canada Inc., for a
three-year period beginning January 1, 1990, and ending December
31, 1992. Sue McDowell identified the signature on behalf of the
lessor as being that of her father, and on behalf of the lessee
as being that of James Courville. Counsel for the Respondent
challenged the validity of this document, unsuccessfully. She
also suggested in cross-examination that James Courville was a
fiction invented to further what could only be described as a
fraud by the Appellants against the unemployment insurance
fund.
[4] I was not impressed by the evidence of Ms. McDowell. She
was all too willing to give self-serving evidence as to matters
that were not within her personal knowledge whenever the
opportunity arose. She also had considerable lapses of memory as
to relevant matters which I would expect her to remember,
notwithstanding that some six years had passed since the end of
the period of employment. Much of her evidence as to contested
matters was given in response to leading questions. I did not
find her evidence to be at all satisfactory, and I would not rely
on it. That said, a careful examination of her evidence reveals
that she did not at any point give evidence which, if believed,
would lead to the conclusion that James Courville owned the
shares of Sleep Cheap, or that her father did not own them. Her
evidence-in-chief was directed to describing how James Courville
lived at the motel and supervised the staff, herself included. As
to his relationship with Sleep Cheap, she said in
cross-examination:
Q. And what was his relationship with Sleep Cheap Inns?
A. He leased it or he owned Sleep Cheap. He leased the
motel.
Q. How do you know he owned Sleep Cheap?
A. It’s on this document. I wasn’t there.
Q. Well, with respect, it’s not on that document. I want
to know how you know. Is that all you are basing your knowledge
on is that document?
A. Are you asking me did he prove to me that he owned that
company. I didn’t ask for proof of that.
Q. What I am asking for you is what you are basing your
evidence on that Mr. Courville owned Sleep Cheap Inn?
A. By him saying it.
Q. He told you that, did he?
A. By him representing it. I can’t say that I had a
specific conversation with him about it but I didn’t know
him to misrepresent himself.
Q. How did he represent to you that he owned the company?
A. I don’t know. I don’t know. I don’t
remember. It’s seven years. I don’t remember a
specific conversation or I just knew him to be that. I
don’t have a recollection of all those details.
Q. Well, you have a pretty good recollection of what he
did.
A. Well, he was around all the time. He acted in a normal
supervisory capacity just like any normal supervisory capacity
would act.
Q. How do you know he wasn’t a paid general manager?
A. I don’t know. That wasn’t my job to know
that.
Q. So you don’t really know whether Mr. Courville owned
the company?
A. Did he provide me personally with documentation saying he
owned it, no, but he was under no obligation to do that.
Q. Well, let’s go back then. On what basis did you
conclude that he owned the company?
A. I don’t know. I don’t know.
Q. You don’t know?
A. It’s seven years ago. I don’t recall that.
Q. So you saw no documents that would suggest that to you?
A. Well, the lease.
[Transcript pages 27-29]
[5] However, the signature of Mr. Courville on the lease does
not speak at all to the question of share ownership. As she
admitted, her evidence was consistent with him being simply a
paid manager, rather than an owner. Later in her
cross-examination, it became clear that she had no
knowledge at all as to the ownership of the shares of Sleep
Cheap:
Q. Do you know whether your father ever owned Sleep Cheap
Inns?
A. Not to my knowledge. I have no idea.
Q. Do you know who incorporated the company?
A. No.
Q. Do you know when it was incorporated?
A. No.
Q. Do you know who the shareholders are?
A. No.
Q. Do you know anything about that company other than you say
that was your employer during the period that’s under
appeal here?
A. No.
Q. So you don’t know who the directors were?
A. No.
Q. Your father never indicated to you that he was the
president of that company?
A. No.
Q. Or the secretary?
A. No.
Q. Treasurer?
A. No.
Q. The only director?
A. No. I don’t find that an interesting dinner
conversation. It’s not something that was discussed.
[Transcript pages 63-64]
[6] The Appellants have totally failed to rebut the
Minister’s assumption, set out in subparagraph 4(b) of the
Reply to the Notice of Appeal in each appeal, which reads:
4. In making his decision the Respondent relied on the
following facts:
...
(b) during the period in question the Appellant’s
father, Sam Mingle, controlled all of the Payor’s
[Sleep Cheap] outstanding voting shares;
[7] Two witnesses were called by the Respondent, neither of
whom was able to offer any admissible evidence going to the issue
of the ownership of the shares of Sleep Cheap. I was told that
Mr. Mingle was out of the country on the day of the hearing, but
that he was expected back the following day. I expressed
willingness to allow the Appellants to re-open their case to call
him, if they wished. The Appellants did not avail themselves of
this offer. Mr. Courville did not testify, and Ms. McDowell
stated in her evidence that she believed him to be deceased.
[8] In argument Mr. Ungaro took the position that the
Respondent had the onus of proof with respect to the issue of
ownership of the controlling interest in Sleep Cheap.
Neither party was in a position to cite authority for or against
the proposition that the decision of the Supreme Court of Canada
in Johnston v. M.N.R.,[4] which deals with the onus of proof in income tax
cases, applies with equal force in appeals arising under the
Act. I therefore directed that written argument be filed
on that point, and that has now been done.
[9] Mr. Ungaro, for the Appellants, takes the position that
the judgment in Johnston, so far as it deals with the
question of the onus of proof, depends entirely on the specific
wording of section 58 of the Income War Tax Act.[5] Subsequent judgments
make it clear that this is not so, and that the burden of
disproving the assumptions which underlie an assessment is borne
by the taxpayer under the present Income Tax Act.[6]
[10] Mr. Ungaro went on to argue that:
c) The Federal Government does not have the requisite
authority to effect the civil rights of a person in Ontario and
therefore cannot change the rules of civil procedure in Ontario,
even if the wording in any federal act can be interpreted as
giving the Federal Government the right to make factual
statements binding on the court.
Constitution Act 1867 (Also known as the BNA Act 1949)
Section 92(13) “property and civil rights in the
province”, (compare this to section 91 (27) which gives the
power of criminal law to the Federal Government and includes
specifically the procedure in criminal matters)
[11] If this submission is intended to mean that the rules of
procedure and the law of evidence before this Court must
necessarily conform to that which pertains in the courts of the
province where the proceedings take place, then there are two
short answers to it. The first is that the rules governing the
onus of proof in matters relating to income tax, are not the
product of legislation, primary or delegated, but of the
decisions of the Supreme Court of Canada over most of this
century, beginning with Anderson Logging Company v. The King[7] and ending
with Hickman Motors. The second answer, of course, is that
Parliament has exclusive jurisdiction over the subject matter, by
reason of the Constitution Act, 1867, section 91,
head 3, and section 101. Similarly, it has jurisdiction over
unemployment insurance by reason of section 91 head 2A.
[12] There remains the question whether the rule in
Johnston applies with equal force to proceedings by way of
appeal under the Act. This question was addressed by
Archambault, J. of this Court in Lemieux v. Canada.[8] At paragraphs
20-21 he said:
The principles stated by the Supreme Court in Johnston,
supra, apply, in my view, in the contesting of a decision
on the insurability of an employment for the purposes of the
Act. In carrying out the duty which the Act imposes
on him, the respondent must determine whether or not an appellant
holds insurable employment during a given period. Before
rendering his decision, the respondent, pursuant to subsection
61(4) of the Act, must notify the appellant, his employer
and the Canada Employment and Immigration Commission in order to
afford them the opportunity to provide information and to present
observations in order to protect their interests. Once the
decision has been communicated, the appellant has the right to
institute an appeal before this Court. As may be seen, this
procedure is similar to that followed by a taxpayer who disputes
an income tax assessment made by the respondent. I therefore see
no reason not to apply the reasoning and principles stated by the
Supreme Court of Canada in Johnston, supra, to an attack
before this Court of a decision by the respondent on the
insurability of an employment.
An appellant may successfully contest the respondent’s
decision if he shows that the facts on which the respondent
relied in order to make his decision were incorrect or that his
interpretation of the Act was without foundation. For an
appellant to be able to discharge this burden of proof, it is
important that he know precisely the facts on which the
respondent relied in order to make his decision. It is for this
reason that the respondent must state them in his Reply to the
Notice of Appeal.
[13] I agree with and adopt that reasoning. I note also that
the same principle has been found to apply in at least three
cases before this Court,[9] and in at least three appeals before the Federal Court
of Appeal,[10]
although in none of them was the point given more than cursory
consideration. I find myself, therefore, in the position that
there is no satisfactory evidence, indeed no evidence at all,
before me to rebut the Minister’s assumption as to the only
issue in these cases, and I am therefore bound[11] to dismiss the appeals.
Signed at Ottawa, Canada, this 31st day of December, 1997.
"E.A Bowie"
J.T.C.C.
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