Citation:
2015TCC318
Date: 20151209
Docket: 2010-3649(IT)G
BETWEEN:
JOHN
NOLASCO,
Appellant,
and
HER
MAJESTY THE QUEEN,
Respondent,
Docket:
2010-3652(IT)G
AND BETWEEN:
JOSEPH
LAUZON,
Appellant
and
HER
MAJESTY THE QUEEN,
Respondent,
Docket:
2010-3653(IT)G
AND BETWEEN:
THOMAS
SCHONBERG,
Appellant,
and
HER
MAJESTY THE QUEEN,
Respondent,
Docket:
2010-3655(IT)G
AND BETWEEN:
JOHN
KONDUR,
Appellant,
and
HR
MAJESTY THE QUEEN,
Respondent,
Docket:
2010-3656(IT)G
AND BETWEEN:
MICHAEL
ZUROWSKI,
Appellant,
and
HER
MAJESTY THE QUEEN,
Respondent.
REASONS
FOR ORDER
V.A. Miller J.
[1]
The Appellants have brought a motion for an
Order seeking leave to file a Further Re-Amended Notice of Appeal (the
“Proposed Pleadings”) pursuant to section 54 of the Tax Court of Canada
Rules (General Procedure) (the “Rules”). The motion was heard by
conference call.
[2]
The circumstances which gave rise to these
appeals are as follows.
[3]
According to the pleadings which have been
filed, each of the Appellants purchased units in one or several of the
Guidepost Exploration and Mining Limited Partnerships (the “Guidepost LPs”).
They acquired their units by paying part of the cost by cheque and financing
the balance of the purchase price by signing a promissory note.
[4]
According to the Offering Memoranda, the net
proceeds from the sale of the units were supposed to be used by the
partnerships to incur Canadian Exploration Expenses (“CEE”) and, in the case of
Guidepost LP #9 only, Canadian Development Expenses (“CDE”). Douglas Stewart
Scott was the primary promoter of the Guidepost LPs and he represented to the
Appellants that they would be able to claim their proportionate share of any
CEE or CDE expenses as a deduction on their income tax return.
[5]
All of the Appellants, except Mr. Nolasco, were
reassessed to disallow deductions they claimed for CEE and/or CDE. Mr. Nolasco
and Mr. Schonberg were reassessed to disallow interest expenses they claimed in
respect of the Guidepost LPs. The Minister of National Revenue (the “Minister”)
disallowed the claim for CEE and CDE on the basis that the Guidepost LP units
were a “tax shelter” as defined in subsection 237.1(1) of the Income Tax Act
(“ITA”) and no deduction was permitted under subsection 237.1(6) in
respect of the units because the promoters did not apply for or obtain a tax
shelter identification number for any of the Guidepost LPs. In the Reply, the
Minister’s alternative position was that the Guidepost LPs did not incur any
CEE or CDE because they did not exist and therefore did not carry on a
business.
[6]
In the original Notices of Appeal and the
Answers to the Reply, the Appellants took the position that the Guidepost LPs
had incurred CEE and CDE and that the Minister was wrong in not allowing their
claim.
[7]
The Proposed Pleadings can best be described as
“Fresh Notices of Appeal”. The Appellants did not just plead additional
paragraphs to the original Notice of Appeal. They have completely altered their
pleadings. They no longer have a section labelled “Material
Facts” instead the section is labelled “Facts
Relating to This Case”. Most of the material facts alleged in the
original Notice of Appeal are absent from the Proposed Pleadings; new facts
have been plead; new issues have been raised; and, new sections of the ITA
have been relied on.
Appellants Position
[8]
When the Notices of Appeal were filed with the
Court in June 2011, the Appellants were represented by Roger Smith. The present
counsel, Philip Aspler, became counsel of record for the Appellants in April
and May of 2013. He stated that the prior counsel’s office had been robbed and
all papers relating to the Guidepost LPs had been lost so that the Appellants
had no records. Mr. Aspler obtained twenty boxes of documents from counsel for
the Respondent and it was through this disclosure that he first appreciated the
complexity of the issues in these appeals.
[9]
It was Mr. Aspler’s opinion that the pleadings
which had been filed on behalf of the Appellants failed to describe the
personal circumstances and positions of each Appellant. He stated that the
Proposed Pleadings has remedied this situation.
Respondent’s Position
[10]
The Respondent has opposed the filing of the
Proposed Pleadings on the basis that the Appellants have not complied with various
sections of the Rules which deal with pleadings and the Proposed
Pleadings are deficient. The Respondent says that the Proposed Pleadings are
deficient because they do not plead material facts with respect to the issues
which are raised. It is the Respondent’s position that the Proposed Pleadings
do not raise a cause of action.
[11]
When I refer to specific parts of the Proposed
Pleadings, I will use the pleadings for Michael Zurowski.
Law
Amendment to Pleadings
[12]
Section 54 of the Rules allows amendments
to pleadings with consent of the opposing party, or without consent but with
leave of the Court. The general rule is that an amendment should be allowed at
any stage of an action for the purpose of determining the real questions in
controversy between the parties, provided that the allowance would not result
in an injustice to the other party not capable of being compensated by an award
of cost: Canderel v R, [1994] 1 FC 3 at paragraph 10.
[13]
In circumstances such as here, where an
amendment to pleadings involves the addition of facts, and new issues, the
Court must assume that the facts as set out in the Proposed Pleadings are true.
The amendments will only be struck if the Court determines that it is “plain and obvious” they disclose “no reasonable casue of action”: Hunt v T & N
plc, [1990] 2 S.C.R. 959 at paragraphs 30 and 34.
[14]
On a motion to amend pleadings, it is open to
the motions judge to evaluate the fundamentals of the proposed amendment to
ensure that the amendment conforms to the minimum requirements of pleadings
under the Rules. A proposed amendment to a pleading which on its face
does not raise a cause of action will not be allowed. See Canada v Fluevog,
2011 FCA 338.
[15]
In making the decision whether to allow the
Proposed Pleadings to be filed as it was presented, I cannot review any
evidence. In Romanuk v The Queen, 2013 FCA 133, Webb, J.A. stated it
this way at paragraph 5:
…Since the facts
as pled are to be taken as proven, there is no need for the judge, in deciding
whether to allow the amendment, to review any evidence that may be submitted to
try to prove the alleged facts. If any such evidence is submitted at such
hearing for this purpose, it should not be reviewed by the judge in deciding
whether to allow the amendments.
Analysis
Failure to Comply with the Rules
[16]
The Appellants have failed to comply with
sections 48 and 132 of the Rules in drafting their Proposed Pleadings.
[17]
Section 48 of the Rules requires that the
notice of appeal be in Form 21(1)(a) which, in turn, requires that the notice
of appeal relate the material facts relied on; specify the issues to be
decided; refer to the statutory provisions relied on; set forth the reasons the
appellant intends to rely on; and indicate the relief sought. These
requirements are mandatory.
[18]
The Proposed Pleadings do not contain the
precise heading required by Form 21(1)(a) for the facts but that can be
considered an irregularity. The Appellants have not used the proper method for
citing the provisions of a statute. For instance, they state that they rely on
subsections 12.6, 12.601, 12.62, 12.63, 14.2, 14.3, 15, 38b, 38c, 39(1)b,
50.(1), 66.25E, 96.1 and 169 of the ITA and I find it impossible to
ascertain exactly which provisions on which they rely.
[19]
More importantly, the Appellants failed to give
any reasons upon which they intend to rely. Both the Respondent and the Court
are left to guess at the arguments which the Appellants will make at the
hearing of these appeals. It is a mandatory requirement of pleading in the
General Procedure that the notice of appeal or any amended version of it
contain all of the specifications of Form 21(1)(a): Okoroze v The Queen,
2012 TCC 360. This is not just a formality. The purpose of these requirements
is to ensure that the issues are properly defined for discovery and trial so
that the Respondent will know what arguments she must meet: Bibby v The
Queen, 2009 TCC 588.
[20]
Section 132 of the Rules provides that an
admission made in a pleading may be withdrawn on consent or with leave of the
Court. It reads:
132. A party may
withdraw an admission made in response to a request to admit, a deemed
admission or an admission in the party’s pleading on consent or with leave of
the Court.
[21]
The test to determine whether a party can
withdraw an admission was stated at paragraph 13 of Andersen Consulting v
Canada, [1998] 1 FC 605 (FCA) as follows:
…in all the
circumstances of the case, there be a triable issue which ought to be tried in
the interests of justice and not be left to an admission of fact4. Under such a
test, inadvertence, error, hastiness, lack of knowlede of the facts, discovery
of new facts, and timeliness of the motion to amend become factors to be taken
into consideration in deciding whether or not the circumstances show that there
is a triable issue which ought to be tried in the interests of justice
[22]
The Appellants have withdrawn numerous
admissions which were made in the Notices of Appeal. They did not seek the
Respondent’s consent nor have they sought leave of the Court to withdraw these
admissions. In the circumstances of this case, I cannot determine whether the
Appellants meet the criteria in the test to withdraw admissions because they
have given no explanation for the withdrawal.
[23]
The Appellants cannot withdraw the admissions
made in the Notice of Appeal except in accordance with section 132 of the Rules.
[24]
The Appellants must comply with the Court’s Rules
with respect to pleadings and their failure to do is fatal to their application
for leave to file the Proposed Pleadings. See Simon v Canada, 2011 FCA
6 at paragraph 17.
Are the
Proposed Pleadings Deficient?
[25]
The purpose of pleadings was best stated by
Bowie T.C.J. in Zelinski v Canada, [2001] T.C.J. No. 774 at paragraph 4.
He said:
4The purpose of
pleadings is to define the issues in dispute between the parties for the
purposes of production, discovery and trial. What is required of a party
pleading is to set forth a concise statement of the material facts upon which
she relies. Material facts are those facts which, if established at the
trial, will tend to show that the party pleading is entitled to the relief
sought. Amendments to pleadings should generally be permitted, so long as
that can be done without causing prejudice to the opposing party that cannot be
compensated by an award of costs or other terms, as the purpose of the Rules is
to ensure, so far as possible, a fair trial of the real issues in dispute
between the parties. (emphasis added)
5The applicable
principle is stated in Holmsted and Watson:
This is the rule of pleading: all of
the other pleading rules are essentially corollaries or qualifications to this
basic rule that the pleader must state the material facts relied upon for his
or her claim or defence. The rule involves four separate elements: (1) every
pleading must state facts, not mere conclusions of law; (2) it must state
material facts and not include facts which are immaterial; (3) it must state
facts and not the evidence by which they are to be proved; (4) it must state
facts concisely in a summary form.
(1)
Immaterial Facts
[26]
Each of the Proposed Pleadings is replete with
facts which are not material to the issues raised. For instance, some of the
immaterial facts pled by Mr. Zuroski are the following:
20. In
making the investment, the Appellant had the hope that he could realize a
profit, should the exploration and or development work that he contributed to
would strike minerals of value that had the potential to make a profit for the
limited partners such as himself.
21. He had
been further assured that the promoter had conformed to and would continue to
conform to all required filing and registration requirements.
22. Furthermore,
the Appellant had expected that he would receive timely and accurate
information concerning his investments – something he never did.
23. Throughout
his working life, the Appellant had been a P. Eng., Mining Engineer.
24. Before
investing in GP #9, GP #10, GP #12 and GP #14, the Appellant had reviewed the
contents of the Information Circulars and thought that the projects described
therein had merit.
25.
Indeed, benefitting from his considerable professional experience, the
Appellant found the various projects described therein credible and potentially
profitable.
[27]
With respect, even if these facts are true, they
would not affect the validity of the reassessments.
(2)
Issues Raised
[28]
Mr. Zurowski has raised 10 issues in his
Proposed Pleading. I will address each in turn.
[29]
The Appellants were reassessed on the basis that
they were not eligible to claim CEE and/or CDE. In the Proposed Pleadings for
Mr. Zurowski, they raise this issue as follows:
33. Was the MNR
wrong in dishonouring all of the CEE and CDE expenses claimed by the Appellant
in his 2001, 2002, 2003, 2004, 2005, and 2006 taxation years for his
investments in GP #9, GP #10, GP #12 and GP #14?
[30]
The Appellants state as a fact that they have
purchased units in the Guidepost LPs. However, their eligibility to receive CEE
and/or CDE depended on whether the partnerships had incurred CEE and/or CDE and
those expenses flowed through proportionately to the Appellants. There is no
allegation of fact in the Proposed Pleadings that the Guidepost LPs have
incurred CEE and/or CDE. Likewise, there is no allegation of fact that the
Appellants are entitled to their proportionate share of CEE and/or CDE.
[31]
With respect to this issue, counsel for the
Respondent wrote the following in his written submissions:
55. Absent any
allegation of fact that the Guidepost LPs actually incurred any CEE or CDE
expenses, the appellants cannot be entitled to any CEE or CDE deductions for
the taxation years at issue. Vague statements as to representations made to,
and belief of, the appellants cannot entitle them to any CEE or CDE deductions.
The Further Re-Amended Notices of Appeal therefore neither comply with the
Rules nor disclose any reasonable cause of action in respect of this issue.
[32]
I agree with these submissions. There are no
material facts pled that raise a cause of action with respect to the
Appellants’ entitlement to claim CEE and/or CDE. There are no facts alleged in
the Proposed Pleadings that, if assumed to be true, would allow the Court to
quash, vary or vacate the reassessments with respect to this issue.
[33]
Both Mr. Schonberg and Mr. Nolasco were
reassessed to disallow a deduction for interest with respect to the Guidepost
LPs. They both raised the interest deduction as an issue but neither of them
alleged that they paid interest. Mr. Schonberg alleged that the interest
deduction “conformed” to the Minister’s “applicable requirements for entitlement”. This
statement is a “bald conclusory allegation” without
any evidentiary basis: AstraZeneca Canada Inc v Novopharm Limited, 2010
FCA 112; Merchant Law Group v Canada (Revenue Agency), 2010 FCA 184
[34]
The Appellants have also listed questions of
fact as issues in their appeals. In the case of Mr. Zurowski those issues were:
35. How
much hard money did the Appellant invest in GP #9, GP #10, GP #12 and GP #14?
36. How
much money was the Appellant at risk for – resulting from the Full Recourse
Promissory Notes that he had signed as part of his investments?
37. What
did Douglas Stewart Scott do with the investments made by the Appellants?
38. Did
Douglas Stewart Scott, the Promoter, actually carry out work that came under
the ambit of eligible CEE and CDE with the proceeds of the Appellant’s
investments?
39. Were
moneys invested by the Appellant, in fact, directed by Douglas Stewart Scott,
the Promoter, into Guidepost Resources Inc., a “closed corporation”,
incorporated under the laws of Quebec, which at all material times was a
Canadian Controlled Private Corporation?
[35]
With respect to questions 35 and 36, the
Appellants should know how much money they invested in the Guidepost LPs. These
questions should not be raised in the pleadings as an issue but the answers
should be stated as material facts.
[36]
Questions 37, 38 and 39 may be relevant but that
relevance is not apparent from the Proposed Pleadings. There are no allegations
of fact with respect to these alleged issues and there are no reasons given
that would allow me to ascertain their relevancy.
[37]
The Appellants have pled that, in the
alternative, they are “entitled to have their hard
money investments and ‘at risk’ promissory notes” considered to be an
allowable business investment loss (ABIL) or a capital loss. However, they
failed to allege any facts (material or otherwise) or reasons that would allow
them to obtain an ABIL or a capital loss. In an appeal, the Crown like the
Appellants is entitled to know the facts on which the other party relies to
further an issue. If there are no facts in the pleadings to support an issue, the
issue will be struck.
[38]
The Appellants have also pled that, in the
alternative, their “hard money investments”
should be considered to be a ‘bad debt’. The only fact alleged in the Proposed
Pleadings with respect to a bad debt was the follows:
32. In view of
the closure of both the business of the GP’s, as well as the business of
Guidepost Resources Inc., the moneys that the Appellant had invested can be
characterized as a “bad debt”.
[39]
This statement is nothing more than a conclusion
without any actual facts to support it. This bare assertion of a conclusion is
not an allegation of material fact: Vojic v Canada (MNR), [1987] 2 CTC
203; Merchant Law Group (supra).
[40]
The Proposed Pleadings are wholly deficient.
They contain few material facts and no alleged facts that if true will allow a
court to vary or vacate the reassessments. They have not raised a cause of
action for any of the issues listed in the pleadings.
Conclusion
[41]
It is pain and obvious that the Proposed
Pleadings do not raise a cause of action and I will not grant leave for them to
be filed with the Court. However, if the Appellants wish to amend their Notices
of Appeal they may do so on the following conditions:
(a) The
proposed Amended Notices of Appeal must comply with the Rules. They must
state material facts and they must raise a cause of action;
(b) The
proposed Amended Notices of Appeal must be given to counsel for the Respondent
by January 29, 2016; and
(c) If
counsel for the Respondent does not consent to the filing of the proposed
Amended Notices of Appeal, the Appellants must file a motion with the Court
pursuant to section 54 of the Rules by February 19, 2016.
[42]
The Appellants’ motions to file the Proposed
Pleadings are dismissed. The Respondent is awarded one set of costs for the
motions which is to be paid forthwith.
Signed at Ottawa,
Canada, this 9th day of December 2015.
“V.A. Miller”
Email this Content