Citation: 2016T CC 104
Date: 20160427
Dockets: 2010-3571(IT)G
2014-2450(IT)G
BETWEEN:
MICHAEL
DAVIES,
Appellant,
and
HER
MAJESTY THE QUEEN,
Respondent.
REASONS
FOR ORDER
Bocock J.
I.
Relief Sought
a)
Appellant
[1]
The Appellant’s motion seeks relief on two
grounds. The first request is to set aside a Notice of Discontinuance executed
by the Appellant’s former counsel on July 8, 2013 and filed by Respondent’s counsel
on October 2, 2013; the second is to reinstate the related first filed appeal
2010-3571(IT)G (“initial appeal”) on the basis that the executed minutes of settlement
(“Minutes of Settlement”) are invalid. A second appeal, filed in 2014 as
docket: 2014-2450(IT)G (“supplementary appeal”) was an attempt to novate the
initial appeal, the discontinuance and settlement of which is disputed by the
Appellant.
b)
Respondent
[2]
The Respondent’s motion seeks to dismiss the
appeals on the basis that the initial appeal was discontinued as a result of effected
Minutes of Settlement and conforming reassessment and that the supplementary
appeal is an appeal of an assessment otherwise resolved by the Appellant and
dismissed by the Court.
II. Facts:
[3]
The initial appeal was part of a group of appeals
involving approximately 25 to 30 taxpayers. All Appellants until settlement
were represented by Osler, Hoskin and Harcourt LLP (“Litigation Counsel”). The
initial appeal concerned the Appellant’s 2005, 2006 and 2007 taxation years and
involved the deductibility of certain capital cost allowance in respect of a
purchased software licence. The Appellant was a lawyer at Litigation Counsel
until mid-2007, when he left the firm. He was abroad until late 2010 when he
returned to Canada and joined another law firm.
[4]
The Appellant was reassessed in 2009. His
claimed capital cost allowance was disallowed. He and certain other investors
retained Litigation Counsel to file appeals before this Court.
[5]
Shortly after the appeals were filed, a meeting
was held between Litigation Counsel and the group of Appellants. The Appellant
attended that conference call. General parameters of settlement were discussed.
Authority appears to have been given to resolve the appeals within the range of
20-40% of deductibility of the capital cost. Litigation Counsel was to pursue
resolution, the usual litigation steps and report periodically to the clients.
From early December 2010 until September 23, 2013, the Appellant had no
communication with Litigation Counsel (the “Silent Period”).
[6]
Despite no communication with the Appellant
during the Silent Period, much otherwise occurred. In summary, such
communications, negotiations, exchanges and deliveries between Litigation Counsel
and Respondent’s counsel are described below:
|
Silent Period Activities
|
|
Date
|
Nature of Activity
|
Consequence
|
|
January 25, 2012
|
Litigation Counsel
writes the Respondent and proposes basis for resolution of all appeals in the
group.
|
Respondent’s counsel
receives and considers the proposal.
|
|
January 18, 2013
|
Letter in which Respondent’s counsel proposes a counter-offer for
resolution of all appeals in group.
|
Litigation Counsel
receives counter-offer.
|
|
April 30, 2013
|
Letter in which Respondent’s
counsel requests confirmation of Litigation Counsel’s continued retainer for
individual appellants in group to act.
|
Litigation Counsel
receives request.
|
|
May 30, 2013
|
Letter from
Litigation Counsel confirming continued retainer and full capacity as counsel
for the appellants including the Appellant.
|
The letter clarifies
the basis of resolving the appeals prior to subsequent litigation steps.
|
|
June 18, 2013
|
Respondent’s counsel
forwards draft Minutes of Settlement and Notices of Discontinuance.
|
Litigation Counsel
receives documents and proceeds to collate and execute.
|
|
July 8, 2013
|
Litigation Counsel
executes the Minutes of Settlement and Notices of Discontinuance as counsel.
|
After execution the
documents are forwarded to Respondent’s counsel.
|
|
July 31, 2013
|
Respondent’s counsel
completes execution of Minutes of Settlement and Notices of Discontinuance.
|
The Minutes of
Settlement provide for 10% capital cost deductibility and provides executed discontinuances
are to be filed after conforming Notices of Reassessments are issued by the
Minister.
|
|
September 13, 2013
|
The Minister issues
Notices of Reassessments and forwards same to each Appellant, including the Appellant,
by regular mail.
|
This completes the
Minister’s obligations under the Minutes of Settlement.
|
[7]
The Silent Period ends on September 23, 2013 when
the Appellant receives an email from Litigation Counsel advising the initial
appeal had been settled. Thereafter, the Appellant and Litigation Counsel seek
to set aside the Minutes of Settlement and prevent the filing of the Notice of
Discontinuance. A summary of these actions during this period (the “Rescission
Period”) may be described below:
|
Rescission Period Activities
|
|
Date
|
Nature of Activity
|
|
September 23, 2013
|
In response to
Litigation Counsel’s email, the Appellant by telephone asks why, on what
basis and with what authority the initial appeal was settled and
reassessments undertaken. The Appellant is advised of the executed Minutes of
Settlement and Notice of Discontinuance.
|
|
September 25, 2013
|
Further to the
telephone conversation above, the Appellant emails Litigation Counsel to
advise of his surprise at the absence of communication, to confirm he was not
in agreement with the settlement and requests to speak about arrangements to
continue the initial appeal quickly to prevent prejudice to the Respondent.
|
|
September 25, 2013
|
Litigation Counsel
telephones Respondent’s counsel to and leaves a message of a “follow-up issue”
to settlement.
|
|
September 26, 2013
|
Litigation Counsel
and Respondent’s counsel speak by telephone. Litigation Counsel confirms of
the alleged absence of the Appellant’s approval of the Minutes of Settlement
and requests that the original disallowance reassessment, giving rise to the
initial appeal, be re-issued by the Minister. Litigation Counsel confirms that
the September 13, 2013 Notices of Reassessment are in accordance with the
Minutes of Settlement.
|
|
September 26, 2013
|
By email the same
day, Litigation Counsel characterizes reassessment pursuant to the minutes of
settlement as being in error, suggests reversal of the reassessment and
requests that the Notice of Discontinuance not be filed.
|
|
October 2, 2013
|
|
|
October 9, 2013
|
|
[8]
As a result of the Notice of Discontinuance
being filed on October 2, 2013 and receipt of advice by the Court the appeal
was discontinued, the Appellant filed the supplementary appeal.
III.
Appellant’s Grounds for Relief
[9]
Appellant’s motion counsel has asserted the
following general grounds for setting aside the Notice of Discontinuance,
rescinding the Minutes of Settlement and reviving the initial appeal or
proceeding with the supplementary appeal:
1. The Respondent’s filing of the Notices of Discontinuance
(“Discontinuance”) on October 2, 2013 constituted a fraud on the Court under
Rule 172(2) of the Tax Court of Canada Rules (General Procedure) (the “Rules”).
Respondent’s counsel was advised, prior to so filing, of the error in the
Minutes of Settlement and their consequential invalidity. Respondent’s counsel
was requested not to file the Discontinuance and should have sought directions
from the Court prior to filing same. The Notice of Discontinuance should
therefore be set aside.
2.
Upon setting aside the Discontinuance,
Appellant’s motion counsel states the Court must then examine the Minutes of
Settlement. In doing so, the Court should find that the imposition of invalid
Minutes of Settlement upon the Appellant is an injustice because the initial
appeal has not otherwise been heard on its merits nor resolved on terms
acceptable to the Appellant.
IV.
Setting aside the Notice of Discontinuance
[10]
The Court does have authority to set aside a notice
of Discontinuance where it or the judgment it represents was obtained,
instigated or consequential to some fraud on the Court. The Discontinuance is dispositive
and ends a matter in the absence of fraud or other authority for the Court to
rescind it.
During this argument, the Court cautioned Appellant’s motion counsel of
alleging fraud and the possible cost consequences should fraud not be established.
[11]
The Appellant insists fraud occurred because at
the time of filing the Discontinuance, Respondent’s counsel then knew
Litigation Counsel lacked authority to execute the Minutes of Settlement and Discontinuance.
Further, a clear request was made not to file the previously executed Notice of
Discontinuance prior to filing. The amounts to procuring the Discontinuance
through fraud or false information
and engages subsection 172(2) of the Tax Court of Canada Rules (General
Procedure).
[12]
Within the Discontinuance, the representation of
the “Appellant agreeing to dismiss the appeal”
was false. Further, Appellant’s motion counsel alleges Respondent’s counsel was
reckless as to the truth and turned a blind eye to the obvious and, by then,
indisputable fact of the Appellant’s opposition to the settlement. Not only was
this reckless as to the true state of the facts, but also contrary to the rules
of professional conduct to which Respondent’s counsel was subject.
[13]
For the reasons which follow, the Court finds
that the facts do not support the allegations of fraud on the Court,
recklessness in respect of the truth or knowledgeable misrepresentation.
[14]
The sequence of occurrences, actions and related
facts outline above do not satisfy the necessary test for the utilization of
the Court’s discretionary jurisdiction to set aside the Discontinuance.
[15]
The Discontinuance was dated as of a date
certain: the last of which was July 31, 2013. The Discontinuance was not to be
filed, pursuant to the Minutes of Settlement until certain conditions
subsequent were fulfilled. The Respondent relied upon the strength of the
escrowed Discontinuance. The Respondent issued the notices of reassessment (“Notices
of Reassessment”) on the strength of the Minutes of Settlement and escrowed Discontinuance.
Respondent’s counsel confirmed the Notices of Reassessment conformed to the
Minutes of Settlement. At that point, all conditions subsequent were fulfilled
and the agreement was fully performed. No party or person knew of any lack of
authority, never mind fraud. The release and filing of the Discontinuance
completed an outstanding litigation process, then moot among the parties.
[16]
A broader analysis of what occurred also assists.
Firstly, with respect to the Discontinuance, the Minister settled all appeals
on the basis of the Minutes of Settlement and the Notices of Discontinuance.
The Minister would never have detrimentally relied upon the Minutes of Settlement
in the absence of the Discontinuance. To do so would give rise to exactly the
present circumstance: the disavowal of a group settlement by a taxpayer who
argues counsel had no authority. If that knowledge had been obtained and
conveyed prior to the issuance of the Notices of Reassessment to all group Appellants,
the Minister may have halted the process without suffering prejudice to the
Respondent’s position or legal rights. This is not the factual scenario before
the Court. Moreover, once the group was reassessed in accordance with the
settlement, the resolution was complete, the conditions subsequent fulfilled
and the pre-dated escrowed Discontinuances were to be filed.
[17]
Legal logic and common sense were followed by
Respondent’s counsel. His legal analysis and conclusion did not ignore or
misrepresent the attempted post-reassessment rescission by the Appellant or
Litigation Counsel. On the contrary, the legal analysis undertaken merely
analysed the attempted rescission and found it of no further legal consequence
because of the time it arose in the lock-step settlement process.
[18]
Moreover, even if the Court were to find such
legal logic faulty, such an error did not constitute fraud. The Discontinuance
when dated was correct not just in the mind of Respondent’s counsel, but in the
mind of Litigation Counsel, the very and only firm retained to protect the
Appellant’s rights. Prior to execution, Respondent’s counsel had Litigation Counsel
confirm its authority and representation and thereafter, prepared the documents.
After receiving these executed settlement documents and validating such given assurances,
Respondent’s counsel directed, relying upon the reputation, assertion and customary
acts of Litigation Counsel, his own client to effect this final settlement by
issuing the conclusive and conforming Notices of Reassessment.
[19]
Such an act was a performance of forbearance,
compromise and consideration for the then ratified and authentic settlement.
Post-facto and untimely disavowal by a single Appellant, entirely caused by the
omission of Litigation Counsel, and the subsequent advice of same to Respondent’s
counsel, also too late in time, cannot revoke, rescind or avoid the pre-existing
settlement reflected in the Minutes of Settlement and Discontinuance and fully
performed by the Notices of Reassessment.
V. Minutes of Settlement
are Unenforceable
[20]
Although the Court has not accepted the argument
of the Appellant concerning the Discontinuance as a fraud on the Court, it
shall nonetheless address the arguments concerning the invalidity or
voidability of the Minutes of Settlement (the “Minutes”).
[21]
Appellant’s motion counsel argues that an
inquiry into the Minutes reveals there was no authority granted by the
Appellant to Litigation Counsel to settle the appeal and enter into the
Minutes. Therefore, the Court should not allow itself to give form and effect to
a compromise the parties themselves would never have concluded.
[22]
Factually and legally the Court cannot abide
this argument. No one was aware of the lack of authority (even admittedly Litigation
Counsel through its own omission) until after the execution of Minutes and,
most importantly, the consequential issuance of the Notices of Reassessment to
25 to 30 appellants. The Court uses the plural form advisedly since the
Minister consistently assessed all appellants in the group on the same basis.
Respondent counsel’s receipt of Litigation Counsel’s reaffirmation of
representation and authority buttresses and strengthens this reliance. It bears
repeating that only subsequently to this confirmation were the draft settlement
documents prepared, reviewed, signed first by Litigation Counsel and then forwarded
to Respondent’s counsel. Respondent’s counsel executed the Minutes and
instructed his client to act upon them. The Respondent did just that.
Respondent’s counsel only became aware of the absence of authority, which
initially was reported to him by Litigation Counsel as only “alleged” on the
part of the Appellant, after all foregoing steps were complete and all agreed
to limitations for filing the Discontinuance were removed. Until that time, the
Respondent or her counsel knew of no limitation of authority (in fact full authority had
been reaffirmed) and concordant, consequential reassessments had issued thereby
nullifying former reassessments and their related rights of appeal.
[23]
Such facts do not legally warrant deconstruction
of an accepted, reliable resolution process. Subsection 169(3) of the Act is used by
counsel consistently, frequently and reliably to resolve litigation before this
Court. It functions because of the before-described characteristics. A proposed
settlement reached through counsel under its provisions avoids resolved matters
from proceeding to trial under the Tax Court’s rules even minutes before
commencement. The process allows the parties to settle the terms between
themselves, generate, receive and affirm Notices of Reassessment, waive all
rights of appeal and conclude an appeal or group of appeals with finality. With
these present facts, should this Court conduct such a post-factum inquiry into
the nature of authority of a solicitor-client relationship it would destroy
that widely-used, respected and reliable process. There is no evidence that Respondent’s
counsel, when concluding the Minutes, had any knowledge whatsoever of the lack
of authority until after all documents, actions and conditions subsequent were
effected and concluded, otherwise entirely in accordance with the terms of the
Minutes and related documents.
[24]
To conduct such an inquiry and rescind the
Minutes in these factual circumstances ignores the obvious and consequential responsibility
and omissions of Litigation Counsel: no communication with a client for 3
years, no fresh contact within 54 days of execution of the Minutes, the day delay
in contacting Respondent’s counsel and then only by voicemail and no advice by
Appellant’s counsel directly to the Court. These omissions clearly impact the
solicitor-client relationship, but their time of discovery was simply too late to
allow this Court to exercise its discretion to invalidate the Minutes and the
resolution of this settled litigation.
To so lately pierce this veil of solicitor-client agency also ignores: (i) the
non-compensable prejudice to be suffered by the Respondent - such prejudice itself
identified by the Appellant at the outset of the discovery - who settled all
other appeals in the group: (ii) the doubt to be cast upon the reliability of
subsection 169(3) of the Act and related sections of the Tax Court’s
rules for future litigants and, (iii) the otherwise more contained and
proximate remedies available elsewhere to the Appellant for compensation
arising from Litigation Counsel’ omissions.
[25]
For these reasons, the Appellant’s motion is
denied. The initial appeal was dismissed in October, 2013 and the supplementary
appeal identified as docket: 2014-2450(IT)G is dismissed on the basis that the substantive
issues under appeal have been resolved pursuant to subsection 169(3) of the Act
and all rights of appeal from the consequential reassessment dated September
13, 2013 have been irrevocably waived under subsection 169(2.2).
[26]
Given the unproven allegations of fraud against
Respondent’s counsel by the Appellant, substantial indemnity costs shall be
awarded to the Respondent, subject to either party’s right to make written
submissions otherwise within 30 days of this Order.
Signed at Ottawa, Canada,
this 27th day of April 2016.
“R.S. Bocock”
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