Date: 20060914
Docket: T-2096-04
Citation: 2006
FC 1097
[ENGLISH TRANSLATION]
Montréal,
Québec, September 14, 2006
PRESENT:
The Honourable Madam Justice Johanne Gauthier
BETWEEN:
RICHARD ANGELL,
DOUGLAS ATHERTON,
GUY AUGER, CLAUDE BASTIEN,
MADELEINE BASTIEN, GEORGES
BÉDARD,
ANDRÉ BERGERON, DENIS BLAIS,
IRÈNE BLETON, RAYMOND BOUCHER,
ROBERT CATUDAL, DIANE COALLIER
PIERRE COLLETTE, ANDRÉ
DESJARDINS,
MARCEL DONTIGNY, MEDELEINE
DUFORD-BÉDARD,
MARGUERITE DUMAIS, LARRY ELLIOT,
MAURICE FOUCAULT, PIERRE GRAVEL,
ANDREA GUGLIANDOLO, ROBERT S.
JUDE,
JERRY KUZYK, LIETTE LAFOND,
MICHEL LAFRAMBOISE,
CLAUDE LANDRY, ROBERT LAURIN,
CHRISTIAN LAVOIE, YVES LEMAY,
GÉRARD LEMIEUX,
LILIANE LUPIEN, MICHEL LYMAN,
GAÉTAN MAILHOT, JOHN MCALLISTER,
RÉJEAN MCKEOWN,
DENIS MCNAMARA, NORMAND MÉNARD,
RICHARD MIGAS, MARIO NANTEL,
ROMAIN PAQUETTE, FRANÇOIS PICHÉ,
JEAN-GUY PROTEAU, LILLY RAHMANN,
RÉJEAN ROUGEAU, CLAUDE ROULX,
JACQUES SAMSON,
MARCEL SAMSON, JULIO SEIZ,
GENEVIÈVE SPINEDI,
DUC-THIEU VU AND BRIAN WHEELER
Applicants
and
MINISTER OF NATIONAL
REVENUE,
CANADA CUSTOMS AND REVENUE AGENCY,
HER MAJESTY IN RIGHT OF CANADA,
AND ATTORNEY GENERAL OF CANADA
Respondents
REASONS FOR ORDER AND ORDER
[1]
This
is an appeal by the applicants of prothonotary Richard Morneau’s decision
allowing with costs the respondents’ application and dismissing their
application for judicial review. In so doing, the prothonotary also dismissed
the applicants’ motion to amend.
[2]
They
argue that their application for judicial review raises a new, complex and
difficult issue that justifies granting them the right to complete their
evidence and be heard on the merits. The issue is the Federal Courts’
jurisdiction to intervene in a judicial review when the Minister of National
Revenue fails to promptly process an objection to an assessment as required by
subsection 165(3) of the Income Tax Act, R.S.C. 1985,
c. 1 (5th Supp.) (the Act), and non-compliance with this statutory
duty and Minister’s duty of fairness prejudicially affects the applicants’
right to a fair and equitable hearing on the merits of the assessment before
the Tax Court of Canada (TCC). In this context, the Court will have to
consider, in particular, the remedies that it has the jurisdiction to award.
[3]
The
applicants are also asking the Court to allow the motion to amend that was
before the prothonotary, as well as the new motion to re-amend their notice of
application that they filed at the same time as their appeal. According to the
applicants, the Court must consider these new amendments to decide their
appeal.
[4]
For
the reasons that follow, the Court has determined that the appeal should be
dismissed. The striking of the motion is confirmed. The motions to amend are
dismissed.
Background
[5]
The
fifty-one applicants all became partners of Système A.L.H. Enr. (ALH) in the
1988 tax year. ALH is a commercial partnership
established under the laws of Ontario that is involved in commercial activities
and scientific research and experimental development in the fields of
information technology, electronics and training.
[6]
Following
this investment, in 1988 all of the applicants claimed their share of ALH’s
scientific research and experimental development expenses and the corresponding
amount of the investment tax credit. In 1989, they received a notice of
assessment accepting this tax treatment. Subsequently, in 1992, the Minister
issued notices of reassessment to each of the applicants. The tax credit
applications were rejected. However, the ALH expenses could be deducted as
business expenses. In addition to the capital claimed, the notices of
assessment included interest.
[7]
The
applicants filed a notice of objection with the Minister between
July and November 1992 against these notices of
reassessment.
[8]
Since
the deductions and tax credits were denied due to the unscientific nature of
ALH’s research and development, on June 7, 1993, the Revenue Canada appeals
officer sought the opinion of a second scientific advisor. He received this
report on May 17, 1994.
[9]
In
October 1994, a moratorium was ordered with respect to decisions affecting
scientific research and experimental development by Revenue Canada’s
headquarters, which then chose to take over all of these files. At this time,
Revenue Canada had reassessed the partners of ZUNIK group’s twelve (12) companies,
including ALH.
[10]
In
June 1995, Revenue Canada made a settlement offer that applied only to ZUNIK
group companies that were formed after 1989. Therefore, this offer did not
apply to the applicants.
[11]
In
September 1996, due to a heavy workload resulting from notices of appeal
received from other files, the Revenue Canada’s headquarters asked the person
in charge of reviewing these objections to delay the issuance of letters
confirming the Minister’s intention to confirm the reassessments.
[12]
In
his affidavit filed in support of his application, Douglas Atherton stated that
throughout the delay in processing the notices of objection, the applicants’
representative emphatically and repeatedly asked the Minister and his employees
to expedite the processing of the objections and take a position, but without
success. In support of this assertion, Mr. Atherton filed various letters that
he sent to the Minister and the Appeals Branch between August 1995 and February
1996.
[13]
It
should be noted that in September 1995, one month after the first letter from
the applicants noted at paragraph 11 above, Revenue Canada advised counsel for
the applicants that since over ninety (90) days had elapsed since the notice of
objection was served, they could, if they so desired, appeal to the TCC without
having to wait for the findings of the departmental assessment (Exhibit 6(g)).
[14]
In
a letter to the Minister dated February 6, 1996, (Exhibit P-12(a)), the
applicants’ representative stated that acting on this recommendation to apply
to the courts would considerably congest the legal system without contributing
in any way to solve the issues in these files. He also specifically referred to
the duty of care provided for under subsection 165(3) of the Act.
[15]
In
a letter dated July 10, 1996, (Exhibit P-12(b)), the applicants’ representative
told the Minister that an additional delay [translation]
“'would not fail to exacerbate” two problems, namely (1) debating the
state of scientific knowledge circulating in the circles in question some ten
years earlier, with all the issues involving evidence and inaccuracy caused by
such a time gap, and (2) keeping up to date the objectors’ contact information.
On July 26, 1996, the Minister’s office informed the applicants that a response
was imminent (Exhibit P-12(c)).
[16]
Since
the Minister neither confirmed, set aside nor amended the reassessment in
October 1998, the applicants filed their notice of appeal with the TCC.
[17]
In
paragraphs 47 and 48 of his affidavit, Mr. Atherton notes that as a result of
the long period of time elapsed since the 1988 taxation year, by the time the
notices of appeal were filed it had become impossible for the applicants to
discharge the burden of proof imposed on them by the Act. In his view, this
constitutes a serious breach of procedural fairness and has cause and continues
to cause significant moral and material harm to the applicants.
[18]
Although
no evidence was filed in the record in this regard, the applicants notified the
Court at the hearing that they had filed a conditional discontinuance to the
TCC and had been granted a remission. Their counsel also noted that
approximately 550 similar cases involving partners from other companies were
outstanding before the TCC.
[19]
As
the prothonotary notes, the Court must normally allow applicants to amend their
notice of application unless it is clear and obvious that these amendments are
certain to fail. He therefore decided to examine the merits of the motion to
strike on the assumption that the amendments put forward by the applicants were
in fact in the notice of application.
[20]
The
prothonotary examined the following remedies put forward by the applicants
(paragraph 11 of the decision):
a. a definitive end to
the assessment and collection process in regard to the applicants for the 1988
taxation year and other years concerned following the investment by the
applicants, in 1988, in the company Système ALH Enr. (ALH);
b. the vacating of the
notices of reassessment issued to the applicants for the 1988 taxation
year and other years concerned following the investment by the
applicants in ALH;
c. the extinction by
prescription of the amounts claimed from the applicants under the notices of
reassessment for the 1988 taxation year and other years concerned
following the investment by the applicants in ALH;
d. an award of damages to
the applicants for the harm caused by the failure of the Minister and the CCRA
to make a decision;
e. a declaration to the
respondents that the blatant failure of the respondents to comply with their due
diligence under 165(3) ITA bars any suit or measure to recover the amounts
payable under the notices of reassessment and, for the purpose of treating all
of the applicants equally, the repayment with interest, where applicable, of
any sum paid by the applicants in satisfaction of the notices of reassessment;
f.
leave
for the applicants to seek any other appropriate relief;
g. in the alternative,
and without limitation of the foregoing, an order enjoining the respondents to
cancel any interest running from the date of filing of the notices of objection;
h. an award to the
applicants of any further relief that this Court considers just and appropriate.
[The amendments that
were before the prothonotary are underlined.]
[21]
In
this regard, he examined the following reasons set out in the notice of
application (paragraph 12 of the decision):
a. the respondents have
failed to comply with the duty to act with diligence set out in section 165(3)
of the ITA and their duty to act fairly under the principles of Canadian
administrative law;
b. the respondents have
breached the applicants' rights to security of the person and protection
against any cruel and unusual treatment, recognized by sections 7 and 12 of
the Canadian Charter of Rights and Freedoms (Canadian Charter);
c. section 50 of
the Budget Implementation Act, 2004, S.C. 2004, c. 22,
stating that section 222 of the ITA, which establishes the ten-year limitation
period on federal tax debts payable under the ITA, is without retroactive
effect;
d. even if section
50, above, were retroactive, section 222 of the ITA, as drafted, is
discriminatory and breaches the applicants' right to equality under section 15
of the Canadian Charter.
[22]
Essentially,
the prothonotary allowed the motion to strike because he found that the Court
did not have the jurisdiction to grant the relief outlined at paragraphs 20(a),
(b) and (e) above.
[23]
With
respect to the extinction by prescription (paragraph 20(c)), the prothonotary
found that “this plainly and obviously discloses no reasonable cause of
action.” This finding was not disputed on appeal by the applicants, who
confirmed in writing that they were abandoning their findings regarding
prescription (paragraphs 20(c) and 21(c) and (d) above).
[24]
With
respect to the award of damages for the alleged harm, the prothonotary also
found that the Court did not have this jurisdiction in the context of an
application for judicial review. The applicants confirmed at the hearing that
they were not challenging this finding.
[25]
At
the hearing, the Court asked the parties to consider the possibility of
entering into an arrangement to convert the application for judicial review
into an action in order to allow the applicants to obtain the damages that they
were claiming. The applicants then indicated that after careful consideration
they had decided to bring an application for judicial review instead of an
action. The respondents further stated that such a conversion would raise an
issue of prescription even if the action had the filing date of the notice of
application.
[26]
The
prothonotary determined that the Court could not exercise the Minister’s
discretion under subsection 220(3.1) of the Act in order to cancel the interest
accrued on tax debts. The finding outlined in paragraph 20(g) therefore
constituted, in his view, an abuse of the process of the Court and did not disclose
any cause of action.
[27]
Finally,
given that the remedies outlined in paragraph 20(f) and (h) would be the only
ones remaining, since the other relief was struck, the prothonotary found that
they could not disclose reasonable cause of action and that they constituted in
this sense an abuse of process. In his view, they did not meet the requirements
of section 301 of the Federal Courts Rules, SOR/98-106 (the Rules).
[28]
As
noted, the applicants filed an application to re-amend their notice of
application to add the following grounds:
[translation]
e. The respondents,
by their actions, deprived the applicants of their right to appeal under
section 169 of the ITA, and will thereby deprive the applicants of the
enjoyment of their property, under circumstances in which this deprivation did
not result from the due process of the law under paragraph 1(a) of the Canadian
Bill of Rights 8-9 Elizabeth II, c. 44 (Canada) in R.S.C. (1985), App III.
f.
Sections
165 and 160 of the ITA, and 18.5 of the Federal Courts Rules should not
be interpreted or applied so as to deprive the applicants of their right to the
enjoyment of their property and to a fair hearing of their case, nor be
interpreted and applied in such a way as to deprive the applicants of a useful
remedy should they be deprived of those rights set out in paragraphs 1(a) and
2(e) of the Canadian Bill of Rights.
[29]
The
parties have also asked the Court to suspend its deliberation until the Federal
Court of Appeal has made a decision in Addison & Leyen Ltd. et al. v. Her
Majesty, 2006 FCA 107, [2006] F.C.J. No. 489 (CA) (QL), and the parties
have had the opportunity to make additional submissions in respect of that
decision.
Issues
[30]
Since
the parties agree that the Court must review this case de novo, they
submitted arguments on the following issues:
i)
Can
the Court consider the amendments put forward by the applicants in its analysis
of the motion to strike and the appeal of Prothonotary Morneau’s decision?
ii)
Is
it plain and obvious from the wording of the notice of application for judicial
review, including the amendments and/or the re-amendments, that the applicants
have no chance of success?
Analysis
[31]
The
Court agrees with the parties that the issues raised in the respondents’ motion
to strike are determinative to the outcome of the case. The Court must
therefore conduct a hearing de novo and exercise its discretion by
re-hearing the case (Canada v. Aqua-Gem Investments Ltd., [1993] 2 FC
425 and Merck & Co. v. Apotex Inc., [2003] F.C.J No. 1925 (CA) (QL),
2003 FCA 291 at paras 19, 25).
i) Motion to amend
[32]
The
application of this standard does not mean that the Court is free to consider
new evidence or new facts. In fact, the case law clearly states that the Court
must exercise its own discretion on the basis of the record as it existed or
was constituted before the prothonotary.
[33]
In
this case, the applicants argue that they are not attempting to introduce new
evidence or new facts and that leave to amend, under section 75
of the Rules, will only allow them to add a new legal argument. This
argument will support their position that their application is based on a
reasonable cause of action that is supported by evidence that is already in the
record, namely Mr. Atherton’s affidavit, and in particular the assertions as to
the impact of the delay on the ability of the applicants to have a fair and impartial
hearing before the TCC.
[34]
The
respondents submit that the notice of application is itself a material fact
that is part of the evidence in the record that cannot be amended for the
purposes of this appeal.
[35]
The
parties have not submitted any precedent in which the Court has had to consider
such an issue.
[36]
Normally,
when there is no indication from the parties that there is a lack of relevant
evidence to decide a question of law and the other party does not suffer any
prejudice, the Court must consider legal arguments that are new to the appeal (Athey
v. Leonati, [1996] 3 S.C.R. 458 at
para 51 and 671905 Alberta Inc. v. Q'Max Solutions Inc, [2003] F.C.J. No. 873
(C.A.) (QL), 2002 FCT 1293 at para 35).
[37]
It
is clear that even if the applicants also sought leave to file an additional affidavit,
the facts already in the record, which the Court must take as proved, must be
sufficient to decide the issue. If this was not the case, the Court would
necessarily have to refuse to consider the new issue and, by analogy here,
refuse to consider the new proposed amendments.
[38]
The
Court is not satisfied that the applicants are not attempting to add a new
ground such as, for example, that the Minister, in addition to not having
considered the notice of objection with all due diligence, prevented them from
making submissions or submitting evidence to him. For all practical purposes,
the applicants added a reference to an additional statutory provision that
supports the interpretation of subsection 165(3) of the Act that they had
already included in their notice of application and, as I said, they are not
attempting to introduce a reference to new facts, acts or actions.
[39]
In
this context, it is clear that the amendment sought would make it possible
establish the real issues between the parties and would not result in prejudice
that cannot be offset by costs on the motion at first instance and the appeal.
Furthermore, the respondents have had the opportunity in their memorandum to
present their case on the merits with respect to possible application of sections
1(a) and 2(e) of the Canadian Bill of Rights.
[40]
In
any event, it is only appropriate to decide this issue if the new amendments
truly add to the debate. Having analyzed the merits of the motion to strike, in
light of these new amendments the Court found that they did not have that
effect. It is therefore not necessary to decide the issue of whether the
applicants can re-amend the notice of application for the purposes of the
appeal.
ii) Motion to strike
[41]
Although
the parties agree on this point, it is important to recall the test that the
Court must apply to establish whether the application should be struck out. A
notice of application will not be struck out without a hearing on the merits
unless it is plain and obvious that there is no chance of success: David
Bull Laboratories Canada Inc. v. Pharmacia Inc., [1995] 1 FC 588 (FCA).
[42]
As
Karen Sharlow J. noted in Addison & Leyen, above, the test is severe
because it is generally more efficient for the Court to rule on such arguments
at the hearing on the merits than on a motion. If a motion to strike is
dismissed, then the interlocutory proceedings will have been a waste of time.
[43]
Moreover,
by analogy with a motion to strike out a statement, the facts set out in the
notice of application, if any, and in Mr. Atherton’s affidavit, are presumed to
be true (Hunt v. Carey
Canada Inc., [1990] 2 S.C.R. 1959 at para 979 and Addison & Leyen,
above, at para 6).
[44]
The
parties clearly put a great deal of effort in preparing their cases. They
submitted extensive case law and debated a considerable number of principles
that are not all of equal importance for deciding the issue in dispute.
[45]
Although
the Court has carefully considered each and every one of the arguments and the
case law put forward by the applicants, it will not be necessary to comment on
them all in detail.
[46]
Before
analyzing the arguments, it is useful to describe the various principles that
arise from the case law submitted by the parties, several of which were adopted
and confirmed by the Federal Court of Appeal in Addison & Leyen,
above.
[47]
First,
the Act is quite specific about the manner in which a taxpayer’s primary tax
liability is established: Addison & Leyen, above, at paras 36 and 39.
The Act also provides for how taxpayers can challenge these assessments.
[48]
Once
assessed, a taxpayer has two ways of challenging the merits of that decision. The
taxpayer must first request an administrative review through a notice of
objection. Ninety (90) days after serving the notice of objection, regardless
of whether the administrative review has been completed, the taxpayer may
request a judicial review of the assessment by filing a notice of appeal with
the TCC.
[49]
By
enacting paragraph 169(1)(b) of the Act and section 18.5 of the Federal
Courts Act, Parliament granted exclusive jurisdiction to the TCC to
consider the merits of an assessment (Walker v. Canada, [2005] F.C.J. No.
1957 (FCA) (QL), Addison & Leyen, above, at para 48). Once the
Minister has made a decision with respect to an objection, it can no longer be
subject to judicial review (Webster v. Canada, 2003 FCT 296, [2003] F.C.J.
No. 1569 at para 20 (CA) (QL)).
[50]
Although
Parliament specifically states that the Minister must review notices of
objection with all due diligence, it does not provide for specific consequences
in the Act should the Minister fail to do so (Addison & Leyen, above,
at para 41).
[51]
Indeed,
although taxpayers can appeal to the TCC as to the merits, that court cannot
consider a breach by the Minister of his duty under subsection 165(3) of the
Act when it considered the merits of the assessment, or a decision by the
Minister with respect to an objection (Addison & Leyen, above, at
para 44).
[52]
Before
a decision is made by the Minister, the Federal Court has jurisdiction to
review the legality of the administrative review process under section 18.1 of
the Federal Courts Act. It can issue a writ of mandamus forcing
the Minister to make a decision or issue a declaratory judgment that the
Minister breached his duty of care. In this regard, Hillier v. Canada,
[2001] F.C.J. No. 197 (CA) (QL), the Federal Court of Appeal stated that such a
breach should be considered by the Minister if a request was made to waive
interest and penalties under subsection 220(3.) of the Act (see also Cole v.
Canada (Attorney General), 2005 FC 1445, [2005] F.C.J. 1764
(QL) and Addison & Leyen, above, at para 41). In this context, a
declaratory judgment could be useful for the taxpayer.
[53]
The
Federal Court retains jurisdiction to review other reviewable errors or breaches
of the Minister’s duty to act fairly (see, for example, Scott Slipp Nissan
Ltd. v. Canada (Attorney General), 2004 FC 1096, [2004] F.C.J. No. 1327
(QL)).
[54]
However,
even if the Federal Court has jurisdiction to review the legality of this
administrative process, setting aside the assessment or reassessments is not an
appropriate remedy for undue delay in dealing with an objection (Bolton v. Canada,
[1996] 200 N.R. 303 (FCA); James v. Canada (Minister of National Revenue) –
MNR), [2000] F.C.J. No 2135 (CA) (QL), specifically paragraphs 11–21). It
appears from these decisions and from Addison & Leyen, above, that
this arises mainly from the fact that Parliament has provided taxpayers with
the necessary tools to control the time limits with which the Minister must
comply, including appealing to the TCC and the writ of mandamus.
[55]
The
Court understands from these decisions that if taxpayers decide that it is
important to obtain an administrative decision, they have the opportunity to
wait more than 90 days before applying to the TCC. However, they must ensure
that this delay in exercising their right to appeal does not cause them undue
hardship. In this respect, they are also in a better position than the Minister
because they normally have all of the elements to determine whether a delay can
cause them harm. In such a case, because the taxpayer is managing these
remedies, he may request a writ of mandamus or simply appeal to the TCC
under paragraph 169(1)(a) of the Act.
[56]
The
legislative scheme therefore provides a great deal of flexibility. To the
remedies mentioned above, general law also adds the possibility for taxpayers
to seek damages that could be equal to the amount for which they were assessed
in cases where the Minister’s conduct constitutes an abuse of power (see Obonsawin
v. Canada, 2004 TCC 3, [2004] T.C.J. No. 68 (QL)).
Particular circumstances of this
case
[57]
The
applicants argue that their application does not concern the merits of the
assessments issued against them but rather the legality of the administrative
review process given that the Minister has still not made a decision on their
objections. They therefore conclude that the Court has jurisdiction to consider
their application.
[58]
To
support this position, they submit that the Federal Court of Appeal’s decisions
in Bolton and James, above, at paragraph 51 above, and in Canada
v. Ginsberg, [1996] 3 FC 334 (FCA), (on which the Court’s decision in Bolton
relied in part) do not apply or should not bind the Court in this case for
the following reasons:
i) These
decisions were made before the Federal Court of Appeal developed in Society
Promoting Environmental Conservation v. Canada (Attorney General), 2003 FCA
239, [2003] F.C.J. 861 (CA) (QL) (hereinafter SPEC) the pragmatic and
functional approach that should now be applied to determine the legal
consequences of non-compliance with a duty such as the one provided for in
subsection 165(3) of the Act.
According to the applicants, when
such an approach is applied, it becomes clear that in appropriate cases the
Federal Court may set aside an assessment as well as other subsequent decisions
by the Minister vitiated by such non-compliance with the Act.
ii) The
Federal Court of Appeal has never had to rule on the impact of sections 7 and
12 of the Charter or paragraph 1(a) and 2(e) of the Canadian Bill of
Rights or of the concept of estoppel (section 1457 of the Civil Code of
Quebec) where the consequence of non-compliance of the duty under
subsection 165(3) of the Act is to deprive the taxpayer of his right to appeal
and his right to a fair and impartial hearing before the TCC. Here, according to
the applicants, the Minister’s conduct rendered this right to appeal
meaningless. His delay in acting made this right purely academic and rendered
their appeals moot.
iii) The
Federal Court of Appeals in Addison & Leyen, above, represents a
major step towards redefining the Federal Court’s powers to scrutinize and
control how the Minister and his representatives exercise their discretion.
Furthermore, the Federal Court of Appeal noted at paragraph 73 that, insofar as
the Minister’s discretion is subject to judicial review, there is no law or
legal principle that would preclude the Federal Court from granting an
analogous remedy to the vacation of an assessment. According to the applicants,
it is precisely the exercise of such discretion that is at issue in this
application because under subsection 165(3) of the Act, the Minister has
limited discretion to make his decision on the objection with all due diligence.
Finally, according to the applicants, in Addison & Leyen the
Federal Court of Appeal addressed the issue of adequate remedy and alternative
remedies and noted that the Federal Court is not required to decline
jurisdiction on the basis that there is a right to appeal to the TCC or a right
to seek a discretionary waiver of the interest and penalties or even a right to
bring an action for damages. It also confirmed that a challenge to an
administrative decision must first be done through an application for judicial
review (Canada v. Grenier, [2006] 2 R.C.F. 287 (FCA)).
iv) The
alternative remedies in this case are unsatisfactory because they cannot, for
all practical purposes, appeal to the TCC, and a writ of mandamus in
this case would not remedy the harm that has been caused by the delay in
reviewing their objections.
[59]
It
is easy to see that the allegation that the Minister, by his conduct,
irremediably prejudiced the applicants’ right to appeal the merits of their
assessments before the TCC and to receive a fair and impartial hearing, is central
to almost all of the applicants’ arguments.
[60]
Therefore,
this premise will be considered first. In this regard, the applicants submit
that the prothonotary erred by ignoring that that the allegations had been proven
contained in paragraphs 47 and 48 of Mr. Atherton’s affidavit as well as the
Minister’s failure alleged in paragraph 4(a) of the notice of application.
[61]
For
the purposes of this appeal, the Court accepts as fact that as a result of the
time elapsed between the filing of the notice of objection and the filing of
the notices of appeal, the applicants lost the opportunity to prepare a case to
adequately defend themselves. In his affidavit, Mr. Atherton does not provide
any details on what prevents the applicants from defending themselves. However,
Exhibit 12(b) of his affidavit provides some insight in this regard, since it
mentions that the evidence of the scientific knowledge of 1988 that is central
to the issue. And this is likely only one aspect of the problem described by
Mr. Atherton.
[62]
Naturally,
this allegation of fact presupposes that the applicants had access to this
evidence or whatever they needed to defend themselves at some point and that
they lost this access following a reasonable delay after filing their notices
of objection in 1992. The applicants did not argue that the Minister could have
made a decision prior to the expiration of the first 90 days after their
notices of objection were received. In his affidavit, Mr. Atherton stated that
the Minister was in fact in a position to make his decision as early as 1994.
[63]
There
is no allegation that the applicants lost their ability to defend the merits of
their objection and appeal prior to the expiration of this 90-day period.
[64]
Even
if some of the exhibits in the affidavit partly contradict the assertion in
paragraph 46 and that it is unclear whether it is a
fact or an assertion of mixed fact and law, the Court also accepts as fact that
the Minister alone is responsible for the long delay in dealing with the
objections. However, such an assertion concerns only the administrative review
process. Mr. Atherton does not provide any facts indicating or implying that
the Minister and his representatives in any way prevented the applicants from
filing, prior to 1998, a notice of appeal, a right directly conferred on them
by the Act (paragraph 169(1)(a)). Paragraph 4(a) of the notice of
application is of no assistance in this regard.
[65]
As
I have already indicated in describing the context, some of the exhibits filed
by the affiant (Exhibits 6(b) and 12) actually indicate that the Minister
specifically pointed out to the applicants that they did not have wait for his
decision before pursuing an appeal and that it was with full knowledge that
they decided to wait. At the time they were duly represented by counsel, and it
is clear from the correspondence that counsel was fully aware that the time
elapsed affected access to the evidence necessary to support the applicants’
arguments before the TCC.
[66]
In
his affidavit, Mr. Athertone does not even address what prevented the
applicants from exercising the remedies at their disposal, namely to request a
writ of mandamus or to file an appeal to the TCC in a timely manner,
i.e., before their ability to defend themselves on appeal was affected.
[67]
The
Court cannot presume that such an impediment existed.
[68]
Since
they were entitled to exercise these remedies at any time upon expiration of
the time limit provided under paragraph 169(1)(b), it appears that the
applicants decided to rely on the administrative review instead of the judicial
review.
[69]
In
any event, the Court cannot consider as fact that the applicants could not
appeal the merit of their assessments before the TCC or obtain a writ of mandamus
in a timely manner, i.e., before they suffered the prejudice described in
Mr. Atherton’s affidavit.
[70]
That
said, I will now consider the applicants’ legal arguments.
[71]
First,
they submit that the Court is not bound by the decisions in Bolton and James
because the facts in this application differ on one essential point, namely
that they were unable to appeal to the TCC.
[72]
In
Bolton, confirmed by James, the Federal Court of Appeal found the
following:
[3] In the case of The
Queen v. Ginsberg (Court file A-242-94) decided last week, we held that Parliament
did not intend that the Minister's failure to examine a return and assess tax
"with all due dispatch", as required by subsection 152(1)1,
did not deprive him of the statutory power to issue an assessment. The
reasoning in that case applies with even greater force here: Parliament
clearly did not intend that the Minister's failure to reconsider an assessment
with all due dispatch should have the effect of vacating such assessment. If
the Minister does not act, the taxpayer's recourse is to appeal pursuant to s.
169. […] [Emphasis added]
[73]
The
applicants do not dispute that the analysis for determining the consequences of
non-compliance with a statutory duty is based on Parliament’s intent. I shall
return to their argument based on the Federal Court of Appeal’s decision in SPEC.
[74]
In
their view, even though they were clearly entitled to appeal under paragraph
169(1) of the Act and had the right to seek a writ of mandamus well
before 1998, the Court must establish the consequences of the Minister’s
failure by taking into account not these rights but rather that, in fact, when
they finally decided to exercise their right to appeal it was too late because
this remedy had become moot. Consequently, they were never able to challenge
the merit of their assessments.
[75]
If
it adopted this reasoning, the Court should find that Parliament intended that
taxpayers who act diligently in the face of the same failure by the Minister
will necessarily have to debate the merits of their assessment before having it
set aside, while taxpayers who remain passive and do not avail themselves of
the tools at their disposal in the Act will be able to have their
assessment set aside regardless of its merits and thus deprive their fellow
citizens of their contribution to the tax burden.
[76]
In
my opinion, it is plain and obvious that such a conclusion is illogical. The
Court cannot, based on the facts put forward by the applicants, refuse to apply
the case law of the Federal Court of Appeal that binds it.
[77]
On
this point, the applicants also submitted that the Court is not bound by Bolton,
Ginsberg and James because these decisions are quite “dated” when
one considers the new functional and pragmatic approach adopted in SPEC.
[78]
It
is true that in that case, Justice Evans describes, in a more elaborate and
systematic manner, the approach for establishing whether non-compliance with a
statutory duty implies that the administrative measure thus affected must be
set aside.
[79]
However,
a careful reading of this decision reveals that the approach described by the
learned judge is not new; it is based on principles set out several years
before that the Federal Court of Appeal considered and essentially applied in Ginsberg
and Bolton. As in SPEC,
the Federal Court of Appeal in Ginsberg and Bolton based its
analysis on Parliament’s intent, and there is nothing in the approach adopted
in SPEC that allows the Court to set aside the findings in these cases
and that the Federal Court of Appeal more recently confirmed in James, below.
[80]
However,
it is true that some of the applicants’ arguments were not analyzed in those
decisions (see para 57(ii)). Does this necessarily imply, as the applicants
argue, that it is not plain and obvious that they cannot have their assessments
set aside and obtain the other remedies sought?
[81]
It
is indeed tempting to adopt this simple conclusion, which avoids considering
the merits of the applicants’ arguments. However, novelty and complexity are
not synonymous with chance of success, and the Court cannot find on this basis
alone that it is not plain and obvious that the application does not have any
chance of success.
[82]
First,
with respect to the impact of section 7 (deprivation of life and the security
of the person) and section 12 (protection against any cruel and unusual
treatment of punishment) of the Charter, the applicants relied entirely
on the written submissions supporting their motion before the prothonotary.
These submissions were brief and general. Like prothonotary Morneau, the Court
is satisfied that there is no doubt that these provisions do not apply in this
case and that the application based on a breach in this regard does not have
any chance of success. Section 7 of the Charter does not protect an
individual’s economic interests, and it is clear that the facts in this case do
not involve conduct that is incompatible with human dignity, a necessary
element for section 12 to apply. It is not necessary to say more on this point.
[83]
What
about the reference to subsections 2(a) and 2(b) of the Canadian Bill of
Rights that the applicants wish to add at this stage (see the wording in
Appendix 1)?
[84]
For
the purposes of this motion, the Court is prepared to assume without deciding
that these two provisions apply to the circumstances in this case. Section 1(a)
protects their right to enjoy property without due process of law (rules of
natural justice), and section 2(e) protects their right to a fair hearing before
any civil court called upon to define their rights (Air Canada v. Canada
(Procureure Générale), [2003] R.J.Q. 322 (CAQ), at para 47, and Canadian
Committee for the Tel-Aviv Foundation c. R., 2002 FCA 72, at para 21).
[85]
The
applicants acknowledge that the Act as it reads does not violate the principles
set out in sections 1(a) and 2(e) of the Canadian Bill of Rights since
it is clear that Parliament has provided a right to a fair hearing. As stated
by the respondents under subsection 169(1) of the Act and sections 3 and 12 of
the Tax Court of Canada Act, R.S.C. 1985, c. T-2, the applicants were
entitled to a fair hearing before a tribunal appointed in a superior court of
record providing the highest guarantee of procedural fairness.
[86]
Thus,
it is in the application of the Act that the problem actually lies.
[87]
In
this respect, the applicants state that they have a reasonable cause of action
to argue in claiming that the combined effect of the Minister’s failure to
confirm the assessments at issue with all due diligence and the overly strict
interpretation of the limitation set out in section 18.5 of the Federal
Courts Act directly result in the removal of this right protected by the Canadian
Bill of Rights.
[88]
First,
as I noted at paragraph 52 and 53 of these reasons, it is common ground that
the Court has the jurisdiction to review the legality of the objection process
in the absence of a decision by the Minister. The applicants’ sophisticated
argumentation therefore does not add anything in this regard..
The obstacle that the applicants face has nothing to do with the interpretation
of section 18.5 of the Federal Courts Act, which gives exclusive
jurisdiction to the TCC to decide the merits of an assessment.
[89]
The
applicants also add that based on the Canadian Bill of Rights, Parliament
cannot have intended to allow the Minister to interfere with their
quasi-constitutional rights without this leading to the nullity of their
assessments or the possibility for the Court to grant the other remedies listed
in their notice of application. Here, the argument based on sections articles 1(a)
and 2(e) of the Canadian Bill of Rights is mixed with the argument based
on the functional and pragmatic analysis advocated in SPEC.
[90]
The
Canadian Bill of Rights protects the right to a fair hearing before the
Tax Court of Canada, but it does not protect the applicants against the loss of
this right from their failure to exercise this right in a timely manner.
[91]
As
I explained in paragraphs 59 to 69 of these reasons, in this case the Court
cannot take as fact that the applicants were unable to exercise their right to
appeal before 1998. In the specific context of this application and on the
basis of the facts put forward by the applicants, the reference to these new
provisions cannot alter the Federal Court of Appeal’s finding in Ginsberg and
James. This new argument has no more chance of success than the argument
based on the “new” approach adopted in SPEC (para 77 to 79 above).
[92]
The
applicants submit that they may request a stay in the collection process on the
basis of the civil law principle of estoppel (Banque canadienne nationale c.
Soucisse,
[1981] 2 R.C.S. 339; Pintendre
Autos Inc. v. Canada.,
2003 TCC 818, para 16–19). They indicate that it is not a question here of
invoking promissory estoppel or another similar common law concept. The concept
of estoppel on which the applicants rely arises from the application of the
rule of liability (s. 1457 of the Civil Code of Quebec). They submit
that since it is based on civil liability, such a concept can only be raised in
courts that have jurisdiction to decide claims for damages, in this case the
Federal Court.
[93]
At
the hearing, the applicants stated that the Court may not have had the
necessary information to find that Quebec law applied in this case. Without
deciding, and only for the purposes of this application, the Court is prepared
to assume that this law is applicable to this case.
[94]
This
application seeks to verify the legality of the administrative objection
process. It is not a question of determining whether there was civil fault;
such a question of civil liability has no place in a judicial review. Furthermore,
the estoppel invoked by the applicants is normally raised in defence of an
action in the same manner as limitation or compensation. Here, the applicants
are attempting to use it as a sword instead of a shield, with the Minister not
having taken any collection action.
[95]
As
I indicated, under administrative law principles, breach of the duty under
section 165 of the Act does not have the effect of setting aside assessments
that were issued well before this failure. Preventing the collection of this
claim in the context of a judicial review would simply amount to doing
indirectly what cannot be done directly.
[96]
With
respect to the other remedies the Court agrees with Prothonotary Morneau’s
reasons at paragraphs 44 to 49 of his decision. The Court notes that there is
no evidence that the Minister assessed the applicants for any penalties or
interest relating to the period after 1992. Nor does it appear that the
applicants asked him to exercise his discretion in their favour in this regard.
[97]
The
Minister’s decision may be subject to a judicial review when he exercises his
discretion under subsection 220(3.1) of the Act. The applicants will then have
the opportunity to put forward their argument with respect to non-compliance
with duty of care under section 165 of the Act. Of course, it would also be
appropriate for them to ensure that this issue is before the Minister before he
makes his decision whether to assess the applicants in this respect.
[98]
Before
concluding, it is useful to deal more specifically with the recent decision by
the Federal Court of Appeal in Addison & Leyen, since the applicants argued
that this was a major step forward in redefining the scrutiny and control of
the Federal Court over the Minister in the context of reviewing tax
assessments.
[99]
As
the Federal Court of Appeal stated at paragraph 49 of its decision, the issue
raised in Addison & Leyen was entirely new, namely whether section
18.5 of the Federal Courts Act prevented the Court from reviewing the
legality of the Minister’s decision to impose tax liability on a third party in
order to collect amounts owing by another taxpayer under section 160 of the
Act.
[100] Contrary to the
situation before me, where the undue delay claimed by the applicants occurred
long after the assessment was issued, in Addison & Leyen, the
Minister was faulted for unduly delaying the decision to use the mechanism
provided under section 160 of the Act in order to issue an assessment.
[101] As the analysis in
paragraph 65 of the decision indicates, the Court does not change its approach
to assessments issued under section 152. It does not question the principles
that I summarized at paragraphs 46 to 56 in these reasons. On the contrary, it
is the differences between the statutory regime that applies to assessments
issued under section 152 and that which applies to assessments issued under
section 160 that warrants its decision in that case. Furthermore, it should be
noted that the Act does not provide any mechanism for a third party to
challenge the Minister’s decision to use the mechanism provided in section 160,
or to force him to take a position in this regard.
[102] It is in this very
specific and very different context from the one in this case that the Court
notes that vacating an assessment issued under section 160 is not a wholly
excluded remedy, even if it is evident according to the Federal Court of Appeal
that it can only be used in the most serious cases.
[103] As this was an appeal
of a decision on a motion to strike the notice of application, the Federal
Court of Appeal did not conduct a substantive analysis to determine the
appropriate remedy if the Court found that the Minister committed a reviewable
error in exercising his discretion to assess under section 160.
[104] Finally, the Court’s
comments with respect to the utility of alternative remedies available to a
third party do not apply here because it is clear, for example, that the
reference to the Court’s decision in Grenier, above, was
necessary because this was a separate decision by the Minister and not simply a
breach of a statutory duty to act with all due diligence, as in this case. To
draw a parallel, the notice of application here refers to the decision
resulting from the process vitiated by the delay, such as, for example, a
decision by the Minister on the objection.
[105] As I indicated before,
there is no doubt in my mind at this point that the Court has jurisdiction to
here this application for judicial review. In this regard, the decision in Addison
& Leyen adds nothing. There is therefore nothing in that case that
supports the applicants’ position.
[106] For all these reasons,
the Court finds that the appeal should be dismissed and there is no reason to
allow the motion to re-amend the notice of appeal, the whole with costs.
ORDER
THIS COURT ORDERS that:
1. The appeal is dismissed with costs as well as the
motion to re-amend the notice of application.
“Johanne
Gauthier”
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