Nautica Motors Inc. v. Canada (Minister of National Revenue), 2002 FCT 422

Date: 20020412

Docket: T-172-01

Neutral citation: 2002 FCT 422

Ottawa, Ontario, this 12th day of April, 2002

PRESENT:      THE HONOURABLE MR. JUSTICE JOHN A. O'KEEFE

IN THE MATTER OF an application made pursuant to

Section 18.1 of the Federal Court Act

BETWEEN:

                                                           NAUTICA MOTORS INC.

506913 N.B. LTD.

Applicants

- and -

MINISTER OF NATIONAL REVENUE

Respondent

REASONS FOR ORDER AND ORDER

O'KEEFE J.

[1]                 This is an application for a writ of mandamus pursuant to sections 18 and subsection 18.1(3) of the Federal Court Act, R.S.C. 1985, c. F-7 to compel the respondent to process certain HST returns of the applicants and provide the corresponding credit returns.

[2]                 The applicants seek a writ of mandamus to compel the respondent to process the HST returns filed by Nautica Motors Inc. for May, 1998 and by 506913 N.B. Ltd. for August, September and October, 2000 and to issue the credit returns thereby owing to the applicants.

Background Facts

[3]                 The applicant, Nautica Motors Inc. is a company duly incorporated under the laws of the Province of Nova Scotia, and having its head office in the Town of Truro, Nova Scotia.

[4]                 The applicant, 506913 N.B. Ltd. is a company duly incorporated under the laws of the Province of New Brunswick on April 30, 1998 and having its head office at 1111 Main Street, Suite 207, in the City of Moncton, in the County of Westmorland, Province of New Brunswick, and doing business under the business name and style of Nautica Motors NB.

[5]                 The respondent is the Minister of National Revenue, which is the predecessor to the Canada Customs and Revenue Agency.

[6]                 David Daley is the President of Nautica Motors Inc. and 506913 N.B. Ltd.

[7]                 In 1998, the Goods and Services Tax/Harmonized Sales Tax Returns were filed for Nautica Motors Inc. (for the reporting period March 11, 1998 to May 31, 1998) and for 506913 N.B. Ltd. (for the reporting period May 1, 1998 to May 31, 1998). [The parties are in dispute regarding the filing dates. The applicants assert these were filed in June, 1998, but the respondent contends that they were filed on November 13, 1998 and July 28, 1998 respectively.]

[8]                 In July, 1998 the respondent commenced an audit on the above-noted return filed for 506913 N.B. Ltd.    The auditor assigned to the audit by the respondent was George LeBlanc.

[9]                 In July, 1998 Mr. LeBlanc advised the applicants that some of the transactions which had been reported on the return for 506913 N.B. Ltd. should have been reported on the return for Nautica Motors Inc. From July to October, 1998 the applicants' staff worked in full co-operation with Mr. LeBlanc to reallocate the HST credits. During this time the applicants submitted HST returns for June, July, August and September, 1998. Mr. LeBlanc added each of these to his audit and stated that no payments would be made on the returns until the audit was complete.

[10]            In mid October, 1998 David Daley asked Mr. LeBlanc for a meeting with him and his superiors in order to find a way to speed up the audit as the applicants were having difficulty continuing in business without the funds. At the time, the Canada Customs and Revenue Agency agreed to release the credit returns payable to 506913 N.B. Ltd. for June, 1998 onward, but withheld the May, 1998 return pending completion of the audit.

[11]            In November, 1998, after meetings and discussions with the applicants and their solicitors, the respondent agreed to release the funds payable to 506913 N.B. Ltd. pursuant to the May, 1998 return only if the directors of 506913 N.B. Ltd. issued a personal guarantee in the amount of $112,576.97. In December, 1998 the guarantee was signed and the funds were released, together with the amounts owing pursuant to the October and November, 1998 returns for 506913 N.B. Ltd.

[12]            The applicants' claim, but the respondent denies, that there is still some $170,000 owing by Revenue Canada to the applicant, Nautica Motors Inc. pursuant to the May, 1998 return.

[13]            In December, 1998 the applicant, 506913 N.B. Ltd. received a letter from the Canada Customs and Revenue Agency which indicated that the audit was complete. [The parties are in dispute on this fact. The applicants submit that all audits of 506913 N.B. Ltd. were complete, but the respondent submits that the letter indicated that only the audit for the month of May, 1998 was completed.]

[14]            The audit of Nautica Motors Inc. continued throughout 1999 and 2000.

[15]            The auditor from the Canada Customs and Revenue Agency with whom the applicants were dealing throughout 1999 and into 2000 was George LeBlanc. During the audit, Mr. LeBlanc made numerous requests for information regarding various transactions involving both Nautica Motors Inc. and 506913 N.B. Ltd. The applicants' staff complied as quickly as possible with all requests for information and co-operated fully with the audit. Mr. LeBlanc took several boxes of original records back to his office, which the applicants later learned were damaged and destroyed in a flood.

[16]            In April, 2000 the audit was taken over by Yvon Boudreau as George LeBlanc had received a promotion. From April to August, 2000, Mr. Bourdreau made a number of requests for additional information in regard to both applicants and took numerous boxes of original documentation to his office. Each of Mr. Boudreau's requests for information were promptly answered by the applicants' staff.

[17]            In late September, 2000 Allen Skaling, who is the Secretary-Treasurer of 506913 N.B. Ltd., asked Mr. Boudreau for an explanation as to why the August refund for 506913 N.B. Ltd. had not been received. At that time, Mr. Boudreau advised him that it had been denied as a matter of routine because of the size of the refund. However, on October 12, 2000 Mr. Boudreau advised Mr. Skaling that the August refund would not be released until the audit was complete. At this point, the respondent has still not released the $170,000 owing to Nautica Motors Inc. pursuant to the May return.

[18]            On October 25, 2000, David Daley, at the request of Mr. Boudreau, attended at the office of the Canada Customs and Revenue Agency in Moncton. At that meeting, an investigation officer from the Saint John Branch read him his rights. [The applicants submit that the officer was Margaret Martin, the respondents submit that the officer was Claudette Miller.] Mr. Daley told her that he did not understand what was going on and asked if this was still an audit. Mr. Bourdreau, who was also present at the meeting, advised him that it was still an audit and stated that he had no idea when it would be complete, but that no further funds would be released until that time. Mr.Boudreau also warned him that the applicants may have had dealings with companies that could be doing something illegal.

[19]            At present, the applicant, 506913 N.B. Ltd. has filed but not received, any credit for August, September, and October, 2000 HST returns. The applicant, Nautica Motors Inc. alleges but the respondent denies, that they are still owed an outstanding credit for the May, 1998 return.    The applicants allege, but the respondent denies, that the applicants are owed by the respondent approximately $1.4 million in unpaid tax returns.

[20]            The applicants have co-operated promptly and to the fullest extent with each and every request for information and documentation.

Applicants' Submissions

[21]            The applicants submit that the Minister of National Revenue is a federal board or commission whose actions are subject to judicial review under the Federal Court Act, supra as discussed in Fee v. Bradshaw (1982) 137 D.L.R. (3d) 695.

[22]            The applicants submit that the requirements to be satisfied before a writ of mandamus will issue were articulated by the Federal Court of Appeal in Apotex Inc. v.Canada, [1994] 1 F.C. 742 (F.C.A.), at paragraph 45.

[23]            The applicants submit that subsection 297(1) of the Excise Tax Act, R.S.C. 1985 c. E-15 provides the Minister of National Revenue with a public and legal statutory duty to consider and assess an application for a rebate by a person with all due dispatch.

[24]            The applicants submit that the Minister's duty to assess the taxpayer's income tax returns is mandatory, not discretionary (see Schatten v. M.N.R. 96 D.T.C. 6102 (F.C.T.D.)).

[25]            The applicants submit that the Tax Court held, in the case of The Queen v. Ginsberg 94 D.T.C. 1430, that the Minister of National Revenue failed to exercise his statutory duty to assess the taxpayer's returns "with all due dispatch" when there was a delay of 18 months in processing the taxpayer's returns.

[26]            The applicants submit that the respondent has taken unreasonable delay in completing the outstanding audits and in providing the tax credits.

[27]            The applicants submit that the Trial Division in the case of Conille v. Canada (Minister of Citizenship and Immigration) [1999] 2 F.C. 33 held that an unreasonable delay in performing a statutory duty may warrant the issuance of a mandamus. At paragraph 23, the Court set out the following three requirements which must be met if a delay is to be considered unreasonable:

1.          the delay in question has been longer than the nature of the process required, prima facie;

2.          the applicant and his counsel are not responsible for the delay; and

3.          the authority responsible for the delay has not provided justification.

[28]            The applicants submit that this test has been met in this case. The applicants submit that a delay of two and one-half years in carrying out an audit and processing credit returns is unreasonable. The applicants submit that the respondent has failed to discharge their burden to demonstrate that the delay was not unreasonable and was justified in the circumstances.

[29]            The applicants submit that the delay has caused the applicants to suffer severe financial hardship as the respondent is holding $1.4 million of their money, some of which has been owing since June, 1998. The applicants submit that they have repeatedly made the respondent aware of the grave financial difficulties which they are suffering as a result of this delay. The applicants submit that the balance of convenience favours the applicants.

Respondent's Submissions

[30]            The respondent agrees with the applicants that the Federal Court of Appeal set out the applicable eight part test for mandamus in Apotex Inc. v.Canada, supra at paragraph 45.

[31]            The respondent submits that the due dispatch required by section 152 of the Income Tax Act, supra confers some discretion on the Minister with respect to timing of the assessment.

[32]            The respondent submits that subsection 229(1) of the Excise Tax Act, supra does not impose a requirement on the respondent to pay out a credit return immediately or as soon as possible. By use of the term "with all due dispatch", the respondent submits that the legislation mandates that the respondent consider the facts of each case.

[33]            The respondent submits that the auditor was waiting for information from the applicant, Nautica Motors Inc. which he had requested, without which he was not in a position to finalize the audit.

[34]            The respondent submits that it is reasonable for the respondent to delay the payment of a credit return to a taxpayer who is under audit.

[35]            The respondent submits that the respondent was in compliance with subsection 229(1) of the Excise Tax Act, supra in refusing to pay the applicants' credit returns.

[36]            The respondent submits that the respondent is under no legal duty to assess the applicants in accordance with their returns or to pay out the credit returns, and so this is not a proper case for mandamus to issue ordering these actions.

Issues

[37]            1.         Should a preliminary motion be granted to dismiss this proceeding?

2.          Should an order in the nature of mandamus issue to compel the Minister to assess the applicants' HST returns?

Relevant Statutory Provisions

[38]            Subsection 229(1) of the Excise Tax Act, supra states:

Analysis and Decision

[39]            Issue 1

Should a preliminary motion be granted to dismiss this proceeding?

The respondent made a preliminary motion at the commencement of the hearing for:

1.          An order dismissing the applicants' notice of application for a writ of mandamus as there is no live controversy within the judicial review application;

2.          In the alternative, an order dismissing the applicants' notice of application for a writ of mandamus as it is not within the Court's jurisdiction to determine whether the applicants were properly assessed by the Minister and such a determination is required to establish the applicants' legal right to the credit return; and

3.          Costs pursuant to Rule 401 of the Federal Court Rules, 1998, SOR/98-106.

[40]            The respondent had issued a letter to the applicant, Nautica Motors Inc. dated November 21, 2001, which reads in part as follows:

Dear Mr. Daley:

Re:            Interim assessment of HST account 880107164 for the period March 11, 1998 to May 31, 1998

We enclose herewith the statement of Audit Adjustments and the Notice of Assessment for the above noted period. Note that this is an interim assessment only. A final assessment will be issued when the balance of the information required becomes available.

We have denied ITC's totalling $33,394.20 on the basis that they have either been claimed, or a claimable, by others. See Worksheet 9950. The balance of the ITC's claimed, totalling $198,137.95, are denied because we are unable to satisfy ourselves, based on the information provided, as to which entities are entitled to the ITC's claimed. There is contradictory information contained in the records provided by you.

[41]            The respondent sent a letter to Cambridge Leasing Ltd. dated November 20, 2001 which read in part as follows:

Dear Mr. Daley:

Re:            Interim assessment of HST account 8801689228 for the period November 1, 2000 to December 31, 2000

We enclose herewith the statement of Audit Adjustments and the Notice of Assessment. Note that this is an interim assessment only. A final assessment will be issued when the balance of the information required is available for review.

As you are aware, Cambridge Leasing Ltd. is the subject of a criminal investigation. We cannot use our normal audit procedures in cases where there is the possibility of a criminal charge. The assessment is based on limited audit work. In essence we believe that the amounts claimed as ITC's on the returns for November and December 2000 are based on transactions similar to those that were the basis of the assessment of your parent company, 506913 NB Ltd. We are, therefore, denying on an interim basis, all ITC's claimed.

[42]            Section 229(1) of the Excise Tax Act, supra requires the Minister to pay any refund that is claimed in a return to a person "with all due dispatch after the return is filed." In this case, the respondent has yet to make an assessment as to the amount of refund that the applicants are entitled to receive. The letter of November 21, 2001 only refers to an interim assessment and indicates that a final assessment will be issued later. In my view, the issue as to what amount of refund, if any, the applicants are entitled to receive is still a live issue. Accordingly, the respondent's preliminary motion is dismissed with respect to mootness.

[43]            The respondent also submitted that this Court did not have jurisdiction to determine whether the applicants were properly assessed. This Court is not being asked to determine whether the applicants were properly assessed, but it is being asked to determine whether the applicants have been assessed at all. This Court has jurisdiction to determine this question. Accordingly, this aspect of the preliminary motion is also dismissed.

[44]            Issue 2

Should an order in the nature of mandamus issue to compel the Minister to assess the applicants' HST returns?

The Federal Court of Appeal in Apotex Inc. v. Canada (Attorney General) [1994] 1 F.C. 742 (F.C.A.) outlined the principles that must be satisfied in order to obtain mandamus at pages 766 - 769:

1. There must be a public legal duty to act:

. . .

2. The duty must be owed to the applicant:

. . .

3. There is a clear right to performance of that duty, in particular:

(a) the applicant has satisfied all conditions precedent giving rise to the duty:

. . .

(b) There was (i) a prior demand for performance of the duty; (ii) a reasonable time to comply with the demand unless refused outright; and (iii) a subsequent refusal which can be either expressed or implied, e.g. unreasonable delay;

. . .

4. Where the duty sought to be enforced is discretionary, the following rules apply:

(a) in exercising a discretion, the decision-maker must not act in a manner which can be characterized as "unfair", "oppressive" or demonstrate "flagrant impropriety" or "bad faith";

(b) mandamusis unavailable if the decision-maker's discretion is characterized as being "unqualified", "absolute", "permissive" or "unfettered";

(c) in the exercise of a "fettered" discretion, the decision-maker must act upon "relevant", as opposed to "irrelevant", considerations:

(d) mandamusis unavailable to compel the exercise of a "fettered discretion" in a particular way; and

(e) mandamusis only available when the decision-maker's discretion is "spent", i.e., the applicant has a vested right to the performance of the duty.

. . .

5. No other adequate remedy is available to the applicant:

. . .

6. The order sought will be of some practical value or effect:

. . .

7. The Court in the exercise of its discretion finds no equitable bar to the relief sought:

. . .

8. On a "balance of convenience" an order in the nature of mandamus should (or should not) issue.

. . .

[45]            1.         There must be a public legal duty to act

There is no doubt that there is public legal duty to act imposed on the respondent by subsection 229(1) of the Excise Tax Act, supra, as the Minister must make an assessment to determine whether or not any refund is due to the person.

[46]            2.         The duty must be owed to the applicant

The duty is owed to the applicants in this case as they filed a return claiming a refund.

[47]            3.         There is a clear right to performance of that duty, in particular:

(a) the applicant has satisfied all conditions precedent giving rise to the duty:

(b) There was (i) a prior demand for performance of the duty; (ii) a reasonable time to comply with the demand unless refused outright; and (iii) a subsequent refusal which can be either expressed or implied, e.g. unreasonable delay;

There was no indication before me that the applicants had not satisfied all conditions precedent giving rise to the duty to process the return which claimed a refund. The application for a refund was filed and any available requested information was provided. The applicants made various demands to have the returns processed and as well, made demands that audits of the applications be completed. It appears that the audit of 506913 N.B. Ltd. was supposed to have been completed in December, 1998, however, it appears the respondent continued to audit the company after the respondent indicated the audit was complete. The audit of Nautica Motors Inc. continued in 1999, 2000 and 2001. The returns which the applicants requested to have processed were filed for the applicants in June, 1998. This would appear to be a sufficient length of time in which to process the returns. The applicants filed their application for an order in the nature of mandamus on March 28, 2001. In November, 2001 the respondent issued an "interim assessment of H.S.T. . . ." for the applicant, Nautica Motors Inc. I am of the opinion that the respondent, by only giving an "interim assessment" of HST which is not a final amount, has effectively refused to process the applicants' application for a refund. Until the assessment amount is fixed, there is no way of knowing whether or not a refund is payable and the applicants' request for a refund, if any is payable, is not being paid "with all due dispatch after the refund is filed".

[48]            4.         Where the duty sought to be enforced is discretionary, the following rules apply:

(a) in exercising a discretion, the decision-maker must not act in a manner which can be characterized as "unfair", "oppressive" or demonstrate "flagrant impropriety" or "bad faith";

(b) mandamusis unavailable if the decision-maker's discretion is characterized as being "unqualified", "absolute", "permissive" or "unfettered";

(c) in the exercise of a "fettered" discretion, the decision-maker must act upon "relevant", as opposed to "irrelevant", considerations:

(d) mandamusis unavailable to compel the exercise of a "fettered discretion" in a

particular way; and

(e) mandamusis only available when the decision-maker's discretion is "spent",

i.e., the applicant has a vested right to the performance of the duty.

The duty sought to be enforced is not discretionary in the sense that the respondent must

process the return in order to determine whether the refund claimed is in fact payable to the applicants. In order to process the return, the respondent must complete an assessment. Here all the respondent gave was an "interim assessment" which was subject to change.

[49]            5.         No other adequate remedy is available to the applicant

The respondent argued that the applicants could file a notice of objection and appeal to the Tax Court of Canada. Subsection 301(1.1) and section 302 of the Excise Tax Act, supra both refer to assessments not interim assessments. It seems to me that the amount assessed needs to be determined and not be subject to change by the respondent prior to filing either a notice of objection or subsequently, an appeal to the Tax Court. If it were otherwise, there could conceivably be more than one objection or appeal if the amount changed. I am of the opinion that no other alternative remedy would exist until an assessment, and not an "interim assessment", was available with which to process the return.

[50]            6.         The order sought will be of some practical value or effect

The order will require the Minister to take the steps necessary to process the return.

[51]            7.         The Court in the exercise of its discretion finds no equitable bar to the relief

sought

I find that there is no equitable bar to prevent the issuance of the order.

[52]            8.         On a "balance of convenience" an order in the nature of mandamus should (or

should not) issue

By subsection 229(1) of the Excise Tax Act, supra, the applicants are entitled to have a refund (if payable) paid to them "with all due dispatch". I find that the balance of convenience favours the applicants in light of the time that has passed since the applications were filed.

[53]            The applicants' application for an order in the nature of mandamus compelling the respondent to process the HST returns filed by Nautica Motors Inc. for May, 1998 and by 506913 N.B. Ltd. for August, September and October, 2000 is hereby granted.

[54]            I am not prepared to grant an order in the nature of mandamus to order the respondent to issue the credit returns owing to the applicants. It would be premature to grant this order as only interim assessments of the HST accounts and not an assessment of the account has been completed.

[55]            As success is divided, I am not prepared to award costs to either party.

ORDER

[56]            IT IS ORDERED that:

1.          An order in the nature of mandamus is issued compelling the Minister of National Revenue to process the HST returns filed by Nautica Motors Inc. for May, 1998 and by 506913 N.B. Ltd. for August, September and October, 2000.

2.          There shall be no order as to costs.

                                                                                    "John A. O'Keefe"                 

                                                                                                      J.F.C.C.                      

Ottawa, Ontario

April 12, 2002