Date:
20090403
Docket:
T-1084-08
Citation: 2009 FC 346
[ENGLISH TRANSLATION]
Ottawa, Ontario,
April 3, 2009
PRESENT:
The Honourable Mr. Justice Beaudry
IN THE MATTER OF
the Income Tax Act
AND IN THE MATTER OF assessments
by the Minister of National Revenue under one of more of the following
statutes: the Income Tax Act, the Canada Pension Plan and the Employment
Insurance Act
AGAINST:
FIDUCIE DAUPHIN
3884 De l’Empereur Ave.
Laval, Quebec H7E 5M5
9125-9622 QUÉBEC INC.
1010 De la Gauchetière West, Suite
2250
Montréal, Quebec H3B 2N2
CHANTAL FRÉGAULT
STÉPHANE DESCOTEAUX
3884, De l’Empereur Ave.
Laval, Quebec H7E 5M5
SOPHIE LEBEL
1535 Kirouac St.
Laval, Quebec H7G 4T4
NORMAND DESCOTEAUX
STN
Anjou P.O. Box 153
Anjou, Quebec H1K 4G6
Respondents
REASONS FOR JUDGMENT AND
JUDGMENT
[1]
The
respondents, Fiducie Dauphin, 9125-9622 Québec Inc., Chantal Frégault, Stéphane
Descoteaux, Sophie Lebel and Normand Descoteaux are asking the Court to set
aside the ex parte order made on July 16, 2008, (the impugned
order) by Martineau J., which authorized the Minister of National Revenue (the
Minister) to immediately take each and every collection measure referred to in
paragraphs (a) to (g) of subsection 225.1 of the Income Tax Act, R.S.C.
1985 (5th Supp.), c. 1 (the Act), or any of them, to collect and/or
guarantee payment of assessments and reassessments made by the Minister against
the respondents.
[2]
Alternatively,
the respondents are bringing a motion before the Court seeking a reduction of
the scope of the impugned order and are requesting the partial release be
granted in respect of the seizure of the bank accounts of respondents Chantal
Frégault, Sophie Lebel, Stéphane Descoteaux and the Fiducie.
[3]
Subsection
225.1(1) of the Act states the following:
225.1(1) If a taxpayer is
liable for the payment of an amount assessed under this Act, other than an
amount assessed under subsection 152(4.2), 169(3) or 220(3.1), the Minister
shall not, until after the collection-commencement day in respect of the
amount, do any of the following for the purpose of collecting the amount:
(a)
commence legal proceedings in a court,
(b)
certify the amount under section 223,
(c)
require a person to make a payment under subsection 224(1),
(d)
require an institution or a person to make a payment under subsection
224(1.1),
(e)
[Repealed, 2006, c. 4, s. 166]
(f)
require a person to turn over moneys under subsection 224.3(1), or
(g)
give a notice, issue a certificate or make a direction under subsection
225(1).
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225.1(1) Si un contribuable
est redevable du montant d’une cotisation établie en vertu des dispositions
de la présente loi, exception faite des paragraphes 152(4.2), 169(3) et 220(3.1),
le ministre, pour recouvrer le montant impayé, ne peut, avant le lendemain du
jour du début du recouvrement du montant, prendre les mesures
suivantes :
a)
entamer une poursuite devant un tribunal;
b)
attester le montant, conformément à l’article 223;
c)
obliger une personne à faire un paiement, conformément au paragraphe 224(1);
d)
obliger une institution ou une personne visée au paragraphe 224(1.1) à faire
un paiement, conformément à ce paragraphe;
e)
[Abrogé, 2006, ch. 4, art. 166]
f)
obliger une personne à remettre des fonds, conformément au paragraphe
224.3(1);
g)
donner un avis, délivrer un certificat ou donner un ordre, conformément au
paragraphe 225(1).
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[4]
In
principle, the Minister must wait 90 days after the mailing of the notice of assessment
before collecting amounts owing by a taxpayer to Her Majesty in Right of Canada
(the Crown). However, under subsections 225.2(2) and (3), a judge may authorize
the Minister to act immediately if satisfied that there are reasonable grounds
to believe that the collection of all or any part of an amount assessed in
respect of a taxpayer would be jeopardized by a delay in the collection of that
amount:
225.2(2) Notwithstanding
section 225.1, where, on ex parte application by the Minister, a judge is
satisfied that there are reasonable grounds to believe that the collection of
all or any part of an amount assessed in respect of a taxpayer would be
jeopardized by a delay in the collection of that amount, the judge shall, on
such terms as the judge considers reasonable in the circumstances, authorize
the Minister to take forthwith any of the actions described in paragraphs
225.1(1)(a) to 225.1(1)(g) with respect to the amount.
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225.2(2) Malgré l’article
225.1, sur requête ex parte du ministre, le juge saisi autorise le ministre à
prendre immédiatement des mesures visées aux alinéas 225.1(1)a) à g) à
l’égard du montant d’une cotisation établie relativement à un contribuable,
aux conditions qu’il estime raisonnables dans les circonstances, s’il est
convaincu qu’il existe des motifs raisonnables de croire que l’octroi à ce
contribuable d’un délai pour payer le montant compromettrait le recouvrement
de tout ou partie de ce montant.
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225.2(3) An authorization
under subsection 225.2(2) in respect of an amount assessed in respect of a
taxpayer may be granted by a judge notwithstanding that a notice of
assessment in respect of that amount has not been sent to the taxpayer at or
before the time the application is made where the judge is satisfied that the
receipt of the notice of assessment by the taxpayer would likely further
jeopardize the collection of the amount, and for the purposes of sections
222, 223, 224, 224.1, 224.3 and 225, the amount in respect of which an
authorization is so granted shall be deemed to be an amount payable under
this Act.
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225.2(3) Le juge saisi peut
accorder l’autorisation visée au paragraphe (2), même si un avis de
cotisation pour le montant de la cotisation établie à l’égard du contribuable
n’a pas été envoyé à ce dernier au plus tard à la date de la présentation de
la requête, s’il est convaincu que la réception de cet avis par ce dernier
compromettrait davantage, selon toute vraisemblance, le recouvrement du
montant. Pour l’application des articles 222, 223, 224, 224.1, 224.3 et 225,
le montant visé par l’autorisation est réputé être un montant payable en
vertu de la présente loi.
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[5]
Martineau
J. issued the impugned order on the basis of the affidavits of Yvon Tablot
(dated July 8, 2008) and Claudine Vinette (dated July 11, 2008) of the Canada Revenue
Agency (the Agency).
Factual Background
[6]
On
February 17, 2006, the Fiducie, an inter vivos trust, was created for
tax purposes and to resume the activities that were previously carried out by 9125-9622
Québec Inc., which no longer operates as such, except for a building in St-Léonard.
The Fiducie operates in the real estate business (selling and purchasing real
estate), and its main activity is administering accumulated capital until
winding-up. The trustees of the Fiducie are François Bergeron (Sophie Lebel’s
son) and Chantal Frégault.
[7]
According
to the Minister, as of June 6, 2008, the Fiducie owed the Agency $2,048,434.61
following a notice of assessment dated May 29, 2008, and notices of
reassessment dated June 3, 2008, and June 6, 2008, for the
2007 taxation year and the notice of reassessment dated May 28, 2008,
for the 2006 taxation year.
[8]
After
additional information was received from the respondents, the Agency
acknowledged that as of the date of the hearing on February 17 and 18, 2008,
the amount owed by the Fiducie was now $1,607,765.44 after a cheque for $1,168,389.92 and
payment of $15,000 to the Agency were discovered (see Exhibit C-1 submitted at
the hearing).
[9]
Numbered
company 9125-9622 Québec Inc., which also conducts business in the financial
services sector under the corporate name of Services Financiers Dauphin, was
formed on February 10, 2003. As of May 29, 2008, the respondent 9125-9622
Québec Inc. owed $577,090.81 to the Agency as a result of three notices of
assessment dated May 29, 2008, for the 2004 to 2006 taxation years
and an initial notice of assessment for the 2007 taxation year.
[10]
Chantal
Frégault, a 32-year-old businesswoman, is the sole shareholder of the two
following companies: 9108-0903 Québec Inc. and 9184-8796 Québec Inc., and she
is the trustee of the Fiducie. As of May 28, 2008, Chantal Frégault, Stéphane
Descoteaux’s spouse, owed the Agency $448,109.46 resulting from six notices of
reassessment dated May 28, 2008, for the 2002 to 2007 taxation years.
Chantal Frégault is currently the owner of the building located at 3884 De l’Empereur
St. In Laval, Quebec.
[11]
Stéphane
Descoteaux, a 34-year-old businessman, owes the Agency $171,731.98 resulting
from five notices of reassessment dated May 28, 2008, for the 2002 to 2004,
2006 and 2007 taxation years.
[12]
Sophie
Lebel, a 44-year-old businesswoman, is the settlor of the Fiducie. As of
May 28, 2007, she owed the Agency $80,782.32 resulting from
three notices of reassessment dated May 28, 2008, for the 2005 to
2007 taxation years. Sophie Lebel currently owns the building located at 1535 Kirouac
St. in Laval, Quebec.
[13]
Normand
Descoteaux, a 60-year-old businessman, is a shareholder of 9008-2173 Québec Inc.,
which operated under the name Groupe Dauphin Publication and was struck off by
the Inspecteur général des institutions financières on May 8, 1999. As of
May 28, 2008, Normand Descoteaux owed the Agency $15,656.24 resulting from
two notices of reassessment for the 2004 and 2006 taxation years dated
May 28, 2008, and a notice of original assessment for the 2007
taxation year as well as $11,033.14 for the 2002 and 2004 taxation years.
[14]
Subsection
225.2(8) of the Act allows taxpayers to apply to the Court, by motion, to
review an ex parte authorization obtained under subsection 225.2(2):
225.2(8) Where a judge of a
court has granted an authorization under this section in respect of a
taxpayer, the taxpayer may, on 6 clear days notice to the Deputy Attorney
General of Canada, apply to a judge of the court to review the authorization.
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225.2(8) Dans le cas où le
juge saisi accorde l’autorisation visée au présent article à l’égard d’un
contribuable, celui-ci peut, après avis de six jours francs au sous-procureur
général du Canada, demander à un juge de la cour de réviser l’autorisation.
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[15]
The
principles applicable in this case are well established. According to the case
law, the respondents have the initial onus of establishing that there are
reasonable grounds to doubt that the test required under subsection 225.2(2) has
been met. If they succeed, the Court must review the evidence presented before
the judge who granted the order and any other evidence to assess whether, on a
balance of probabilities, the collection would be jeopardized by the delay (Canada
(Minister of National Revenue – M.N.R.) v. Services M.L. Marengère Inc. (1999),
176 F.T.R. 1 at paragraph 63(5), 2000 D.T.C. 6032; Canada v. Satellite Earth
Station Technology Inc. (1989), 30 F.T.R. 94 at paragraph 16, 89 D.T.C.
5506; and Danielson v. Canada (Deputy Attorney General), [1987] 1 F.C.
335.
[16]
At
paragraph 63 of Marengère, Lemieux J. summarized the following
principles from the case law:
(1) The perspective of the jeopardy collection
provision goes to the matter of collection jeopardy by reason of delay normally
attributable to the appeal process. The wording of the provision indicates that
it is necessary to show that because of the passage of time involved in an
appeal, the taxpayer would become less able to pay the amount assessed. In
other words, the issue is not whether the collection per se is in jeopardy but
rather whether the actual jeopardy arises from the likely delay in the
collection.
(2) In terms of burden, an applicant under
subsection 225.2(8) has the initial burden to show that there are reasonable
grounds to doubt that the test required by subsection 225.2(2) has been met,
that is, the collection of all or any part of the amounts assessed would be
jeopardized by the delay in the collection. However, the ultimate burden is on
the Crown to justify the jeopardy collection order granted on an ex parte
basis.
(3) The evidence must show, on a balance of
probability, that it is more likely than not that collection would be
jeopardized by delay. The test is not whether the evidence shows beyond all
reasonable doubt that the time allowed to the taxpayer would jeopardize the
Minister's debt.
(4) The Minister may certainly act not only in
cases of fraud or situations amounting to fraud, but also in cases where the
taxpayer may waste, liquidate or otherwise transfer his property to escape the
tax authorities: in short, to meet any situation in which the taxpayer's assets
may vanish in thin air because of the passage of time. However, the mere
suspicion or concern that delay may jeopardize collection is not
sufficient per se. As Rouleau J. put it in 1853-9049 Quebec
Inc., supra, the question is whether the Minister had reasonable
grounds for believing that the taxpayer would waste, liquidate or otherwise
transfer its assets, so jeopardizing the Minister's debt. What the Minister has
to show is whether the taxpayer's assets can be liquidated in the meantime or
be seized by other creditors and so not available to him.
(5) An ex parte collection order
is an extraordinary remedy. Revenue Canada must exercise utmost good faith and
insure full and frank disclosure. On this point, Joyal J. in Peter
Laframboise v. The Queen, [1986] 3 F.C. 521 at 528 said this:
The taxpayer's counsel might have
an arguable point were the evidence before me limited exclusively to that
particular affidavit. As Counsel for the Crown reminded me, however, I am
entitled to look at all the evidence contained in the other affidavits. These
affidavits might also be submitted to theological dissection by anyone who is
dialectically inclined but I find on the whole that those essential elements in
these affidavits and in the evidence which they contain pass the well-known
tests and are sufficiently demonstrated to justify the Minister's action.
In Duncan, supra, Jerome A.C.J.,
after quoting Joyal J. in Laframboise, supra, viewed the level
of disclosure required by the Minister as one of adequate (reasonable)
disclosure.
The Crown’s arguments
[17]
The
case law has supported certain criteria to warrant an ex parte order
under subsection 222.5(2) of the Act, such as when there are reasonable grounds
to the believe that a taxpayer has acted fraudulently; when a taxpayer has
proceeded to liquidate or transfer his or her assets; when the taxpayer is
evading his or her tax liabilities, or when the taxpayer has assets that could
potentially lessen in value over time, deteriorate or perish.
[18]
The
Crown submits that the Court must examine the entire context of the
respondents’ actions and not be distracted by the few honest mistakes by audit
officer Yvon Talbot in his investigation into the respondents’ financial
activities in determining that the authorization was warranted.
[19]
The
fact that a taxpayer conducts his or her affairs in what might be called
unorthodox fashion or engages in unorthodox business practices may constitute
sufficient grounds to warrant an authorization under subsection 225.2(2) of the
Act (Canada v Laframboise, [1986] 3 F.C. 521, at paragraph 19; Canada
v. Paryniuk, 2003 FC 1505, 244 F.T.R. 312; Canada (Minister of National
Revenue – M.N.R.) v. Rouleau (1995), 101 F.T.R. 57, [1995] 2 C.T.C. 442 (T.D.)).
[20]
The
very nature of the assessment, as well as the manner in which the taxpayer
holds his or her assets, are factors that could contribute to raising
reasonable grounds to believe that a delay would jeopardize the collection of
the amounts assessed (Laframboise, above; Rouleau, above; Canada
(Minister of National Revenue – M.N.R.) v. Thériault-Sabourin, 2003 FCTD 124,
227 F.T.R. 254).
[21]
The
grounds alleged by the Crown to warrant the impugned order are the following:
a.
Normand
Descoteaux was one of the leaders of an balloon mortgage financing fraud
network;
b.
It
is highly likely that the Caisse Populaire d’Anjou will recall the Fiducie’s
line of credit (in fact, the Caisse recalled the line of credit in the fall of
2008);
c.
Respondent
Normand Descoteaux’s criminal past, the criminal charges and his conviction for
the offence of collecting interest at a criminal rate, as well as his
unorthodox behaviour demonstrating that he is not untrustworthy and lacks
respect for the law;
d.
Respond
Stéphane Descoteaux’s criminal past, the criminal charges and his conviction
for the offence of collecting interest at a criminal rate, as well as his
unorthodox behaviour demonstrating that he is untrustworthy and lacks respect
for the law;
e.
The
fact that police from the Proceeds of Crime Unit seized $1,700,000 in two
safes during the arrest of Stéphane et Normand Descoteaux and, following their
arrest, an additional $5,500,000 was discovered;
f.
Stéphane
Descoteaux gave conflicting versions of his income for the 2004 taxation year
when he reported his income to the Agency and to the Caisse Populaire des Mille-Îles
for the same year. Similarly, the employment income that he reported to the
Agency for the 2006 taxation year does not match the employment income slip
that the Agency received from his employers Jus d’Or and 9145-5287 Québec Inc.;
g.
The
Fiducie and 9125-9622 Québec Inc. used a similar scheme to the one that Normand
Descoteaux used in 1991 and 1992, which essentially involved defrauding banking
institutions by obtaining mortgage financing using artificially inflated
valuations (overmortgage) (see Catherine Pennors’s affidavit on this
point);
h.
Between
October 10, 2003, and April 4, 2008, 9125-9622 Québec Inc., Stéphane
Descoteaux, Normand Descoteaux and the Fiducie sold approximately ten
properties;
i.
The
numbered company 9108-0903 Québec Inc. belonging to Chantal Frégault included
in its end-of-year balance sheet on October 31, 2002, and March 31, 2003, a
fictitious debt of $474,900 that mainly related to the building located at 1535
Kirouac, in Laval, now owned by Sophie Lebel;
j.
The
numbered company 9108-0903 Québec Inc. granted a “fictitious” mortgage to an
unrelated company to secure a loan to Stéphane Descoteaux;
k.
9125-9622
Québec Inc. and Marie-Ange Giasson, Sophie Lebel’s mother, received, according to
an apparent deed (of hypothec), in which Normand Descoteaux acted as Marie-Ange
Giasson’s agent, a loan that could not possibly have reflected reality,
particularly with respect to Marie-Ange Giasson’s income and to the amounts
received by 9125-9622 Québec Inc. from the numbered company 3095-7252 Québec Inc.,
i.e., Howard Greenspoon’s numbered company (Yvon Talbot’s affidavit dated July
8, 2008 at paragraph 173 and Exhibits BF and BL);
l.
The
remainder of 9125-9622 Québec Inc. and Marie-Ange Giasson’s debt of $2,700,000
now standing at $1,700,000 is either fictitious or will never be repaid
since Marie-Ange Giasson lacks the financial means to repay such a loan.
9125-9622 Québec Inc.’s bank account has been closed since November 22, 2006,
and this company did not file a tax return for the fiscal year ending February
28, 2007;
m. 9125-9622 Québec Inc.,
Chantal Frégault and Marie-Ange Giasson, Sophie Lebel’s mother, allegedly
received a fictitious loan from Jo-Pac Manufacturing Inc.;
n.
9125-9622
Québec Inc., Sophie Lebel and Chantal Frégault allegedly received a fictitious
loan from 9108-0903 Québec Inc.;
o.
9108-0903
Québec Inc. also made “fictitious” loan to 9125-9622 Québec Inc. since 9108‑0903
Québec Inc. did not have sufficient assets to pay such an amount and, moreover,
as of November 22, 2006, 9125-9622 Québec Inc. no longer had a bank account to
collect such an amount;
p.
The
numbered company 9184-8796 Québec Inc., whose sole shareholder is Chantal
Frégault, issued a mortgage on a building owned by the Fiducie, a building
owned by Chantal Frégault and a building owned by Sophie Lebel following
assignment of a fictitious debt by 9108-0903 Québec Inc. to 9184-8796 Québec Inc.;
q.
A
fictitious line of credit of $2,000,000 was granted by Centre de Recherches Financiers
Interprovinciales Inc. (C.R.F.) to the numbered company 9125-9622 Québec Inc;
r.
On
March 2 or 3, 1998, after notices of reassessment were issued for the 1991 and
1992 taxation years, Normand Descoteaux made an initial assignment of his
property to a trustee;
s.
On
April 23 or 24, 2003, Sophie Lebel made an assignment of her property to Syndic
Pierre Roy & Associés Inc. in Repentigny. The bankruptcy primarily involved
tax debts, and Sophie Lebel’s two main creditors were the Agency and the Ministère
du Revenu du Québec (MRQ) for tax debts totalling $130,348 on $132,473 of
provable claims;
t.
On
April 30, 2003, or May 1, 2003, Normand Descoteaux made a second assignment of
his property to the same trustee, Pierre Roy & Associés Inc. in Repentigny,
for which he has still not been discharged;
u.
Normand
Descoteaux, Stéphane Descoteaux and Chantal Frégault use the same post office
box 153, STN Anjou, Anjou, Quebec, H1K 4G6;
v.
Normand
Descoteaux has changed his address many times over the last several years;
w. Stéphane Descoteaux has
changed his address many times over the last several years;
x.
On
September 4, 2007, Normand Descoteaux purchased and sold a building, realizing
a profit of approximately $50,000;
y.
On
March 8, 2007, Stéphane Descoteaux purchased and sold a building, realizing a
profit of approximately $50,000;
z.
Normand
Descoteaux provided conflicting versions of his income to the Agency and the
trustee for 2003;
aa. The Fiducie wilfully
evaded payment of its taxes in failing to report all of its income for the 2006
and 2007 taxation years by not reporting a large portion of its income of $1,682,583
and $3,564,747, respectively;
bb. Respondent 9125-9622
Québec Inc. wilfully evaded payment of its taxes in failing to report all of
its income for the 2004 to 2007 taxation years by not reporting a large portion
of its income of $165,692, $24,774, $349,900 and $510,900, respectively;
cc. Chantal Frégault wilfully
evaded payment of her taxes in failing to report all her income for the 2002 to
2007 taxation years by not reporting a large portion of her income of $26,641, $289,310,
$13,796, $36,564, $525,594 and $210,513, respectively;
dd. Stéphane Descoteaux wilfully
evaded payment of his taxes by not reporting all his income for the 2002 to
2004, 2006 and 2007 taxation years, including an amount of $278,474 for
the 2004 taxation year;
ee. Sophie Lebel wilfully
evaded payment of her taxes by not reporting all her income for the 2005 to 2007
taxation years by failing to report a large portion of her income, including an
amount of $208,532 for her 2006 taxation year;
ff.
Normand
Descoteaux wilfully evaded payment of his taxes by not reporting all his income
for the 2004, 2006 and 2007 taxation years by failing to report a large portion
of his income, including an amount of $56,818 for the 2007 taxation year.
[22]
The
Crown submits that the Fiducie conducts its business activities in a
questionable manner. The Fiducie issues a cheque to a notary to finance
the purchase of a building. This financing is not secured by a mortgage but
simply by a document under private writing (demand loan). The same day or the
next day, the building is resold at a price higher than the Fiducie’s
financing, often for $50,000 higher. The second purchaser gets 90% to 100%
financing from a financial institution for the amount of the second
transaction. The Fiducie then receives the amount of the loan that it granted,
plus a small amount of interest. The Fiducie also finances the deposit required
for the second transaction, thus enabling the purchaser not to pay any amount of
money to buy the building. Once again, the Fiducie is not secured by hypothec
but has its loan repaid along with modest interest by the mortgage advance provided
by the financial institution.
[23]
Subsequently,
and often, the second purchaser stops the mortgage payments or fails to pay
municipal and school taxes, and the property is then repossessed by the
financial institution.
[24]
The
Crown submits that it is strange that in the context of real estate financing
where a notary issues a statement of disbursements that he or she does not
record the interest to be paid to the Fiducie or 9125-9622 Québec Inc. It is
also curious that the Fiducie does not feel the need to secure a loan involving
such large sums of money by hypothec. In some cases, the deed of sale for the
second transaction and the deed of hypothec of this transaction are issued even
before the deed of purchase for the first transaction is issued (see Yvon Talbot’s supplementary affidavit dated September 22,
2008, at paragraph 17).
[25]
Here is an example of such a transaction: Normand Descoteaux, who
has not yet been discharged from his second bankruptcy, purchased a building
located at 8946-8948 Pierre St. in Rawdon on September 4, 2007, for $83,000,
and that same day he sold the building to Wilner Cadelis for $139,000. The
Crown submits that the Fiducie lends not only $83,000 to Normand Descoteaux for
the purchase as part of the first transaction but also $14,170.22 for the
required deposit (undertaking #5 of Marco Boulanger’s cross-examination, January
7, 2009), so that Mr. Cadelis becomes the owner following the second
transaction. The Fiducie is then reimbursed $97,170.22 by the mortgage ($124,829.78)
granted to Mr. Cadelis by CIBC (see notary Jérôme St-Gelais’ statement of
disbursements).
[26]
During
his cross-examination on January 16, 2009, Marco Boulanger, the Fiducie’s
accountant, claimed that the Fiducie was only involved in the first
transaction, whereas in actual fact it also financed the deposit required for
the second transaction. It receives no consideration in return in terms of
interest. Gestion immobilière Norstar, a name of the numbered company 9179-0543
Québec Inc., which seems to be connected, according to Ms. Vinette (Claudine
Vinette’s supplementary affidavit dated January 5, 2009, at paragraph 36 and
cross-examination on Claudine Vinette’s affidavit on dated January 5, 2009,
from pages 98 to 105) to Normand Descoteaux through André Charbonneau, receives the net balance of the transaction
owing to the seller, Normand Descoteaux. Marco Boulanger was evasive and unable
to answer the Crown’s questions regarding the specific details of this sale. Mr.
Cadelis brought an action against André Charbonneau, 9179‑0543 Québec Inc.
and Normand Descoteaux. Thus, to summarize, Normand Descoteaux is financed by
the Fiducie for the purchase of a building that it resells at a profit to Mr.
Cadelis, who himself is financed by the Fiducie for the deposit required for
the second transaction. The profit that should have been received by Mr. Descoteaux
($41,249.78) is distributed to a third party (Gestion immobilière Norstar).
[27]
According to Yvon Talbot, the Fiducie financed at least 26
transactions using this approach (Yvon Talbot’s affidavit dated July 8, 2008,
paragraph 137 and Exhibits K and P). Finally, Gestion Malgraf (a company whose
primary activity is cashing cheques) cashed several cheques representing the net
proceeds of the second real estate transaction (Yvon Talbot’s supplementary
affidavit dated September 22, 2008, paragraphs 22 and 23 and Chantal Frégault’s
affidavit in Exhibit 7).
[28]
The
Crown also mentioned the many links between the companies and the individuals
who do business with the Fiducie and who are involved in the same transactions.
First, the numbered company 9179-0543 Québec Inc., whose president and
shareholder was André Charbonneau (Frank Leonard Jr. is currently the director,
president and majority shareholder), is also known under twelve different
names. Michel Leclerc’s numbered company 9172-6836 Québec Inc., which operates
under ten different names, is a party to real estate purchases and sales involving
the Fiducie.
[29]
Gestion
Malgraf, owned by Gaétan and Gérard Thibault, endorses and cashes
cheques from various transactions carried out by the Fiducie. Gestion Malgraf is
also identified as the employer of Danielle Cléroux, Normand and Stéphane Descoteaux,
Chantal Frégault, François Bergeron and the numbered company 9125-9622 Québec Inc.
(paragraph 25 and Exhibit 2 of Yvon Talbot’s supplementary affidavit dated
September 22, 2008). Danielle Cléroux is the sister of Martine Cléroux, who is former
spouse of Normand Descoteaux, who represents André Charbonneau’s company and
endorses cheques on behalf of 9179-0543 Québec Inc. (paragraph 26 Yvon Talbot’s
supplementary affidavit dated September 22, 2008). Martine Cléroux also
represented 9125-9622 Québec Inc. in several transactions (Exhibit BL of Yvon
Talbot’s affidavit dated July 8, 2008).
[30]
Marco
Boulanger’s credibility was questioned by the Crown during his
cross-examination on January 16, 2009. He was unable
to answer questions and was contradicted by documents showing that the Fiducie
was involved not only in the first but also the second sale in transactions
involving the same building carried out on the same day or the next day. For
example, the property located at 66-68A Victoria St. in Sorel-Tracy was
purchased by Gestion Lajeunesse, a name of the numbered company 9172-6836
Québec Inc. owned by Michel Leclerc. On March
18, 2007, the Fiducie financed the initial purchase of $62,000 and earned $47.56 in
interest. The next day, the building was sold to Severio Maggiore for $135,000.
The Fiducie loaned $13,718.70 at an interest rate of 14% for two days,
receiving $9.76 in interest on the loan from this second transaction. This
loan represents the deposit required for the second transaction, which is
primarily funded by CIBC. Furthermore, in the list of disbursements for this
property, Gestion Malgraf received an “advance” reimbursement of $10,000, while
9125-9622 Québec Inc. received a reimbursement of $75,718.70 for the first
mortgage (Exhibit C-4 filed during the hearing on February 17 and 18, 2009, and
Exhibits 3 and 4 from Marco Boulanger’s affidavit dated January 16, 2009).
[31]
The
Crown also refutes the respondents’ argument regarding six cheques for $50,000
and a cheque for $41,000 issued on behalf of the company Énergie Confort. These
amounts are either characterized as “management” in one document, while in
others they are characterized as “commission,” and Yvon Talbot could not
consider these cheques as expenses when determining the adjusted cost base for
the two buildings owned by the Fiducie. Yvon Talbot could not find any
documentation indicating what could be considered renovations, repairs or
improvements to either of the two buildings (Yvon Talbot’s supplementary
affidavit dated February 6, 2009, at paragraphs 13 and 22).
[32]
The
Crown notes that 9125-9622 Québec Inc. has not had any commercial activities
since February 28, 2006 (Richard Millaire’s affidavit,
paragraph
36), and this company’s bank account has been closed since November 2006.
However, between March 6, 2008, and April 3, 2008, 9125‑9622
Québec Inc. purchased and sold the next day three buildings in Montréal, realizing
a total profit of $374,700 (Claudine Vinette’s supplementary affidavit
dated December 24, 2008, paragraphs 16 to 21). On September 16, 2008, Richard
Millaire replaced the Fiducie as majority shareholder of 9125-9622 Québec.
[33]
Despite
the fact that 9125-9622 Québec Inc. was allegedly inoperative since February 28, 2006,
it received nine cheques for $50,000 in April 2007, a cheque for $50,000 in
September 2007 and three additional cheques for $50,000 in December 2007, for a
total of $650,000 issued by the Fiducie (Marco Boulanger’s cross-examination, Undertaking
#4, cheques 93 to 101, 192, 204 to 206 and Richard Millaire’s affidavit, paragraph
36).
[34]
Since
the cheques are subsequent, by at least several months, to the transfer of
assets from 9125-9622 Québec Inc. (carried out by November 15, 2006, assignment
of claim in Exhibit B in Yvon Talbot’s affidavit dated February 6, 2009, paragraph12),
and subsequent by at least two months to the assignment of the claim itself,
Mr. Talbot was unable to consider the amount of these cheques possibly constituting
an amount to be taken into account in the Fiducie’s acquisition cost for either
of the buildings for the purposes of calculating the profit realized after they
were resold.
[35]
According
to the Crown, through the actions of each of the respondents, they can easily
hide the equity of their properties from creditors using nominees. According to
the facts in the record, the six taxpayers named as respondents in this case
evaded the payment of tax. The Crown also submits that even if Caisse Populaire
had decided in the fall of 2008 not to renew the loan to the Fiducie, it is
reasonable to believe that the Fiducie would have found financing elsewhere and
that these new mortgages would have taken precedence over Crown debts.
[36]
Normand and Stéphane Descoteaux were previously convicted of
collecting interest at a criminal rate as part of a scheme that was similar to
Fiducie’s transactions. Normand Descoteaux currently acts as advisor for the
Fiducie (Stéphane Descoteaux’s supplementary affidavit dated September 12, 2008,
paragraph
24), while Stéphane Descoteaux is a loan consultant
for the Fiducie (Chantal Frégault’s supplementary affidavit dated September 11,
2008, paragraph 114). Catherine Pennors’ affidavit on the audit report
regarding Normand and Stéphane Descoteaux was not challenged by the
respondents. The Crown argues that the criminal record of respondents Stéphane
Descoteaux and Normand Descoteaux, their involvement in illegal activities and
the unorthodox management of their assets and their delinquent tax behaviour
establish that they disregard the law and are untrustworthy.
[37]
The
Fiducie has owned the property located at 303-20
Maurice Aveline St. in Ste-Adèle since March 13, 2007. The respondents
acknowledge that there is a lease with Michel Leclerc, but the Fiducie
allegedly did not report income of $20,700 for the period from April 1, 2007,
to December 31, 2007. Counsel for the respondents stated at the hearing that
Michel Leclerc did not pay any rent, but there is no evidence to that effect.
[38]
Chantal
Frégault served a prior notice of the exercise of a hypothecary right in the
event of a transfer of property owned by 9125-9622 Québec Inc. to 9108-0903
Québec Inc. for the sole purpose of avoiding transfer taxes relating to the
transfer of that property.
[39]
Sophie
Lebel declared bankruptcy and was discharged on January 25, 2004. Her mother, Marie-Ange
Giasson, had bought the house previously owned by her daughter on October
21, 2004, from 9125-9622 Québec Inc. for $200,000. On August 24, 2006, Sophie
Lebel bought back her house from her mother for $1, while today it is worth
approximately $400,000 according to the property assessment in the record.
[40]
The
Crown explained that Mr. Talbot’s mistakes were not made in bad faith. He was
unable to rely on the notaries because he feared that it would alert the
taxpayers to the assessments against them. At paragraph 16 of Canada (Minister
of National Revenue – M.N.R.) v. Lauzon, 2006 CF 15, 2006 D.T.C. 6043, Prothonotary
Morneau issued an order suspending all communication with the notary until
there was a final judgment in the court record. The Agency explains that it
respects the spirit of that decision in the context of its audits against the
respondents and that it does not request more information from notaries and
other parties out of concern that the respondents will squander their assets.
[41]
During his cross-examination, Mr. Talbot provided a reasonable explanation
for the use of the term “fictitious loan” in his affidavit dated July 2008 to
obtain the impugned order. In any event, the Crown believes that Martineau J. would
still have made the order despite discovering various mistakes made in good
faith by Mr. Talbot
(Canada (Minister of National Revenue – M.N.R.) v. Papa, 2009 FC 49,
[2009] F.C.J. No 86 (QL) at paragraphs 21–23, which applied Canada (Minister
of National Revenue) v. Reddy, 2008 FC 208, 329 F.T.R 13).
[42]
On
July 13, 2007, Yvon Talbot asked the Caisse Populaire for a copy of the debit
note for $1,200,000 but forgot to follow up on the request. He therefore calculated
the profit realized by Fiducie taking into account only the proceeds of
disposition of $1,800,000 for the building nicknamed “Drugstore” and $2,400,000
for the building nicknamed “Club Sandwich.”
[43]
However,
when Yvon Talbot became aware of a cheque for $1,168,389.92 to Jo‑Pac
Manufacturing Inc. from 9125-9622 Québec Inc. by way of acquittance of the loan
paid by the Caisse Populaire line of credit (Exhibit I-3 from Yvon Talbot’s
cross-examination on February 10, 2009), the Agency reduced the
assessment to $1,622,765.44, the amount indicated in Exhibit C-1 filed at the
hearing on February 17 and 18, 2009. Furthermore, after it received $15,000 on
Friday, February 13, 2009, the Agency re-amended the amount of the assessment
to $1,607,765.44. In the Crown’s view, this establishes transparency and
integrity.
[44]
The
assessment provides various details on the respondent’s lifestyles and notes
that the Fiducie is currently leasing three cars, including a BMW, a Lexus and
Bentley. In Canada (Minister of National Revenue – M.N.R.) v. Calb (1997),
135 F.T.R. 195, 73 A.C.W.S. (3d) 172 at paragraph 10, the Court noted the
following:
The Court on July 10, 1997, and still in the present
circumstances finds that Ms. Calb’s reckless behaviour in seeking to continue
high living on behalf of both, causes jeopardy to the tax collection. A modest
house would not so much create apprehension of jeopardy, because some of Ms.
Calb’s equity could go to the reduction of the outstanding taxes. To permit Ms.
Calb’s financial transactions and disposition other one and only major asset
(whether or not manipulated by Mr. Calb) to go unchecked would jeopardize the
collection of tax.
[45]
The
Crown argues that the Fiducie allegedly breached Harrington J.’s order dated
August 14, 2008. They had pledged not to liquidate their assets, but here as
collateral they gave the Bentley to 9184-8796 Inc., of which Chantal Frégault is
a shareholder. The Crown cited Canada (Minister of National Revenue – M.N.R.)
v. 144945 Canada Inc., 2003 FCT 730, in which Blanchard J. noted the
following at paragraph 18:
The above evidence respecting the applicant's
assets, notwithstanding its sparsity, is sufficient, in my view, to reasonably
establish that the applicant's asset base may not be sufficient to satisfy its
obligations. I am also of the view that this evidence coupled with the evidence
reviewed above and considered by Martineau J. in the ex parte hearing, is
sufficient to establish on a balance of probabilities that the collection was
jeopardized by the delay. I give particular weight to the evidence of the
history of non-compliance by current and/or former directors of the applicant
with respect to information requests and duties imposed by the Act.
[46]
The
Crown submits that it has met its burden of proof for obtaining the impugned
order.
[47]
This
case is extremely complex, and the ramifications and the connections between
each actor are very difficult to establish given the many real estate
transactions.
The Respondents’ arguments
[48]
The
respondents submit that it is wrong to claim that a granting a delay to pay the
amount assessed would jeopardize collection of all or any part of the claim for
the following reasons:
[49]
They
believe that they have grounds to believe that the Minister did not meet the
test to obtain such authorization because he did not comply with subsection
225.2(2) of the Act. At the hearing, counsel for the respondents focused most
of his efforts on attempting to establish that the Fiducie should not be
subject to a jeopardy collection order. Furthermore, the notices of assessment
served to the respondents were vigorously contested, and notices of objection
were filed in December 2008.
[50]
The
jurisprudence indicates that the Minister also has a burden when making a motion
under subsection 225.2(8) of the Act, namely the burden of justifying the
jeopardy collection order granted on an ex parte basis (see Marengère,
above, at paragraph 63(2)). The Minister’s statements must have merit
and not be supported by mere suspicion or concern that the delay may jeopardize
the collections. Furthermore, the amount of money in issue is irrelevant when a
judge must consider whether to grant a jeopardy collection order (1853-9049
Québec Inc. v. Canada, (1986) 9 F.T.R. 63, 3 A.C.W.S. (3d) 169).
[51]
The
respondents submit that Yvon Talbot’s reasons are based on mere suspicion and
unsubstantiated concerns since there are outstanding selling balances owed to
the Fiducie over a period of 8 to 10 years. At the hearing on January 12, 2009,
the respondents argued that the amount of the outstanding selling balances was
$2,958,802.92 and that the Fiducie was therefore able to pay its tax debt. The
respondents have no intention of squandering, liquidating or transferring their
assets to avoid paying the tax authorities, nor have they acted fraudulently. Furthermore,
neither Chantal Frégault nor François Bergeron, the trustees of the Fiducie,
has transferred assets.
[52]
The
selling price balances come from three sources. First, when the Fiducie was
created, 9125-9622 Québec Inc. transferred to its shareholder, the Fiducie,
ownership of its properties located 1364-1366 St. Catherine St. East (Drugstore)
and 1560-1572 St. Catherine St. East (Club Sandwich). However, these
properties, as well as the one located at 2207 Panet St., were taken back
following a giving in payment by 9125-9622 Québec Inc., owned by Normand
Chamberland. 9125-9622 Québec Inc. therefore became the owner of the buildings
by realizing its securities, although it had to pay the priority-ranking
hypothecary creditors.
[53]
On
April 11, 2005, a deed of hypothec was granted by 9125-9622 Québec Inc. and Marie-Ange
Giasson in favour of 3095-7252 Québec Inc., represented by Howard Greenspoon, in
the amount of $2,700,000 encumbering the Drugstore, Club Sandwich, as well as
the property located at 8980 Jean-Marie Lefebvre St. in Montréal, the one
located at 1535 Kirouac St., the property located at 3884 De l’Empereur, as
well as a vacant lot on St. Catherine St. All the amounts borrowed were used to
reimburse the previous creditors of 9125-9622 Québec Inc. This loan was
discharged on July 20, 2006 (Exhibit 2 of Richard Millaire’s affidavit).
[54]
The
numbered company 9125-9622 Québec Inc. reimbursed $1,000,000, and the balance
of $1,700,000 was reimbursed from a loan obtained from Jo-Pac Manufacturing
Inc. (Yvon Talbot’s affidavit dated July 8, 2008, at paragraph) because on July
20, 2006, a deed of hypothec was granted by 9125-9622 Québec Inc., Chantal
Frégault and Marie-Ange Giasson in favour of Jo-Pac Manufacturing Inc. in the
amount of $2,500,000, encumbering all the aforementioned properties, with the
exception of the vacant lot. The respondents claim that the loan was repaid
after the Fiducie sold the properties that it owned. It was discharged on May
30, 2008 (Exhibits 3 and 4 of Richard Millaire’s affidavit or Exhibit 8 of
Chantal Frégault’s affidavit).
[55]
On
July 13, 2007 the Anjou Caisse Populaire Desjardins gave the Fiducie a
revolving line of credit of $1,200,000. The line of credit was secured by both
properties belonging to Sophie Lebel (1535 Kirouac St.) and Chantal Frégault
(3884 De l’Empereur), as well as a property located at 8980 Jean-Marie
Lefebvre, which was sold on April 4, 2008. The respondents claim that this line
of credit was used to replace the loan granted by Jo-Pac Manufacturing Inc.
because, according to them, 9125-9622 Québec Inc. still owed $1,168,000 to Jo-Pac
Manufacturing Inc. (Yvon Talbot’s affidavit dated July 8, 2008, at paragraph
203 and Yvon Talbot’s cross-examination on February 10, 2009, p. 63). The
Fiducie therefore repaid 9125-9622 Québec Inc.’s
debt.
[56]
On
December 11, 2008, a prior notice of the exercise of sale by judicial authority
was issued by Caisse Populaire against the Fiducie because a balance of $696,254.85
was still owed on the rotating line of credit.
[57]
On
November 21, 2006, 9125-9622 Québec Inc. and the Fiducie sold Drugstore to the
numbered company 9173-9698 Québec Inc. (represented by Nicolas Tétrault) for $1,800,000
with a balance on the selling price for this same amount. Jo-Pac Manufacturing
Inc. then reduced the amount of its mortgage on the Drugstore to
$1,000,000 by a mortgage amendment deed. On February 5, 2007, through a
mortgage debt assignment, 9125-9622 Québec Inc. transferred the balance of the
selling price of $1,800,000 to Fiducie.
[58]
On
March 13, 2007, 9125-9622 Québec Inc. and the Fiducie sold Club Sandwich to the
numbered company 9177-4158 Québec Inc. (represented by Daniel Ouaknine) for $2,400,000.
The amount of $600,000 was paid to the seller at the time of the sale, and
$1,000,000 was paid 60 days after the sale. The $800,000 balance of the selling
price was payable before April 15, 2017.
[59]
On
January 13, 2006, a lease was entered into between 9116-4798 Québec Inc. (represented
by Mohammed Khan) and 9125-9622 Québec Inc. involving the Club Sandwich property
(Exhibit I-1 of Yvon Talbot’s cross-examination on February 10, 2009). Clause
14 of the lease provides for compensation to the landlord if there is any [translation] “deficiency” with the rent.
The balance of Club Sandwich’s $800,000 selling price is therefore subject to
compensation arising from this clause.
[60]
The
third selling price balance arises from a loan that was granted to Mohammed
Khan on the property located at 7550 De Lugano Brossard in Quebec (hereinafter
the Khan Loan). This is an $800,000 selling price balance with monthly payments
of principal and interest (Marco Boulanger’s cross-examination on January 7,
2009, at page 24).
[61]
The
amount of $536,644 is payable to the Fiducie subject to a dispute involving 9116-4798
Québec Inc. and the Fiducie (Claudine Vinette’s affidavit dated January 5, 2009, at paragraph 8 and
in Exhibit 3). The respondents submit that 9116-4798 Québec Inc. is
acting as a plaintiff by counterclaim.
[62]
There are two dockets involving garnishment orders before this
Court involving numbered companies doing business with the Fiducie. ITA-8090-08
involves a garnishment order against two numbered companies owned by Chantal
Frégault, specifically 9108‑0903 Québec Inc. and 9184‑8796 Québec Inc.
(Paola Tiranardi’s affidavit dated September 22, 2008, Exhibit 3).
[63]
Docket
ITA-8092-08 relates to numbered companies 9173-9698 Québec Inc. and 9177-4158
Québec Inc. (the purchases of Drugstore and Club Sandwich, respectively). The
garnishee 9173‑9698 Québec Inc. owes the Fiducie $1,575,000 resulting
from a selling price balance of $1,800,000 by a deed of sale dated November 15,
2006. A final garnishment order concerning the
numbered company 9173-9698 Québec Inc. was
made by Prothonotary Richard Morneau on February 5, 2009 (Exhibit C-2 filed at
the hearing on February 17 and18, 2009, or Exhibit J from Yvon Talbot’s
supplementary affidavit dated February 6, 2009).
[64]
The
garnishee 9177-4158 Québec Inc. is indebted to the Fiducie as the result of a
selling price balance for $800,000 at a rate of 6%, and the date of the
capital payment is scheduled for April 10, 2017. The debt of $800,000 is
subject to the rights of the garnishee to seek compensation using the selling
balance on a monthly basis under clause 14 of the seller’s statements in the
published deed of sale.
[65]
Finally,
the Fiducie’s assets are not based solely on the aforementioned selling price
balances but also on several loans granted totalling $630,000 (Chantal Frégault’s
supplementary affidavit dated September 11, 2008,
paragraphs 100 to 104). The respondents are therefore not in a position where
they are attempting to squander or liquidate their assets, nor are they in a
precarious financial situation. Collection of the claim would therefore not be
jeopardized by delay.
[66]
The
respondents submit that although there are family connections between them, this
reality cannot lead the Minister to believe that said transactions are
irregular or create doubt of such magnitude that it would warrant reasonable
apprehension that the respondents would squander their assets. The respondents
did not commit any fraud or engage in any conduct akin to fraud. Normand and Stéphane
Descoteaux have served their prison sentences and are law-abiding citizens. The
transactions referred to by the affidavits that were filed in support of the ex
parte motion followed regular and legal procedures and cannot be
characterized as unorthodox. Furthermore, Normand and Stéphane Descoteaux’s
criminal past has nothing to do with the Fiducie. There is no scheme justifying
the motion for a jeopardy collection order.
[67]
In
particular, the respondents attack Yvon Talbot’s affidavits and
cross-examinations. The respondents claim that Mr. Talbot is in bad faith and
that he signed an affidavit on July 8, 2008, containing false
information that misled Martineau J. when he made the jeopardy collection
order.
[68]
Yvon
Talbot also contradicted himself on several occasions. For example, when he was
questioned about the $1,200,000 line of credit, he initially claimed that
nothing would have changed had he known about it, but later he said that it
could have changed the Agency’s notice (Mr. Talbot’s cross-examination from
September 30 at p. 88 and Mr. Talbot’s
cross-examination from February 10, 2009, at pages
23-24 and 63). The respondents argue that Exhibit C-1 tendered to the Court
during the hearing on February 17 and 18, 2009, which was the basis of the
variation of the assessment from $2,132,000 $ to $1,622,765.44, proves
that Yvon Talbot filed false affidavits and that he was dishonest with the
Court.
[69]
With
respect to Claudine Vinette, the respondents submit that she signed an
affidavit on September 11, 2008, and that she failed to consider the
$800,000 of equity (as a result of the litigation against 9116-4798 Québec Inc.
and the Fiducie), which would have increased the Fiducie’s assets. Furthermore,
Ms. Vinette improperly assessed the equity in the properties owned by Chantal
Frégault (3884 De l’Empereur) and Sophie Lebel (1535 Kirouac St.). The bad
faith attitude, coupled with the fact that Claudine Vinette refused or
neglected to make any inquiry whatsoever into the signatory of the statement in
the dispute (Daniel Ouaknine) clearly establishes that Court’s intention not to
make a full and frank disclosure.
[70]
Consequently,
the Minister has not met the test that his claims would be in jeopardy were a
delay granted to the respondents.
[71]
The
Minister’s must allow the Court to find that there was not a full and frank
disclosure as explained in the recent case Canada (Minister of National
Revenue – M.N.R.) v. Laquerre, 2008 FC 458 at paragraph 31, 2008 D.T.C.
6324:
Thus, a motion to strike an order must be granted
where it is apparent that the Minister’s failure to make full and frank
disclosure of the facts has misled the judge.
[72]
The
Crown’s affidavits are supported by limited and intentionally dishonest audits.
None of the experts with whom the respondents conduct business was approached
for proper data on transactions.
[73]
The
affidavits contain insufficient but, above all, inaccurate allegations, since
the Minister was negligent in conducting the investigations given that no
actions was taken after July 7, 2008, in respect of 3095-7252
Québec Inc. (i.e., Howard Greenspoon) to
verify the reimbursements made on the first loan by the Fiducie. A simple audit
would have shown that a full and final acquittance had been sent following
payment of the remaining debt.
[74]
Yvon
Talbot also neglected to check with Saul Mendelson whether the $1,700,000 debt
owed to Jo-Pac Manufacturing Inc. had been repaid, which was indeed the case.
Had this audit been conducted, the auditor could not have found that the trust
had failed to report the amounts therein. Given that the Agency based the
notices of assessments issued to the respondents following Yvon Talbot’s
incomplete audits, these notices are not accurate. Furthermore, Yvon Talbot did
not account for the $1,168,398.92 from notary St-Gelais’ account repaying
the loan to Jo-Pac Manufacturing Inc. (Exhibit I-3 of Yvon Talbot’s
cross-examination on February 10, 2009).
[75]
Yvon
Talbot’s credibility is seriously compromised because he confuses loans and
mortgages. He does not recognize notarial deeds because they do not match the
bank statements that he obtained. Furthermore, Mr. Talbot’s audit is incomplete
because it was based solely on bank statements. He lacked rigour by failing to consider
the notarial and financial costs when he evaluated the profits that he
allocated to the Fiducie.
[76]
For
example, the respondents claim that the cheques totalling $341,000 (six cheques
for $50,000 and one cheque for $41,000) dated April 5, 2007, made out to Énergie
Confort constituted renovation expenses because it is a refrigeration business.
The respondents submit that these costs should have been added because they
were supposedly incurred before the buildings were sold and that Yvon Talbot
was wrong to look at the date of the invoice during his audit (Yvon Talbot’s
cross-examination on February 10, 2009, pages 33 to 43).
[77]
Mr.
Talbot used the term “fictitious loan” when it was actually a revolving loan.
According to the respondents, this designation is therefore false and misled
the judge. The 26 transactions (Exhibit C-3 filed at the hearing on February 17
and 18, 2009) are not fictitious loans as claimed by Mr. Talbot, but bridge
loans, which help facilitate real estate transactions. Mr. Talbot therefore
falsely allocated the profits of these 26 transactions to the Fiducie. The
respondents argue that the document submitted to the Court establishes that
they are bridge loans and that the Fiducie is not linked to the parties
involved in the transactions.
[78]
According
to the respondents, Claudine Vinette is attempting to mislead the Court since
she indicates that because one of the transactions involved a property owned by
Normand Descoteaux, which was sold to Mr. Cadelis, and because Normand
Descoteaux and André Charbonneau may have ties, means, in her view, that the
Fiducie indirectly becomes the owner of this property (Claudine Vinette’s
supplementary affidavit, dated January 5, 2009, at paragraphs 36 and 37). However,
she fails to note that Yvon Talbot, during his cross-examination on September
30, 2008, acknowledged that Normand Descoteaux was in no way linked to or
involved with the Fiducie.
[79]
The
respondents also note that a recent decision shows that the absence of evidence
with respect to fraudulent actions by taxpayers combined with their intentions
not to dispose of their assets in any way justifies the quashing of the
jeopardy collection order (see Abergel v. Canada, 2008 FC 589, 2008
D.T.C. 6403 at paragraph 13 and 21).
[80]
Alternatively,
the respondents submit that they are justified in seeking a reduction in the
scope of the impugned order because they are unable to sustain themselves and,
as a result, their assets may be in jeopardy. The scope of the Crown’s seizure
on the respondents’ assets is significantly greater than the deemed debt in the
notices of assessment. To date, the entirety of the respondents’ assets have
been frozen by the Crown (the Crown’s garnishments in dockets ITA-8092-08 and ITA-8090-08).
[81]
In
addition, it is urgent for the respondents to have the scope reduced because on
December 11, 2008, a prior notice of sale by judicial authority was issued
by the Caisse Populaire in respect of the $1,200,000 line of credit.
[82]
The
respondents note that the seizures against them have the effect of paralyzing
their activities and, as a result, the debts are more likely to be jeopardized
by the paralysis arising from the order than by the lapse of a delay in paying
the amounts claimed under the notices of assessment. Furthermore, as a result
of the seizure against the Fiducie, its employees, Chantal Frégault (trustee),
Sophie Lebel (settlor) and Stéphane Descoteaux (loan consultant) are not
earning a salary. Prior to the seizures, the Fiducie paid all the expenses
relating to maintaining the buildings. The seizures therefore caused the
respondents to become insolvent.
[83]
The
Crown’s affiants, by failing to disclose relevant facts and information or
neglecting to do so, misled the judge. The did not comply with the duty of full
and frank disclosure, or of utmost good faith, by intentionally limiting their
investigation to the desired facts in order to obtain the impugned order. This
bad faith attitude and deficient investigative technique justify the setting
aside of the order made on July 16, 2008, by the Honourable Justice Martineau.
Analysis
[84]
The
Court believes that it must examine the case as a whole. This is a complex case
that involves several transactions with actors who are connected or represented
by numbered companies with multiple names.
[85]
The
Court also notes that errors were made by one of the Crown’s affiants. The
respondents are correct in raising inaccuracies in the calculations included in
the affidavits submitted to Martineau J. However, are these errors and
inaccuracies sufficient to set aside or reduce the order? The Court does not
believe so.
[86]
The
Court considered the following factors to reach this conclusion:
•
The
relationship between Normand and Stéphane Descoteaux and the Fiducie;
•
The
non-payment of taxes by 9125-9622 Québec Inc.;
•
The
transfer of assets from this company to the Fiducie;
•
The
Fiducie’s unreported income;
•
The
numerous transactions involving the Fiducie, in which it loans significant
unsecured amount of money for the acquisition of real estate and is then
involved in the resale by funding the deposit, all in exchange for a minimal
monetary result;
•
The
profits realized in these transactions, which are given to individuals or
companies other than the seller.
[87]
In
the Court’s view, all these factors justified the Crown’s concern that granting
a delay could jeopardize the payment of its claims.
[88]
Likewise,
the Court is of the opinion that it is not necessary to reduce the scope of
Martineau J.’s order.
[89]
The
Crown filed Exhibit C-3 (Comparative table, Yvon Talbot’s Exhibit K and the
exhibits in Marco Boulanger’s Undertaking #4) prepared by Ms. Vinette indicating
26 transactions identified by the Agency involving the Fiducie. With this
exhibit, the Crown argued Canada v. Anchor Pointe Energy Ltd, 2007 FCA 188,
at paragraph 40:
[…] Either at the initial or at the objection stage,
the Minister is attempting to determine the tax liability, and quantum, of the
taxpayer. He is entitled throughout this period, until his final determination,
to rely upon facts newly discovered or revealed by the taxpayer, and assume
them. Nothing in the meaning of assessment requires or permits that some facts
be assumed by the Minister, others not, and that, as a result, two categories
of assumptions of fact can be created with a different onus for each one […]
[90]
The
Agency was correct in continuing its audits on the respondents’ financial
activities, and the Court may rightly refer to the 28 new transactions
contained in Exhibit C-4 (Analysis of real estate transactions, Undertaking #4
of Marco Boulanger) filed at the hearing on
February 17 and 18, 2009.
[91]
This
Exhibit C-4 indicates that for loans totalling over $3,000,000, the Fiducie
received only $4,656 in interest, a return of only 0.0015%. Exhibit C-3
shows that for the loans totalling $513,870, the trust earned interest income
of $2,972, or only 0.0058%. The Court has great difficulty understanding why a
trust would provide such large unsecured loans and be satisfied with such a
small return.
[92]
Having
analyzed the evidence submitted by the parties and considered submissions by
counsel, the Court finds that the respondents did not discharge the initial
burden of proving that there were reasonable grounds to believe that the test
required by subsection 225.2(2) of the Act was not met.
[93]
The
Court is also satisfied that even if Martineau J. had been made aware of the
mistakes made by Mr. Talbot, as well as the inaccuracies in the calculations in
the affidavits, he still would have made the impugned order.
[94]
It
is relevant to cite Lemieux J. in Marengère, above, at paragraphs 67 and
72(4):
[67] […] This case does not turn on intent or on tax
planning; it calls to be determined looking at the matter objectively and
realistically on the ground so to speak. In other words, it is the effect or
result of the taxpayer's action in dealing with its assets that is important
and relevant in the assessment of the appropriateness of a collection jeopardy
order. […]
[72] (4) […] the Minister does not have to prove
fraud or deceit or bad motive. […]
[95]
The
unorthodox manner in which the respondents conducted their business is a
determinative element that the Court may consider (Mann v. Canada (Minister
of National Revenue), 2006
FC 1358
at paragraph 50, 2007 D.T.C. 5024; Canada v. Paryniuk, above and Laframboise,
above, at paragraph19). In this case, the respondents’ business practices may be
described as unorthodox.
[96]
Finally,
the Court recognizes that the Crown has met its duty to disclose despite the
inaccuracies and errors. The Court therefore dismisses the respondents’
motions.
ORDER
THIS COURT
ORDERS that the respondents’ motions to quash dated July 16, 2008, and to
reduce the jeopardy collection order be dismissed with costs. The respondents
must pay a lump sum of $2,500 as costs.
“Michel Beaudry”