Date: 20080218
Docket: T-1799-07
Citation: 2008 FC 208
Vancouver, British Columbia, February
18, 2008
PRESENT: The Honourable Mr. Justice Lemieux
BETWEEN:
THE
MINISTER OF NATIONAL REVENUE
Applicant
and
VALLIAMMA
REDDY
Respondent
REASONS FOR JUDGMENT AND JUDGMENT
I. Introduction
[1]
Valliamma
Reddy (Mrs. Reddy) seeks, pursuant to subsection 225.2(8) of the Income Tax
Act (the Act), the review of an ex parte order made on October 15,
2007, by my colleague Madam Justice Snider, pursuant to subsections 225.2(2)
and (3) of that same Act, authorizing the Minister of National Revenue (the
Minister) to take forthwith the collection actions described in paragraphs
225.1(1)(a) to (g) for the amount of income tax plus penalties and interest
assessed against Mrs. Reddy under an assessment in the amount of $461,285.86,
dated October 12, 2007 (the Jeopardy Order) and mailed the same day.
[2]
Subsection
225.2(8) states, where a judge has made a Jeopardy Order, the taxpayer may, on six
days' clear notice to the Deputy Attorney General of Canada, apply to a
judge of the Court to review the authorization.
[3]
Subsection
225.2(11) stipulates on a review application the judge "shall determine
the question summarily and may confirm, set aside or vary the authorization and
make such other order as the judge considers appropriate."
[4]
As
noted, Justice Snider was authorized to make the Jeopardy Order by subsections
225.2(2) and (3) of the Act which read:
(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.
(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.
[Emphasis mine]
[5]
The
assessment which gave rise to the Minister's application to Justice Snider for the
Jeopardy Order was made pursuant to subsection 160(1) of the Income Tax Act,
section 34 of the British Columbia Tax Act and section 36 of the Canada
Pension Plan, for funds transferred, at a time he had a tax debt, by Ken
Kaniappa Reddy (Ken Reddy) to his mother Mrs. Reddy during the period October 2000
through December 31, 2003, into a bank account in his mother's name but over which
he had a power of attorney. Mrs. Reddy has now filed an objection to this
assessment.
II. Legal Principles
A. The
Test on Review
[6]
The
parties agree a jeopardy review under subsection 225.2(8) of the Act involves,
at least, the application of the two-part test developed by Justice MacKay in HMQ
v. Satellite Earth Station Technology Inc., [1989] 2 C.T.C. 291 or [1989]
30 F.T.R. 94. Justice MacKay characterized a jeopardy review under subsection
225.2(8) as "involving aspects of an appeal and a hearing de novo."
[7]
For
the first part of the test, the Applicant (here Mrs. Reddy) has the initial
burden "to muster evidence, whether by affidavits, by cross-examination of
affiants on behalf of the Crown, or both, that there are reasonable grounds
to doubt that the test required by paragraph 225.2(2) has been met."
[8]
For
the second part of the test, Justice MacKay stated "the ultimate burden on
the Crown established by paragraph 225.2(2) continues when an order granted by
the Court is reviewed." He added:
When the evidence submitted by the
taxpayer applicant raises reasonable doubt as to the sufficiency of evidence
originally provided by the Crown in an ex parte application, it is
implicit in the process established by paragraph 225.2(8) that the
Court considering review of the authorization once made may consider evidence
originally presented on behalf of the Minister in support of the
Jeopardy Order and any additional evidence by affidavit or from
cross-examination of affiants, presented by either party in relation to the
motion for review. The evidence must be considered in relation to the test
established by paragraph 225.2(2) itself and by relevant cases….
[Emphasis mine]
[9]
I
say that the parties agree, at least, to the application of this test. Counsel
for Mrs. Reddy would add a third element relying on Justice Sheppard's decision
in Deputy Minister of National Revenue v. Atchison, [1989] B.C.J. No. 68:
the ability to set aside the Jeopardy Order where full and frank disclosure has
not been made to the judge issuing the Jeopardy Order, which he alleges
occurred before Justice Snider.
B. Interpretative Principles to the
Act's Jeopardy Provisions
[10]
In
Minister of National Revenue v. Services M.L. Marengère Inc., [2000] 1
C.T.C. 229, 176 F.T.R. 1 at paragraphs 63 and 65, I had an opportunity to
summarize the legal principles applicable to a subsection 225.2(8) review of an
ex parte jeopardy order based on the existing jurisprudence:
63 From this jurisprudence, I take the
following principles:
(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.
…
(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
Québec 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 Laframboise
v. R., [1986] 3 F.C. 521 (Fed. T.D.) 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.
65 The approach to be followed for the
resolution of this matter was stated by Marceau J.A. in R. v. Golbeck
(1990), 90 D.T.C. 6575 (Fed. C.A.) in the following terms at
page 6576:
It is clear to us that the learned trial
judge failed to put his mind to the only question that he had to consider…. The
question was whether, on the basis of the material put before the Court, it
appeared that the Minister had reasonable grounds for believing that the
taxpayer would waste, liquidate or otherwise transfer his assets so as to
become less able to pay the amount assessed and thereby jeopardizing the
Minister's debt. On an affirmative answer to the question, the judge had no
alternative but to grant the application (note the use of the word
"shall" in the provision).
[Emphasis mine]
[11]
In
Canada (Minister of National Revenue – M.N.R.) v. 514659 B.C. Ltd.,
[2003] FCT 148 I interpreted the words "reasonable grounds to
believe" in the phrase "reasonable grounds to believe that the
collection of all or any part of an amount assessed in respect of the taxpayer
would be jeopardized by the delay in the collection of that amount" in
subsection 225.2(2) to mean….a standard of proof that "while falling
short of a balance of probabilities, nevertheless connotes a bona fide
belief in a serious possibility based on credible evidence (see paragraph 24 in
M.C.I. v. Qu, [2003] 3 F.C. 3 (C.A.)
[12]
In
Danielson v. Deputy Attorney General of Canada (1986), 6 D.T.C. 6519, at
paragraph 11, Justice McNair explained the taxpayer's inability to pay is
insufficient justification for a jeopardy order absent compelling evidence
beyond mere suspicion or conjecture of actions by the taxpayer or other
creditors or claimants or the reasonable apprehension of such actions
that would be likely to jeopardize the amount assessed. [Emphasis mine]
III. The
Facts
[13]
Mrs.
Reddy is a 59-year-old widow living since 1995 with her son Ken Reddy, his wife
Priya and their children in their home on Bates Street in Richmond, B.C. which
is in joint ownership: one-half in the name of Mrs. Reddy and the other half in
the name of her daughter-in-law, Priya.
[14]
An
assessment of the jurisprudence requires the Court to stay close to the
statutory scheme related to jeopardy orders, which in the period after initial
enactment in 1985 underwent two or three amendments, shortly thereafter,
changing the standard of proof from "it may reasonably be considered that
the collection of the amount assessed…would be jeopardized" to
"reasonable grounds for believing" such would be the case.
[15]
Mrs.
Reddy holds two jobs as a nurse's aide. She works very long hours. Her employment
income between 2003 and 2006 inclusive averaged around $82,000.00 a year.
[16]
Mrs.
Reddy is also the sole registered owner of another residential property located
on Hogarth
Street
also in Richmond, B.C. This
residence is a rental property, but part of it is presently occupied by Mrs.
Reddy's other son. Rental income is sporadic.
[17]
Both
the Bates
Street
property and the Hogarth Street property are encumbered with first and
second mortgages.
[18]
The
Minister's jeopardy application was supported by one affidavit; that of Brian
Fowles who is a collection officer in the Vancouver Tax Services Office of the
Canada Revenue Agency (CRA).
[19]
The
main focus of Mr. Fowles' affidavit is on the intertwining of Mrs. Reddy's
financial affairs with those of her son Ken Reddy. At paragraph 12 of his
affidavit, he wrote "the assessment was raised because examination of
[Mrs. Reddy's] bank records showed that deposits into his mother's account by
way of cash and cheques totalling $606,636.83 were made by Ken Reddy between
October 2, 2000 and December 4, 2003, at a time when he had outstanding tax liabilities.
Those deposits, he said, were to a bank account used by Mrs. Reddy for
depositing her work cheques and paying her mortgages, and Ken Reddy has power
of attorney over his mother's account.
[20]
Mr.
Fowles further deposed his review of the bank account records showed that
between October 2, 2000 and April 24, 2007, over $1.4 million dollars
was deposited into the account aside from Mrs. Reddy's employment income.
He cautioned, in his affidavit, he had not obtained the source documents for
the deposits after December 31, 2003, to determine where the funds after that
time came from but stated, based on the documents obtained for the prior period,
he believed the deposits after that time were likely done by Ken Reddy in order
to avoid collection activities against him "by his numerous creditors
including CRA; that Mr. Ready had not paid his taxes owing since 1994, and
collection against him has been unsuccessful as he has no assets in his own
name."
[21]
He
further informed Ken Reddy had not filed his 2004 to and including his 2006 tax
returns and had a current tax debt of $461,285.86. As of April 30, 2007, the
bank records showed the balance in his mother's account over which he has a
power of attorney to be only $154.33 and "the deposits by Ken Reddy in the
account appear to have stopped in April 2007." He concluded it appeared
Ken Reddy is handling his mother's affairs since he has a power of attorney over
her bank account "and is currently arranging third mortgages over
her properties under a power of attorney signed September 14, 2007." He opined
to the best of his knowledge Mrs. Reddy was capable of handling her own affairs
as she has full-time employment "but is choosing to allow her son to
handle her affairs."
[22]
The
record indicates Ken Reddy was in the import business of granite tiles from India and he used
his mother's account for banking purposes related to his business affairs. Mr.
Fowles informs us Ken Reddy became bankrupt on February 28, 2007.
[23]
At
paragraph 10 of his affidavit, Mr. Fowles stated collection of the amount under
the October 12, 2000 assessment "is believed to be in jeopardy due to Mrs.
Reddy's past payment history, limited assets and the control of her assets by
her son…." He adds Mrs. Reddy "is attempting to encumber the
available equity in her assets following an assessment against her
[in September 2007] for $49,013.22 under the Excise Tax Act and
subsequent registration of judgment against her properties." This
assessment against Mrs. Reddy is under the Excise Tax Act for GST
related to her son's undeclared income in 2000, 2002 and 2003 and is different
from the section 160 assessment under the Income Tax Act for third party
transfers upon which the Jeopardy Order was sought.
IV. Mrs.
Reddy's Challenge to the Jeopardy Order
[24]
Mrs.
Reddy's counsel submitted, on this review, Mr. Fowles' affidavit considered by
Justice Snider ex parte did not provide her with full and fair
disclosure of the true value of her assets, a true picture of the refinancing
efforts on the Bates Street and Hogarth Street residences and a full
picture of the family's financial affairs, all of which should be viewed
cumulatively. These alleged deficiencies were:
• Mr. Fowles'
affidavit did not give Justice Snider an accurate picture of the equity balances
on the first and second mortgages on the two residential properties because the
picture provided was a reflection of the initial principal payment but not the
balance of the principal through principal payments (which only occurred for
the first mortgages as the second mortgages called for interest payments only
and were each for a term of one year only).
1)
For the Hogarth Street property: the first
mortgage was taken out in 2001 with an initial principal amount at $247,500.00
but on October 29, 2007, the principal balance had decreased to $224,759.00.
The second mortgage was placed on May 30, 2006, in the principal amount of $252,690.00
and represented a refinancing of a second mortgage which had previously matured.
The May 30, 2006 second mortgage matured on June 1, 2007, at $268,626.00.
As at October 19, 2007, the estimated present market value of the property was
said to be $635,000.00 according to the second mortgagees' approval
sheet dated May 23, 2006, which was attached to Mr. Fowles'
affidavit.
2) For the Bates Street property: the first
mortgage was registered on November 6, 1997, in the amount of $615,000.00.
As of November 2, 2007, the principal amount owing on that first
mortgage was $483,992.00. In terms of the second mortgage, the principal
amount placed on December 12, 2006, was $281,500.00; that
mortgage was to mature on December 15, 2007, but owing to an earlier
dispute with the second mortgagee it was agreed, as part of the refinancing efforts
since June 2006, it would be paid out earlier. As at September 15, 2007,
the principal amount required to discharge it was $299,377.00. As
at October 19, 2007, an appraisal of that property indicated a present market value
of $1,050,000.00 according to the second mortgagees' approval sheet
dated November 27, 2006, which was attached to Mr. Fowles'
affidavit.
Counsel for Mrs. Reddy states that Mr. Fowles'
figures in his affidavit conveyed to Justice Snider a misleading view of the
state of the equity on those two properties.
• Counsel for
Mrs. Reddy argues Mr. Fowles misled Justice Snider when he stated at paragraph
16 of his affidavit Mr. Ken Reddy was currently "arranging third mortgages
over her [Mrs. Reddy's] property under a power of attorney." He states
there was no plan at all to place third mortgages on the property. Because the
second mortgages were matured or maturing, the plan for the Bates Street property was
to replace the second mortgage with a new one and for the Hogarth
Street
property it was to discharge both the second and first mortgage and replace it
with a new first mortgage. He says Mr. Fowles had information before October
12, 2007 (the date he swore the affidavit which was before my
colleague) that the second mortgages were maturing and were central to the
refinancing efforts. He submits that information is contained within his
affidavit placed before Justice Snider as Exhibits "C" and
"D". Based on Mr. Reddy's affidavit sworn November 28, 2007, he
argues Mr. Fowles never asked Ken Reddy for figures reflecting the current
principal amounts owing on any of the four mortgages currently registered
against the two properties.
• He argues
Mr. Fowles' actions, particularly since July 2007, led to the collapse of the refinancing
efforts on the two properties especially after CRA filed judgment on September
24, 2007, against the Bates and Hogarth Streets residences for $49,000.00 on
account of the GST assessment. He recounts the efforts of Mr. Davies who had
been appointed as counsel to Mrs. Reddy and Ken Reddy in respect of organizing
the refinancing of the second mortgages. He states that by early October 2007,
the issues regarding the second mortgages had been temporarily resolved with financing
from new lenders lined up. He points to a July 5, 2007 memo from Mr. Fowles to
his group manager (Mrs. Reddy's motion record, page 127). Counsel for Mrs.
Reddy goes so far as to write at paragraph 22 of his memorandum that Mr. Fowles
"was aware of the ongoing financial efforts, and was seeking approval
to halt or otherwise interfere with those efforts. Those steps included the
levying of assessments on September 14, 2007 and October 12, 2007, against Mrs.
Reddy for GST and income tax allegedly owed by Ken Reddy." He points
to the efforts to make arrangements to pay the GST judgment from the positive
balance remaining after the payouts on the refinancing of the two second
mortgages, and the promise by CRA to provide a discharge of judgment, which was
not forthcoming before the October 15 Jeopardy Order issued with the result
that the refinancing efforts collapsed thereafter.
• Counsel for
Mrs. Reddy submits Mr. Fowles' affidavit did not disclose to Justice Snider the
agreement between Mrs. Reddy, through her counsel, and CRA to pay out the
$49,000.00 judgment on account of the GST. Furthermore, Mr. Fowles' affidavit
did not disclose to Justice Snider that the promise to discharge for October
12, 2007, was only executed on October 15, the day her Jeopardy Order was issued.
• Finally,
he argues Mr. Fowles knew for several years Ken Reddy was using his mother's
bank account for his own business purposes and did not disclose that to Justice
Snider.
V. Analysis
and Conclusions
A. Has Mrs. Reddy submitted evidence that there
are reasonable grounds to doubt the test required by subsection 225.2(2) has
been met?
[25]
The
first prong of the test on the review under subsection 225.2(8) of the Act is
whether Mrs. Reddy mustered evidence whether by affidavits, by
cross-examination of the Crown's affiants or both, to raise a reasonable doubt
the evidence originally provided to Justice Snider was sufficient to establish
the test required by subsection 225.2(2) has been met, that is, the evidence
shows a bona fide belief in a serious possibility, based on credible evidence
Mrs. Reddy or, through her, her son who is her alter ego and directing mind in
financial matters, would waste, liquidate or otherwise transfer assets and thus
become less able to pay the amount assessed ($461,285.86) thereby jeopardizing
the Minister's debt. In my view, Mrs. Reddy has not met this initial onus and
this for several reasons.
[26]
Mr.
Fowles was not cross-examined. Mrs. Reddy, who was incapacitated, did not
provide any affidavit although Mr. Glasner's affidavit in part speaks on her
behalf. The facts Mr. Fowles recites are not controverted and are accepted by
the Court.
[27]
Mr.
Reddy filed an affidavit and was cross-examined. The points he makes are:
• He is a
guarantor in financing the two residential properties.
• He provides
the current balances on the first and second mortgages because Mr. Fowles
in his October 12, 2007 affidavit provided the initial principal payment
"which is misleading".
• He gives the
current market value (October 19, 2007) of the Hogarth property at $750,000.00
and that of the Bates property at $1,200,000.00.
• He denies
the statement made by Mr. Fowles in his affidavit he transferred to his mother
amounts when he had a tax debt. He says his mother's account was used as a
"transactional account for the conduct of his business" and as such
the money in the account was not his personal income.
• He spoke to
the urgency of the situation. He states the Jeopardy Order "frustrated my
ability to complete the refinancing efforts that were underway when the
Jeopardy Order was issued."
[28]
I
should say on this last point the Minister offered to give Mrs. Ready's
proposed second mortgages priority over the Minister's debt to allow for the
refinancing to take place capped at a level of the balance of the existing
second mortgage plus arrears, interest and penalties which means no taking out
of further equity. That offer has yet to be accepted.
[29]
The
test required to be met to properly ground a jeopardy order under subsection
225.2(2) does not only encompass situations of fraud or the imminent transfer
of funds or assets out of the country. Rather, the test under that subsection
is met when the Minister has reasonable grounds to believe the taxpayer (here
Mrs. Reddy's or her son) would waste, liquidate or otherwise transfer her
assets so as not to be available to the Minister.
[30]
The
fundamental facts are clear and are set out in Mr. Fowles' affidavit originally
before Justice Snider. On October 15, 2007, the day Justice Snider issued her
Jeopardy Order, the following facts were known to her:
• Mrs. Reddy
had been assessed on October 12, 2007, a tax debt of close of half a million
dollars which, for the purposes of a jeopardy order, must be deemed to be valid
(see Minister of National Revenue v. MacIver (1999), 99 D.T.C. 5524,
Sharlow J.).
• Mrs. Reddy, through
her son, was refinancing her residences although why and the level of financing
was not known to Mr. Fowles. Refinancing entails transferring for a
consideration all or part of the value of an asset to a lender thus diminishing
what is available to other creditors.
• Mr. Reddy
had declared bankruptcy and his mother's account, through which monies had
generously flowed into in the past, was down to less than a few hundred
dollars.
• Through
appropriate inquiries, Mrs. Reddy's only significant assets were the two
residences. Some other assets were identified by Mr. Fowles. Where they were
and in whose ownership they were was unclear.
[31]
Based
on this evidence, I cannot conclude Mrs. Reddy has met her initial onus to
raise a reasonable doubt as to the sufficiency of the evidence before Justice
Snider not meeting the test under subsection 225.2(2) of the Act. If I went to
the second prong of the review test, I would come to the same conclusion
considering all of the evidence before me, including the evidence tendered on
behalf of Mrs. Reddy or elicited by the Minister's counsel on cross-examination
of her affiants which establish:
• The refinancing
was caused by the fact the second mortgages, interest bearing only, were in arrears
and their principal amounts owing had increased because of this. The second
mortgagees had in July 2007 demanded full payment because of the default.
• Moreover,
the evidence is that the first mortgage payments in the property were also in
arrears.
• The amount
of the refinancing in principal, brokerage fees and bonus exceeded the amount
lenders had previously advanced to Mrs. Reddy on the strength of her properties.
• Mr. Reddy
could no longer contribute to his mother's account over which, in any event, he
had a power of attorney.
• The second
mortgagees were, since November 2007, foreclosing on their second mortgages.
• That in the
past Mrs. Reddy or her son had drawn on the equity of the residences through
second mortgages without a comparable increase in assets. In other words, the
equity was disappearing or eroding. In a real sense, the family was mining the
equity in the residences whose property values were increasing, but it was not
available to some creditors including the Minister.
• No satisfactory
explanation was ever given why Mr. Reddy had to run his business through his
mother's account over which she had no access, leaving a reasonable inference
that it was to shield his business or his personal assets from creditors as had
been the case for Mr. Reddy's tax debt.
B. Full
and Frank Disclosure
[32]
Counsel
for Mrs. Reddy attacked what he characterized as the inadequacy or, more
seriously, the inaccuracies and misleading statements put before Justice Snider
in Mr. Fowles' affidavit.
[33]
Counsel
for the Minister accepts the principle based on Atchison above, that
persons applying ex parte to the Court must "use the utmost amount
of good faith and, if they do not, they cannot keep the results." In that
case, Justice Sheppard set aside the ex parte Jeopardy Order because
there was a gap in the Minister's evidence who had not spelled out how a delay
in collection from either taxpayer would jeopardize the Minister's debt. He was
of the view delay in collection was attributable to the Minister who also had
failed to disclose negotiations on collection with the taxpayer concerned. I
note that in Laframboise above a case decided before Atchison,
Justice Joyal accepted the principle that serious defects in the Minister's
affidavit evidence could impugn the jeopardy order cautioning, however, that
the standard of disclosure was not that established for Mareva injunctions and
in order to assess the appropriate level of disclosure, he was entitled to
examine all of the affidavit evidence before the issuing judge in order to
determine whether those affidavits disclosed "essential elements"
without reading those affidavits to "theological dissection."
[34]
I
also note in The Queen v. Duncan, [1992] 1 F.C. 713, Associate chief
Justice Jerome accepts the test in Atchison above of utmost good faith
and full and frank disclosure. He concluded the level of disclosure was
adequate in the case before him.
[35]
In
Minister of National Revenue v. Rouleau (1995), 95 D.T.C. 5597, my
colleague Justice Gibson ruled that full and frank disclosure did not require
the disclosure of material that is irrelevant to the test for the issuance of a
jeopardy order under the Act.
[36]
Finally,
in M.L. Marengère Inc. above, based on the jurisprudence cited upon, I
stated the disclosure standard was "there must be full and frank
disclosure by the Minister of known, relevant and material facts" to
obtain a jeopardy order.
[37]
For
the reasons that follow, I cannot sustain the argument put forward by Mrs.
Reddy's counsel that the Jeopardy Order should be set aside because the
Minister breached the required level of full and frank disclosure.
[38]
First,
there is no substance to the argument Mr. Fowles did not disclose in his
affidavit to Justice Snider the fact an agreement had been reached on the
payment of the GST debt. The disclosure of this fact is contained in
paragraphs 36 to 40 of Mr. Fowles' October 12, 2007 affidavit.
[39]
Second,
Mr. Fowles did say in his affidavit Mrs. Reddy, through her son, was placing
third mortgages on the property, which is not accurate. This inaccuracy is not
material since the documentation he referred to in Appendix "C" and
"D" to his affidavit shows the security charges on the refinancing to be
second mortgages. In any event, Mr. Fowles did not know why and for what
purpose the refinancing was required. Mr. Davies' letter of October 10, 2007,
did not give that information to Mr. Fowles. He could not disclose something to
Justice Snider which was unknown to him.
[40]
Third,
it is incorrect to say Mr. Fowles provided misleading or inaccurate information
in his affidavit to Justice Snider. He clearly told her the jeopardy
application was brought on quickly and he did not have time to obtain
information or update it to make it current. Mr. Fowles did provide Justice
Snider with all of the relevant backup documentation which shows the values of
the property and the balances as of a certain date. He said the property values
were estimates. He did not fail to disclose relevant information on this point.
Finally, on this point I agree with counsel for the Minister: the updated
information would not have materially affected the issuance of the Jeopardy
Order.
[41]
Fourth,
counsel for Mrs. Reddy was accurate to submit Mr. Fowles did not identify to
Justice Snider the fact he knew Mr. Reddy was operating his business out of his
mother's bank account over which he had a power of attorney. He did summarize
for Justice Snider, for the years 2000 to 2003, the source of the payments in
and out of the account. It is apparent from the amounts and sources this account
was being used for business purposes. Where Mr. Fowles' disclosure is accurate
and not controverted is its use for other purposes. In the circumstances, this
non-disclosure of the business purpose of the account is not of much
materiality as would justify the setting aside of the Jeopardy Order.
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