Date: 20080606
Docket: T-1122-07
Citation:2008 FC 715
Ottawa, Ontario, June 6, 2008
PRESENT: The Honourable Mr. Justice Russell
BETWEEN:
893134
ONTARIO INC. O/A MEGA DISTRIBUTORS
Applicant
and
MINISTER
OF NATIONAL REVENUE
Respondent
REASONS FOR JUDGMENT AND JUDGMENT
[1]
This
is an application for judicial review of a decision of the Assistant Director,
Revenue Collection and Client Services of the Windsor Tax Services Offices
(Assistant Director) dated May 17, 2007 (Decision), refusing to vacate a lien registered
with the Sheriff of the County of Essex and held by Canada Revenue Agency (CRA)
against the Applicant’s equity in a warehouse property.
BACKGROUND
[2]
The
Applicant, 893134 Ontario Inc. (Applicant), is a wholesaler to convenience
stores and carries on business under the name “Mega Distributors” in Windsor, Ontario. Mr. François
Francis is the President and sole director of the Applicant.
[3]
The
Applicant says that in 1999 and 2000 it purchased cigarettes for resale to a
status Indian on the Six Nations Reserve and so did not collect Goods and
Services Tax (GST) on those sales. In 2000, CRA together with the RCMP and
Ontario Tobacco Tax Investigators (collectively the Joint Forces Operation or
JFO) conducted a criminal investigation which included more than 50 days of
surveillance of the Applicant in relation to its tobacco purchases and
deliveries. As a result of the investigation, the JFO became aware that one
employee of the Applicant was not making cigarette deliveries to a status
Indian on a reserve but rather to local convenience stores. During this time,
CRA continued to process the monthly GST returns filed by mega distributors,
issuing refund cheques in respect of the Input Tax credits paid on cigarettes
purchased in Mega Distributor’s name.
[4]
In
December 2000, CRA commenced an audit of the Applicant for the period July 1,
1998 to November 30, 2000. In February 2001, the Applicant was assessed for
uncollected and unremitted GST due under the Excise Tax Act, R.S.C.
1985, c. E-15, for a total of $767,354.52, together with penalties and
interest. The assessment represents unremitted GST on the tobacco sales
purportedly delivered to the reserve.
[5]
After
the referral of the Applicant’s assessment for collection, a number of meetings
took place between CRA and the Applicant’s representative. Due to the
Applicant’s expressed intention to object to the assessment, collection action
was placed on hold until the objection was dealt with. On February 6, 2002, the
Applicant was informed that, as a result of information from the Appeals
Division of the Windsor Tax Services office, the assessment would be confirmed
and collection action would be taken. On February 12, 2002, the Applicant’s
indebtedness was certified and the certificate registered in this Court. The
Applicant has initiated proceedings in the Tax Court of Canada with respect to
the assessment and collection action by CRA. The matter has been set down for
five days of hearings in September 2008.
[6]
The
local office agreed to place collections on hold because of the Applicant’s
stated intention to object to the assessment, but the Appeals Division of the
Windsor Tax Service Office had the authority to overrule this
decision/agreement. After certifying the lien on February 12, 2002, the
collection officials were informed that the final decision regarding the
objection was to be made by Head Office Appeals, since the assessment involved
an alleged sale to a status Indian.
[7]
The
Head Office upheld the assessment and a request was sent to Ms. Yvonne Brown,
the Applicant’s representative, to make arrangements for payment of the debt,
failing which collection action would be taken.
[8]
Meetings
between Mr. Bruck Easton (who replaced Ms. Brown as the Applicant’s
representative) and the collection officials and the Assistant Director were
held in February and March 2003. The Assistant Director decided not to proceed
with the collection action after being advised at these meetings by Mr. Easton
that the Applicant intended to appeal the assessment to the Tax Court.
[9]
The
Assistant Director informed Mr. Easton that, in order to protect the Crown’s
position, and since the Applicant was not prepared to provide security for its
indebtedness, the memorial issued by this Court upon the registration of the
certificate would be acted upon. The memorial was registered in the land titles
office on June 16, 2003.
[10]
In
a letter dated May 8, 2007, counsel representing the Applicant in the appeal
before the Tax Court requested, on behalf of the Applicant, that CRA’s lien be
lifted so the Applicant could seek refinancing of its business premises. The
Applicant wishes to take a second mortgage on the warehouse property so that it
can obtain money needed to fund its legal dispute with CRA in the Tax Court, as
well as for separate legal counsel in other proceedings the Applicant wishes to
initiate concerning the conduct of CRA officials, namely “CRA’s entrapment
technique of paying out GST refunds they knew were not owed to [the Applicant]
so as to maintain their unsuccessful criminal investigation” and the CRA officials’
“refusal to disclose for several years the true basis of their ReAssessment.”
[11]
By
letter dated May 17, 2007, the Assistant Director refused the Applicant’s
request. The Assistant Director stated in his reasons that he had reviewed the
materials filed with the Tax Court relating to the appeal, including the Notice
of Appeal, the Further Amended Reply to the Notice of Appeal, and the
pre-hearing conference briefs. He explained that the lien was filed in order to
protect CRA’s interest in collecting the GST owed by the Applicant. The
Assistant Director also noted that he had discussed the file with other CRA officials,
including the
Team Leader of Appeals and the Section Manager of Revenue Collections, who were
in agreement that CRA was not in a position to lift the lien as requested given
their understanding of the file and their obligation to ensure the Crown’s
position was protected. It is the Assistant Director’s refusal to lift the lien
that is the Decision under judicial review in the present application.
ISSUES
[12]
The
Applicant raises the following issues in this application:
1)
Did the
Assistant Director breach the duty of fairness by failing to consider relevant
factors when making his decision?
2)
Did the
refusal of the Applicant’s request by the Assistant Director effectively
deprive the Applicant of the right to counsel and, consequently, the right to a
fair hearing?
STANDARD OF REVIEW
[13]
The
standard of review analysis does not apply to issues involving the duty of
fairness and principles of natural justice (Canadian Union of Public
Employees v. Ontario (Minister of Labour), [2003] 1
S.C.R. 539, 2003 SCC 29) which are questions of law, and the applicable
standard of review is correctness (Dunsmuir v. New
Brunswick,
2008 SCC 9). Where a breach of the duty of fairness is found the decision must
be set aside (Sketchley v. Canada (Attorney General), (2005), [2006] 3
F.C.R. 392, 2005 FCA 404). Consequently, in my view, the applicable standard of
review for both issues raised in this application is correctness.
ANALYSIS
1.
Did
the Assistant Director breach the duty of fairness by failing to consider
relevant factors when making his Decision or by failing to request further
information from the Applicant?
[14]
The
Applicant submits that, in making his Decision, the Assistant Director failed
to consider a number of relevant factors, including: (1) the conduct of CRA
officials, namely, that CRA continued to send the Applicant GST refund cheques that
it knew were not warranted and that CRA did not inform the Applicant earlier of
its surveillance and the actions of the Applicant’s employee; (2) the
merits of the litigation proposed to be brought by the Applicant in respect of
that conduct; and, (3) the merits of the Applicant’s appeal to the Tax Court. The
Applicant also argues that the Assistant Director owed a duty to the Applicant
to allow further or rebuttal evidence to be tendered before making his Decision.
[15]
First,
it is clear from the Decision that the Assistant Director did consider the
Applicant’s appeal to the Tax Court. The Assistant Director specifically noted
that he had reviewed “the Tax Court Notice of Appeal, the Further Amended Reply
to the Notice of Appeal, and the pre-hearing conference briefs, filed with the
Tax Court.” For reasons I will give, I do not believe that other factors
raised by the Applicant were relevant to the matter before the Assistant
Director. CRA’s conduct with respect to the continued issuance of GST refund
cheques, the Agency’s failure to inform the Applicant that it was being
investigated, or of any information acquired through that investigation, are
not, in my view, relevant to the question of whether the lien against the
Applicant’s property was necessary to ensure the Crown’s interest remained secure.
Likewise, not only were the merits of the proposed litigation regarding this
conduct not relevant to the issue before the decision-maker, but such
litigation was entirely speculative.
[16]
Further,
it is my view that the Assistant Director was under no obligation to seek
further information or rebuttal evidence from the Applicant in the present
case. The Applicant cites this Court’s decision in Edison v. R (2001),
208 F.T.R. 58, 2001 FCT 734, wherein Justice Blanchard discussed the doctrine
of legitimate expectations and noted that this doctrine can create procedural
rights. Under the circumstances of this case, however, I do not agree that the
Applicant had a legitimate expectation that the decision-maker would request
further information or comment regarding the contemplated litigation. Although
it is open to a decision-maker to request further information when necessary,
there exists no general obligation. I recognize that, in some instances,
fairness may require that further evidence or information be sought. Whether
such an obligation exists is to be determined on a case-by-case basis. I find
no such obligation in the case before me.
Knowledge of
Financial Situation
[17]
The
Applicant argues that the Assistant Director knew fully the Applicant’s
financial situation and that there were no other financial resources available
to the Applicant to fund its litigation against CRA. Hence, the Applicant
argues, it was unreasonable for the Assistant Director to deny the request to
lift the lien.
[18]
In
my view, this is not really an argument based upon procedural unfairness. It
amounts to saying that the Minister should remove the lien in order to allow
the Applicant to finance its legal proceedings against the Minister. The
Applicant offers no real authority or justification for such a position. It is
merely an assertion that it was unreasonable for the Minister to retain
security in the warehouse property in a situation where the Applicant claimed
it needed the equity in question to use as security for the money its lawyers asked
for before they would act. The relevant statutory scheme allows the Minister to
register a lien against property in order to secure the deemed debt. It does
not require the Minister to vacate that security because the tax debtor needs
the equity in question to finance legal action and provide security to its own
lawyers. In my view, the Minister’s refusal to comply with the Applicant’s
request in this regard was neither unreasonable nor unfair.
Failure to
Consider Serious Misconduct of CRA Officials
[19]
The
Applicant also argues that the decision was unfair because the Assistant
Director failed to consider the serious misconduct of CRA officials and their
breaches of the CRA’s own Taxpayer Bill of Rights:
His letter indicates no consideration of the
merits of the litigation proposed to be brought by the Applicant in respect of
that conduct. A decision maker must consider all relevant facts.
[20]
There
is no evidence to support this argument. The Decision sets out what the
Assistant Director reviewed regarding the Applicant’s position, and he
indicates that he also consulted with the Tax officials involved and came to
the conclusion that the Crown was not in a position to lift the lien at that
time. The Decision focuses upon the Applicant’s tax appeal because the
Assistant Director took the position that what is relevant to the statutory
scheme requires that he consider the lien only from the perspective of “the
CRA’s interest to ensure the collection of the Goods and Services Tax due under
the Excise Tax Act.” There is nothing in the statutory scheme or the materials
before me to suggest that the Assistant Director was wrong in this approach. He
stated what he regarded as relevant to the issue before him. The Applicant may
have wanted the Assistant Director to go beyond the statutory scheme and
consider lifting or postponing the lien in order to assist the Applicant in
financing the tax appeal and the other litigation. But there is nothing in the
statutory scheme or in any authority produced by the Applicant to suggest that
the Minister was obliged to do this or that the Assistant Director was obliged
to consider relinquishing or postponing the Minister’s security in order to
accommodate the Applicant’s litigation plans.
[21]
The
Applicant seems to assume that, even before the appeal and the further
litigation have been heard, it was unfair of the Minister not to accept, or at
least consider the merits of, the Applicant’s position. There is no authority
or justification to support such a position.
Offer to Supply
Further Information/Refusal to Allow Rebuttal Evidence
[22]
The
Applicant appears to assume once again that the Minister is under an obligation
to conduct a pre-hearing assessment of the merits and then make a decision on
whether to remove the lien in order to accommodate the Applicant’s litigation
plans.
[23]
In
my view, under the statutory scheme, the Minister is under no such obligation.
The Applicant’s request and reasons were considered and the response of the officials
was obtained. The Minister’s obligation was to consider whether the lien could
be removed without jeopardizing his security position. The Minister was not, in
my view, required to conduct a pre-hearing assessment on the merits of the tax
appeal or possible future litigation regarding misconduct of CRA officials.
[24]
The
Applicant was given a full opportunity to state the case for lifting the lien. The
Assistant Director was not required to conduct a pre-hearing on the merits. Nor
was he in a position to do so. It is obvious that, if Applicant’s counsel has
indicated an unwillingness to act without a retainer and the security of
knowing that his fees will be paid, and the Applicant has no other means of
providing that security other than the equity in the warehouse property, then
there is good reason for the Minister to assume that he will not be able to
enforce the tax debt without the security he has taken. This is also supported
by the figures regarding the value of the remaining equity in the warehouse property.
The Assistant Director’s Decision is both procedurally fair and reasonable
given the Applicant’s own evidence regarding its financial position.
Erred in
Consideration of the Merits
[25]
The
Applicant also argues that the Assistant Director was unfair because he “erred
in his consideration of the merits of the Applicant’s Appeal to the Tax Court
of Canada relying solely on CRA’s view of the evidence … The decision maker
must consider all relevant facts.”
[26]
There
is no evidence that the Assistant Director did not consider the merits of the
Applicant’s argument or that he relied solely on the CRA’s view of the
evidence, or that he did not consider relevant facts.
[27]
Once
again, the Applicant assumes that the Assistant Director was obliged to conduct
some kind of pre-hearing assessment of the merits of matters to be decided on
an appeal or as a consequence of some future litigation concerning the conduct
of CRA officials. In my view, however, under the statutory scheme, the
Assistant Director merely had to consider whether the lien could be lifted without
jeopardizing the Crown’s security. The lien, under the statutory scheme, is
intended to protect amounts owing until such time as they become payable. The
Assistant Director obviously considered both sides of the argument on this
issue and, given the Applicant’s own evidence concerning its financial
situation, his Decision seems reasonable.
2.
Did
the refusal of the Applicant’s request by the Assistant Director effectively
deprive the Applicant of the right to counsel and, consequently, the right to a
fair hearing?
[28]
The
Applicant argues that the Assistant Director’s Decision to deny the Applicant’s
request to vacate the lien against the Applicant’s property denied the
Applicant the opportunity to access the equity in that property, and
effectively deprived the Applicant of the right to counsel both in the ongoing
Tax Court appeal and in the litigation the Applicant wishes to commence against
CRA for the alleged misconduct of its officials. The Applicant says that, as a
result of the lien against its property, it will not be able to pay for legal
representation for the appeal before the Tax Court and, as a result, its
counsel in that matter will seek to be removed from the record. In addition,
the Applicant states that it cannot afford the retainer necessary to institute
its claim against CRA for the misconduct of its officials. The Applicant
further argues that, given the complex and lengthy nature of the proceedings
before the Tax Court, this denial of the right to counsel constitutes a denial
of the Applicant’s right to a fair hearing and contravenes the protections
provided for in the Canadian Bill of Rights, S.C. 1960, c. 44, reprinted
in R.S.C. 1985, App. III.
[29]
In
British
Columbia (Attorney General) v. Christie, [2007] 1 S.C.R. 873, 2007
SCC 21 at paragraphs 23-27, the Supreme Court of Canada held that, although
there exists a constitutional right to legal services in some limited contexts,
the rule of law does not include general access to legal services where rights
and obligations are at stake. The Court further recognized that, historically,
the rule of law has not “been understood to encompass a general right to have a
lawyer in court or tribunal proceedings affecting rights and obligations.”
[30]
In
my view, the Applicant has failed to establish that there exists a right to
counsel in the circumstances of the present case. Although it is unfortunate
that the Applicant may not have the financial resources to pay for legal
counsel in the proceedings before the Tax Court (which may indeed be complex in
nature) or in the proceedings it wishes to commence against the CRA, the rule
of law does not require the assistance of, or representation by, legal counsel
even where rights and obligations are at stake. Further, I do not agree that it
necessarily follows that, because the Applicant may not be represented by
counsel, it has been denied a right to a fair hearing. Self-represented
litigants in proceedings before the Tax Court in similar matters are common and
the mere fact that a litigant is not represented by legal counsel does not, for
that reason, amount to an unfair hearing.
[31]
Quite
apart from whether the Applicant has a right to be represented by legal counsel
in these circumstances, the Applicant is really arguing that the Minister has
some kind of obligation to vacate or postpone his security to assist the
Applicant to secure and pay legal counsel.
[32]
In
my view, no right to counsel is denied on these facts. If legal counsel will
not act for the Applicant then that is a function of counsel’s perception of
the Applicant’s financial position and common legal practice. The Applicant’s
own evidence is that there is a range of factors that have contributed to its
present financial situation. Whether or not the Minister has caused the
Applicant any unlawful financial difficulties is a matter for some future Court
to decide in any action that the Applicant decides to take. There is no
obligation on the Minister to vacate or postpone security for a tax debt to
enable the tax debtor to finance tax appeals or future action regarding the
misconduct of CRA officials, the outcome of which at this point is entirely speculative.
[33]
Mr.
Francis has opined that if he cannot secure legal counsel for the Applicant he
will conduct the appeal himself. The Applicant is simply in the same position
as any litigant who has to consider whether or not they can afford to secure
the services of legal counsel, or whether they should be self-represented.
There is no denial of legal counsel by the Minister in these circumstances. The
legal authorities brought to the Court’s attention on this issue do not support
a right to counsel in these circumstances where the action involved is a tax
appeal and/or a civil claim for damages.
General
[34]
The
Applicant’s general position appears to be that the Minister should have
vacated the lien because the Applicant needs the equity in the property to
retain legal counsel. In order to justify this position the Applicant has
alleged procedural unfairness. But there is no evidence of procedural
unfairness in these circumstances. The Assistant Director considered the
request and the reasons advanced by the Applicant. He also considered the
Minister’s own position (which was that enforcement proceedings were held in
abeyance but the debt was secured by a lien against property owned by the
Applicant) and concluded that the Minister’s position could not be protected if
the lien was removed. He did not make a decision concerning the merits of the
dispute. Nor was he required to. The merits are for some future court to decide.
Given that both sides are still required to prove their respective positions in
future court action, the Assistant Director could hardly assess the merits at
this time.
[35]
There
is no evidence that the Assistant Director did not consider the merits and procedural
issues raised in the Applicant’s request. His response simply makes clear that,
as far as the Minister is concerned, the statutory scheme and the ability to
file a lien is simply to “ensure the collection of the Goods and Services Tax
due under the Excise Tax Act” and this means that his obligation is to ensure
that “the Crown’s position is protected” in this regard.
[36]
In
my view, there is nothing in the statutory scheme to suggest that the Assistant
Director could not take this approach or that the Minister is obligated to
accommodate the Applicant, or others in a similar position, who wish to finance
appeals or civil actions they may wish to bring against CRA officials.
[37]
In
the present circumstances, the Minister has already agreed to hold enforcement
measures in abeyance pending the outcome of the appeal. But this was done on
the assumption that the Minister would create and register the lien to provide
security for whatever might be payable by the Applicant at some time in the
future.
[38]
Consequently,
the Assistant Director merely set out in his Decision what he regarded as
relevant to the decision he had to make.
[39]
Despite
the extremely able arguments of counsel for the Applicant, and notwithstanding
the unfortunate financial situation that the Applicant alleges it now faces, I
cannot find that there has been either a breach of natural justice in this
case, or that the Assistant Director’s Decision was unreasonable giving the
statutory scheme and the arrangements already struck whereby enforcement has been
held in abeyance and security taken pending the outcome of the tax appeal.
[40]
The
Applicant says that the end result is that it cannot now access the equity in
the warehouse building to finance the legal costs of the appeal and future
action it is planning against CRA. But this is a function of the general
financial situation in which the Applicant now finds itself. There is no
evidence to suggest that the Minister has encumbered the property for any other
purpose than the one contemplated by the statutory scheme, and certainly no
evidence that he has done so in order to thwart any legal action that the
Applicant may wish to take against CRA. It just so happens that, as a result of
various factors referred to in the Applicant’s materials, the Applicant is now
having difficulties in financing the legal representation it would like for the
appeal and possible further action against CRA. But this is not an uncommon
situation, and there is nothing in the statutory scheme, or in any authority
brought to my attention in this application, to support the position that, in
these circumstances, the Minister should consider lifting or postponing his
security in order to accommodate the Applicant’s litigation plans and
expectations. The Applicant has suggested no other means by which the
Minister’s interest can be protected in these circumstances. The request is
simply that the Minister forfeit his security to assist the Applicant to pay
and retain legal counsel. Given the statutory scheme and the Applicant’s
general financial situation, it is difficult to see how or why the Minister
should do this, particularly where the merits of the tax appeal and any future
legal action remain unassessed and speculative.
[41]
Tax
enforcement measures often appear unfair and draconian to people in the
Applicant’s position. But the governing legislation suggests that Parliament
intended the Minister to have the powers and the security that has been taken
in this case, even when the taxpayer objects to the conduct of the CRA and its
officials.
[42]
For
these reasons, I conclude that the Applicant’s application for judicial review
must be dismissed.
JUDGMENT
THIS COURT ORDERS AND
ADJUDGES that
1.
The
application for judicial review is dismissed with costs to the Respondent.
“James
Russell”
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