Date: 20080312
Docket: T-1506-06
Citation: 2008
FC 371
Ottawa, Ontario, March 12, 2008
PRESENT: The Honourable Justice Johanne Gauthier
BETWEEN:
GIOVANNI
ZEN
Applicant
and
THE
MINISTER OF NATIONAL REVENUE
Respondent
REASONS FOR ORDER AND ORDER
[1]
Mr. Zen
seeks judicial review of the decision of the Minister of National Revenue
denying his "fairness request" for relief under ss. 220(3.1) of the Income
Tax Act (“the Act”).
[2]
This
request is merely the latest chapter in a saga that started in the early 1980s
and which will be described in the background.
[3]
At the
beginning of the hearing, and recognizing that leave had not been sought
pursuant to Rule 302 of the Federal Courts Rules to seek relief in
respect of more than a single order, the applicant, with the consent of the respondent,
sought and obtained leave to amend the notice of application to restrict it to
the decision referred to above.
[4]
Recognizing
moreover that, at best, this decision was made or at least communicated to him
in August 2005, the applicant also asked the Court to consider his oral motion
for an extension of time to file his application in respect of this decision,
the whole on the basis of the material already filed. The Court granted
permission for the applicant to proceed with said motion on the understanding
that the respondent would be at liberty to file additional written submissions
after the hearing.
I. Background
[5]
Mr. Zen became
a director of Pacific Refineries Inc. (Pacific) in 1981. In
subsequent years the company failed to remit various payroll source deductions
and received five different assessments in that respect (three notices of
assessment were dated in 1982, one in 1983 and one in 1984).
[6]
In 1986,
the conditions set out at ss. 227.1(2) of the Act concerning directors’
liability having been fulfilled, Revenue Canada issued to Mr. Zen an assessment dated
December 8, 1986, in the amount of $103,463.32 being the amount of unpaid
deductions, interest and penalties payable by Pacific for the above-mentioned
notices of assessment.
[7]
For
various reasons, Mr. Zen’s appeal of this 1986 assessment was before the Tax
Court until 1996, when as part of a more global settlement involving other
matters, Mr. Zen agreed to discontinue his appeal. The parties filed evidence relating
to whether or not said settlement covered the future application of the
fairness package to the 1986 assessment. It is not necessary for the Court to comment
further on this, except to note that it is part of the background, and that the
parties are now in agreement that there was effectively no settlement in that
respect.
[8]
According
to the evidence filed by the applicant (the affidavit of Mr. Colin Moran), after
1986 Mr. Zen did not receive any communication from Revenue Canada in
connection with the 1986 assessment until February 2, 1999, when he received a
letter to which was attached a requirement to pay in the amount of $351,328.46
($103,463.32 plus interest since 1986).
According to the affidavit of Lynn Sherman, a collections officer with the
Canada Revenue Agency (CRA), other communications are on record: one in writing
dated May 1996 (no copy provided), and two conversations between Mr. Zen's
representatives and CRA agents in June 1996 and October 1998. In May 1996, Mr.
Zen would have been advised that the CRA was seeking payment in full
(presumably this included interest) and later, that if he wished to start a
"fairness request," with respect to the assessment, he would have to
do so in writing.
[9]
Following receipt
of the assessment of February 2, 1999, and after retrieving his old files which
were allegedly closed, Mr. Zen wrote back to the CRA on June 10, 1999, and
copied the then Minister of Revenue, the Honourable Herb Dhaliwal. In that
letter he expressed surprise and distress that the CRA was pursuing collection
on a liability which he thought had been settled more than three years earlier.
He affirmed that in his view, the Minister had committed to applying a fairness
package to his liability, and he sought an immediate review in that respect. On
July 19, 1999, Mr. Zen received a reply letter from the Honourable Herb
Dhaliwal stating that he had asked senior officials at Revenue Canada to review the matter and
provide him with a reply as soon as possible.
[10]
In his
affidavit, Mr. Moran notes that Mr. Zen did not receive a reply letter from a
senior official of Revenue Canada or from anyone at Revenue Canada until August 3, 2005, when
Ms. Sherman wrote to him claiming payment in the amount of $593,739.12. It
appears from his affidavit that Mr. Moran had until then believed that the Zen assessment
had been reviewed, and that because of its unusual history and the abnormal
manner in which Mr. Zen had been treated, Revenue Canada had decided not to pursue its claim. No
mention is made of the principal amount of $103,463.32 owed under the
assessment, or why this amount was not remitted. (In fact, it was only in
February of 2007 that the applicant actually paid this amount.)
[11]
Mr. Moran also
notes, however, that sometime after receiving the letter from the Minister, he
received a call from a woman from the Minister's office. Mr. Moran’s
recollection of this call is as follows: “She said that the "fairness
package" did not apply to the years 1985 and earlier. I said that Mr. Zen
was not assessed until 1986. It was a brief conversation." Further, it
appears from Ms. Sherman's affidavit that the person in question, Lois
Willett, was the officer responsible for dealing with mail to the Minister in
respect of accounts receivable. Ms. Sherman was informed by Ms. Willett that on
July 29, 1999, prior to speaking to Mr. Moran, she had spoken with Mr. Zen himself
in response to his letter of June 10. It is Mr. Zen who allegedly asked her to
speak to Mr. Moran.
[12]
On August
11, 2005, after her so-called warning letter of August 3, 2005, Ms. Sherman
wrote to Mr. Zen's lawyer in answer to a letter also dated August 11, 2005.
Among other things, she wrote:
A review of our records shows that Mr. Zen did make an
application under the Fairness Policy, however this application was denied as
the debt pertained to assessments on years prior to 1985. The Fairness option
only covers assessments on tax years after 1985. Mr. Zen was advised that his
application for fairness was reviewed and denied and that he should make
payment arrangements
[13]
Less than
two weeks later, on August 23, Mr. Zen was served with five notices of
requirement for information (“RFIs”) pursuant to 2.231.2(1)(a) of the Act.
.
[14]
On
September 23, 2005, Mr. Zen's lawyer responded to Mr. Sherman, stating that the
purpose of his letter was to raise a number of issues prior to commencing
proceedings in an attempt to find some common ground. On page 4 of this letter,
he notes "to date, Mr. Zen has not received a written response from
Revenue Canada or the Minister. (Unless Ms.
Sherman's letter of August 11, 2005, is to be considered the
response?)." The letter concludes at page 9 with the comment that "on
any view of the facts and the relevant law it is apparent that given the long
and tortured history of this mater (sic) Mr. Zen is deserving of some
relief. Again, prior to further protracted court proceedings being initiated,
we would be pleased to discuss these issues with you and/or your
counsel." From then on, up until the week of July 24, 2006, there were
ongoing "without prejudice" discussions between counsel for Mr. Zen
and the CRA about a resolution of the Zen assessment.
[15]
On August
2, 2006, the Minister of National Revenue filed a notice of application seeking
a compliance order with respect to the RFI’s, pursuant to ss. 231.2 of the Act
(Court File no. T-1360-06). On August 17, 2006, Mr. Zen filed his notice of
application in the present file.
[16]
In her
affidavit, Ms. Sherman indicates that in her letter to Mr. Zen's lawyer of
August 11, 2005, she was in error in stating that a review of the records
showed that Mr. Zen had made a fairness application and that his application had
been reviewed and denied. She gives the basis for her "erroneous
statement" at para. 19 of her affidavit.
II. Analysis
[17]
The legal
issues raised by the applicant's motion in this application are not
particularly complex. However, the one basic fact essential to the resolution
of both the motion and the application, that is the point in time when the
impugned decision was taken or communicated is not clear.
[18]
In fact,
the respondent even took the position that there was no fairness request and no
decision in this matter. Then it submitted in the alternative that if indeed
Mr. Zen's letter of June 10, 1999 was a proper fairness request, the Minister’s
decision was made and communicated to the applicant in July of 1999.
[19]
Although
the circular IC92-2 entitled "Guidelines for the Cancellation and Waiver
of Interest and Penalties" dated March 18, 1992, indicates at paragraph 8
that taxpayers …"can make their request by writing to the taxation centre…
or by sending their request to the district office serving their area",
and at paragraph 9 that "certain information is required", the
parties are agreed that there is no specific requirement in that respect in the
Act or the Regulations.
[20]
In the
present circumstances, and considering what needs to be decided, the Court is
prepared to work on the best possible scenario for the applicant and assume that indeed
such a request was made in 1999, as did Ms. Sherman in August 2005. When the
refusal was communicated to the applicant will be dealt with when reviewing the
explanation for the delay in filing the application.
[21]
The
principles applicable to the motion for an extension of time are well known and
they are set out in numerous decisions of this Court and the Federal Court of
Appeal. In Canada (Minister of Human Resources
Development) v. Hogervorst,
2007 FCA 41, [2007] F.C.J. No. 37 at paras. 32 and 33, Justice Gilles
Létourneau summarized them as follows:
[32] There is no dispute as to what the correct
legal test is on a motion for an extension of time to file an application for
leave to appeal: see Marshall v. Canada, [2002]
F.C.J. No. 669, 2002 FCA
172; Neis v. Baksa, [2002]
F.C.J. No. 832, 2002 FCA
230. What is required is that:
a) there was and is a
continuing intention on the part of the party presenting the motion to pursue
the appeal;
b) the subject matter
of the appeal discloses an arguable case;
c) there is a
reasonable explanation for the defaulting party's delay; and
d) there is no
prejudice to the other party in allowing the extension.
[33] This test is not in contradiction with the statement of this
Court made more than twenty (20) years ago in Grewal v. Canada (Min. of
Employment and Immigration), [1985] 2
F.C. 263 that the underlying consideration in an application to
extend time is to ensure that justice is done between the parties. The above
stated four-pronged test is a means of ensuring the fulfillment of the
underlying consideration. It ensues that an extension of time can still be granted
even if one of the criteria is not satisfied: see Grewal v. Canada, supra, at pages 278-279.
[22]
The Court
will proceed to examine the four criteria listed above in the order they were
presented at the hearing.
A. Arguable Case
[23]
In 1999,
section 220(3.1) read as follows:
220(3.1) The Minister may at any time waive or cancel all or any
portion of any penalty or interest otherwise payable under this Act by a
taxpayer or partnership and, notwithstanding subsections 152(4) to 152(5), such
assessment of the interest and penalties payable by the taxpayer or partnership
shall be made as is necessary to take into account the cancellation of the
penalty or interest.
[24]
It was
amended in 2005 by the Budget Implementation Act, 2004, No. 2, 2005,
c.19, s.48 (assented to May 13, 2005) to read as follows:
220(3.1) The Minister may, on or
before the day that is ten calendar years after the end of a taxation year of a
taxpayer (or in the case of a partnership, a fiscal period of the partnership)
or on application by the taxpayer or partnership on or before that day, waive
or cancel all or any portion of any penalty or interest otherwise payable under
this Act by the taxpayer or partnership in respect of that taxation year or
fiscal period, and notwithstanding subsections 152(4) to (5), any assessment of
the interest and penalties payable by the taxpayer or partnership shall be made
that is necessary to take into account the cancellation of the penalty or
interest.
[25]
In Montgomery
v. Canada (Minister of National
Revenue), [1994]
F.C.J. No. 624, the Federal Court held that the Minister's power to waive
interest and penalties applies to 1985 and subsequent taxation years only. This
was based on the conclusion that ss. 127(5) of S.C. 1993, c.24, An Act to
Amend the Income Tax Act, effected a limitation over what period the Minister
could exercise his discretion under s. 220(3.1).
[26]
Here, it
appears that the Minister denied Mr. Zen’s fairness request on the basis that the
assessment, although issued in 1986, related to the taxation years 1981, 1982
and 1983 (see Pacific tax assessments referred to above), and thus predated the
threshold year of 1985. This interpretation is based on the fact that pursuant
to ss. 227.1(1), Mr. Zen is and was jointly and severally liable for
Pacific's tax debt.
[27]
Because of
conditions set out in ss. 227.1(2), the collection of that debt (this includes
the issuance of a personalized tax assessment against Mr. Zen himself) was
delayed until 1986. Thus, Mr. Zen's tax debt relates to the taxation years
1981 to 1983 and the Minister denies having any authority to waive the
interest as requested.
[28]
The
applicant interprets the legislation differently. He says that ss. 227.1(1)
describes which directors are liable for a corporation's tax debt (see the
decision of Justice Marshall Rothstein in Kyte v. The Queen, 96 DTC 6050
(FCTD)), while ss. 227.1(2) sets out conditions precedent to their
liability for the company's tax debt, as it was articulated by the Tax Court of
Canada in Green v. MNR, 90 DTC 1898.
[29]
Thus, the
answer to this question ultimately turns on the interpretation of the words
"interest…payable under this Act by a taxpayer" in ss. 220(3.1).
[30]
It is
agreed that the only interest in dispute between the parties is the interest
that ran on the personal tax assessment issued in 1986. The Minister also
agrees that his power to seek interest in this case is based on ss. 227.1(1)
rather than his authority to apply penalties and interest to Pacific's own tax
assessments:
227.1(1)
Where a corporation has failed to deduct or withhold an amount as required
by subsection 135(3) or 135.1(7) or section 153 or 215, has failed to remit
such an amount or has failed to pay an amount of tax for a taxation year as
required under Part VII or VIII, the directors of the corporation at the time
the corporation was required to deduct, withhold, remit or pay the amount are
jointly and severally, or solidarily, liable, together with the corporation, to
pay that amount and any interest or penalties relating to it.
[31]
At this
stage, for the purpose of determining whether an extension should be granted and
having considered that the parties are in agreement that Kyte, above, is
the only authority relevant to this matter, I am satisfied that on this
question the applicant has a strong case.
[32]
The Court
notes that in addition to the argument discussed above, Mr. Zen also contests
the Minister’s authority to apply penalties and interest to a director’s
liability under ss. 227.1(1) of the Act. The applicant intends to raise this
argument if and when the respondent again seeks a compliance order.
[33]
The
respondent raises an additional argument based on the fact that in 2005, when ss. 220(3.1)
was amended, a new condition was added: henceforth, one could only apply for
relief before the date that is ten calendar years after the end of the taxation
year of a taxpayer, or upon application by that taxpayer on or before that
date. As the respondent maintains that no request for relief under the fairness
provisions was ever made by the applicant, it is contended that the ten year
limitation period would now preclude the granting of any such request.
[34]
While the
Court appreciates the logic of the respondent’s additional argument, it remains
the case that the applicant has made out an arguable case that he requested a
fairness review in 1999, and as mentioned above, the Court is prepared at this
point to proceed on the assumption that such a request was made.
B. Explanation for the Delay
[35]
Mr. Zen
says that if the Court indeed finds the decision of the Minister was made in
1999, it should consider that as noted in paragraphs 32 to 34 of Mr.
Moran's affidavit, he believed until August 11, 2005 that no final ruling had
been made with respect to his request and that the CRA had simply decided not
to pursue its claim.
[36]
Mr. Zen
also submits that after the refusal was communicated in August 2005 and as
indicated in the letter of his counsel dated September 23, 2005, he clearly
intended to contest the Minister's decision and to commence judicial proceedings
if necessary. However, given the history of the file, it was only reasonable
for him to first attempt to negotiate a settlement of the matter.
[37]
As
indicated in Mr. Moran's affidavit, said negotiations were carried through
until the summer of 2006, and although there are no details as to why an
application was not immediately filed after negotiations were concluded, the
applicant says that in view of the timing and sequence of events, one may conclude
that as soon as possible thereafter he filed his application for judicial
review.
[38]
The Court
does not find reasonable or even plausible the applicant’s explanation that he
thought Revenue Canada had decided not to pursue its claim, given the actual
tenor and content of his communications with the CRA since 1996, and given that
he hadn’t even remitted the principal owing under the 1986 assessment, which
would not be covered by a fairness request in any event. The fact is that even
if the Court were to conclude that the decision was communicated as final in
2005, it cannot ignore that both Mr. Zen and Mr. Moran were first notified that
there was a problem with respect to the application of the fairness package in
July of 1999. If at that time Mr. Zen could have assumed that this stemmed from
a misunderstanding as to the taxation years covered by the assessment, this was
no longer the case in 2005, when it was clear that the decision was not based
on a misunderstanding and had not changed since 1999. By that time,
Mr. Moran had clearly indicated that in his view, the assessment was for
the year 1986 and not the years 1981 to 1984.
[39]
Moreover,
it is clear that at all times Mr. Zen had the benefit of advisers and legal
counsel. As such, he could not ignore or ought not to have ignored the
strict time limits applicable to the filing of an application for judicial
review. In this regard, the Court notes that the mere existence of negotiations
between the parties does not by itself operate the suspension of time
limitations. As it was stated by Justice John Evans in Eli Lilly and Co. v.
Abbott Laboratories, [1999] F.C.J. No. 466, at para. 12. “Experienced counsel understand
that settlement discussions may be protracted and that meanwhile they have to
keep limitation periods in mind.”
Even it was made
in an admittedly different context, the comment is apt here, where it appears
to the Court that the applicant pursued settlement negotiations for an
inordinate length of time, and failed to appreciate that the short window for
seeking judicial review or an extension of time would not remain open
indefinitely. There is no explanation as to why a notice of application could
not have been filed at least to stop the clock, if not to show the seriousness
of his position.
[40]
It is the
respondent’s position that at the very least, the applicant’s inaction between
1999 and 2005 reveals a failure to pursue the matter diligently. The
Court cannot disagree that the applicant’s attitude after August 2005 is
coloured by his prior lack of diligence in handling the matter.
[41]
In light
of the above, the Court concludes that the applicant has failed to set out a
satisfactory explanation for his delay in instituting the present proceeding.
C. Intention to Pursue his Rights through Judicial Review
[42]
There is
no affidavit from Mr. Zen himself in the record. Instead, the applicant filed
an affidavit from his tax counsel with respect to the proceeding before the Tax
Court between 1987 and 1996. He also filed an affidavit from Mr. Moran who
worked with him for more than 25 years as a close adviser, particularly in
matters involving the review of complicated documents and correspondence. In
fact, because Mr. Zen has some difficulty reading English material, Mr. Moran
attests that he personally read all of the correspondence and documentation
relevant to this matter and that all correspondence signed by Mr. Zen would
have been written and reviewed with him before being signed.
[43]
Although
Mr. Moran does not specifically attest that Mr. Zen had the intention to seek
judicial review of the decision of the Minister at all times after its
communication to him, the applicant submits that it is apparent from his
general behaviour throughout the history of this file and particularly from the
letter of his counsel dated September 23 2005, that he was at all times resolved
to contest any refusal on the part of the Minister and to institute appropriate
legal proceedings if need be.
[44]
The
evidence in this respect is certainly tenuous. Although it is evident that throughout
the history of this file, the applicant opposed any attempt by the CRA to
collect this debt, he did very little to actively pursue the
recognition of his rights. In fact, it appears that it was only when the
Minister again moved to collect the debt by filing an application for the
issuance of a compliance order that the applicant indeed went ahead and filed
his own notice of application.
[45]
Having
considered the history of the file, the Court is not satisfied that Mr. Zen has
demonstrated a continuing intention to seek judicial review. Rather, it
appears to the Court that although he was at the very least alert as of 1999 to
a problem in the application of the fairness package, for close to seven years he
did little more than cross his fingers and hope this matter would go away, along
with the claim for the principal amount of $103, 463.32. This falls somewhat
short of behaviour consistent with a continuing intention to assert one’s
rights.
D. Prejudice
[46]
There is
no evidence of an actual prejudice to the respondent other than the fact that
it would be deprived of the benefit of the time limitation set out in ss.
18.1(2) of the Federal Courts Act, S.C. 1990 c. 8, s. 5; S.C. 2002 c. 8,
s. 27. (Berhard v. Canada, 2005 F.C.J. No. 1302, at para.
60)
[47]
The
applicant argues that even if he does not meet all of the criteria for an extension,
because of the strength of his case, it is nonetheless clearly in the interest
of justice that he be granted an extension. He cites the recent decisions of
this Court in Metlakatla
Indian Band v. Canada (Attorney General), [2007] F.C. 553 and Tzeachten First Nation
v. Canada (Attorney General), [2007] F.C. 1131 in support of
this argument.
[48]
The Court
notes that in both of those cases, the underlying applications involved the
determination of constitutionally guaranteed aboriginal rights. In both cases,
Justice François Lemieux considered that this was a relevant consideration with
respect to the opportunity of granting an extension, especially where the
Crown’s duty to consult is understood as ongoing and case-specific (Metlakatla
Indian Band, para. 50; Tzeachten, para. 48).
[49]
As it was
stated by the Federal Court of Appeal in Stanfield v. Canada, 2005 FCA
107, at para. 3, on a motion for an extension of time, the weight to be given
to any one factor will vary with the circumstances of the case. Unfortunately
for the applicant, the Court does not consider that the circumstances of the
present case are in any way comparable to those of Metlakatla Indian Band or
Tzeachten. Simply put, there is little in the way of analogy to be
drawn between the two cases cited by the applicant and the present matter.
[50]
As
mentioned at the outset, the four-pronged test was developed to help the Court
determine what would best ensure that justice be done between the parties in a
given case.
[51]
Here,
counsel for the applicant have done an excellent job of casting Mr. Zen’s delay
in the best possible light and have made out what appears to be a strong case
on the merits, or some aspect of them.
[52]
However,
the time limit for bringing an application for judicial review was not intended
to capture only “weak” cases. As noted by Justice Gilles Létourneau in Berhad,
above, at para. 60, this 30-day limit is not whimsical. It brings finality
to administrative decisions and ensures their effective implementation.
[53]
Accordingly,
and having carefully considered all of the circumstances of this case,
including the nature of the right at issue, the Court finds that the extension
should not be granted. That the applicant appears to have a strong case on the
merits is not enough to tilt the scales in his favour here.
[54]
Having
dismissed the motion for an extension of the time to file this application, the
application must also be dismissed.
ORDER
THIS COURT ORDERS that:
The motion for an extension of the time to file this
application and the application are dismissed with costs.
“Johanne Gauthier”
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