[1] This is an appeal by Her Majesty the Queen against a decision of the Tax Court of Canada whereby a judge of the Tax Court assumed an inherent jurisdiction to set aside, on the basis of erroneous advice, the dismissal of an appeal pursuant to the filing of a notice of discontinuance. Since the rendering of that decision, this Court has ruled in Attorney General of Canada v. Scarola, 2003 FCA 157, that no such inherent jurisdiction exists in view of subsection 16.2(2) of the Tax Court of Canada Act, R.S.C. 1985, c. T-2 as amended (Act) which reads:

16.2 (1) A party who instituted a proceeding in the Court may, at any time, discontinue that proceeding by written notice.

(2) Where a proceeding is discontinued under subsection (1), it is deemed to be dismissed as of the day on which the Court receives the written notice.

16.2 (1) La partie qui a engagé une procédure devant la Cour peut en tout temps s'en désister par avis écrit.

(2) Le désistement équivaut au rejet de la procédure en cause à la date à laquelle la Cour reçoit l'avis de désistement.

(My emphasis)

[2] The issues before us now are whether the ruling in Scarola applies to the facts of this case, which involves a secondary liability assessment pursuant to section 160 of the Income Tax Act and, if Scarola does apply, whether the respondent can invoke the remedial powers given to a Tax Court judge under Rule 172 of the Tax Court of Canada Rules (General Procedure) (Rules) to set aside a judgment:

Setting Aside, Varying or Amending Accidental Errors in Judgments - General

172. (1) A judgment that,

(a) contains an error arising from an accidental slip or omission, or

(b) requires amendment in any matter on which the Court did not adjudicate,

may be amended by the Court on application or of its own motion.

(2) A party who seeks to,

(a) have a judgment set aside or varied on the ground of fraud or of facts arising or discovered after it was made,

(b) suspend the operation of a judgment, or

Annulation ou modification de jugements en raison d'erreurs - Général

172. (1) Le jugement qui :

a) comporte une erreur découlant d'un lapsus ou d'une omission;

b) doit être modifié relativement à une question sur laquelle la Cour n'a pas statué,

peut être modifié par la Cour, sur demande ou de son propre chef.

(2) Une partie peut demander, par voie de requête dans l'instance, selon le cas :

a) l'annulation ou la modification d'un jugement en raison d'une fraude ou de faits survenus ou découverts après qu'il a été rendu;

b) un sursis d'exécution d'un jugement;c) une mesure de redressement différente de celle qui a déjà été accordée.

(My emphasis)

Facts and Procedure

[3] The following facts are not in dispute. The respondent's husband had been assessed for taxes in an amount substantially in excess of the sum of $130,000. In 1988, he transferred to the respondent title to a property for consideration of $1.00 and other good and valuable consideration.

[4] By notice of assessment dated October 10, 1991, the Minister of National Revenue (Minister) assessed the respondent for the sum of $130,000 with respect to the property transferred to her by her husband. The Minister relied upon section 160 whose object, this Court said in Medland v. Canada, A-18-97, at paragraph 14, "is to prevent a taxpayer from transferring his property to his spouse in order to thwart the Minister's efforts to collect the money which is owed to him".

[5] On April 15, 1994, the respondent filed a notice of appeal in the Tax Court against her assessment. In or about March 1996, her husband filed with Revenue Canada a proposal to settle all outstanding tax matters. The respondent's appeal was scheduled to be heard on May 2, 1996, but was adjourned at her request to September 5, 1996. After being told by her husband that he had settled his tax liability with Revenue Canada and believing that she was herself therefore no longer liable to Revenue Canada, on August 29, 1996, the respondent informed the Tax Court through her counsel that she was abandoning her appeal.

[6] However, the negotiations between Revenue Canada and her husband were not finalized yet, let alone payment made of the sums owed. The negotiations were finalized on March 26, 1997. By an agreement entered into on that date, the respondent's husband undertook to pay $1.1 million over a one-year period, in four equal payments, in satisfaction of his tax liability. He made only two payments totalling $550,000.

[7] On January 26, 1999, Revenue Canada wrote to the respondent demanding payment of the amount she had been assessed for under subsection 160(1) of the Income Tax Act on October 10, 1991. The total owed now was $249,920.81.

[8] On May 14, 1999, the respondent requested from the Tax Court that her discontinued tax appeal be reinstated. The matter was adjourned while the parties attempted to reach a settlement. On May 25, 2000, the respondent filed a motion with the Tax Court of Canada seeking an order reinstating her appeal introduced by Notice of Appeal on April 14, 1994. Her motion was allowed on December 7, 2000. Hence, the appeal against that decision.

The Tax Court Decision

[9] The Tax Court judge assumed that he possessed an inherent jurisdiction to reinstate an appeal that had been abandoned by error. He distinguished the decision of this Court in Bogie v. Her Majesty the Queen, 98 D.T.C. 6679 where, without deciding whether the Tax Court possessed the inherent jurisdiction claimed, Robertson J.A., for the Court, found that the taxpayer could not distance himself from the erroneous advice given by his accountant. Robertson J.A. also dismissed the taxpayer's argument that he could not have discovered the true state of his affairs through the exercise of due diligence.

[10] The Tax Court judge distinguished the Bogie case on the basis that that case involved a direct assessment of the taxpayer, not, as in the present instance, a secondary liability assessment. He was also of the view that the respondent (appellant before the Tax Court) could not be required to engage in an exercise of due diligence. At paragraphs 11 and 12, he provided the rationale for his finding:

[11] ... In this case, the Appellant earnestly believed the information given to her by her husband who obviously believed it to be accurate. It was not a mere matter of easily discernible technical fact. The whole concept of spousal trust² demolishes any suggestion that the Appellant should have challenged either her husband or his account by pursuing the "exercise of due diligence". She simply accepted, as valid, her husband's information that his tax matters had been resolved and she acted on same. In any event, there was no evidence that the Appellant's counsel was counsel for her husband. Therefore, neither she nor her counsel had any entitlement to receive any information from Revenue Canada.

[12] The Appellant was not the taxpayer whose actions had given rise to an assessment of primary liability for tax. She would have no way of knowing about that taxpayer's affairs other than by receiving information from him. She was assessed for secondary, vicarious liability based on an extremely unusual and far-reaching provision of the Act. Her right to pursue an appeal should not be neutered by due diligence quest which would effectively require her to question the veracity of her own husband.

[11] With respect, I believe that the learned Tax Court judge had no valid reasons to distinguish the Bogie case. However, before I address this matter, I need to say a word about the finding of this Court in Scarola, supra, and establish the legal context in which this issue of reinstatement of a discontinued appeal now arises.

The decision of this Court in Scarola

[12] In Scarola, this Court was faced with an identical issue as that raised by the present appeal. On February 20, 2001, the appellant, through counsel, informed the Tax Court that he was abandoning his appeal. Pursuant to subsection 16.2(2) of the Act, the Registry deemed the appeal dismissed in a letter sent to the appellant on February 21, 2001. On August 28, 2001, he made a motion to have his appeal reinstated. On April 15, 2002, the Tax Court judge who heard the motion relied upon the doctrine of inherent jurisdiction to set aside the notice of discontinuance and reinstate the appeal.

[13] On appeal against that decision, this Court concluded that, as a result of the deeming clause in subsection 16.2(2) of the Act, an appeal discontinued pursuant to that subsection is an appeal dismissed, an appeal dismissed is an appeal disposed of, and an appeal disposed of is an appeal that no longer exists. Paragraph 21 of the reasons for decision reads:

An appeal discontinued is, pursuant to subsection 16.2(2), an appeal dismissed. An appeal dismissed is an appeal disposed of, and an appeal which has been disposed of no longer exists: see Lehner v. M.N.R., 97 D.T.C. 5270, at page 5271 per Pratte J.A. (F.C.A.). Subsection 16.2(2) operates to turn the filing of a discontinuance into a constructive dismissal akin to an actual dismissal. In other words, the discontinuance of an appeal, as a result of that subsection, takes on all of the properties of a dismissal. It produces the same effect as a judgment of dismissal by the Court, albeit that effect is obtained by sheer operation of the legal fiction. In either case, the powers of the Court are spent: the decision maker is functus officio. A dismissal, deemed or actual, is a final determination which closes the matter, barring some vitiating circumstances such as fraud or some statutory authority allowing the decision maker to retain or recapture the lost authority.

[14] Indeed, the use of the word "équivaut" in the French version of subsection 16.2(2) makes it clear and unequivocal that the discontinuance of an appeal is a dismissal of that appeal. The word "équivaloir" means "valoir autant", "être de même valeur" (to be of the same value), "qui a la même valeur ou fonction" (which has the same value or function): see Le Nouveau Petit Robert, Dictionnaire de la langue française, 1993, page 903. It has a conclusive meaning, one that is more definitive than the words "réputé" or "présumé" which merely create a presumption and, therefore, beg the question as to whether that presumption is rebuttable or not. The word "équivaut" imposes a meaning and does not simply raise a rebuttable presumption.

[15] This Court also ruled in Scarola that the statutory dismissal under subsection 16.2(2) has the same effect as a judgment of dismissal by the Court and ought to be treated as a judgment of dismissal rendered by the Court to which Rule 172 of the Rules would apply. In so doing, the Court wanted these statutory dismissals to be the subject of the limited remedial powers contained in Rule 172: see paragraph 25 of the decision.

[16] Finally, this Court found that section 16.2, by its plain meaning, had taken away any inherent or residual jurisdiction in the Tax Court to allow for withdrawals of notices of discontinuance: see paragraph 27 of the decision.

Analysis of the Tax Court decision

[17] The findings in Scalora apply to the facts of this case. The only question that remains to be decided is whether the remedial powers of Rule 172 provided the Tax Court judge with the statutory authority to set aside the judgment of dismissal.

[18] The only relevant part of the Rule is paragraph (2)(a). Under that paragraph, a judgment of dismissal can be set aside if it was obtained by fraud or on the basis of facts that arose or were discovered after the judgment was rendered.

[19] No allegation of fraud was made by the respondent in the present case. She still lives with her husband. The respondent alleges her own mistake with respect to her husband's tax liability as the fact which led to the dismissal of her appeal. That was obviously not a fact arising after the judgment. Furthermore, it was not, in my view, a fact that could not have been discovered sooner with reasonable or due diligence: Saywack v. Canada (M.E.I.), [1986] 3 F.C. 189, at page 201; Bogie, supra.

[20] With respect, the Tax Court judge focussed on the wrong question when assessing whether the respondent had acted with due diligence. The question was not, as he put it, whether she acted or could have acted with due diligence in ascertaining the state of affairs regarding her husband's tax liability. I agree with the Tax Court judge that this may be difficult to achieve in view of section 241 of the Income Tax Act which prohibits generally the disclosure of taxpayer information to another person. Rather, the question was whether the respondent, with reasonable or due diligence, could have ascertained the state of her own affairs with respect to her own tax liability. She had been reassessed by the Minister and was opposing that reassessment. She or her counsel needed only to contact Revenue Canada to obtain an update on her tax liability and the position taken by Revenue Canada in that respect. It should be recalled that the pleadings were completed and that the matter was scheduled for a hearing when she instructed her counsel to file a notice of discontinuance. The least I can say is that she was negligent in not verifying the other party's position. Had she done that, prior to filing the notice of discontinuance, she would have learned that Revenue Canada's assessment of her tax liability and its claim for the amount due were still outstanding.

[21] For these reasons, I would allow the appeal with costs, set aside the decision of the Tax Court of Canada and restore the deemed dismissal of the respondent's appeal.

"Gilles Létourneau"

J.A.

"I agree

John M. Evans J.A."

DÉCARY J.A.(concurring)

[22] I agree with my colleague Létourneau J.A. that this appeal should be allowed, but I do so for slightly different reasons.

[23] Whether the Tax Court Judge, in allowing the respondent's motion to reinstate her appeal, was acting on the basis of what he believed was his inherent jurisdiction or on the basis of a statutory jurisdiction - as is now the case since the decision of this Court in Attorney General of Canada v. Scarola, 2003 FCA 157 - is of little consequence if, in exercising his discretion, he applied the principles applicable to motions made under Rule 172 of the Tax Court of Canada Rules.

[24] The Tax Court Judge did not err, in my view, when he distinguished Bogie v. Her Majesty the Queen, 98 D.T.C. 6679, on the basis that it involved a direct assessment of the taxpayer as opposed to a secondary liability assessment. The discretion should be exercised more liberally in favour of the taxpayer when what is at issue is an assessment for secondary liability under section 160 of the Income Tax Act, a provision which the Tax Court Judge described as "extremely unusual and far-reaching", a description consistent with the decision of this Court in Gaucher v. Canada (2000), 264 N.R. 369 (F.C.A.). Facts pertaining to the primary liability are not necessarily, if at all, within the knowledge of the taxpayer who is not the taxpayer whose actions have given rise to the assessment in the first place. Where the "secondary" taxpayer discontinues an appeal with respect to her own liability on the basis of information she receives from the "primary" taxpayer, the eventual discovery that the information given was erroneous may well be, in some circumstances, sufficient to permit the re-opening of the file under Rule 172(2). As long as the primary liability remains an issue and is alive in the Court system - a fact which is admitted in this case - the "finality of decisions and efficiency of the administration of justice" (the two fundamental concerns identified in Scarola, at para. 13) are much less at risk.

[25] That being said, the Tax Court Judge nevertheless committed an error of principle when he stated, at para. 11 of his reasons, that

The whole concept of spousal trust demolishes any suggestion that the Appellant should have challenged either her husband or his accountant by pursuing the "exercise of due diligence".

[26] The exercise of due diligence is the main factor that comes into play when a party alleges facts that arose or were discovered after judgment was rendered. That factor cannot be disregarded on the basis of the relationship that exists between two taxpayers. It has to be considered, albeit, in my view, in a more understanding way.

[27] In the circumstances, this Court is called upon to exercise itself the discretion the Tax Court Judge has exercised in a non-judicial manner. Due diligence requires more than relying on one's husband's statements or on one's mere belief that a matter has been settled.

[28] I would dispose of this appeal in the same way as my colleague.

"Robert Décary"

J.A.

FEDERAL COURT OF APPEAL

NAMES OF COUNSEL AND SOLICITORS OF RECORD

DOCKET: A-796-00

(Appellant appeals the Order of Bell, J. Of the Tax Court of Canada dated December 7^th, 2000; number 94-1068(IT)G )

STYLE OF CAUSE: Her Majesty the Queen v. Leslie Ann Rutledge

PLACE OF HEARING: Vancouver, B.C.

DATE OF HEARING: February 26, 2004

REASONS FOR JUDGMENT: LÉTOURNEAU J.A.

CONCURRED IN BY: EVANS J.A.

CONCURRING REASONS BY: DÉCARY J.A.

DATED: March 4, 2004

APPEARANCES:

Frank Quo Vadis

FOR THE APPELLANT

Linda Bell

FOR THE RESPONDENT

SOLICITORS OF RECORD:

Koffman Kalef

Vancouver, B.C.

FOR THE APPELLANT

Morris Rosenberg

Deputy Attorney General of Canada

FOR THE RESPONDENT

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Canada v. Rutledge, 2004 FCA 88

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2004 FCA 88