2017 FCA 39
NAVIGATION CO. LTD.
HER MAJESTY THE
Canadian Forest Navigation Co. Ltd. (the
appellant or CFN) appeals the Tax Court of Canada (TCC) Associate Chief Justice
Lamarre’s (the Associate Chief Justice) decision dated February 12, 2016
(2016 TCC 43) pursuant to Rule 58 of the Tax Court of Canada Rules
(General Procedure), SOR/90-688a (TCC Rules). The Associate Chief Justice
found that two foreign orders, which rectified resolutions that initially
declared dividends to the appellant to be loans, did not bind the Minister of
National Revenue (the Minister) because the foreign orders were not homologated
by a competent tribunal in the province of Quebec.
The facts before the TCC were the subject of an
agreed statement of facts. The relevant facts are as follows.
The appellant is a Canadian controlled private
corporation with its head office in Montréal. Prior to the relevant period, its
primary business was operating ships for “transporting goods in international
traffic”, though it no longer exercised those activities during the relevant
The appellant incorporated affiliate
corporations in Cyprus and Barbados in 2000 and 2004 respectively (Foreign
Affiliates). The appellant was the sole shareholder in both companies.
In 2005 and 2006, the Foreign Affiliates,
through resolutions by their respective boards of directors, issued a series of
dividends to the appellant totalling approximately $250 million (CDN). Both
Foreign Affiliates’ boards of directors were composed of the same entities who
own the appellant.
The appellant declared these transfers as
dividends. It claimed corresponding deductions under paragraph 113(1)(a)
of the Income Tax Act, R.S.C., 1985, c. 1 (5th Supp.) (ITA).
On June 22, 2010, the Barbadian Foreign
Affiliate filed an Application for Rectification in the Supreme Court of
Barbados in the High Court of Justice. It requested the Court retroactively
rectify the corporate resolutions authorizing the dividend payments to the
appellant, transforming them into resolutions noting indebtedness in the
Foreign Affiliate’s favour. The application was heard on August 5, 2010 and
granted on August 13, 2010. The Cypriot Foreign Affiliate also undertook and
was successful in similar proceedings in early 2011. Its application was
granted on March 28, 2011. In both proceedings, the appellant was named as
defendant, was represented by the same lawyers as its Foreign Affiliates, and
consented to the relief sought. Although the Minister was not given notice of
these proceedings, the appellant informed the Minister of the outcome subsequent
to each proceeding.
By notice of reassessment dated December 29,
2010, the Minister reassessed the appellant for the 2005 and 2006 taxation
years. The Minister disallowed the deductions claimed under paragraph 113(1)(a)
of the ITA. The appellant objected on March 28, 2011 on the basis that the
Minister erred in treating the sums in issue as dividends.
The Minister modified its reassessment by notice
dated July 29, 2011, but did not reverse her decision to disallow the claimed
deductions. The appellant filed a notice of objection to this reassessment as
well on October 25, 2011.
On October 2, 2012, the appellant filed a Notice
of Appeal with the TCC. On March 6, 2014, the TCC ordered the appeal held in
abeyance so the Court may first determine the question of law posed by the
appellant (on consent) pursuant to Rule 58 of the TCC Rules. The question was
framed as follows:
Is the Minister required to not treat the
transfers as dividends, or to not take the position that the transfers are
dividends in this [a]ppeal, by virtue of the foreign rectification orders, but
rather to treat the transfers as resulting in indebtedness by the [a]ppellant
to the foreign affiliates in the amount of the transfers?
The Associate Chief Justice answered the
question in the negative. She noted that the only Canadian province with which
the appellant shares a nexus is the province of Quebec and thus the Civil Code
of Québec, CQLR c. CCQ-1991 (C.c.Q.) was relevant to the matter.
The Associate Chief Justice explained that
rectification orders do not issue as a matter of course in Canada, and further
observed that rectification is narrower under civil law than common law. The
Associate Chief Justice acknowledged that pursuant to article 2822 C.c.Q., a
foreign judgment constitutes a fact which domestic courts cannot ignore, even
if the judgment is not homologated. However, the Associate Chief Justice
reasoned that homologation was required to render the judgment enforceable in Quebec
under article 3155 C.c.Q. and concluded that the appellant would have to
homologate the foreign judgments for them to bind the Minister (Associate Chief
Justice’s decision at paras. 9-10).
The relevant article of the C.c.Q. for the
purpose of this appeal is article 2822:
2822. An act purporting to be issued
by a competent foreign public officer makes proof of its content against all
persons and neither the quality nor the signature of the officer need be proved.
2822. L’acte qui émane apparemment d’un
officier public étranger compétent fait preuve, à l’égard de tous, de son
contenu, sans qu’il soit nécessaire de prouver la qualité ni la signature de
Similarly, a copy of a document of which the foreign public
officer is the depositary makes proof of its conformity to the original
against all persons and substitutes for the original, if it purports to be
issued by that officer.
De même, la copie
d’un document dont l’officier public étranger est dépositaire fait preuve, à
l’égard de tous, de sa conformité à l’original et supplée à ce dernier, si
elle émane apparemment de cet officier.
Essentially, the appellant argues that pursuant
to article 2822 C.c.Q.: (i) foreign judgments are facts that cannot be
disregarded; and (ii) foreign judgments have direct effects that the Minister cannot
ignore in assessing CFN.
On the first point, I agree with the appellant
that foreign judgments must be taken as facts, even in the absence of
homologation. Indeed, pursuant to article 2822 C.c.Q. “[a]n
act purporting to be issued by a competent foreign public officer makes proof
of its content against all persons …”. As such, factual findings
contained within those judgments are facts that cannot be disregarded by a Court.
The appellant’s submission is also supported by
the author Henri Kélada. In Reconnaissance et
exécution des jugements étrangers (Cowansville: Éditions Yvon Blais, 2013) at
p. 37, Mr. Kélada clearly states that foreign judgments are facts that Quebec Courts
A foreign decision constitutes a fact whose
effects cannot be ignored by Quebec courts, even in the absence of an
As an instrument, a foreign judgment can
also be used as evidence (art. 2822 C.C.Q.). A Quebec judge will be required to
consider the fact that the foreign judgment has been rendered.
Hence, both orders from Barbados and Cyprus are
proof that the corporate resolutions have been rectified to authorize the
dividend payments and to transform them into indebtedness, no more, no less.
Moreover, since these foreign orders involve the
appellant and its Foreign Affiliates and not the Minister, a third-party to the
foreign proceedings, there is nothing to enforce against the Minister; homologation
is therefore a non-issue. It follows that on the basis of the record, I cannot
endorse the Associate Chief Justice’s reasoning on homologation as it was not
pertinent to decide this matter.
However, I cannot agree with the appellant on
the second point, namely that pursuant to article 2822 C.c.Q. these foreign
orders are dispositive and that the Minister has no choice under the ITA but to
accept the dividends are actually loans because the orders from Barbados and
Cyprus say so.
In the end, what remains to be determined is the
foreign orders’ effect vis-à-vis the Minister. The answer will necessarily
depend on the evidence adduced by the parties, and the weight ascribed to the
foreign orders as facts pursuant to article 2822 C.c.Q. These determinations
are for the Tax Court judge to make, with a full evidentiary record at his or
Therefore, it does not appear as though the
answer given by the Associate Chief Justice to the question pursuant to Rule 58
of the TCC Rules will resolve anything in the context of the underlying
appeal. Instead, the answer can best be provided by the Tax Court judge. On
the basis of all the evidence adduced by the parties, the Associate Chief
Justice should not have answered the question.
For these reasons, I would allow the appeal, set
aside the judgment of the TCC and decline to answer the question under Rule 58.
I would also dismiss the Rule 58 motion before the TCC.
The parties should assume their respective costs
in this appeal and in the TCC.
Johanne Gauthier J.A.”