[Corrected title] CBS – Federal Court of Appeal finds that Galway did not permit the Crown to resile from a settlement agreement negotiated in good faith

The Justice Department entered into a settlement agreement with the taxpayer in which it agreed to permit the taxpayer to carryforward an agreed portion of a $23.4M non-capital loss – and then promptly sought to repudiate the agreement on the basis that CRA had discovered that the non-capital loss in question did not exist, so that implementing the settlement would be contrary to law, which Galway said was bad. In affirming the decision below that the Crown was bound by the settlement agreement, Woods JA stated:

Galway does not address the circumstances in which one party seeks to resile from an agreement.

Second, the parties in this case intended to enter into an agreement that applied the law to the facts. The agreement was not intended to be a compromise settlement of the type considered in Galway.

Third, the Crown does not suggest that the defect within the settlement agreement is self-evident to the Court as it was in Galway. …

The general rule is that parties should be bound by the agreements that they make.

She also found that a Tax Court order implementing a provision in the settlement agreement that tax was to be increased in a subsequent year did not violate the Last principle that the Crown was not permitted to appeal its own reassessment.

Neal Armstrong. Summaries of CBS Canada Holdings Co., 2020 FCA 4 under s. 169(3) and s. 171(1)(b).