Greenfield Mining Services Inc. v. Agence du revenu du Québec, 2020 QCCQ 2869

The appellant (“Greenfield”) entered into a services contract with a junior Quebec mining company (“CRI”) to assist it in developing a nickel deposit. CRI started experiencing financial difficulties as a result of poor project management decisions by it and a low price of nickel, and Greenfield sued CRI for unpaid fees of around $15 million. After 30 months of unfruitful legal proceedings (reflecting successful tactics of CRI’s counsel) and incurring over $1 million in legal fees, Greenfield agreed to settle its action by agreeing to receive $7 million in instalments over a two-year period.

Greenfield then wrote down the receivable on its books accordingly, and claimed a credit under the Quebec equivalent of ETA s. 231 based on that part of the receivable having become a bad debt, which the ARQ was prepared to grant until it took the view that Greenfield should have issued a credit note to CRA for the reduction in the fee amount which, once done, would have given the ARQ the right to receive a refund of the applicable portion of the input tax refunds that had been claimed by CRI under the Quebec equivalent of ETA s. 232(3)(c).

After reviewing this evidence, Zaor JCQ found (at para. 68, TaxInterpretations translation) that (as per Rich at para. 15) Greenfield had made “an honest and reasonable” assessment that it would not “recover anything more than the $7 million dollars as agreed” and that a subsequent amendment of the settlement agreement with CRI was merely to achieve a catch-up for arrears by CRI in paying the agreed $7 million in instalments, rather than being an indication that recovery efforts by Greenfield were still ongoing.

She indicated that these findings were sufficient to allow Greenfield’s appeal, and noted (at para. 89) that “the Court cannot order CRI to repay excess amounts claimed as inputs”.

Greenfield sued a junior Quebec mining company (“CRI”) for unpaid fees of around $15 million and, after 30 months of unfruitful legal proceedings and incurring over $1 million in legal fees, settled its action by agreeing to receive $7 million in instalments over a two-year period.

Greenfield then wrote down the receivable on its books accordingly, and claimed a credit under the Quebec equivalent of ETA s. 231 based on that write-down amount - which the ARQ was prepared to grant until it took the view that Greenfield should have issued a credit note to CRI for the reduction in the fee amount which, once done, would have given the ARQ the right under the Quebec equivalent of ETA s. 232(3)(c) to receive a refund of the applicable portion of the input tax refunds that had been claimed by CRI.

Zaor JCQ found that (as per the Rich test) Greenfield had made “an honest and reasonable” assessment that it would not recover anything more than the $7 million, and that this finding was sufficient to allow Greenfield’s appeal, so that she did not have to consider the s. 232 credit note rules - and noted (at para. 89, TaxInterpretations translation) that “the Court cannot order CRI to repay excess amounts claimed as inputs”.