Minister of National Revenue v. Chrysler Canada Ltd., John Phaneuf, Norman Beaudoin, Leonard Bourque, Simon Bolohan, Russell Peterson, Steve Horvath, William Bridgeman and Louis Bulat, [1992] 1 CTC 61, 92 DTC 6061

Strayer, J.:—This motion arises out of my reasons for judgment delivered after trial of an application by the Minister of National Revenue under section 174 of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act"), requesting a determination of the following question:

Whether the Chrysler Employee Stock Ownership Plan was

(a) an“ "employee benefit plan" as defined in subsection 248(1) of the Act, and referred to in paragraph 6(1)(g), or

(b) an agreement to sell or issue shares to employees within the meaning of section 7.

It will be seen that the question was predicated on the assumption that the Employee Stock Ownership Plan (ESOP) fell either within subsection 248(1) or section 7 of the Income Tax Act. It will also be noted that the question did not call for a determination by the Court as to the income tax consequences of the ESOP being found to be in one section or the other.

In my reasons for judgment I came to the conclusion that the ESOP fell within both sections and therefore the question could not be answered in the form in which it was put. As I had heard no argument as to whether, should such a finding be made, one section would have priority over another, I was unable to provide a response which could be of more assistance to the parties. I requested counsel to agree on a form of judgment if they could, said I would hear more argument if all parties agreed that I should, and otherwise left it to the parties to address the Court.

It appears that there was no agreement among counsel as to what issues, if any, should be the subject of further hearing by the Court. After informal consultations between counsel and the Court, counsel for the Minister made this application seeking either a direction that he was entitled to amend the original "pleading" (the Minister's Application under section 174) without the need for consent, pursuant to Rule 421(1), or if consent were needed, he sought such consent pursuant to Rule 420(1). He sought to have the original application amended as follows:

1A. In the event that the Chrysler Employee Stock Ownership Plan is held to be both an employee benefit plan and an agreement to sell or issue shares to employees, or in the event that it is found to be neither an employee benefit plan nor an agreement to sell or issue shares to employees, the Minister requests a determination of the following questions:

(a) What are the income tax consequences to the respondent Chrysler Canada concerning the reimbursements it made to Chrysler in respect of the Chrysler shares contributed by Chrysler to the Trust for the benefit of Chrysler Canada employees? (See paragraphs 4(a), 4(g) and 4(q)).

(b) What are the income tax consequences to the respondent Employees concerning the Chrysler shares which Chrysler contributed to the Trust and which the Trustee distributed to the Employees? (See paragraphs 4(b), 4(f), 4(l) and 4(r)).

(c) If there is a potential conflict between the provisions of paragraph 6(1)(g) and section 7 of the Income Tax Act, which has priority over the other in the taxation of the benefits received by the Employees?

After hearing counsel for the Minister as to the possibilities of an amendment under Rule 421(1) without consent, I concluded that such an amendment was not possible. While an application under section 174 of the Income Tax Act is not an "action" and therefore neither Rules 420 nor 421 apply literally, I sought to apply them by analogy on the basis of the inherent power of the Court to control its own procedure or on the basis of Rule 327 which permits the Court to apply to a motion some or all of the rules for trial of an action. Applying Rule 421(1) by analogy, it will be noted that Rule only allows amendments without consent to a pleading “before any other party has pleaded thereto". While strictly speaking there were no pleadings in this case because the Minister's application was not in respect of an action, and there was no document filed in response to it, I took Rule 421(1) to mean at the very least that where the issues have been defined and joined by the parties then there is no longer a right to amend the initiating document without consent. In the present case it was my view that the issues were conclusively defined and joined by the parties making a joint application on December 11, 1990 for trial of the Minister's application. Indeed, in the letter from the Minister's counsel accompanying that application it was indicated to the Court that the issues were adequately defined.

I then proceeded to hear counsel on the question of whether I should allow an amendment to the Minister's application by analogy to Rule 420(1). While counsel for the Chrysler employees submitted that I could hear argument on the question of the priority as between section 7 and section 248, without any amendment to the original application, he was content to see an amendment made. Counsel for Chrysler Canada Ltd. supported the idea of an amendment, but not in the terms proposed by the Minister.

With respect to those terms, counsel for the Minister supported an amendment as set out in his application. While he indicated that the Minister would call no more evidence in any renewed hearing of the amended application, the Minister would have no objection to the Court allowing new evidence to be introduced by the other parties. Counsel for Chrysler Canada Ltd. argued that the amendment should be limited to the opening words of 1A set out in the Minister's application together with subparagraph (c). He was prepared to see the amendment include subparagraph (b) concerning the income tax consequences to Chrysler employees, but objected strongly to any amendment including subparagraph (a) which would raise the question as to the income tax consequences to Chrysler Canada Ltd. In his view any amendment the Court might allow should also permit the parties to call further evidence. Counsel for the Chrysler Canada employees was content to have an amendment including the opening words of 1A and subparagraph (c) as set out in the Minister's application for an amendment, but took the position that no further evidence should be permitted.

In trying to assist the parties toward a useful result of this litigation, I have taken into account several factors. Firstly, I am very aware that an amendment to a pleading (or something analogous thereto) at this very late date after trial, is very rare and the discretion to allow such an amendment must be exercised with great care. Secondly, I believe that in exercising that discretion by analogy to Rule 420(1) I should be governed by the principle set out in that Rule that ” . . . all such amendments shall be made as may be necessary for the purpose of determining the real question or questions in controversy between the parties." Thirdly, I do not think it would be appropriate to permit new evidence if such evidence could have the effect of leading the Court to new findings of fact inconsistent with those made at the original trial. I am functus officio in respect of such findings.

With these considerations in mind, it appeared to me from the original application and the evidence and argument presented in respect thereto that “the real question in controversy" among the parties was whether the ESOP should be characterized as coming within section 248 or section 7 of the Income Tax Act. At trial I was never invited to consider the income tax consequences to either Chrysler Canada Ltd. or its employees which might flow from my determination of that question. My inquiries of counsel in no way encouraged me to consider these issues and I referred to them only in passing in my reasons to explain, to the best of my understanding, why the question was being put to the Court. I assume that when the original application was drafted—and it has been demonstrated to me by affidavit that this was done in consultation with all parties—no one thought it necessary for the Court to address the specific income tax consequences of one finding as opposed to another. In the hearing with respect to the present application to amend, I was not persuaded that the situation had changed in this respect. That is, as far as I can ascertain the essential question in dispute is as to whether the ESOP is governed by section 7 or section 248, an amendment to the original question being required only because I have not found those two sections to be mutually exclusive. Therefore it is necessary to consider whether some rule of law exists for giving priority to one over the other.

I am therefore granting leave to amend the application by the addition of the following paragraph:

1A. In the event that the Chrysler Employee Stock Ownership Plan is held to be both an employee benefit plan and an agreement to sell or issue shares to employees, or in the event that it is found to be neither an employee benefit plan nor an agreement to sell or issue shares to employees, the Minister requests a determination of the following question:

If there is a potential conflict between the provisions of paragraph 6(1)(g) and section 7 ot the Income Tax Act, which has priority over the other in the taxation of the benefits received by the Employees?

I am also directing that a further hearing be held for the presentation of argument with respect to the correct answer to the question as amended. I am not giving leave for the introduction of further evidence because of the problems of reopening existing findings of fact and, more particularly, because I am not persuaded that this amendment to the question gives rise to anything other than a question of law. I am not satisfied that circumstances exist for the making of an extraordinary order to hear further evidence at this time.

Argument on this further question should be treated as if it were an application under Rule 321.1. Documentation should be prepared in accordance with that Rule, varied to this extent: the Minister of National Revenue shall file his record at least 21 days before the hearing of the motion and the respondents shall file their records at least seven days before the hearing of the motion. The precise date and place for the hearing will be arranged by the Registry.

Application allowed in part.