City Centre Properties Inc. (Successor in Name to Royalty Mall Ltd.) v. Her Majesty the Queen, [1990] 1 CTC 71, 90 DTC 6080

Cullen, J.: —This is an action byway of an amended statement of claim for declaratory relief that the plaintiff is not indebted to the defendant for reassessment of taxes of the Dale Corporation following the purchase and sale of the said company.

Background

Given the decision I have made in this matter, it is necessary that a certain amount of background be incorporated for a better understanding of the issues. No evidence was lead and this background material is gleaned from the file itself.

The plaintiff, City Centre Properties Inc., was successor in name to Royalty Mall Ltd. ("Royalty"). On November 10, 1983 a reassessment was issued by Revenue Canada Taxation ("Revenue Canada") to Royalty claiming a tax balance outstanding for the 1978 taxation year in the amount of $125,681.40, consisting of federal tax of $64,280.52, provincial tax of $26,605.70, and interest of $39,074.18.

On January 31, 1979 an agreement of purchase was executed between Regional Properties Inc. (purchaser), The Dale Corporation (vendor) and Royalty, whereby the former purchased all the common shares held by The Dale Corporation in Royalty. The Dale Corporation ("Dale") agreed, inter alia, to pay on behalf of or indemnify Royalty for any and all income taxes that could be assessed to Royalty prior [to] January 31, 1979.

Royalty wrote to Dale advising it to pay the reassessment amount within the requisite 30-day period. After receiving no response, Royalty commenced legal action in the Supreme Court of Prince Edward Island against Dale to claim the reassessment amount. Dale filed a statement of defence alleging:

The Defendant states that since it was presented with the Notice of Tax Assessment, it has commenced negotiations with Revenue Canada in regards to this matter and, as a result of these negotiations, Revenue Canada has agreed to accept from the Defendant, a bank guarantee for the amount of the additional taxes involved in this matter.

On March 6, 1984 Dale obtained from the Bank of Montreal a guarantee for the payment of the reassessment amount. Dale obtained the guarantee because it wished to question the reassessment amount and filed an objection. Revenue Canada accepted this guarantee on behalf of Royalty, and it was to expire June 15, 1984. The bank guarantee was payable on demand during the period in which it was in force.

Negotiations between Revenue Canada and Dale took place over the course of a year, during that time the bank guarantee was extended to September 13, 1984. On September 13, 1984 the plaintiff hand-delivered a demand for payment, but ultimately agreed to accept an extension of the bank guarantee up to March 12, 1985. As a result of negotiations, tax payable of $52,414.67 was agreed upon.

On February 13, 1985, Peat Marwick Ltd. was appointed receiver of the assets and property of Dale. On March 12, 1985 the bank guarantee expired without Revenue Canada having made a demand for payment. Revenue Canada attempted to have the Bank of Montreal renew the bank guarantee, but without success. Revenue Canada then requested payment from the plaintiff. A letter dated March 20, 1985 stated that a balance of $52,414.67 was owing by the plaintiff. The plaintiff had not further pursued the legal action it had commenced in December 1983 and resisted the demand made by the defendant because of the events which had occurred. The plaintiff stated that it was absolved or released from any liability for the amount claimed.

Numerous discussions occurred between the plaintiff and the defendant. Revenue Canada maintained that Royalty was responsible for the amount claimed irrespective of the events which had transpired. Further, Revenue Canada advised the plaintiff that it would utilize the remedies available under the Income Tax Act if the plaintiff did not pay. The plaintiff then requested a judicial determination of its claim. In December 1985, Revenue Canada stated it would not enforce its remedies while the plaintiff pursued its case, if they received a guarantee of payment. On January 28, 1986 the plaintiff obtained a bank guarantee from the Royal Bank for the defendant to hold, pending the court determination.

Plaintiff's Position

In the plaintiff's pre-trial brief at page 12, argument #8, it reads:

The Defendant argues that this Court does not have the jurisdiction to deal with relief sought but rather that the Plaintiff should have proceeded pursuant to the provisions of the Income Tax Act and appealed from the reassessments. This Honourable Court's jurisdiction to grant the relief sought in the action is found in the combination of section 17(1) and section 2(m) of the Federal Court Act. The following authorities also support this Court's jurisdiction: Solosky v. Government of Canada (1980), 30 N.R. 380 (S.C.C.); Devor v. M.N.R. 88 D.T.C. 6370 (F.C.T.D.); Optical Recording Corporation v. The Queen et al 86 D.T.C. 6465 (F.C.T.D.); and WTC Western Technologies Corporation v. M.N.R., 86 D.T.C. 6027 (F.C.T.D.)

In the case at bar the Plaintiff is not appealing the reassessments nor is it challenging the legal authority or capacity of the Minister of National Revenue to issue the reassessments. The issues in this action involve broad issues of law not considered in the assessment process. These are not the issues that can be characterized as "appeal" issues.

Defendant's Position

The defendant submits that this Court has no jurisdiction to declare that the plaintiff is not indebted to Her Majesty, since the debt in issue results directly from a reassessment, of which appeal by the plaintiff as taxpayer must be done pursuant to section 175 of the Income Tax Act, R.S.C. 1952,c. 148 as amended by S. C. 1970-71-72, c. 63, section 1, and the remedy for which is found solely in section 177 of said Act.

Issues

In the case before me there were two issues to be determined: does this Court have jurisdiction to grant the declaratory relief requested and if so is the plaintiff relieved from paying the tax owing.

Issue No. 1

Under rule 400 of the Federal Court Rules every action in the Federal Court is to be commenced by filing a statement of claim. Further, rule 603 confirms this is the proper way to begin an action for declaratory relief. It is authoritatively settled that a proceeding for a declaration must be brought by way of action (Danielson v. M.N.R., 7 F.T.R. 37; [1986] 2 C.T.C. 341; 86 D.T.C. 6495 (T.D.).

Section 18 of the Federal Court Act provides for extraordinary remedies, and gives the trial judge jurisdiction to grant declaratory relief. However, this is to be utilized only when there is no other remedy available. Ordinarily the Court will not issue these extraordinary remedies unless and until the applicant has exhausted all avenues of redress and appeal (Macdonald v. National Parole Bd., [1986] 3 F.C. 157 (T.D.).

[Emphasis added.]

The defendant has suggested that this Court has no jurisdiction to make a declaration that no debt is owing, when that debt is from a Revenue Canada reassessment. The defendant submits that the plaintiff must challenge this reassessment by appealing under the Income Tax Act. Section 165 of that Act covers objections to assessments and reassessments and allows a taxpayer to indicate in a notice of objection that he wishes to appeal immediately to the Federal Court. Section 175 covers the institution of an appeal in such matters. Section 177 provides the remedy, and is reproduced below:

177. The Federal Court may dispose of an appeal, other than an appeal to which section 180 applies, by

(a) dismissing it; or

(b) allowing it and

(i) vacating the assessment,

(ii) varying the assessment,

(iii) restoring the assessment, or

(iv) referring the assessment back to the Minister for reconsideration and reassessment.

Section 177 is clear that only certain kinds of relief are available, and declaratory relief is not one of them. Further, declaratory relief is only to be given where there is no other remedy available to the plaintiff. Here the Income Tax Act provides an adequate avenue of appeal and the plaintiff must first utilize this remedy. The Courts should not grant declaratory relief where the legislation has seen fit to create a method to dispose of the matter on which a declaratory judgment is sought (Terrasses Zarolega Inc. v. Olympic Installations Bd., [1981] 1 S.C.R. 94; 124 D.L.R. (3d) 204; 38 N.R. 411; 23 L.C.R. 97 (S.C.C.)).

On the other hand, declaratory relief is discretionary. Even though it is discretionary, it is a power to be very carefully and prudently exercised. A declaratory judgment is one given with the utmost caution. Where an adequate alternative remedy exists, the Court may refuse declaratory relief because the plaintiff has another way to challenge the action. However, where the alternative remedy provided by statute is inappropriate, declaratory relief may be granted (Proprietary Assn. of Can. v. The Queen (1983), 3 Admin. L.R. 63; 5 C.E.R. 496; 83 D.T.C. 5323 (Fed. T.D.)).

Two factors that will influence the Court in the exercise of its discretion are whether the remedy will be useful, and whether it will settle the questions at issue between the parties. (Solosky v. Canada, [1980] 1 S.C.R. 821; 16 C.R. (3d) 294; 30 N.R. 380; 50 C.C.C. (2d) 495; 105 D.L.R. (3d) 745 (S.C.C.)). The fact that a plaintiff has a right under one Act is not necessarily a bar to seeking redress from the courts (McCarthy v. Canada (A.G.), [1980] 1 F.C. 22, 102 D.L.R. (3d) 496 reversed on other grounds but affirmed on this point [1981] 1 F.C. 309; 80 C.L.L.C. 14, 14, 061; 114 D.L.R. (3d) 77 (C.A)).

Conclusions

It was argued by counsel for the plaintiff that the issues before me were not "appeal issues”. Here the plaintiff suggests it is not attacking the assessment nor the right of the Minister to make the reassessment, but rather is seeking a declaratory order that the plaintiff does not owe the taxes, that it should not have been assessment against it, or that in any event the taxes have been paid or the government is estopped from collecting these taxes from the plaintiff.

With respect, I cannot agree. When the plaintiff received the notice of assessment or reassessment it was opened to it to file a notice of objection in accordance with the procedures outlined in the Income Tax Act. In the said notice of objection the plaintiff could have argued that the taxes assessed or reassessed were not payable by the plaintiff and then cited the various reasons in support of its contention. That submission or the various submissions could then have been accepted or rejected by the Minister. If rejected by the Minister an appeal process is in place and the Tax Court of Canada was next in the appeal process. The issues here are not outside the appeal process.

Counsel for the defendant has written in a succinct and comprehensive fashion the arguments and reasoning which I have accepted for my decision. I have incorporated his comments in these reasons:

It is further submitted that there is a question as to whether this Honourable Court has jurisdiction to entertain this action as pleased.

In M.N.R. v. Parsons 84 D.T.C. 6345 (F.C.A.) [17] the Court of Appeal allowed an appeal from an order of the Trial Division quashing an assessment under s. 159 of the Income Tax Act for lack of legal authority and enjoining the Minister from taking any further action against the taxpayers.

The Court of Appeal held that "the only way in which the assessments made against the respondents could be challenged was that provided for in section 169 and following of the Income Tax Act. This, in our view clearly results from section 29 [of] the Federal Court Act.”

The procedure for objecting to assessments and appealing them is found in 5.5. 165-180 of the Income Tax Act [18].

Section 29 [of] the Federal Court Act says:

Notwithstanding sections 18 and 28, where provision is expressly made by an Act of Parliament for an appeal as such to the Federal Court, to the Supreme Court, to the Governor in Council or to the Treasury Board from a decision or order of a federal board, commission or other tribunal made by or in the course of proceedings before that board, commission or tribunal, that decision or order is not, to the extent that it may be so appealed, subject to review or to be restrained, prohibited, removed, set aside or otherwise dealt with, except to the extent and in the manner provided for in that Act.

Section 18(a) says that "the Trial Division has exclusive original jurisdiction to . . . grant declaratory relief against any federal board, commission or other

tribunal.

Section 17(1) says that "The Trial Division has original jurisdiction in all cases where relief is claimed against the Crown . . .”

Section 2 defines "federal board, commission or other tribunal” as:

any body or any person or persons having, exercising or purporting to exercise jurisdiction or powers conferred by or under an Act of Parliament, other than any such body constituted or established by or under a law of a province or any such person or persons appointed under or in accordance with a law of a province or under section 96 of the Constitution Act, 1867;

and "relief" as "every species of relief, whether by way of . . . declaration . . . or otherwise".

It would seem incongruous that the court could gain or lose jurisdiction in a case of this type depending on whether the Plaintiff chooses to name the Minister of National Revenue or Her Majesty as defendant.

There have been conflicting decisions in the Trial Division regarding the application of the Parsons case to various applications for judicial review of decisions taken with regard to income tax assessments. See Devor v. M.N.R. 88 D.T.C. 6370, 6373 [19].

It is submitted that the fundamental question is whether the questions raised on this action could have been raised by a Notice of Objection or Appeal under the Income Tax Act and if they could have been, then the Plaintiff is limited to that procedure.

[Emphasis added.]

Given the broad scope accorded to the right of appeal under the Income Tax Act by the Parsons case it is my view that such an appeal was the proper way to deal with the issues raised in this case and the Court is without jurisdiction to deal with the relief sought.

Accordingly, this action is dismissed.

Costs

During the course of his presentation counsel for the plaintiff indicated that in his opinion an earlier counsel for the Crown on at least two occasions seemed to indicate that the Crown would not push the jurisdiction argument but he conceded he had nothing to indicate that that stance had in fact been taken. It is clear from the documentation on record that both the plaintiff and the defendant dealt with the issue of jurisdiction and certainly there was no indication from counsel for the defendant that it did not intend to pursue this defence. Also, the point was made that even an agreement between counsel could not of course convey jurisdiction to this Court. In these circumstances, therefore, I am making no order as to costs.

Action dismissed.