Roger Kosowan v. Minister of National Revenue, [1989] 1 CTC 2044, 89 DTC 58

Sarchuk, T.C.J.:—This matter came on before me by way of a notice of motion whereby the respondent applies for leave pursuant to Rule 7 of the Rules of Practice and Procedure in appeals to the Tax Court to file the reply to notice of appeal.

The relevant rules are as follows:

6. (1) The Minister of National Revenue shall, within sixty days from the day on which the Board has transmitted to him a Notice of Appeal pursuant to the provisions of section 170 of the Income Tax Act, as enacted by S.C. 1970-71-72, c. 63, file with the Registrar of the Board a Reply to the Notice of Appeal.

7. If no Reply to a Notice of Appeal has been filed within sixty days from the date on which the Registrar of the Board has transmitted the Notice of Appeal to the Minister of National Revenue, the appellant may make an application to the Registrar to have the appeal entered on the list of appeals to be called for hearing at the next sitting of the Board in the appellant's district and, upon the making of such application, no Reply shall thereafter be filed without leave of the Board.

It is important in this matter to set out the chronology of events. The appellant, Roger Kosowan, was a director of Metropolitan Graphics Ltd. (Metropolitan), an Alberta corporation which commenced business in 1980. Metropolitan failed to remit deductions and withholdings as required by section 153 of the Income Tax Act (the Act) for the months of June and July 1982 totalling $22,980.83. On September 27, 1982 Metropolitan, in receivership, was assessed $44,334.84 including penalties and interest for its failure to remit as required. A certificate for the amount of its liability was registered in the Federal Court of Canada.

On July 11, 1986, approximately four years later, Roger Kosowan was assessed in respect of liability under subsection 227.1(1) of the Income Tax Act for the amount of the unpaid deductions, interest and penalties payable by Metropolitan in respect to the assessment dated September 27, 1982. He filed a notice of objection dated July 24, 1986 and on November 28, 1986 the Minister confirmed the assessment. Pursuant to the provisions of section 169 of the Act the appellant was required to file his notice of appeal within 90 days following the confirmation. He did so, filing his notice of appeal on February 23, 1987. On March 24, 1987 counsel with the Department of Justice advised the appellant's solicitors that the notice of appeal had been received and that a reply would be forthcoming in due course.

On July 4, 1987 counsel for the appellant applied, pursuant to Rule 7, to the Registrar of the Tax Court of Canada to have the appeal entered on the list of appeals at the next sitting of the Court. By way of a letter from the Registrar dated July 11, 1988, counsel with the Department of Justice was notified of this application. On that same day the respondent filed and served a notice of motion together with an accompanying affidavit of the barrister employed with the Department of Justice, responsible for the appeal, to which is attached a copy of the proposed reply to the notice of appeal.

The following portions of the affidavit are relevant for the purposes of this motion:

2. Carriage of this appeal was assigned to me on March 10, 1987.

3. The file of the Department of National Revenue was forwarded to me on March 19, 1987.

4. Further material necessary for the preparation of a Reply to Notice of Appeal was forwarded to me on August 26, 1987.

5. A draft Reply was forwarded to the Department of National Revenue on March 14, 1988, under cover of a letter which raised a number of factual issues, answers to which I believe were required before a Reply could be filed.

6. The only reason for the delay in preparing a draft Reply between August 26, 1987, and March 14, 1988, was my inability to give this file priority over other outstanding Replies while also appearing as counsel for the Minister in both the Tax Court and Federal Court.

8. On July 11, 1988, I received telephone instructions from the Department of National Revenue that they are content that the draft Reply, attached as Exhibit “A”, reflects the Minister's position.

The principal submission on behalf of the respondent was that the circumstances of this particular case were such that notwithstanding the delay it would be reasonable to grant the respondent leave to file the reply. In support counsel relied on Hilda Leiffers v. M.N.R. (1988 unreported); Hafen- stein v. M.N.R., [1977] C.T.C. 2091; 77 D.T.C. 64 and Schwartz v. M.N.R., [1984] C.T.C. 2129; 84 D.T.C. 1120.

The case of Leiffers, supra, is factually distinguishable. In that case the taxpayer filed a notice of appeal which was notorious for its lack of detail. There was correspondence and telephone communications between the respondent and counsel representing the appellant requesting further particulars. In due course the appellant did file an amended notice of appeal. Although there was a passage of time between the two notices of appeal, it was apparent that it was the respondent who had been requesting details and the taxpayer who had not been forthcoming with any additional information. When the amended notice of appeal was received counsel for the respondent prepared and had a reply ready to file, but through inadvertence that was not done.

Counsel argued that the circumstances before me were similar and that counsel for the respondent had been ready with a reply but did not have instructions from the Department of National Revenue to file it. That submission is not entirely consistent with the affidavit filed in which it is stated that the respondent required additional information before reply could be finalized and filed. This was not done until July 11, 1988 and after the respondent became aware of the appellant's application. As well, there is no suggestion that there was a lack of information or detail in the appellant's notice of appeal or that further negotiations were taking place between the appellant and officers or counsel acting for the respondent.

In Hafenstein, supra, the appellant's objection to the filing of a reply was based on the fact that it was filed two weeks after the time permitted. In that case the Tax Review Board held:

Since this matter hinges on the legal interpretation of various provisions of the Income Tax Act and of the Income Tax Application Rules governing the calculation of the tax to be levied on a lump sum payment if an election is made under section 40 of the Income Tax Application Rules, 1971, the facts contained in the Notice of Appeal do not carry much weight in comparison to the legal arguments to be put forward by the parties, and therefore merely to assume that counsel for the respondent admits those facts does not automatically result in a judgment allowing the appeal. As the acceptance of the Minister’s reply after the expiration of sixty days does not appear to be in any way prejudicial to the appellant's case, the Board agreed that it could be filed.

Given the circumstances of that case the ruling is of little assistance.

In Schwartz, supra, the respondent failed to file a reply within 60 days as required by the rules. The notice of appeal was filed by the taxpayer on June 7, 1983 and a copy was forwarded to the respondent two days later. A reply was prepared by the respondent dated August 25, 1983 and an amended reply was prepared and dated November 8, 1983. The respondent applied to the Court for leave to file the reply, contending that the necessary documentation was not all available until August 12, 1983. Taylor, T.C.J. granted the motion stating:

In the instant matter, it cannot be said as in Controneo (supra) that the taxpayer on appeal would be faced with an almost total lack of information upon which to base his defence. In addition, if a taxpayer is entitled to a certain flexibility in accumulating and organizing his defence (Thistle (supra)) some modest accommodation is warranted where it is the Minister who is at fault. The time frame between June 9, 1983 and August 25, 1983, is neither unrealistic nor unreasonable under the circumstances of this case, and the Minister should not be put at risk of additional difficulty as a result of it.

The facts before me are entirely different. The delay from March 24, 1987, when counsel for the respondent confirmed receipt of the notice of appeal and undertook to prepare a reply and July 4, 1988, when the appellant applied under Rule 7, is neither realistic nor reasonable in the circumstances. While I agree with Taylor, T.C.J. that in some circumstances the respondent is entitled to a modest accommodation, the only reason advanced for the delay in this case, being counsel's inability to give this file priority over other outstanding replies, does not warrant such an accommodation. I recognize that for the most part counsel who act for the respondent are carrying extremely heavy case loads. Whether that is the result of inadequate resources or a misguided restraint policy is not a concern of this Court. What is of concern is that an appellant, particularly one who files a reasonably coherent and detailed notice of appeal and who does not himself delay or procrastinate, is entitled to have his appeal determined expeditiously. That is the purpose of Rules 6 and 7 and shortage of staff, excessive work loads and other similar excuses are simply not sufficient reason to warrant an exception to the rule in this case.

In support of the motion counsel for the respondent also argued that there had been no notice from the appellant that an application under Rule 7 was being considered. He said "there was no warning that if you [sic] don't get a reply you'll be moved", and suggested that such procedure amounted to “trial by ambush". I reject this submission out of hand. The Income Tax Act and the Rules of this Court require the respondent to act in an expeditious manner. There is absolutely no requirement on an appellant to advise the respondent that he is dilatory or that an application to have the appeal entered on the next list pursuant to Rule 7 is being contemplated.

Leave to file a reply is denied.

One further matter must be dealt with. Counsel for the appellant urged the Court to apply Rule 8 and to dispose of the appeal on the basis that the allegations of fact contained in the notice of appeal are true. Rule 8 reads:

8. Where no Reply to a Notice of Appeal has been filed, the Board may dispose of the appeal on the basis that the allegations of fact contained in the Notice of Appeal are true.

Counsel submitted that the respondent's position that he properly determined that the appellant was jointly and severally liable with Metropolitan pursuant to the provisions of subsection 227.1(1), paragraph 227.1(2)(a), and subsection 227.1(3), 227.1(3) and 227.1(4) has been negated. It was argued that in his notice of appeal the appellant alleged as a fact that he exercised the degree of care, diligence and skill to prevent the failure that a reasonably prudent person would have exercised in comparable circumstances. If under Rule 8 that allegation is found to be true it is an answer to the whole of the assessment. In these circumstances it was open to the Court to find that the appellant has met the test set out in subsection 227.1(3) of the Act and is not liable for a failure of the corporation to deduct, withhold, remit or pay the amounts of tax as assessed and to allow the appeal.

I have considered Rules 6, 7 and 8, counsel's submissions and the reasons of Taylor, T.C.J. in Cotroneo v. M.N.R., [1983] C.T.C. 2689; 83 D.T.C. 617 which is of particular assistance. Although the language of the rules is broad enough to permit me to allow the appeal as urged by counsel for the appellant, I have decided not to exercise my discretion in that manner. In my view it would be more appropriate to have the issues heard and determined on their merits. In so ordering I further direct that upon the hearing of the appeal, the allegations of fact contained in the notice of appeal are to be presumed to be true for the purposes of the appeal and it follows that the respondent will be required to assume the onus of rebutting those facts and of establishing the assumptions of fact upon which the assessment was made. Accordingly the appeal will be adjourned to a date to be agreed upon by counsel to be determined on its merits.

Motion denied.