Louis J. Devor v. Minister of National Revenue, [1988] 2 CTC 155, 88 DTC 6370

Rouleau, J.:—The defendant appeals a decision of Associate Senior Prothonotary Giles rendered on April 13, 1988. The defendant had made a motion to strike the statement of claim, as amended, pursuant to Rule 419 of the Federal Court Rules. on the basis that the Federal Court was without jurisdiction to hear the matters raised therein pursuant to section 29 of the Federal Court Act. Mr. Giles held that in his view, section 29 of the Act did not preclude the commencement of an action under the circumstances described in the statement of claim, and hence the motion to strike this document could not succeed.

The Statement of. Claim

The statement of claim was originally filed on October 9, 1987. For the purposes of this motion, all the matters alleged therein are assumed to be true. The plaintiff states that he filed personal income tax returns for the 1981, 1982 and 1983 taxation years and received notices of assessment approximately three months after filing in each case. In January 1987, the plaintiff met with an authorized representative of the defendant, who required that the plaintiff sign waivers for the 1982 and 1983 taxation years with respect to the limitation date by which the Minister may issue notices of reassessment pursuant to section 152 of the Income Tax Act.

The Minister's representative informed the plaintiff that if any reassessments were to be issued, it was due to a change in policy made in the head office of the defendant. The representative further stated that the decision with respect to the application of any policy changes to the plaintiff's situation would also be made by the defendant's officials in Ottawa.

As a result of this meeting, the plaintiff agreed to sign the waivers sought by the defendant's representative, on condition that prior to the issuance of any notices of reassessment, the plaintiff would be advised of the identity of the defendant's servant charged with rendering the decision and the plaintiff and his advisor would be given the opportunity to make representations directly to this person. The defendant's representative agreed to this condition.

Ultimately, on April 1, 1987, the defendant's servants required the plaintiff to execute the waivers immediately and threatened to issue notices of reassessment if the plaintiff failed to comply. The plaintiff sought a delay of 24 hours in which to verify the information in the waivers and the defendant's servants refused. The plaintiff signed the waivers as they read.

The following day, the plaintiff consulted with his accountant and determined that the information in one of the waiver forms was inaccurate. His efforts to replace the waiver with a corrected one was rebuffed by the defendant's servants. According to the plaintiff, the defendant then stated that it did not have any obligation to allow the plaintiff to make representations to the party who would ultimately make the decision with respect to notices of reassessment, hence repudiating what the plaintiff understood to be a binding agreement.

The plaintiff thus alleges that the waivers that he signed are void and of no effect as they were extracted from him through compulsion and duress. Furthermore, the plaintiff states that the defendant has failed to comply with the conditions attached to the signature as agreed to by the parties and should not be able to issue notices of reassessment relying on the waivers.

The plaintiff denies that any notices of reassessment have been issued and states that even if they had been issued, they were issued out of time and were void and of no effect. The plaintiff also states that the defendant, in attempting to issue any notices of reassessment, has acted outside or in excess of his jurisdiction. It would appear that at the time that the statement of claim was originally filed, the plaintiff was not aware that the notices of reassessment had been issued; the statement of claim as amended does make reference to the notices and seeks relief in relation to them.

The plaintiff claims:

(1) a declaration that the waivers signed by the plaintiff are void and of no effect;

(2) a declaration that the plaintiff's agreement to provide any such waivers has been terminated due to the default of the defendant;

(3) a declaration that the documents entitled notice of reassessment issued October 8, 1987, relating to the 1982 and 1983 taxation years are void and of no effect;

(4) a writ of certiorari to quash the defendant's decision to reassess the tax owing by the plaintiff for the taxation years 1982 and 1983 and the issuance of the documents relating thereto;

(5) a permanent and interlocutory injunction restraining the defendant and his servants from issuing notices of reassessment for the plaintiff’s 1982 and 1983 taxation years.

The legal issues

The Income Tax Act provides that under certain circumstances, the Minister may reassess the income tax owed by a taxpayer. Section 152 requires however that in the absence of any fraud on the part of the taxpayer, such reassessment must be made within three years of the date of the original assessment (note that for taxation years ending prior to 1983, section 152 referred to four years in lieu of three, and seven years in lieu of six, amended by 1984, c. 1, subsection 84(3)).

Subsection 152(4) now reads:

(4) [Assessment of Tax].—The Minister may at any time assess tax, interest or penalties under this Part or notify in writing any person by whom a return of income for a taxation year has been filed that no tax is payable for the taxation year, and may

(a) at any time, if the taxpayer or person filing the return

(i) has made any misrepresentation that is attributable to neglect, carelessness or wilful default or has committed any fraud in filing the return or in supplying any information under this Act, or

(ii) has filed with the Minister a waiver in prescribed form within 3 years from the day of mailing of a notice of an original assessment or of a notification that no tax is payable for a taxation year,

(b) within 6 years from the day referred to in subparagraph (a)(ii), if

(i) an assessment or reassessment of the tax of the taxpayer was required pursuant to subsection (6) or would have been required if the taxpayer had claimed an amount by filing the prescribed form referred to in that subsection on or before the day referred to therein, or

(ii) there is reason as a consequence of the assessment or reassessment of another taxpayer's pursuant to this paragraph or subsection (6), to assess or reassess the taxpayer's tax for any relevant taxation year, and

(c) within 3 years from the day referred to in subparagraph (a)(ii), in any other case,

reassess or make additional assessments, or assess tax, interest or penalties under this Part, as the circumstances require, except that a reassessment, an additional assessment or assessment may be made under paragraph (b) after 3 years from the day referred to in subparagraph (a)(ii) only to the extent that it may reasonably be regarded as relating to the assessment or reassessment referred to in that paragraph.

The Federal Court of Appeal has ruled, based on a predecessor of section 152, that the failure by the Minister to comply with the provisions of the section leads to a finding that any purported reassessment issued will be void and of no effect. (Flanagan v. M.N.R., [1987] 2 C.T.C. 167; 87 D.T.C. 5390; in the latter case, the parties proceeded by motion under Rule 474 of the Federal Court Rules for a determination of a point of law.)

It is evident therefore that unless the Minister can rely on the waivers signed by the plaintiff, and assuming that the matters alleged in the statement of claim are true, the reassessments for the plaintiff's 1982 and 1983 taxation years were made out of time and are void and of no effect.

The plaintiff logically enough is seeking through this action to have the waivers signed by him declared to be of no effect. In my view, the natural result of such a declaration would be to void any reassessment made based on the waivers. This is not however the matter which must be considered on this motion; the only question which I must determine is whether or not from a procedural point of view the plaintiff is entitled to the remedy he seeks as he has framed it in the statement of claim, namely, a judicial review of the actions of the defendant.

The defendant argues that the plaintiff must find his remedy by challenging the notices of reassessment, when and if issued, before the Tax Court of Canada or the Federal Court of Canada pursuant to the route of appeal laid out in the Income Tax Act. The plaintiff on the other hand argues that the relief he seeks is not found in the appeal procedure and that he is hence forced to request judical review of the actions of the Minister in order to gain the relief he seeks.

The Federal Court-Trial Division is of course charged with the supervision of the activities of federal boards, commissions and tribunals which include individuals exercising or purporting to exercise powers conferred under the laws of Canada (sections 18 and 2, Federal Court Act). It is equally clear that this jurisdiction may be lost pursuant to section 29 of the Act. It reads:

29. Notwithstanding sections 18 and 28, where provision is expressly made by an Act of the Parliament of Canada for an appeal as such to the 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 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.

The Federal Court of Appeal had cause to consider this section of the Act in the case of Rich Colour Prints Ltd. v. M.N.R., [1984] 2 F.C. 246. Mr. Justice Pratte stated in the course of his very brief decision at page 240:

In our opinion, section 29 clearly says that a decision which, under an Act of Parliament, may be appealed to an authority mentioned in the section cannot, to the extent that it may be so appealed, be the subject of a section 28 application. It follows that if the right of appeal is not limited, the decision may not be reviewed under section 28; if the right of appeal is limited, for instance to a question of jurisdiction, the decision may be reviewed under section 28 on grounds that cannot be raised in the appeal.

In my view therefore, it would appear that where the Tax Court of Canada or the Federal Court of Canada has been specifically empowered by the Income Tax Act to hear an appeal from the decision of the Minister of National Revenue, the supervisory jurisdiction of this Court is lost and the plaintiff must proceed with the appeal as laid out in the Act. Where, on the other hand, the relief that he seeks cannot be granted by the Tax Court of Canada or the Federal Court pursuant to the Income Tax Act, the plaintiff is entitled to step outside the Act and seek relief from this Court under section 18 of the Federal Court Act.

The appeal route set out in the Income Tax Act appears in sections 169 and following. Once a taxpayer has served a notice of objection to an assessment (under section 165), he may appeal to the Tax Court of Canada provided that the Minister has confirmed the assessment or has not notified the taxpayer of any change in the assessment. The taxpayer may then appeal the decision of the Tax Court of Canada to the Federal Court-Trial Division. The taxpayer may also appeal the Minister’s decision directly to the Federal Court of Canada in lieu of commencing his appeal procedure in the Tax Court of Canada.

The powers of the Tax Court to dispose of an appeal is set out in subsection 171(1) of the Act. It reads:

171 (1) Disposal of appeal — The Tax Court of Canada may dispose of an appeal by

(a) dismissing it; or

(b) allowing it and

(i) vacating the assessment,

(ii) varying the assessment, or

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

The interplay of subsection 171(1) of the Income Tax Act and section 29 of the Federal Court Act was briefly considered by the Federal Court of Appeal in the case of The Queen v. Parsons et al., [1984] C.T.C. 352; 84 D.T.C. 6345. The matter had commenced in the Trial Division before Mr. Justice Cat- tanach as a review of the Minister's actions under section 18 of the Federal Court Act. Parsons et al. v. M.N.R., [1983] C.T.C. 321; 83 D.T.C. 5329.) Mr. Justice Cattanach held that section 29 of the Federal Court Act did not deprive the Federal Court of the jurisdiction to review a reassessment where the taxpayer's objections were founded on the lack of legal authority in the Minister to reassess, and not merely on the question of quantum and liability.

The Parsons case concerned the assessment by the Minister of the directors of a corporation as liable for taxes owing by the corporation pursuant to section 159 of the Act as it then read. Mr. Justice Cattanach held that as a question of law, a director is not a person described in section 159 and that hence the Minister did not have the legal authority to make the reassessments that it did. Mr. Justice Cattanach stated at page 325 (D.T.C. 5332) of his decision:

The assessment by the Minister, which fixes the quantum and tax liability, is that which is the subject of the appeal.

The quantum is not the basis of the attack by the applicants in this instance.

The basis of the attack upon the assessments is that the Minister did not have the power by law in the circumstances to make the assessments and accordingly they are void as well as illegally made.

An error in law which goes to jurisdiction is alleged in which event certiorari is the appropriate remedy, and, in my view, that remedy is available despite the appeal process provided against quantum and liability therefore which is the purpose of the assessment process. That is an appeal provided from a matter far different from the lack of authority in law to make the assessment.

For that reason section 29 of the Federal Court Act, in my view, does not constitute a bar to the certiorari and injunctive proceedings taken by the applicants.

Mr. Justice Cattanach proceeded to grant the relief sought by the applicants on the merits of their case.

The Minister appealed to the Federal Court of Appeal. In a very brief decision, Mr. Justice Pratte stated at page 352 (D.T.C. 6345):

We are all of the opinion that the appeal must succeed on the narrow ground that the only way in which the assessments made against the respondents could be challenged was that provided for in sections 169 and following on the Income Tax Act. This, in our view, clearly results from section 29 of the Federal Court Act.

The learned Judge of first instance held that, in this case, section 29 did not deprive the Trial Division of the jurisdiction to grant the application made by the respondents under section 18 of the Federal Court Act because, in his view, the appeal provided for in the Income Tax Act was restrictive to questions of "quantum and liability” while the respondents' application raised the more fundamental question of the Minister’s legal authority to make the assessments. We cannot agree with that distinction. The right of appeal given by the Income Tax Act is not subject to any such limitations.

In our view, the Income Tax Act expressly provides for an appeal as such to the Federal Court from assessments made by the Minister; it follows, according to section 29 of the Federal Court Act, that those assessments may not be reviewed, restrained or set aside by the Court in the exercise of its jurisdiction under sections 18 and 28 of the Federal Court Act.

Since the decision of the Federal Court of Appeal, there have been several decisions of the Trial Division which have followed Parsons, supra, namely Bechthold Resources Limited v. M.N.R., [1986] 3 F.C. 116; [1986] 1 C.T.C. 195 (T.D.), Danielson v. M.N.R., [1986] 2 C.T.C. 341; 86 D.T.C. 6495, G. R. Block Research & Development (1981) Corporation et al. v. M.N.R., [1987] 1 C.T.C. 253; 87 D.T.C. 5137 and my own decision in the case of Gibbs v. M.N.R., [1984] C.T.C. 434; 84 D.T.C. 6418.

There have also been several decisions which have maintained that Parsons can be distinguished on its facts. The case of WTC Western Technologies Corporation v. M.N.R., [1986] 1 C.T.C. 110; 86 D.T.C. 6027 held that where the Minister had acted without jurisdiction by assessing a taxpayer before the taxpayer was required to file a return, the assessment was a nullity and an application to quash would be entertained by the Court. Mr. Justice Collier characterised the Parsons case as one where the Court was being asked to determine whether or not the Minister had erred in law and not whether the Minister had acted outside his jurisdiction.

In the case of Optical Recording Corporation v. The Queen et al., [1986] 2 C.T.C. 325; 86 D.T.C. 6465, the taxpayer was assessed by the Minister by a notice of reassessment which on its face provided that under certain circumstances, the Minister was prepared to "modify or withhold its usual collection action”. The taxpayer did not file a notice of objection to the assessment in reliance on the representations made by the Minister.

Mr. Justice Muldoon hence characterised the action before him as follows:

The case at bar raises issues about the paragraph attached to the purported notice of assessment .. . and the respondent Minister's policy of collections . . . which are quite beyond the scope of the appeal provisions of the Income Tax Act upon which the Appeal Division relied in order to invoke section 29 of the Federal Court Act in derogation of the Trial Division’s jurisdiction in the Parsons case.

The issues to be determined here are much broader than, and different from, matters of extension of time to appeal, the validity of a notice of assessment and appeal therefrom. The issues here raise questions of fundamental administrative illegality, unfair treatment and estoppel which engage the superintending jurisdiction of a superior court, such that even if this Court's disposition of them be ultimately adjudged to be wrong, the Court's decision to entertain them should be seen to be correct. The case at bar is therefore quite distinct from the Parsons case. It will be seen as well to be distinguishable from the WTC Western and Bechthold Resources decisions. For these reasons, which are more fully developed hereinafter, the Court accepts and exercises jurisdiction in, upon and over the subject of this motion.

I am persuaded by Mr. Justice Muldoon's reasoning that there is residual jurisdiction in this Court to supervise administrative acts for which no right of appeal is provided in the Income Tax Act. I note that this decision is under appeal, but until this issue is dealt with by a higher court, in my view, this case expresses accurately the state of this Court's jurisdiction.

How is the relief sought by the plaintiff to be characterised? He seeks to have the waivers which he signed declared null by reason of the duress and undue influence exerted on him by the Minister's servants. He is also pleading a form of estoppel, namely that the waivers were signed on the basis of certain express representations made to him by the Minister's servants and that the Minister cannot rely on the waivers in that he has failed to give effect to the representations.

In my view the relief sought by the plaintiff is not merely the variance or vacation of a specific reassessment under subsection 171(1). He is seeking a declaration of nullity, and makes a plea of non est factum with respect to the waivers, relief which I have not been persuaded could be provided by the Tax Court of Canada. The latter may only examine a particular reassessment and dispose of it according to section 171, supra. It could not issue a declaration that the waivers signed by the plaintiff are void and of no effect.

I am aware that if this Court declares that the waivers were improperly obtained or that the Minister is estopped from relying on them due to his conduct, any reassessments already issued by the Minister will necessarily be invalid, and the Minister will thereafter be unable to issue any notices of reassessment with respect to the plaintiff's 1982 and 1983 taxation years. However in my view the fact that the relief sought by the plaintiff in this Court might incidentally affect an assessment whose validity can be challenged before the Tax Court is not in itself a bar to the bringing of an application for judicial review. The attack mounted by the plaintiff raises some very serious questions about the conduct of the Minister's servants which I do not believe the Tax Court is empowered to hear.

This Court is the only appropriate forum for the relief sought by the plaintiff. The decision of Mr. Giles is hence affirmed. The plaintiff is entitled to its costs for the motion.

Appeal dismissed.