Salco Construction Limited v. Minister of National Revenue, [1984] CTC 2892, 84 DTC 1738

Cardin, TCJ:—On the 25th day of June, 1984, the Court heard the following motion made by counsel for the respondent:

TAKE NOTICE that an application will be made on behalf of the Respondent before the Tax Court of Canada on Monday, the 25th day of June, 1984, at the hour of 2:00 o’clock in the afternoon or so soon thereafter as the motion can be heard for an order allowing the appeal and referring the assessment back to the Minister of National Revenue for reconsideration and reasessment on the basis of the settlement reached by the parties.

AND TAKE NOTICE that in support of such application will be read the affidavit of Harry Erlichman and the exhibits therein referred to, together with such further and other material as counsel may advise and this Honourable Court may permit.

DATED at TORONTO, this 20th day of June, A.D., 1984.

R. Tassé,

Deputy Attorney General of Canada, Solicitor for the Respondent.

PER:	M Judith Sheppard
	M Judith Sheppard

The respondent’s motion was supported by an affidavit of Mr Harry Erlichman, counsel who had acted on behalf of the Minister in this matter (affidavit attached as Annex “A”). The Court is asked to issue an order enforcing the terms of a settlement agreement which the Minister alleges was reached by the parties but which the appellant or its agent are now unwilling to sign (Exhibit E of the attached affidavit).

The notice of appeal, to which the motion refers, is with respect to the appellant’s 1974, 1975 and 1976 taxation years, dated August 29, 1980. The Minister’s reply to the notice of appeal is dated March 19, 1981. The appeal was called for hearing on February 18, 1982 but was adjourned at the request of the parties pending settlement. The pertinent correspondence appears as Exhibits B and C, referred to in the affidavit of Mr Erlichman (Annex “A”).

At the general sittings of the Board held at Toronto, Ontario on February 18, 1982, the present appeal was called for hearing.

At your request, the hearing of this appeal was adjourned pending settlement negotiations between the parties.

Please advise as to the parties’ position regarding the above.

Should this appeal be put back on a list for hearing?

Yours truly,

Michael L Artelle

A/Registrar

cc L V Hack

(Exhibit C)

DEPARTMENT OF JUSTICE

CANADA

PO Box 57

Toronto Dominion Centre

Toronto, Ontario

MSK 1E7

June 11, 1982

Dear Sir:

Re: HANS & LUISE SALLER v MNR, and

SALCO CONSTRUCTION LTD v MNR

Our Files: TO 105758, 106352 & 106987

We are close to resolving these matters and I would therefore request that the appeals not be put back on the hearing list at the present time.

Yours truly,

H E Erlichman

Counsel

Tax Litigation

Toronto Regional Office

yw

The Registrar

Tax Review Board

381 Kent Street

OTTAWA, Ontario

KIA 0M1

cc Messrs Hack & Shephard

Chartered Accountants

Suite 302

3232 Bloor St W

Toronto

M8X 1E5

Attention: Mr L V Hack

In a letter to Mr Hack, CA, the appellant’s accountant, dated May 13, 1982, Mr Erlichman set out in considerable detail, the respondent’s proposition for the settlement of the issues (Exhibit A of the Affidavit):

DEPARTMENT OF JUSTICE

CANADA

PO Box 57

Toronto Dominion Centre

Toronto, Ontario

MSK 1E7

May 13, 1982.

ATTENTION: Mr L V Hack

Dear Sir:

RE:	HANS & LUISE SALLER v MNR, and
	SALCO CONSTRUCTION LTD, v MNR,
	Our Files: TO-105758; TO-106352;
	and TO-106987.

Our position with respect to the resolution of these appeals is as follows:

1. With reference to the schedule of items claimed to be expenditures

of Salco Construction Limited and treated as advances to Salco

Eastern Limited in the amount of $58,334.14:

a) To remain as advances to Salco Eastern:

April 1975 — Lalka re incorporation costs		$	700.00
Jan. 1976 — Colbourne Printing — re
	“Eastern” letterheads		100.00
June 1976 — Truckers — equipment rental		14,385.28
b)	To be treated as Capital Assets of
Salco Construction Limited:
	February 1975 — Cathman Wells Drilling	$ 1,000.00
November 1975 — HVS Steel			132.00
May 1975 — Hogards			537.00
June 1975 — Nadalen			1,356.07
September 1975 — General Supply		13,316.00
Messrs Hack & Shephard,
Chartered Accountants,
Suite 302,
	3232 Bloor Street West,
	M8X 1E5
L V Hack		May 13, 1982

c) The remainder of $26,807.79 to be treated as expenses of Salco Construction Limited.

2. The second schedule encompasses capital expenses charged personally to Hans and Luise Sailer in the amount of $31,742.97. After the removal of $569.24 re Winiker Auctioneer, the remaining $31,173.73 may be treated as capital assets of Salcon Construction Limited as per request.

3. The third schedule involving items in the amount of $5,674.61 charged as personal expenses of Hans and Luise Sailer may be afforded the following treatment;

a) $317 as a capital asset of Salco Construction Limited, and the remaining $5,356.08 as allowable expenditures of Salco Construction Limited.

4. The final schedule, referred to as “Schedule ‘D’” totalling $6,485.74 concerns items charged as personal and requested to be treated as corporate expenses. These items are to be afforded the following treatment:

a) $ 599.20 re Smith & Savery to remain as personal;

1,074.00 re Peter Hoogars is a duplication which was afforded revised

treatment via the other schedules;

976.30 re Cashway Lumber is to be allowed as a capital asset; 735.00 re Seven-Up is to be allowed as a capital asset; 3,101.24 may be allowed as an expense.

5. In addition, the request to prorate the $15,000.00 per annum rent for 1976 paid by Salco Eastern Limited to Salco Construction Limited to cover the two months of May and June 1976, only in the amount of $2,500.00 is acceptable.

Please inform me if this is satisfactory.

Yours truly,

H Erlichman,

Counsel,

Tax Litigation,

Toronto Regional Office.

HE/rs

On June 14, 1982, Mr Hack wrote the following letter to Mr Erlichman (Exhibit D of the Affidavit):

Dear Mr Erlichman:

RE: Luise Sailer, Hans Sailer and

Sailer Construction Ltd.

vs

MNR

This is in reply to your letter of May 13 1982 and also to the letter from the Registrar of June 3, 1982.

We have reviewed your proposed settlement with Mr Saller and with his lawyer. After some discussion we have concluded that the corporate settlement would be acceptable. Mr Sailer, however, has suggested that his own tax bill is more than he can pay. He mentioned to us that he may be able to pay one half of his bill. Please consider.

Mr Sailer (this includes his two corporations) is on the verge of total bankruptcy and thee is very little likelihood that there will be sufficient funds to cover his major liabilities.

If you require more information please do not hesitate to contact us.

Yours truly,

L V Hack, CA

Upon receipt of the above letter, Mr Erlichman drafted the minutes of settlement appearing as Exhibit E of the affidavit, which Mr Hack refused to sign on behalf of the appellant company.

At the hearing of the motion, it was evidently felt that the appellant did not owe the amount of taxes assessed. Mr Hans Saller admitted that he had been represented by Mr Hack and a lawyer in negotiation with Mr Erlichman, but claimed that Mr Hack and the lawyer no longer represented the company. He also claimed that he could not possibly have authorized Mr Hack or his lawyer to agree to the corporate settlement suggested by the respondent because he did not have the money to pay the taxes. Neither Mr Hack nor the taxpayer’s lawyer appeared at the hearing.

There can be no doubt as to the accuracy of the contents of the affidavit and even less as to the legitimacy of its purpose. The Court fully appreciates the difficulty of the situation.

I accept that Mr Hack did represent the taxpayer in his negotiation with Mr Erlichman and I am satisfied that the terms of the settlement negotiated by Mr Erlichman and Mr Hack were, under the circumstances, eminently fair for the taxpayer.

In considering the respondent’s motion, the only question which gives me cause for serious concern is the words used by Mr Hack in his letter of June 14, 1982, “the corporate settlement would be acceptable”; in my opinion these words are too equivocal in the present circumstances to be the basis of an enforcement order. Without having had the opportunity of hearing the evidence of Mr Hack or the taxpayer’s lawyer, both of whom represented the taxpayer and considered the proposal made by Mr Erlichman, it would, in my opinion, be unwise and imprudent for the Court to enforce the terms of settlement without having greater certainty that the agreement had been clearly and fully accepted by the taxpayer or his official agents.

Miss Judy Sheppard, who presented the respondent’s motion, was good enough to provide the Court with two decisions setting out the general attitude of Canadian Courts with respect to the enforcement by summary motion of agreements of settlement, and the legal effect on a client of settlement agreements concluded by an authorized lawyer or agent.

In the decision of the High Court of Justice, in Thomson v Gough, 17 OR (2d) 420, Parker, J (re Headnote), found that the client is bound by the acts of his solicitor unless the client has limited the solicitor’s authority and the approving side has knowledge of the limitation. At page 425, Parker J stated:

In this case the judgment was issued and satisfaction paid. That being so the plaintiff was not entitled to have the judgment set aside on the ground of lack of authority. Since there was no dispute that a retainer existed, and no dispute as to the terms agreed upon between the solicitors, the defendant is entitled to rely upon the agreement and the consent order issued which confirmed it.

In McKenzie v McKenzie, a decision of the British Columbia Court, 55 DLR (3d) p 373, McFarlane, J, at 376 states:

That view of the matter seems to have been adopted generally by the Canadian Courts. Sections 6 and 8 (as renumbered by 1973, c 84, s 9(d)(i)) fo the Laws Declaratory Act, RSBC 1960, c 213 (formerly s 2, cis (5) and (7)), preserve the jurisdiction of the Court to direct a stay of proceedings in any cause or matter pending before it if it thinks fit, and empowers the Court to grant such remedies as may resolve all matters in controversy and avoid multiplicity of legal proceedings.

Section 8 of the Laws Declaratory Act reads as follows:

8. The Court, in the exercise of its jurisdiction in any cause or matter pending before it, has power to grant, and shall grant, either absolutely or on such reasonable terms and conditions as to it seem just, all such remedies whatsoever as any of the parties thereto may appear to be entitled to in respect of any and every legal or equitable claim properly brought forward by them respectively in such cause or matter, so that, as far as possible, all matters so in controversy between the said parties respectively may be completely and finally determined, and all multiplicity of legal proceedings concerning any of such matters avoided.

Miss Sheppard suggested that section 133 of the Tax Court of Canada Act, grants this Court the powers set out in section 8 of the Laws Declaratory Act. Counsel for the respondent is correct in stating that the Tax Court of Canada does have the jurisdiction set out in the above section.

However, in both the above decisions, the essential condition to be met before an enforcement order is issued, is that there must be no doubt that an agreement did exist and that the terms of the agreement have been clearly accepted.

In McKenzie v McKenzie, (supra), Judge MacFarlane at 378 states:

There is no question to be determined here concerning the terms of settlement or regarding the validity or enforceability of the agreement.

Further on page 378, he states:

. . . It is an agreement which was reached after discovery, after time for consultation and consideration, and upon independent advice.

In Thomson v Gough, (supra), the plaintiffs solicitor and the defendant’s solicitor had concluded a settlement which was confirmed by a letter. Subsequently, the plaintiff changed solicitor and a motion was made to set aside the order of the Court on the ground that dismissing the action without costs and the settlement of the action, were without the authority and the instructions of the plaintiff.

Here again it is clear that an agreement had been entered into by the solicitors and the terms of the settlement accepted by both solicitors. The issue in Thomson v Gough was whether the plaintiffs first solicitor was authorized by his client to enter into the said agreement. That of course, is not the issue in the case at bar. The question here is whether an agreement was concluded between the appellant or his agent and the respondent’s solicitor.

In Lewis v Chatham Gas Co ( 1918), 42 OLR 102, referred to at 424 in Thomson v Gough, Middleton, J, states at 103:

If the consent judgment is regarded as a judgment, it is final and binding, and it is in accordance with what was intended at the time. There is jurisdiction to alter a judgment once entered only when it does not express the real intention of the Court or when it has been obtained fraudulently. The judgment can be attacked only upon grounds upon which a contract can be attacked.

This is emphatically so when the judgment is a consent judgment. The judgment then is based upon the contract of the parties.

In my opinion the wording of Mr Hack’s letter of June 14, 1982 was not sufficiently conclusive to be considered a binding contract between the parties.

For these reasons, the motion is dismissed.

Motion dismissed.

ANNEX “A”

80-1255

TAX COURT OF CANADA

IN RE The Income Tax Act

BETWEEN:

SALCO CONSTRUCTION LIMITED,

Appellant,

— and —

THE MINISTER OF NATIONAL REVENUE,

Respondent.

AFFIDAVIT OF HARRY ERLICHMAN

I, Harry Erlichman of the City of Toronto, in the Municipality of Metropolitan Toronto, Judicial District of York, Province of Ontario, MAKE OATH AND SAY AS FOLLOWS:

1. I have acted for the Respondent in this appeal and have negotiated on his behalf and as such have knowledge of this matter.

2. By letter dated May 13, 1982 I wrote to Mr L V Hack, who was the Appellant’s accountant and with whom I had previously met with concerning the settlement of this appeal, setting out the Respondent’s position with respect to the Appellant’s appeal. Now shown to me and attached as Exhibit “A” to this my affidavit is a true copy of the said letter of May 13, 1982.

3. By letter dated June 3, 1982 the Assistant Registrar of the Tax Review Board wrote, with a copy to Mr Hack, inquiring whether the appeal should be placed back on the list for hearing by the Tax Review Board. Now shown to me and attached as Exhibit “B” to this my affidavit is a true copy of the said letter of June 3, 1982.

4. By letter dated June 11, 1982, a copy of which was sent to Mr Hack, I informed the Board that the parties were close to settlement. Now shown to me and attached as Exhibit “C” to this my affidavit is a true copy of the said letter dated June 11, 1982.

5. By letter dated June 14, 1982, Mr Hack wrote stating that, “the corporate settlement would be acceptable”. Now shown to me and attached as Exhibit “D” to this my affidavit is a true copy of the said letter dated June 14, 1982.

6. I prepared Minutes of Settlement setting out the settlement reached but was unable to have such Minutes executed either by Mr Hack or anyone else on behalf of the Appellant.

7. On June 14, 1984, I met with Mr H Saller, the President of the Appellant who now represents the Appellant and provided him with a copy of the Minutes of Settlement which set out the settlement referred to in paragraphs 2 and 5 above. The said Minutes of Settlement are identical to the Minutes which Mr Hack did not sign save for changes to the name of the Court and the designation of the individual who was to execute the document and the date and place of execution. Mr Sailer refused to sign the Minutes of Settlement. Now shown to me and attached as Exhibit “E” is a true copy of the said Minutes of Settlement.

8. This Affidavit is made in support of an application to have this appeal allowed and to refer the assessment back to the Minister of National Revenue for reconsideration and reassessment on the basis of the settlement set out in the Minutes of Settlement and for no improper purpose.

SWORN BEFORE ME at the City of Toronto

in the Municipality of Metroplitan

Toronto, Judicial District of York, Province

of Ontario, this 20th day of June,

1984.

Nancy Ross

A commissioner, etc. Harry Erlichman

EXHIBIT E

80-1255

TAX COURT OF CANADA

IN RE The Income Tax Act

BETWEEN:

SALCO CONSTRUCTION LIMITED,

Appellant,

— and —

THE MINISTER OF NATIONAL REVENUE,

Respondent.

MINUTES OF SETTLEMENT

WHEREAS the Appellant and the Respondent have reached a settlement with respect to certain expenses claimed by the Appellant in its 1974, 1975 and 1976 taxation years, on the following basis:

a) with reference to Schedule 1 attached;

i) the following are to remain as advances to Salco Eastern Construction Limited:

April 1975 — Lalka re incorporation costs	$ 700.00
Jan. 1976 — Colbourne Printing re “Eastern” letterhead	100.00
Jan. 1976 — Trackers re equipment rental	14,385.28;

ii) the following to be treated as capital assets of Salco Construction Limited:

February 1975 — Cathmar Wells

Drilling	$ 1,000.00
November 1975 — HVS Steel	132.00
May 1975 — Hogards	537.00
June 1975 — Nadalen	1,356.07
September 1975 — General Supply	13,316.00;

iii) the remainder of $26,807.79 to be treated as expenses of Salco Construction Limited;

b) with reference to Schedule 2, attached, all amounts save $569.24 for “Winiker Auctioneer” shall be treated as capital expenditures of Salco Construction Limited, being a total of $31,173.73;

c) with reference to Schedule 3, all amounts save $317.81 for “walnut panels and nails” which shall be a capital expenditure, shall be treated as expenses of Salco Construction Limited;

d) with reference to Schedule 4, the sum of $3,101.24 shall be allowed as expenses of Salco Construction Limited, with $976.30 re “Cashway lumber” and $735.00 re “Seven-up” to be treated as capital expenditures; the amount of $599.20 re “Smith Savery” to remain as personal and the amount of $1,074.00 being a duplicated amount;

e) rental income of $15,000.00 previously assessed shall be reduced to $2,500.00 to cover only the months of May and June, 1976.

AND WHEREAS the Appellant and Respondent propose to sign Consents to Judgment for the 1974, 1975 and 1976 taxation years to give effect to that settlement.

NOW THEREFORE in consideration of the execution of the Consents to Judgment for the 1974, 1975 and 1976 taxation years the Appellant and the Respondent hereby agree that the Respondent shall forthwith following judgment reassess the 1974, 1975 and 1976 taxation years as set out above.

DATED at HAMILTON, this	day of	, AD, 1984.
	Salco Construction Limited,
	by its President
	Hans Sailer.
DATED at HAMILTON, this	day of	, AD, 1984.

Roger Tassé,

Deputy Attorney General of Canada,

Solicitor for the Respondent.

PER:

H Erlichman