Re Stern, 85 DTC 5002, [1984] CTC 647 (FCTD)

Muldoon, J:—The action in which this application is made is taken by way of appeal from a decision of the former Tax Review Board, in which the plaintiff is appellant. The determination of the Tax Review Board was made pursuant to section 174 of the Income Tax Act, as amended.

Pursuant to subsection 174(1) of the Act, the Minister of National Revenue had applied, on February 5, 1981, for a determination of a question common to Anita L Stern and Cyril Stern. The taxpayers did not concur in having the question determined by the Trial Division of this court. After a hearing on December 7, 1982, the Tax Review Board made a determination dated May 27, 1983. It provided:

THIS BOARD DOTH DETERMINE, . . . that the payments of $7,100 by Cyril Stern to Anita L Stern in each of the 1976 and 1977 taxation years are not deductible to Cyril Stern pursuant to subsection 60(b) of the Income Tax Act, and are not taxable to Anita L Stern pursuant to subsection 56(1 )(b) of the said Act.

Subject to the right of appeal provided by subsection 174(4.1) of the same Act, subsection 174(4) provided that:

: . . Where a question . . . under this section is determined . . . the determination thereof is final and conclusive for the purposes of any assessments of tax payable by the taxpayers named by it . . .

Subsection 174(4.1) as noted provided for an appeal from the determination by the minister or by any taxpayer who is a party to the determination, that is, named in an order of the board, “in accordance with the provisions of this Act and the Federal Court Act as they relate to appeals from decisions of the Board”. This subsection was added by SC 1979, chap 5. Royal Assent was accorded December 6, 1979.

The plaintiff, Cyril Stern, appealed by bringing this action on September 27, 1983, that is within the 120-day period provided for appeals pursuant to subsection 172(1) of the Act. As the solicitors for Anita L Stern note, the appeal is patently only between the plaintiff and the defendant identified in the above style of cause. The plaintiff did not implead Anita L Stern, nor did the defendant.

The defendant’s notice of motion seeks an order joining Anita L Stern as a defendant herein. It is dated November 2, 1983 and was filed in court on January 3, 1984. Anita L Stern resists the motion.

The defendant’s motion is clearly beyond the 120-day time limitation provided in subsection 172(1) of the Income Tax Act. However, subsection 175(2) of the Act provided, prior to July 18, 1983:

175. (2) If the respondent to an appeal from a decision of the Tax Review Board desires to appeal from that decision, he may do so, whether or not the time fixed by section 172 has expired, by a counterclaim or cross-demand instituted in accordance with the Federal Court Rules.

[On July 18, 1983, the Board was replaced by the Tax Court of Canada.]

What, then, do the rules of this court provide, if anything, regarding circumstances such as are evinced by the defendant’s motion, and, if anything, can the rules be adapted appropriately to reach a just disposition of the motion? This question is pertinent in light of the provisions of Rule 2.(2) which runs thus:

2. (2) These Rules are intended to render effective the substantive law and to ensure that it is carried out; and they are to be so interpreted and applied as to facilitate rather than to delay or to end prematurely the normal advancement of cases.

Thus, the question is large, and the consideration of adaptation of the rules is not out of the question.

Counsel for Anita Stern referred to The Queen v Dain, [1973] FC 1159; [1973] CTC 801; 73 DTC 5589 and to Beïque v The Queen, [1978] 1 FC 320; [1977] CTC 470; 77 DTC 5336, but both of those cases were decided before the 1979 amendments. Indeed the counsel for each of the parties to this motion agree that this is a matter of first impression for which there is no applicable jurisprudence.

The adaptation of the rules is contemplated by the Act, which expresses pertinent deeming provisions, thus:

175. (3) An appeal instituted under this section shall be deemed to be an action in the Federal Court to which the Federal Court Act and the Federal Court Rules applicable to an ordinary action apply, except as varied by special rules made in respect of such appeals, and except that

(a) the Rules concerning joinder of parties and causes of action do not apply except

to permit the joinder of appeals instituted under this section; [Emphasis added]

Now, the notion of “appeal” includes that of “cross-appeal”, and it is to this that the expression “cross-demand” (as distinct from “counterclaim”) refers in subsection 175(2), above noted.

Where, as in this case, the common question admits of reciprocally opposed determination in regard to the parties thereto, and the party against whom the determination was made appeals, the other party being content, the respondent is, of course, entitled to resist the appeal. However, by virtue of subsection 175(2) the respondent, concerned that the appellant’s success on appeal could, in effect, mean that the original determination ought to have been reciprocally inverted against the party in whose favour it was actually made, may appeal by cross-demand, or cross-appeal, “whether or not the time fixed by section 172 has expired”. Here, then, arises the exception in paragraph 175(3)(a) to permit the joinder of appeals, which is by means of a cross-appeal.

Since an appeal instituted under this section is deemed to be an action, the rules relating to joinder of third parties by means of cross-action may appropriately be invoked. The basic rule is as follows:

Rule 1726. (1) Where a defendant claims to be entitled to . . . relief over against any person not a party to the action . . . he may file a third party notice. . . .

A more particular and specific rule for the circumstances contemplated by subsection 175(2) of the Act is this:

Rule 1731. (2) Where in any action a . . . cross-action is made by a defendant, Rules 1726 to 1731 shall apply in relation to the . . . cross-action as if the . . . cross-action were an original action, and as if the person making the .. . cross-action were the plaintiff and the person against whom it is made a defendant.

(3) A third party notice may not be issued under this Rule without leave of the Court.

The defendant’s present application, even ’though the notice of motion does not actually express the words “leave of the court”, is effectively an application for such leave, as is provided in Rule 1731(3). This is the route which is prescribed by the Act for a “cross-demand” instituted in accordance with the Federal Court Rules.

If this result were not possible, then subsections 174(4) and (4.1) and 175(2) and (3) would make no sense. This result is really exacted, not only by Rule 2(2), but also by section 11 of the Interpretation Act, RSC 1970, Chap 1-23. That section requires that the various enactments, including the Federal Court Rules, referred to herein be given such construction and interpretation as best ensure the attainment of the objects of the enactments.

The objects of section 174 of the Income Tax Act reside in the conclusive determination, ultimately if necessary by an appellate court, of “a question of law, fact or mixed law and fact . . . common to assessments or proposed assessments in respect of two or more taxpayers”. The original determination of that question in favour of one taxpayer, and against the other, does not destroy the common feature of the question upon appeal by the latter mentioned taxpayer. The question posed by the Minister in this case is, by its very nature inherently common to both the plaintiff and Anita L Stern. Her contentment with the original determination and his appeal from that determination do not sever the natural, logical reciprocal symmetry of the question. It remains common to them both despite her non-participation in the appeal, just as it would so remain in their positions under the original determination were reversed. The question posed by the Minister continues naturally and logically to involve the plaintiff and Anita L Stern in its determination de novo upon appeal to this court. The question can hardly be half-determined, even if Anita L Stern were permitted to avoid participation in the appeal, simply because it is a question common to both taxpayers. The respondent (here the Minister) can, with leave of the court, require Anita L Stern to participate by joinder as a defendant in this action. That result best attains the objects of the Act.

In the circumstances then, leave is accorded to join Anita L Stern as a defendant herein, adverse in interest to both the plaintiff and the defendant. The defendant may issue a third party notice to her so that the question may come on for determination by this court whole and symmetrical rather than sundered and crippled.

The application is allowed without costs for or against any party because it appears that the defendant sought none. Anita L Stern shall be accorded thirty days after service of the third party notice upon her personally or upon her solicitors in which to file her defence.