The Queen v. B.M. Enterprises Ltd., 92 DTC 6463, [1992] 2 CTC 115 (FCTD)

Reed, J.:—The question to be decided in this case is a very narrow one: was the notice of assessment which was sent to the defendant (respondent), B.M. Enterprises, by the plaintiff (appellant) pursuant to subsection 227(10) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") issued by the proper person. A decision of the Tax Court vacated that assessment on the ground that it should have been issued by the Minister of National Revenue or a lawfully authorized official.

Facts

The defendant owed money to Simonot Equities Ltd. ("Simonot"). Simonot owed moneys to the plaintiff on account of taxes payable pursuant to the Income Tax Act. Both the defendant and Simonot are controlled by the same shareholder, Mr. Marcel Simonot.

On December 17, 1984, the defendant was served with a notice issued pursuant to subsection 224(1) of the Income Tax Act. That notice required the defendant to pay some of the money which it owed Simonot, to the Receiver General of Canada instead of Simonot. Subsection 224(1) of the Income Tax Act provides:

224. (1) Where the Minister has knowledge or suspects that a person is or will be, within 90 days, liable to make a payment to another person who is liable to make a payment under this Act (in this section referred to as the "tax debtor”), he may, by registered letter or by a letter served personally, require that person to pay forthwith, where the moneys are immediately payable, and, in any other case, as and when the moneys become payable, the moneys otherwise payable to the tax debtor in whole or in part to the Receiver General on account of the tax debtor's liability under this Act.

On April 30, 1985, in defiance of this notice, the defendant paid money to Simonot. The defendant thereby became directly liable to the Crown for the amount of taxes owed by Simonot. Subsection 224(4) of the Income Tax Act states:

Every person who fails to comply with requirement under subsection (1) or (3) is liable to pay to Her Majesty an amount equal to the amount that he was required under subsection (1) or (3), as the case may be, to pay to the Receiver General.

Mr. McKenzie is an auditor with the collection investigation branch of the Prince Albert office of Revenue Canada. In the course of his duties he investigated what was suspected to be non-compliance by the defendant with the subsection 224(1) notice to pay. He reviewed the books of both the defendant and Simonot. He reached the conclusion that non-compliance had occurred. He then followed departmental practice and sent the information he had obtained to the Department of Justice seeking counsel's opinion as to whether there had been non-compliance. An affirmative response was received. He then wrote, following departmental practice, to the head of the Programs and Operations-Collections Division of Revenue Canada, in Ottawa, for permission to issue a subsection 227(10) assessment. There is no authority in the local district office to issue such assessments until approval from head office in Ottawa has been obtained.

The letter seeking approval was addressed by Mr. McKenzie to someone in the Programs and Operations-Collections Division, in Ottawa, a Mike Robillard. The response back was signed by Mr. MacDonald, Chief of the Programs and Operations—Collections Division, and was sent to Mr. McKenzie's supervisor, a Mr. Hewson, Chief of Collections in the Saskatoon District Office. This, again, was in accordance with usual departmental practice.

In this case approval was not immediately given. The local office was asked to obtain further information from the Department of Justice. Such information was obtained and sent to Mr. MacDonald's division. On November 5, 1986, a letter was sent from Mr. MacDonald to Mr. Hewson authorizing the issuance of an assessment against the defendant pursuant to subsection 227(10).

Mr. McKenzie then obtained, from clerical staff, the appropriate subsection 227(10) form. This form is a controlled form and is only given to officials who demonstrate that they have authority to use one. Details of the proposed use are recorded by the staff who control the forms. The number on the form is recorded together with details respecting the tax liability and the person to whom the form is being sent. Mr. McKenzie gave the form thus obtained to a typist, together with the relevant information needed to complete the form. The information was typed onto the form. The form was returned to Mr. McKenzie for proofreading and then it was mailed.

I would note that the form is expressed to be sent under the printed name of:

H.G. ROGERS

Deputy Minister of National Revenue for Taxation

The original of this assessment notice was not before the Tax Court. The assessment filed with the Tax Court was the plaintiff's office copy on which there is no reference to Mr. Rogers or his position.

Analysis

Subsection 227(10) of the Income Tax Act states:

227. (10) The Minister may assess

(a) any person for any amount payable by that person under subsection (8) or 224(4) or (4.1) or section 227.1 or 235, and (b) any person resident in Canada for any amount payable by that person under Part XIII . . . .

The defendant argues that it is the Minister alone who has authority to issue subsection 227(10) assessments.

It cannot seriously be contended that the Deputy Minister does not have authority to exercise the Minister's authority under subsection 227(10). A specific statutory provision conferred such authority. Subsection 24(2) of the Interpretation Act, R.S.C. 1985, c. 1-21 states:

(2) Words directing or empowering a Minister of the Crown to do an act or thing, or otherwise applying to that Minister by his name of office, include

(c) his or their deputy.

In addition to subsection 24(2) of the Interpretation Act, subsection 221(1) of the Income Tax Act authorizes the making of regulations authorizing designated officials to exercise the authority of the Minister. Regulations have been issued which authorize Assistant Deputy Ministers to exercise the authority of the Minister (C.R.C. 1978, c. 945, s. 900). Regulation 900 also contains specific delegations of authority to other officials with respect to certain sections of the Act. Subsection 227(10) is not among those listed.

A situation was discussed in Doyle v. M.N.R., [1989] 2 C.T.C. 270, 89 D.T.C. 5483 (F.C.T.D.) in which an official below the rank of Assistant Deputy Minister exercised authority which was conferred by the statute on the Minister but which was not the subject of express delegation under regulation 900. It was held that the doctrine of implied delegated authority still operated, despite the absence of express mention in regulation 900, to allow someone below the rank of Assistant Deputy Minister to make the decision in question. The decision was to suspend prosecution of a taxpayer's appeal pending the outcome of other litigation. Counsel for the defendant argues that the reasoning in the Doyle case does not apply in the present case because the action taken in this case is not a routine or minor matter but is of an extraordinary nature. He notes that until recently such assessments could not be issued without a judgment of the Court. [1]

I am not convinced that this case raises an issue of implied delegation as such. In the Doyle case, the decision was taken in the name of, and by the very officer who represented himself as having made the decision. In this case the assessment was issued in the name of the Deputy Minister and he clearly has authority to take such action. The question is whether he personally must review and approve the sending of the assessment or whether an assessment which is sent out in accordance with practices and procedures which he controls and by officials over whom he has control is sufficient. The issue is whether the situation is one which can be said to be governed by what has been labelled the alter ego principle.

The alter ego principle is described in S.A. de Smith, Judicial Review of Administrative Action, 4th ed. by J.M. Evans (London: Stevens, 1980), at page 307:

Special considerations arise where a statutory power vested in a Minister or a department of state is exercised by a departmental official. The official is the alter ego of the Minister or the department, and since he is subject to the fullest control by his superior he is not usually spoken of as a delegate. (A different analysis must, of course, be adopted where powers are explicitly conferred upon or delegated to an official by a law-making instrument.) The courts have recognised that “the duties imposed on Ministers and the powers given to Ministers are normally exercised under the authority of the Ministers by responsible officials of the department. Public business could not be carried on if that were not the case.” In general, therefore, a Minister is not obliged to bring his own mind to bear upon a matter entrusted to him by statute but may act through a duly authorised officer of his department. The officer’s authority need not be conferred upon him by the Minister personally; it may be conveyed generally and informally by the officer’s hierarchical superiors in accordance with departmental practice . . . .

[Emphasis added; footnotes omitted.]

And at page 304, the following is said:

The degree of control (a priori or a posteriori) maintained by the delegating authority over the acts of the delegate or sub-delegate may be a material factor in determining the validity of the delegation. In general the control preserved (e.g., by a power to refuse to ratify an act or to reject a recommendation) must be close enough for the decision to be identifiable as that of the delegating authority.

[Footnote omitted.]

In Re Golden Chemical Products Ltd., [1976] 2 All E.R. 543 (Ch. Div.), at page 547 it was said with respect to ministerial powers:

(1) As a general rule a Minister is not required to exercise personally every power and discretion conferred on him by an Act. It is otherwise if there is a context in the Act which shows that the power is entrusted to the Minister personally. (2) As a general rule, it is for the Minister or his appropriate officials to decide which of his officers shall exercise a particular power. (3) Unless the level at which the power is to be exercised appears from the Act, it is not for the courts to examine the level or to enquire whether a particular official entrusted with the power is the appropriate person to exercise that power. (4) As a general rule, officers of a government department exercise powers incidental and appropriate to their functions. In the absence of a statutory requirement, it is neither necessary nor usual for specific authority to be given orally or in writing in relation to a specific power.

(5) Constitutionally there is no delegation by a Minister to his officers. When an officer exercises a power or discretion entrusted to him, constitutionally and legally that exercise is the act of the Minister.

[Emphasis added.]

See also Dussault and Borgeat, Administrative Law, vol. 1 (Toronto: Carswell, 1985), at page 263.

The question arises as to whether the alter ego principle applies to Ministers only, because Ministers are answerable to the legislature for their actions, or whether it also applies in other circumstances where the individual is not directly answerable to the legislature. In my view, the crucial factor is not the constitutional relationship of the Minister to the legislature but the degree of control which is exercised by the individual who is responsible for the decision being taken. See O'Reilly and Others v. Commissioner of State Bank of Victoria and Others (1982), 44 A.L.R. 27 (H. Ct.) for a discussion of this situation.

In the present case, the assessment in question was done in the name of the Deputy Minister, it was done, as has been noted, in accordance with procedures controlled by him and by officials acting according to his directions. It cannot be said that the assessment was issued by Mr. McKenzie even though he physically supervised the preparation of the notice which was sent. The assessment was issued as a result of the participation of a number of individuals not the least of which was the legal advice given by officers of the Department of Justice. In the circumstances, I think it is appropriate to consider the issuing of the assessment as the act of the Deputy Minister even though he did not personally review the file.

If I am wrong in thinking that in this case the acts of the officials below the rank of Deputy Minister should be taken to be the act of the Deputy Minister, then, it is necessary to consider whether there was an implied authority allowing the Deputy Minister to subdelegate.

The applicable law was summarized in Regina v. Harrison, [1977] 1 S.C.R. 238, 66 D.L.R. (3d) 660 (S.C.C.) at pages 665-66 D.L.R.:

In my opinion, there is implied authority in the Attorney-General to delegate the power to instruct, in subsection 605(1). I do not think that subsection 605(1) requires the Attorney-General personally to appeal or personally to instruct counsel to appeal in every case. Although there is a general rule of construction in law that a person endowed with a discretionary power should exercise it personally (delegatus non potest delegare), that rule can be displaced by the language, scope or object of a particular administrative scheme. A power to delegate is often implicit in a scheme empowering a Minister to act. As Professor Willis remarked in "Delegatus Non Potest Delegare", 21 Can. Bar Rev. 257 (1943) at page 264:

. . . in their application of the maxim delegatus non potest delegare to modern governmental agencies the Courts have in most cases preferred to depart from the literal construction of the words of the statute which would require them to read in the word "personally" and to adopt such a construction as will best accord with the facts of modern government which, being carried on in theory by elected representatives but in practice by civil servants or local government officers, undoubtedly requires them to read in the words "or any person authorized by it”.

See also S.A. deSmith, Judicial Review of Administrative Action, 3rd ed. (1973), page 271. Thus, where the exercise of a discretionary power is entrusted to a Minister of the Crown it may be presumed that the acts will be performed, not by the Minister in person, but by responsible officials in his department: Carltona Ltd. v. Com’rs of Works, [1943] 2 All E.R. 560 (C.A.). The tasks of a Minister of the Crown in modern times are so many and varied that it is unreasonable to expect them to be performed personally. It is to be supposed that the Minister will select deputies and departmental officials of experience and competence, and that such appointees, for whose conduct the Minister is accountable to the Legislature, will act on behalf of the Minister, within the bounds of their respective grants of authority, in the discharge of ministerial responsibilities. Any other approach would but lead to administrative chaos and inefficiency . . . .

[Emphasis added.]

Counsel for the plaintiff argues that if the Minister, or presumably the Deputy Minister, were required to personally review all assessments administrative chaos would result. She argues that there are numerous sections of the Act which are similarly worded to subsection 227(10) and which result in thousands of assessments being issued.

Counsel for the plaintiff argues that the nature of a subsection 227(10) assessment is one with respect to which there is virtually no discretion. In Riendeau v. The Queen, [1991] 2 C.T.C. 64, 91 D.T.C. 5416 (F.C.A.), at page 65 (D.T.C. 5417), the Court discusses this fact with respect to other assessment provisions of the Act:

As the cases and statutory provisions which were cited by Cullen, J. well show, liability for tax is created by the Income Tax Act, not by a notice of assessment. A taxpayer’s liability to pay tax is just the same whether a notice of assessment is mistaken or is never sent at all. In Belle-Isle v. M.N.R. (1963), 31 Tax A.B.C. 420, 63 D.T.C. 347 (T.A.B.), Boisvert, Q.C., after quoting the texts of what are now section 166 and subsections 152(8) and 152(3) of the Act, said, at page 433 (D.T.C. 349):

Where the above texts are concerned, it matters little under what section of the Act an assessment is made. What does matter is whether tax is due.

See also M.N.R. v. Minden, [1962] C.T.C. 79, 62 D.T.C. 1044 (Ex. Ct.), at 89 (D.T.C. 1050).

In the present case, the amounts assessed remained the same throughout. What is disputed is that the assessments were originally said to have been made on the basis of repealed subsection 74(5) of the Act which, the appellant says, rendered the assessments invalid not withstanding that the Minister afterward corrected this mistake by confirming the assessments on the basis of sections 3 and 9 of the Act.

In our view, the Minister's mental process in making an assessment cannot affect a taxpayer’s liability to pay the tax imposed by the Act itself . . . .

I could not conclude that the issuance of an assessment in this case is of such a discretionary nature that Parliament intended the Minister, or even the Deputy Minister or an Assistant Deputy Minister to personally, review each potential subsection 227(10) assessment and decide whether or not it should be issued. It is significant in this regard that the assessment is not final in nature. It can always be challenged in the courts if it is not properly issued. That is, to the extent that there is any exercise of discretion involved in the issuing of the assessment, that discretion is not ultimately determinative of whether or not the assessment is valid. I would conclude therefore, that it is appropriate to find an implied authority allowing the Deputy Minister to subdelegate in these circumstances.

For the reasons given the plaintiff's claim is allowed. The plaintiff is entitled to her costs of the action.

Minister's appeal allowed.