Citation:
2016 TCC 181
Date: 20160817
Docket: 2013-2117(IT)G
BETWEEN:
MICHAEL
J. GRANOFSKY,
Applicant,
and
HER
MAJESTY THE QUEEN,
Respondent.
REASONS
FOR ORDER
D’Auray J.
Overview
[1]
The Applicant has brought a motion to have set
aside and declared invalid an out‑of-court
settlement agreement allegedly reached between the parties under subsection
169(3) of the Income Tax Act
(the “Act”).
[2]
The Applicant alleges that the counsel who had
been previously acting on his behalf in this matter, Ms. Julie Tremblay, and
counsel for the Respondent, Ms. Cristina Ham, incorrectly informed this
Court on September 3, 2015 that his appeal had been settled, as the Applicant
did not give a mandate to his counsel to settle and that he did not sign personally
the out-of-court settlement.
[3]
The Respondent has brought a motion to enforce
the settlement allegedly reached under subsection 169(3) of the Act. The
Respondent’s position is that Ms. Tremblay was mandated to act
for the Applicant in this matter and that she was authorized by him to settle
his appeal.
Facts
[4]
The Applicant was reassessed by the Minister of
National Revenue (the “Minister”) on October 8, 2010 with respect to his
2005, 2006, 2007 and 2008 taxation years. The Applicant was reassessed for not
reporting in his income a total amount of $3,128,324. The Applicant objected to
these reassessments, which were confirmed, with respect to 2005, 2006 and 2007,
by the Minister on March 13, 2013. The Applicant then appealed the
reassessments to this Court by way of a Notice of Appeal filed on June 5, 2013.
[5]
Ms. Tremblay, who was the counsel of record
in this appeal, testified that she acted for the Applicant with respect to his
tax appeal until shortly after he instructed her to put a stop to the
discontinuance and denied that he had ever given her a mandate to settle the
appeal. At that time, she advised the Applicant that she could no longer act
for him.
[6]
Ms. Tremblay stated that, after completing
the written discovery process, she met the Applicant in July 2015. The
Applicant’s accountant was also in attendance at that meeting. At that time,
the Applicant’s objective was to settle or to postpone the hearing of the
appeal. Ms. Tremblay testified that it was important for the Applicant that the
pressure of the collection of any potential tax debt owing by him be removed.
Following a discussion, the Applicant agreed with Ms. Tremblay’s proposal
to settle his appeal.
[7]
Accordingly, Ms. Tremblay forwarded an offer of
settlement to Ms. Ham, who was acting for the Respondent. Ms. Ham did not
accept the offer made by Ms. Tremblay, but made a counter-offer in August
2015.
[8]
Ms. Tremblay brought the counter-offer to the Applicant.
He, on the advice of Ms. Tremblay, decided to proceed to trial. Ms. Tremblay
explained that the counter-offer did not meet her expectations regarding what
constituted an acceptable offer. Since the trial was scheduled to be heard on
September 8, 2015,
Ms. Tremblay started to prepare for the trial.
[9]
At the end of August 2015, Ms. Tremblay met with
the Applicant and his accountant for the purpose of preparing for trial. She
testified that, at that meeting, the Applicant advised her that he wanted to
discontinue his appeal.
Ms. Tremblay suggested to him that she could try to get a better
settlement offer than that already offered by the Respondent. Ms. Tremblay felt
that the Applicant would be better off by settling than by discontinuing his
appeal.
[10]
Ms. Tremblay testified that, with the
authorization of the Applicant, she then made another offer of settlement to Ms.
Ham. In order to obtain a better settlement, she raised new arguments. Although
Ms. Ham declined the offer, she did make another counter-offer.
[11]
Ms. Tremblay stated that before accepting Ms.
Ham’s counter-offer, she called the Applicant and apprised him of the revisions
to his reassessment that were set out in that counter-offer by the Respondent.
In Ms. Tremblay’s view, the Applicant had mandated her to accept the offer
since he told her to “go ahead” with the settlement during the phone call. She then
advised him that she would send him the details of the counter-offer by e-mail.
[12]
Ms. Tremblay sent the Applicant the
following e-mail dated September 3, 2015 at 11:26 a.m.:
[Subject: Out of
Court Settlement with the CRA]
Dear Mr.
Granofsky,
As
discussed and as you have mandated me, an out of court settlement was
negotiated with Revenue Canada. As per the Settlement, the “additional revenue”
[sic] will be reduced by the following amounts:
[Ms.
Tremblay lists the amounts by which the Applicant’s income will be reduced for
the 2005, 2006, 2007 and 2008 taxations years.]
The
Settlement is signed without any admission as to our submissions.
Please
confirm by email that you accept the above-mentioned settlement and that I can
sign the document.
Best regards,
Julie Tremblay, avocate
Starnino Mostovac
[My emphasis.]
[13]
On the same day, at 11:42 p.m., the Applicant
responded by e-mail to Ms. Tremblay, writing: “accepted ok”.
[14]
After Ms. Ham was advised that the Applicant had
accepted the settlement, it was decided that Ms. Ham would draft an out-of-court
settlement.
[15]
The out-of-court settlement document was signed
on September 3, 2015, by Ms. Tremblay on behalf of the Applicant
and Ms. Ham on behalf of the Respondent.
[16]
In the same document, the Applicant undertook to
provide a duly signed Notice of Discontinuance to counsel for the Respondent.
Such Notice of Discontinuance was signed on September 9, 2015 by Ms. Tremblay
on behalf of the Applicant. According to the terms of the out-of-court settlement,
the Notice of Discontinuance was to be “held in trust” by the Respondent’s
counsel until the Minister would issue under subsection 169(3) of the Act
reassessments reflecting the settlement reached by the parties.
[17]
The reassessments pursuant to subsection 169(3) of
the Act were issued at the beginning of November 2015. Ms. Tremblay
testified that, upon receipt of the reassessments, she verified that they
accurately reflected the terms of the out-of-court settlement. Subsequently, on
November 10, 2015, she contacted the Applicant by e-mail, informing him that
the reassessments accurately reflected the out-of-court settlement and stating
that she would file the Notice of Discontinuance with this Court the following
day unless advised to do otherwise.
[18]
On November 11, 2015, the Applicant replied,
instructing Ms. Tremblay to not proceed any further for now, as he needed
“some time to reflect”, and indicating that he would “attempt to get in touch
as soon as possible”. Ms. Tremblay replied, stating that she would not
proceed any further for the time being, but said that the Notice of
Discontinuance was being held by the CRA and would need to be filed by the end
of the week. She also represented to the Applicant that the reassessments
reflected the settlement “that was agreed upon by you.”
[19]
On November 25, 2015, Ms. Tremblay wrote to the Applicant
by e-mail, providing information that he had requested, namely, the statement
of account detailing how much was being claimed by the CRA and Revenu Québec.
She then indicated her understanding that “your intention is to file for
bankruptcy or to ask your syndic to negotiate an agreement with the tax
authorities. Therefore, we negotiate an out of court settlement, for
which you agreed with, to facilitate the negotiation with the tax authorities.”
She went on to state that, as the reassessments were in line with the
settlement, “the notice of discontinuance will be filed.”
[20]
The Applicant sent an e-mail in reply to Ms. Tremblay
on December 1, 2015, stating that Ms. Tremblay could not file
the Notice of Discontinuance since he had never given her a mandate to settle
and that he still wanted his day in court. At that point, Ms. Tremblay
advised the Applicant to retain new counsel since she could no longer continue
to act on his behalf.
[21]
Ms. Tremblay confirmed that she had never
forwarded to the Applicant a copy of the document “out‑of-court settlement”
signed by herself and the Respondent’s counsel.
[22]
Counsel for the Applicant at the hearing advised
the Court that his client had lapses of memory and therefore might not be a
reliable witness. In that regard, he tendered as evidence a letter from a Dr. David Goltzman.
[23]
The Applicant used as evidence the Granofsky
Affidavit filed with his Notice of Motion. The Respondent did not cross-examine
the Applicant on his affidavit.
[24]
The Granofsky Affidavit states that the Applicant
had met with Ms. Tremblay, about three years prior to his signing the
Affidavit, to obtain her help in solving his tax problems, mostly by having all
of the new assessments against him vacated. The Applicant states in his
affidavit that in the autumn of 2015 he had become “physically and financially
weak under the heavy collection efforts of the tax agencies”. He further states
that he explained to Ms. Tremblay that he would be facing bankruptcy if
she was not successful in removing on an interim basis the financial pressures
caused by the collection activities of the CRA. The Affidavit states that Ms. Tremblay
would seek negotiated relief.
[25]
Furthermore, the Granofsky Affidavit states that
the Applicant received an e-mail from Ms. Tremblay around September 3, 2015, in
which “she mentioned she negotiated something to slightly lower the amounts
owed and I told her I agreed”. The Affidavit states that there was no meeting
between Ms. Tremblay and the Applicant then or later, that the Applicant
never signed any document and that he did not receive any official letter from Ms. Tremblay.
The Affidavit states that the Applicant thought that Ms. Tremblay “had
removed pressure from the collection departments so I could avoid bankruptcy on
an interim basis”.
Questions in issue
[26]
The issues in this appeal are as follows:
a. Did
Ms. Tremblay have a mandate to settle the appeal of the Applicant?
b. Does a consent in writing to settle signed by
the counsel of a taxpayer constitutes a valid consent under subsection 169(3)
of the Act?
Positions of the parties
Applicant
[27]
Counsel for the Applicant submitted that there
was a misunderstanding between the Applicant and Ms. Tremblay. The Applicant
did not want Ms. Tremblay to settle his appeal.
[28]
Furthermore, counsel for the Applicant argued
that the Respondent had not met the burden of proof incumbent on her to
demonstrate that the Applicant had consented in writing, as required under
subsection 169(3) of the Act.
[29]
The Applicant’s position is that, under
subsection 169(3) of the Act, it is the taxpayer personally who has to
consent in writing in order for the settlement and the reassessments to be
valid. The Applicant argues that since he did not personally consent in writing,
the reassessments are not valid.
[30]
In addition, the Applicant submits that the out-of-court
settlement signed by Ms. Ham and Ms. Tremblay was not validly entered
into according to its own terms, since it was not signed by him. Counsel for
the Applicant argued that under clause 3 of the out-of-court settlement, the
only person authorized to sign was the Applicant. Clause 3 states:
Upon signing
this agreement Michael J. Granofsky shall provide
to the Minister of National Revenue’s counsel a duly signed Notice of
Discontinuance.
[31]
In addition, counsel for the Applicant states
that under private contract law, an ambiguous clause has to be interpreted
against the interests of the party who drafted the contract (in this case, the
Respondent).
In counsel’s view, clause 3 is ambiguous as it is not clear if Ms. Tremblay
could sign such a contract on behalf of the Applicant.
[32]
The Applicant submits that any doubt as to the
meaning of clause 3 gives rise to an interpretive presumption against the
interests of the Respondent. In other words, I have to give to the out-of-court
settlement contract an interpretation that favours the Applicant since
contracts are to be interpreted against the person who stipulated the provisions
of the contract, namely, the Respondent in this case. The Applicant argues that
under clause 3 of the out‑of‑court settlement contract, the
Applicant had to sign personally such contract.
Respondent
[33]
The Respondent is of the view that the testimony
of Ms. Tremblay is uncontradicted, that it shows that she had a written
mandate to settle, and that she settled the appeal in accordance with her
mandate.
[34]
In addition, the Respondent argues that the Applicant
was able to sign on behalf of the Applicant as she was his mandatary at the
time she signed.
Analysis
[35]
I am of the view that Ms. Tremblay was
given a mandate to settle. Her mandate is reflected in the e-mail sent to the Applicant
on September 3, 2015, in which she asked him to confirm that he was in
agreement with the settlement terms and that she could sign the document. The Applicant’s
reply in writing to Ms. Tremblay’s e-mail that he “accepted ok” was clear.
[36]
In addition, I accept Ms. Tremblay’s
testimony that the Applicant had communicated to her a desire to simply
discontinue his appeal relatively close to the date on which she signed the out-of-court
settlement. She clearly testified that, when she met the Applicant for the
purpose of working on trial preparation, he initially instructed her to file a notice
of discontinuance. It was Ms. Tremblay who advised him that he would be
better off to reach a settlement rather than abandon his appeal. At that point,
he told her to go ahead and to do what she could.
[37]
In light of these uncontradicted facts, it is
difficult for the Applicant to state that he did not give Ms. Tremblay a
mandate to settle his case and that he only wanted her to find a way to remove
the pressure of collection actions being taken by the CRA.
[38]
In addition, if the Applicant thought that his
appeal was not settled, I do not understand why he did not get in touch with
Ms. Tremblay since he knew that his appeal was to be heard on September 8,
2015. The applicant was advised by Ms. Tremblay, on November 10, 2015 that
the Notice of Discontinuance had to be filed. It is only on December 1st,
2015, after receiving documents from CRA, including the statement of account,
that he advised Ms. Tremblay that he wanted to proceed before the Court.
[39]
As properly conceded by counsel for the Applicant,
his position on the interpretation of subsection 169(3) of the Act turns
to a great degree on whether the decision I rendered in Softsim Technologies and the decision of Justice
Bocock in Davies
are correct in their interpretation of the requirements of subsection 169(3) of
the Act.
[40]
Subsection 169(3) of the Act reads as
follows:
169(3)
Disposition of appeal on consent. Notwithstanding section 152, for the purpose
of disposing of an appeal made under a provision of this Act, the Minister may
at any time, with the consent in writing of the taxpayer, reassess tax, interest,
penalties or other amounts payable under this Act by the taxpayer.
[41]
It is clear that Ms. Tremblay was the
counsel of record for the Applicant within the meaning of section 31 of the Tax
Court of Canada Rules (General Procedure).
[42]
As outlined above, Ms. Tremblay was
mandated to sign the out-of-court settlement on behalf of her client. Ms. Tremblay,
as the mandatary of the Applicant and pursuant to his authorization to settle,
was entitled to sign the settlement document. Lawyers are expected to act on
behalf of their client within the mandate given by the client. Ms. Tremblay,
as mandatary of the Applicant, acted within her mandate when she signed the
out-of-court settlement. In my view, when a party is represented by counsel, such
counsel, for the purpose of settling an appeal, may consent in writing on
behalf of the taxpayer in order for the Minister to issue a reassessment.
[43]
Although clause 3 of the settlement agreement
says that “[u]pon signing this agreement Michael J. Granofsky shall
provide to the Minister of National Revenue’s counsel a duly signed Notice of
Discontinuance”, that does not prevent the mandatary from binding her mandator.
As I stated earlier in my reasons with respect to subsection 169(3) of the Act,
as mandatary and counsel of record for the Applicant, Ms. Tremblay acted
within her mandate when she signed the settlement document on his behalf. The
argument that the terms of the contract either clearly favour the Applicant’s
position or raise a doubt as to the interpretation of the contract could only
succeed if the law surrounding mandates in Quebec civil law were ignored. In my view, there is no doubt
that the terms of the contract do not raise a doubt as to whether the Applicant’s
mandatary was entitled to sign the out-of-court settlement on his behalf so
long as she did so in fulfilment of her mandate. Therefore, the out-of-court settlement
was validly entered into by the Applicant.
[44]
In any event, it could be said that the
Applicant’s consent to settle was given by him in writing when he reply to Ms.
Tremblay by e-mail dated September 3, 2015, at 11:26 a.m. by telling her that
he accepted to settle. Subsection 169(3) of the Act does not require an
out-of-court settlement signed by both parties. Subsection 169(3) of the Act
states: “The Minister may at any time reassess, with the consent in writing of
the taxpayer.” The procedure under 169(3) is different from a Consent to
Judgment pursuant to section 170 of the Tax Court of Canada Rules (General
Procedure) where both parties have to consent in writing.
[45]
Furthermore, I note that it was not alleged at
any time during the hearing that the Applicant did not have the mental capacity
to give the mandate to settle. Although the Granofsky Affidavit raises
allegations of the Applicant’s poor health in the autumn of 2015, those
allegations taken at face value are still insufficient to show that the Applicant
lacked mental capacity as of September 3, 2015.
[46]
In light of the above, I will dismiss the Applicant’s
motion and allow the Respondent’s motion, thereby enforcing the settlement
reached in this matter. Given the evidence and the arguments before me, the
reassessments seem to have been validly issued pursuant to subsection 169(3) of
the Act.
[47]
My order will be the same as issued by Justice Bowie
of this Court in 1390758 Ontario,
in which he stated that:
“[h]ad the Minister
not already reassessed the appellant in accordance with the Minutes of
Settlement, I would have allowed the appeals and referred the reassessments that
are under appeal back to the Minister for reconsideration and reassessment in
accordance with the Minutes of Settlement. As he has already made those
reassessments the proper remedy is an order quashing the appeals.”
[48]
Since the reassessments were made by the
Minister, the appeal is accordingly quashed. The Respondent is entitled to her
costs.
Signed at Ottawa, Canada, this 17th day of August 2016.
“Johanne D’Auray”
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