Aubé v. M.N.R., docket 96-763-UI

Date: 19981204

Docket: 96-763-UI

BETWEEN :

DENISE AUBÉ,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent.

Reasons for Judgment

P.R. Dussault, J.T.C.C.

[1]            This is the second time that this appeal has been heard by the Tax Court of Canada. The first decision was on September 25, 1997, and was set aside by the Federal Court of Appeal on May 26, 1998, on an application for judicial review, on the ground that the reasons given for the decision were not adequate and sufficient. The case was referred back to the Tax Court of Canada to be retried by another judge. The new hearing was held on September 23, 1998.

[2]            The appellant is contesting a determination by the respondent, dated April 10, 1996, that her employment with the payer Piscines Armand Dumont Enr. (the "payer") during the period from May 1 to September 15, 1995, was not insurable.

[3]            The impugned decision is based on paragraph 3(2)(c) of the Unemployment Insurance Act (the "Act"). The respondent contends that the appellant's employment is excepted from insurable employment on the ground that the appellant and the payer were not dealing with each other at arm's length and that it was not reasonable in the circumstances to conclude that the appellant's contract of employment would have been substantially similar if she had been dealing with the payer at arm's length.

[4]            In making his determination, the respondent relied on the assumptions of fact set out in subparagraphs (a) to (m) of paragraph 5 of the Reply to the Notice of Appeal. Those subparagraphs read as follows:

[TRANSLATION]

(a)            the payer sold swimming pool maintenance products and spare parts;

(b)            the payer is the appellant's spouse;

(c)            the payer himself sold swimming pools for a third party from April 17 to July 21, 1995;

(d)            the payer claims that he hired the appellant to look after his store, and specifically to order stock and make sales to customers;

(e)            the payer claims that the appellant worked from 8:30 a.m. to 5:00 p.m. Monday to Friday;

(f)             the payer claims that the appellant worked from May 1 to September 15, 1995, that is, for 20 weeks;

(g)            the appellant had no experience selling swimming pool products;

(h)            the appellant needed 20 weeks of employment to qualify for unemployment insurance benefits;

(i)             the payer's business was active mainly in June and July 1995, with almost no sales being made in August and September;

(j)             the payer was himself out of work in August and September;

(k)            during the period at issue, the payer's business operated at a loss;

(l)             the payer would not have paid a stranger in August and September;

(m)           in these circumstances, it is not reasonable to conclude that the appellant's contract of employment would have been substantially similar if she had been dealing with the payer at arm's length.

[5]            Subparagraphs (b) to (f) were admitted. All the other subparagraphs were denied.

[6]            Armand Dumont testified that he had been in the business of selling and installing swimming pools and selling swimming pool products and accessories since 1980. He said that the appellant had identical experience and that she too had taken water treatment courses. He said that at first, the business operated in St-Antonin out of their private home, and then it moved to downtown Rivière-du-Loup, into a building that had been purchased in 1994. Mr. Dumont said that he had decided that the business would be open from May 1 to September 15, 1995, based on the volume of business. He stated that he had chosen his spouse to look after the business because he believed her to be qualified for the work. The appellant allegedly worked five days a week, eight hours a day. She was replaced Saturdays by the couple's children. According to Mr. Dumont, the appellant was paid a wage of $6 per hour, or $240 per week, which was about the minimum wage.

[7]            The appellant's duties including answering the telephone, looking after customers, ordering products and generally looking after business at the store. Other people were apparently hired to install and repair swimming pools.

[8]            The business's sales record, which was entered in evidence (Exhibit A-3), shows sales of less than $300 per week for the period from August 18 to September 14. In two of the four weeks in that period, sales were less than $200. Mr. Dumont acknowledged that the business was slowing down in the last month and a half, and was getting close to closing. However, he said that he had to continue to serve and to satisfy customers.

[9]            Mr. Dumont said that he had discussed the appellant's employment with no one other than Alain Boivin of Revenue Canada, who telephoned him late one evening, at about 11 p.m. Mr. Dumont said that he told him, among other things, that he would have had to hire someone else if the appellant had been unable to do the work. He denied having spoken to Sylvie Côté.

[10]          During the period in issue, Mr. Dumont himself was employed by Piscines Ste-Marie de Beauce. He said that he was laid off shortly before the end of July 1995, because of a shortage of work, and subsequently applied for unemployment insurance benefits. He stated that he did not want to take over from the appellant and work in his own business at that point both because he was receiving more in benefits, $408 per week, than he could otherwise have earned, and because the appellant was familiar with the customers, the billing procedure, the operation of the fax machine, and so on, since she was the one who had been performing these various duties since 1980. He added that the appellant was able to provide answers for customers who were having water problems, since they had had a swimming pool at their home in the past. Thus, said that he had not worked at all in the business during the period from the end of July until it closed on September 15, 1995. In addition, according to him, all of the business's income had been reported since 1980. The 1993 and 1994 income tax returns (Exhibits I-4 and I-3) show that no business income was reported for those years. There are no financial statements with the returns, and no mention is made of a business having been operated. For 1995, the return shows gross business income of $44,890.42 and a net loss of $2,996.83 (Exhibit I-2). However, the income statement accompanying the return shows a loss of $5,372.

[11]          The testimony given by the appellant, who described herself as a storekeeper, was essentially the same as Mr. Dumont's, except that she spoke of her experience as dating from 1985. She said that she had taken part in a one-weekend water treatment clinic held in February 1995. The appellant pointed out that Mr. Dumont was not overly familiar with the equipment in the store, and that he would have had some difficulty in taking over from her, but that someone with experience could have done so.

[12]          The appellant also asserted that the business had to stay open until September 15 to provide service to customers and that they also had to prepare for the next year. She said that she had not been aware of the number of weeks needed in order to draw unemployment insurance benefits and that the periods when the business was open were always of twenty or twenty-one weeks' duration. In 1997, however, the business, which was then being operated by a corporation, appears to have closed in July on account of a bankruptcy. In 1998, when it was being operated again by Mr. Dumont, who had simply registered a firm name, it appears to have closed on August 22.

[13]          Sylvie Côté, an insurability appeals officer at the time in question, testified that she had contacted Mr. Dumont by telephone on February 19, 1996, and that the appellant was also present with Mr. Dumont during that conversation.

[14]          Ms. Côté said that at that time she had information in her possession concerning the business's weekly income during the period in issue (Exhibit A-3). Following a request made during that conversation, she received the business's financial statements, which showed a profit of $9,574 for 1995 (Exhibit I-1). However, the income statement filed with the income tax return for the 1995 tax year (Exhibit I-2), which Ms. Côté subsequently obtained, showed a loss of $5,372 for that period.

[15]          She said that in the telephone conversation with Mr. Dumont, one of the things he said was that he knew the appellant had to work twenty weeks in order to be able to draw unemployment insurance benefits, since this was the first time she had worked. He apparently also stated that the appellant had no experience, that simply they themselves had a swimming pool.

[16]          Ms. Côté also testified that she had obtained information from the Department showing that Mr. Dumont had reported no business income from 1992 to 1995. While acknowledging that the appellant had worked for the payer in 1995 and admitting that she had not checked to see whether a competing business might have remained open for the same period, Ms. Côté said that she had based her determination that the employment was excepted from insurable employment under paragraph 3(2)(c) on the evidence as a whole. More specifically, that evidence was the business's very low income during the last few weeks, as shown by the weekly sales record for the period in issue (Exhibit A-3), Mr. Dumont's comments on that point, the fact that the appellant worked exactly twenty weeks, which was the minimum period required, and the fact that Mr. Dumont, who was the owner of the business and had himself been unemployed since July, did not work in that business.

[17]          Alain Boivin, an insurability officer, also testified. He said that he had contacted the appellant and Mr. Dumont but that he had never called them at 11:00 p.m. He testified that Mr. Dumont told him that if the appellant had been unable to work he would not have hired someone else in her place. Moreover, while the appellant said she was working on her own, the employer for whom Mr. Dumont worked until July 1995 told Mr. Boivin that he could reach Mr. Dumont either at home or at the store.

[18]          Counsel for the appellant contended that the respondent's decision was arbitrary as the appellant was qualified to do the work asked of her, she worked the number of weeks required by the payer, and the payer had made a business decision not to close until September in order to satisfy customers and meet the competition. He added that the reason that Mr. Dumont decided to apply for unemployment insurance benefits and keep the appellant on instead of looking after his business himself was that the appellant was qualified for that work. Counsel for the appellant also relied on Mr. Dumont's statement at the hearing that if the appellant had not been available he would have had to hire someone else, and that the conditions of employment would in that case have been the same. Counsel for the appellant submitted that the doubt expressed by Sylvie Côté as to the need to keep the business open until September 15 for the reasons given was not justified, and that this business decision had nothing to do with the fact that the business was operating at a loss, something that Ms. Côté moreover did not become aware of until later.

[19]          The agent for the respondent submitted that the impugned decision was made in compliance with the Act, and was based on not one but a number of factors. In her submission, the question of the appellant's experience was certainly not the most important factor. She pointed to the fact that Mr. Dumont had allegedly said that he knew that the appellant had to work a minimum of twenty weeks. She also noted that Mr. Dumont was receiving unemployment insurance benefits, that he was not working and that he kept the appellant on when, according to the figures obtained, sales were virtually non-existent. That arrangement enabled both Mr. Dumont and the appellant to receive unemployment insurance benefits. Having regard to that evidence, the agent for the respondent submitted that it was not reasonable to conclude that the payer would have continued to pay an outsider in similar circumstances.

[20]          In support of that argument, the agent for the respondent referred to the decision of the Federal Court of Appeal in Jencan Ltd. v. Canada, [1997] F.C.J. 876 (Q.L.).

[21]          It is well settled since the judgments of the Federal Court of Appeal in Tignish Auto Parts Inc. v. M.N.R., 185 N.R. 73, [1994] F.C.J. No. 1130 (Q.L.) and Ferme Émile Richard et Fils Inc. v. Minister of National Revenue et al., 178 N.R. 361, [1994] F.C.J. No. 1859 (Q.L.), that the Tax Court of Canada cannot intervene to change the Minister's determination unless it finds that the determination was made in a manner contrary to law or, in other words, in a capricious or arbitrary manner.

[22]          In Jencan (supra), Chief Justice Isaac, writing for the Federal Court of Appeal, stated clearly that such interference is not justified where there is sufficient evidence to support the decision, even where certain assumptions of fact may have been disproved. At paragraph 50 of the decision, he stated the following on this point:

                The Deputy Tax Court Judge, however, erred in law in concluding that, because some of the assumptions of fact relied upon by the Minister had been disproved at trial, he was automatically entitled to review the merits of the determination made by the Minister. Having found that certain assumptions relied upon by the Minister were disproved at trial, the Deputy Tax Court Judge should have then asked whether the remaining facts which were proved at trial were sufficient in law to support the Minister's determination that the parties would not have entered into a substantially similar contract of service if they had been at arm's length. If there is sufficient material to support the Minister's determination, the Deputy Tax Court Judge is not at liberty to overrule the Minister merely because one or more of the Minister's assumptions were disproved at trial and the judge would have come to a different conclusion on the balance of probabilities. In other words, it is only where the Minister's determination lacks a reasonable evidentiary foundation that the Tax Court's intervention is warranted [See Note 32 below]. An assumption of fact that is disproved at trial may, but does not necessarily, constitute a defect which renders a determination by the Minister contrary to law. It will depend on the strength or weakness of the remaining evidence. The Tax Court must, therefore, go one step further and ask itself whether, without the assumptions of fact which have been disproved, there is sufficient evidence remaining to support the determination made by the Minister. If that question is answered in the affirmative, the inquiry ends. But, if answered in the negative, the determination is contrary to law, and only then is the Tax Court justified in engaging in its own assessment of the balance of probabilities. Hugessen J.A. made this point most recently in Hébert, supra. At paragraph 5 of his reasons for judgment, he stated:

In every appeal under section 70 the Minister's findings of fact, or "assumptions", will be set out in detail in the reply to the Notice of Appeal. If the Tax Court judge, who, unlike the Minister, is in a privileged position to assess the credibility of the witnesses she has seen and heard, comes to the conclusion that some or all of those assumptions of fact were wrong, she will then be required to determine whether the Minister could legally have concluded as he did on the facts that have been proven. That is clearly what happened here and we are quite unable to say that either the judge's findings of fact or the conclusion that the Minister's determination was not supportable, were wrong.

____________

Note 32: See Canada (Director of Investigation and Research) v. Southam Inc., [1997] 1 S.C.R. 748, at pp. 776-777, per Iacobucci J.

[23]          First, I would say that I assign very little credibility to the testimony of Mr. Dumont, who went so far as to say that he had had no conversation with Sylvie Côté, the Revenue Canada appeals officer. Ms. Côté, however, described the details of their conversation. In addition, the inconsistent accounts given to the respondent's representatives and at the hearing cast serious doubt on the truth of certain assertions.

[24]          The first issue to be disposed of here is whether the determination under paragraph 3(2)(c) was made in a manner contrary to law, regardless of whether some assumptions of fact may have been disproved. Even if I did accept that the appellant had all the required experience and actually worked until September 15, 1995 at the employer's request, I am not satisfied that the store had to remain open until that date to ensure customer satisfaction. But that is not all. There remains other evidence that has sufficient weight, in my view, to support the respondent's determination.

[25]          Thus I find that the payer knew that the appellant had to work a minimum of twenty weeks to be entitled to unemployment insurance benefits. He was himself receiving benefits in August and September 1995, as his employment with another employer had been terminated in July. He did not then work for his own business, but kept on the appellant, his spouse, at a salary of $240 per week, although the business's gross sales for the last four weeks were $291.82, $110.52, $256.11 and $164.45 respectively. Keeping on an employee in such circumstances, when one is not working one's self in one's own business, on the pretext that one is not very familiar with the equipment, while at the same time claiming to have operated the business for 15 years, seems completely artificial. I find that this evidence is sufficient to justify a decision that it was not reasonable to conclude that the payer and the appellant would have entered into a substantially similar contract of employment, at least in terms of the duration of that contract, if they had been dealing with each other at arm's length.

[26]          In view of the foregoing, I find that the Minister's determination was not made in a manner contrary to law.

[27]          The appeal is dismissed and the respondent's determination is affirmed.

Signed at Ottawa, Canada, this 4th day of December 1998.

"P.R. Dussault"

J.T.C.C.

[OFFICIAL ENGLISH TRANSLATION]

Translation certified true on this 29th day of July 1999.

Erich Klein, Revisor